Bhutto May Be Living In A Bubble...But Karachi's Woes Could Pop It

As evening falls, hardly a horn is heard from the cars that cruise the unclogged, well-paved roads. Alongside manicured green lawns, couples walk briskly, exercising in the clean air.

This is not an idyllic American suburb but the Pakistani capital of Islamabad. Laid out in a series of grids, it's a far cry from the typically chaotic and polluted South Asian city.

Islamabad was built in 1961 to replace Karachi as Pakistan's capital; then-President Ayub Khan was worried that Karachi, also the economic capital, was becoming too dominant. But Pakistan's efforts to create a new, separate city of government may have worked all too well. In many ways, Islamabad has become a bubble, sealed off from the rest of Pakistan. In this surreal, sanitized capital, it's easy to understand how politicians might grow out of touch.

Critics say that is exactly what has happened, particularly in the case of Karachi. While the port city has remained Pakistan's business center, it has achieved another distinction as well: It's now one of the most dangerous cities in Asia. More than 1,500 people in the past 15 months have been killed in Karachi in escalating religious, political, and drug-trafficking violence. That includes two U.S. consulate workers who were shot dead in March. The government, particularly Prime Minister Benazir Bhutto, has been accused of inaction and neglect in Karachi. It's an oversight that is starting to hit Pakistan in the pocketbook.

Aman Ullah Khan's $20 million commodity and textile export business is located in the outskirts of Islamabad, but his goods have to travel through Karachi's port. Violence keeps disrupting the port's activities and delaying orders. "We have lost $10 million worth of orders in the last two to three months," said Khan. That's half his normal annual revenues. The port's problems have also led to a decline in imports, say analysts, which in turn is helping to pump up inflation to about 20%. Economic growth is slowing from a target of 7% to 4%. And fears about the spiral of violence are stopping new industry from being created. "Private investment is not forthcoming, and that's the real trouble," said A.R. Kemal, joint director of the Pakistan Institute of Development Economics.

BLEAK PROSPECTS. As a result, no new jobs are being created, affecting people like Ammar Masood, publication officer of the Islamabad Stock Exchange. Putting out brochures for the exchange is not the sort of job that Masood, who has a master's degree in economics, had in mind. But he concedes he is better off than many of his classmates. "One of my friends is working as a taxi driver," he says. "Most are unemployed." Unless Bhutto manages to break out of the Islamabad bubble and tackle the problems of Karachi, prospects for Pakistan's economy--and for people like Masood--seem bleak.

Prime Minister Bhutto's trip to the U.S. in April didn't do much to improve Pakistanis' confidence in her government. She left Washington with sanctions against her country intact; a U.S. law called the Pressler Amendment forbids aid to Pakistan because of its nuclear weapons program. Bhutto urged the U.S. to either deliver the 28 F-16s Pakistan had purchased before the sanctions or return the $650 million it paid for the planes. She got neither.

The other goal of Bhutto's trip, aimed at attracting American investment, fared little better. She signed $6 billion in new memorandums of understanding during the trip, but even Pakistani exporter Aman Ullah Khan, who signed a $100 million joint venture agreement during the trip, admits they may not be worth much. "Even if they've made promises, we cannot expect many people to come and execute the projects until the law and order situation is resolved," said Khan. In the past 15 months, Pakistan has signed $12 billion in agreements with foreign companies, but only $1.3 billion has materialized.

Bhutto concedes the troubles in Karachi are hurting Pakistan's ability to attract foreign investment. And her failure to stem the violence has undermined faith in her regime. "The government will have to come with a very heavy hand, or it will have to fall," says Mohammad Khalid Javed of Pakistan's Investment Board.

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