Booting Out Bhutto

Now, can Islamabad mend the wrecked economy?

When she became Pakistan's Prime Minister three years ago, Benazir Bhutto made all the major economic decisions, even naming herself Finance Minister. Since then, the country's economy has gone from bad to worse. That may be one reason why so many in Pakistan's business community were relieved when President Farooq Leghari kicked her out of office on Nov. 5.

The new government of Malik Miraj Khalid, a veteran of Bhutto's own Pakistan People's Party, faces tough challenges. The budget deficit stands at 6% of gross domestic product, inflation is near 20%, and foreign exchange reserves have dwindled to just $700 million, enough to cover less than three weeks' worth of imports.

DWINDLING. Leghari vows to reduce the deficit and to crack down on corruption, which means investigating Bhutto's unpopular husband, Asif Ali Zardari. A key to restoring confidence will be mending fences with the International Monetary Fund. The IMF is withholding the remaining $240 million of a $600 million loan, accusing Bhutto's government of providing it with inaccurate information. "The agreement with the IMF will have to be fully implemented," Leghari said in a televised speech. Investors are encouraged: The Karachi Stock Exchange jumped 5% when trading resumed the day after Bhutto's ouster.

Bhutto's successors seem sure to do at least one thing differently. Rumors are circulating in Islamabad that World Bank senior executive Shahid Javed Burki is the favorite to become Finance Minister. Having seen Bhutto try to do both jobs, the new Premier is certain to leave finance to a professional.

Before it's here, it's on the Bloomberg Terminal.