Musharraf's economic turnaround

By staff and wire reports

ISLAMABAD, Pakistan -- After years of mismanagement, corruption and instability the military government is now winning favor for its economic turnaround.

Twenty months have passed since the elected government was overthrown, yet many still fear that a return to civilian rule will revert Pakistan to the economic chaos of the previous decade.

With a third of Pakistanis mired in poverty it is understandable why, in the minds of the populace, the opportunity for economic development is more important than the right to vote.

As for personal credibility, it is believed there is not even a whiff of corruption at the heart of the government headed by military ruler General Pervez Musharraf.

A corrupt legacy

The memory of prime ministers Benazir Bhutto and Nawaz Sharif -- who both failed to finish either of their two terms in office in the 1990s and are now in exile -- still lingers, as does massive state debts and corruption charges.

Recently a report by the World Bank announced that poor governance was the major source of the country's political and economic problems over the past decade.

All of which has left Musharraf with an easy act to follow.

Mounted foreign debts now exceed $37 billion and servicing them has left the government dependent on rescheduling of debts by other countries and a stream of loans from multilateral agencies.

While Musharraf's government is expected to miss the target of a deficit of 5.2 percent of gross domestic product for the fiscal year ending in June, it is on course to be the first in 18 years to have a fiscal deficit below 6.0 percent of GDP.

With economic growth rates of less than three percent, barely exceeding annual population growth of about 2.5 percent, mounting financial woes are of greatest concern.

Economic team with clout

The views widely held among foreigners, about the civilians Musharraf put in charge of the economy, is that this is the best economic team in decades.

The military government has pressed ahead to document a largely uncontrolled economy and build a sustainable tax base.

It has tried to curb smuggling that is so blatant that shops openly offer a choice of legal or smuggled goods.

Several state controls have been removed under prodding from the International Monetary Fund, such as a June announcement that the market will set petrol prices starting in July.

However, the general still faces huge difficulties and has barely begun to tackle structural problems that have consigned millions of Pakistanis to poverty.

However, efforts to overhaul the bloated bureaucracy has been unconvincing, with a clear reluctance to cut staff when many employees have no skills and would never find other jobs.

Privatisations are to raise $3 billion in the next 18 months but the process has been slow.

The test will come with the promised sale by the end of the year of at least 26 percent of the state telecom company PTCL (PTCA.K), along with management control.

While exports have risen under the military government, forecast growth is not enough for the country to escape its suffocating debts.

Future civilian rule?

Economists want Pakistan to diversify exports and end dependence on low-value textile exports such as yarn.

This is especially ominous as World Trade Organisation rules remove textile quotas in 2004, presenting Pakistan with tougher competition for European and U.S. markets.

Musharraf has promised to obey a Supreme Court order that civilian government be restored by October 2002, while vowing that there will be no return to the politics of the last decade.

There is no doubt that he is as dismissive of former prime minister Bhutto as he is of Sharif, whom he threw out of office in October 1999.

But looming over all the details of the economic debate is the uncertainty about the course of reforms after Musharraf's military government.

Reuters contributed to this report.