American Firms Take Heart in Pledges By Pakistan Military to Rebuild Economy
By JONATHAN KARP Staff Reporter of THE WALL STREET JOURNAL
ISLAMABAD, Pakistan -- The morning after last week's military coup in Pakistan, Amer Kayani, the U.S. Embassy's commercial counselor, was deluged with telephone calls from U.S. companies. In this volatile developing market, he was used to being barraged for advice, but he couldn't believe what he heard: They wanted to invest.
The first call came from a major oil firm, followed by telephone and chemicals companies and security-equipment suppliers interested in selling armored cars. "I was shocked," says Mr. Kayani, who has spent most of his year here trying to retain U.S. investment amid bureaucratic snarls and sudden policy changes.
Like Pakistanis who heaved a collective sigh of relief after the ouster of Prime Minister Nawaz Sharif, some foreign investors see a new opportunity to enter or expand their operations in this country of 140 million people. The military ruler, Gen. Pervez Musharraf, vowed Sunday that his new government will tackle the enormous task of rebuilding Pakistan's economy and restoring investor faith.
The U.S., Pakistan's biggest foreign investor, was disappointed that he didn't announce a timetable for returning to democratic rule. But U.S. officials said they are encouraged by his pledges on political and economic reform.
"My advice [to U.S. investors] would be: Wait for a few weeks and see how things go," said William Milam, U.S. ambassador to Pakistan. "But it might be a better place to do business. Might be."
Pakistan hasn't been an easy place to invest. During the past decade, short-lived governments have produced ever-changing policies. Political risk is high: U.S. companies scrapped planned investments after Pakistan tested nuclear weapons last year. Then, U.S. firms pulled expatriates out of Pakistan because of possible attacks by Islamic extremists.
But what has soured the investment climate most has been a tussle between the Pakistani government and private power producers over rates. The failure of Mr. Sharif's government to honor contracts signed by a previous government has held up International Monetary Fund loans that are crucial to Pakistan rescheduling billions of dollars in foreign debt.
The military coup could imperil the IMF program, but Mr. Milam indicated the U.S. is likely to support IMF aid if Gen. Musharraf continues to recognize certain elements of a democratic system, such as human rights and freedom of the press and judiciary.
Under IMF pressure, Mr. Sharif cut government spending and electricity subsidies, enabling the government to reduce its budget deficit and retire domestic debt. The very day of the coup, his cabinet was to approve an oil price increase, as demanded by the IMF.
But he balked at other tough steps, such as recovering $4 billion in bad bank loans, much of it disbursed to people with political connections, bankers say. Businesspeople feel Gen. Musharraf is in a stronger position to crack down on defaulters and tax evaders in a country where only one million people pay tax.
"He has the advantage of having the army on his side," said Zahid Zaheer, secretary-general of the Overseas Chamber of Commerce, which represents about 200 multinational companies in Pakistan.
Questions remain about the military-led government, which many pundits believe will rule for at least two years before elections are held. Gen. Musharraf will have to prove that his campaign for accountability is fair and nonpartisan.