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May 18, 1998


Pak N-blast may blow up economy

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International sanctions that seem sure to follow should Pakistan test a nuclear device could deal a deadly blow to the country's economy, say businessmen and financial experts.

Japan's special envoy Siichiro Noboru was scheduled to meet Prime Minister Nawaz Sharief and Foreign Minister Gohar Ayub Khan today to urge Islamabad not to follow India's lead and test a nuclear device.

"Pakistan and Japan have a very close relationship... And our concerns are obvious," said an official from the Japanese embassy.

Japan is Pakistan's biggest donor, already having given $ 6.5 billion to this poor nation of 140 million people.

Some businessmen are saying that sanctions could force Pakistan to default on its debts.

"It would be a huge blow," said Shaukat Masood, a textile exporter. "It will bring an economic crisis."

Amanullah Khan, president of the Islamabad Stock Exchange, said sanctions could reduce the value of shares in Pakistan by as much as one-third.

"Foreign interests will start pulling out," Khan said. "The index will plummet."

Analysts say Pakistan is more vulnerable to sanctions than India. While India is the largest recipient of World Bank loans and aid in the world, it has $ 25 billion in foreign exchange reserves to buffer the effects of sanctions.

Pakistan's foreign exchange reserves are barely $ 1.2 billion -- enough to cover six weeks of imports.

India also has in place foreign exchange controls which prevent large investors from pulling out quickly. Pakistan does not.

Analysts said Pakistan has to be worried about the response of the donor community and international financial bodies.

Pakistan's economy relies heavily on overseas assistance.

Last week, Finance Minister Sartaj Aziz said that more than $5 billion in aid had been pledged to Pakistan over the next one year by foreign donors.

The World Bank has recently increased its annual assistance from $650 million to $850 million annually.

Without this aid, and a $1.6 billion loan programme funded by the International Monetary Fund, Pakistan may default on its massive international debts. According to Khan, it is possible that Pakistan may simply refuse to pay back any more money.

"We would have great difficulty getting the foreign exchange for the debt repayments," he said. "We would have to rely on Pakistani's overseas companies to send the money back or friendly nations to lend it to us."

With an average monthly trade deficit of $150 million and a $700 million debt payment to make in June, the country's foreign exchange reserves would soon be exhausted.

Some industrialists say Pakistan will squander an opportunity for growth if it tests a nuclear device.

"With the Indian sanctions and the problems in Indonesia, a lot of business is coming our way," said Masood. ''(If we test) we will miss out on that and a lot more."

Some, however, are more optimistic.

Amin Issa Tai, a stock broker, said that if Pakistan is hit with sanctions similar to those imposed on India, the impact would be manageable.

"The sanctions imposed on India are half-hearted," he said. "Only Japan and America seem serious."

Dr Ashfaq H Khan, a financial advisor to the government, agreed saying, "If they impose the same sanctions on us as have been imposed on India, then it will cause few difficulties."

In India, "The World Bank hasn't stopped lending," he said.

Analysts also point out that Pakistan shrugged off sanctions imposed by the US in 1990. President George Bush cut off US aid in protest at Pakistan's suspected nuclear weapons development programme. Recently, the sanctions were partially lifted.

Khan said that whatever the economic damage, Pakistan was given no choice. "There is no alternative," he declared. "In the history of every nation there comes a time when they are tested and people have to suffer."

Impact of sanctions


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