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Emergency also meant to protect economy, says Pak finance minister

Pakistan declared a state of emergency to protect its economy against collapse and to protect its borders against India, Finance Minister Sartaj Aziz said yesterday.

Pakistan's decision to match India's five nuclear tests with five of its own on May 28 brought an immediate threat of economic sanctions -- something this poor country of 140 million people can hardly afford.

The decision to test, Aziz said, ''was not an easy one... It has very far reaching implications.''

Within hours, Prime Minister Nawaz Sharief went on national television to rally the support of his countrymen -- most of whom can neither read nor write and together earn a per capita annual income of barely $ 400.

In the end, Pakistan acted ''to re-establish the strategic balance with India,'' said Aziz, whose ministry moved quickly to prevent a quick and crippling exodus of foreign capital.

It had the government freeze all foreign currency accounts. And the government-declared state of emergency -- which suspends the constitution and curbs the legal system -- has made it impossible to skirt the law or go to court and have the foreign currency released.

If just 20 per cent of foreign currency bank account holders withdrew their money, the economy would risk collapse and Pakistan could find itself unable to make its international debt repayments.

With a $ 1.2 billion in its foreign exchange reserves, Pakistan has barely enough money to pay for the next six weeks of imports. It also has a $ 800 million debt payment to consider by the end of June.

Aziz said Pakistan will meet its payments and has no plans to seek a moratorium on its debt repayments.

For the next two months at least, foreign currency account holders will be allowed to withdraw their dollars only if they convert them to Pakistani rupees at the rate of Rs 46 to a dollar -- which was the exchange rate yesterday.

Aziz said Pakistan wants to save the rupee from a downward spiral. ''We are committed to making the rupee a strong and stable currency,'' he said.

Pakistan does not expect sanctions to have a big impact -- at least not immediately. In the pipeline, and unaffected by sanctions, is roughly $ 10 billion, said Aziz, who admitted that new aid worth $ 1.5 billion might be lost because of sanctions.

Washington already has promised sanctions against Pakistan and Australia and Sweden have threatened to cut aid. Japan, which imposed sanctions of its own on India, is likely to take similar action against Pakistan. Japan is Pakistan's largest source of foreign aid and has provided Islamabad $ 6.5 billion in assistance.

A bank holiday was declared yesterday; the Karachi Stock Exchange too was kept closed -- all this designed to prevent a panic exodus of foreign capital from Pakistan in the wake of sanctions.

The KSE has been tumbling daily since India tested its nuclear devices on May 11. On May 8 -- the last trading day before India's test -- the market closed at 1551 points. Yesterday, it closed at 1040.20 points.

Most stockbrokers say it is too early to tell and that no one can judge the impact on the economy until the full extent of sanctions was clear.

Two major donors -- the International Monetary Fund and the World Bank -- both said multi-million dollar loans to Pakistan were not under any immediate threat.

"So far it is business as usual,'' said World Bank spokesman Paul Mitchell. "Disbursement of loans is continuing. No further loans will be up for consideration for months, so no change is likely soon.''

The WB lent $ 800 million to Pakistan last year and has another $ 700 million in the pipeline for the next financial year which starts on July 1. IMF sources add that the next slice of a $ 1.5 billion loan is also likely to be approved later this summer.

While some Pakistanis are worried, others are happy.

"It is a great day. Pakistan is great and God is great,'' said Amanullah Khan, president of the Islamabad Stock Exchange. ''We have survived tests like this as a nation before and we will survive this one.''

UNI

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