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Thursday, October 14, 1999 Published at 15:19 GMT 16:19 UK

Business: The Economy

Pakistan's economic nightmare

People have become disillusioned with Pakistan's economic progress

Disaffection with the government of Nawaz Sharif over his failure to turn around the badly performing economy was a major factor in events leading up to the coup in Pakistan.

Pakistan in crisis
Although the military had its own axe to grind with the prime minister, many people in Pakistan had become increasingly disillusioned with his handling of the economy.

Voters had elected Mr Sharif largely for his pledge to revive the economy. But, after two and a half years, foreign investment has dried up, prices are spiralling, foreign debt stands at $32bn against reserves of little more than $1bn, and unemployment is at an all-time high.

The International Monetary Fund had already suspended aid payments to Pakistan before the coup, demanding that the country first got its finances in good order.

Now, there is a danger that the coup could stop the flow of aid altogether. The IMF's managing director, Michel Camdessus, said the organisation would not send any more aid to Pakistan until democracy was restored.

He said that when the international community suspended aid to a country, IMF aid was also "interrupted". He also said he was "worried" by the coup in Pakistan, calling it a "real threat".

The country to watch is the United States. Its opinion counts a lot in international financial circles, and the US State Department's spokesman, James Rubin, has already said the coup would make it impossible for Washington "to carry on business as usual in Pakistan".

He said the United States wanted to see "the earliest possible restoration of democracy in Pakistan".

That could indicate that President Clinton will review his plan to visit Pakistan, India and Bangladesh early next year.

The trip was postponed last year when both India and Pakistan conducted underground nuclear tests.

They resulted in US-led economic sanctions, exacerbating the downward spiral of the Pakistan economy.

When the sanctions were later relaxed as Pakistan teetered on the brink of defaulting on its debt repayments, Mr Sharif's government tried to strike a deal with the IMF over further aid.

Some of the reforms demanded by the IMF were introduced, but they did not go far enough to stop the economic decline because of powerful opposition at home.

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