Pakistan “about to become a failed state”
The financial crisis and attendant oil crash are wreaking havoc with the economies of oil states. Despite falling revenues, Iran’s President Ahmadinejad persists in subsidising energy costs for peasants and urban poor who form his support base.
Pakistan is even worse shape, largely because it had no oil exports to start with. Its current account deficit has ballooned to 14% of GDP, and it must pay 3000 basis points (30%) above the benchmark rate to finance its debt. Turkey is in similarly dire financial straits.
Asia Times columnist Spengler comments.
Pakistan has one of the world’s youngest populations and an enormous capital requirement. Young people borrow from old people, and countries with young populations should import capital from countries with aging populations. That is out of the question, for the world markets have turned Pakistan into a pariah.
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Pakistan is about to become a failed state, and Iran and Turkey will be close behind.
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The West at present is unable to cope with a failed state like Somalia, with less than a tenth as many military age men as Pakistan, but which nonetheless constitutes a threat to world shipping and a likely source of funding for terrorism. How can the West cope with the humiliation of Pakistan’s pro-American president and the inability of its duly-constituted government to suppress Islamist elements in its army and intelligence services?
Spengler points out that many Islamic nations are facing higher borrowing charges.
The Muslim risk premium has become so pervasive that investors are looking cross-eyed at Saudi Arabia. The cost of credit protection on the Kingdom of Saudi Arabia has jumped since August, and now is considerably higher than Israel’s.
Near the end of the column, he offers some thoughts on the Mumbai terrorist attack. He believes that Indian authorities have lied about important aspects of the attack, which was, in his view, not a suicide mission but “a new kind of urban terror assault”.
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