This Leader Means Business, But Too Late for Pakistan?

Sagheer Jan has a personal stake in the future of his new prime minister.

He feels caught in a Catch 22 and sees Nawaz Sharif, the new prime minister of Pakistan, as the man who can break the chain.

Mr. Jan, like thousands of his countrymen, drives and owns a bright yellow taxi.

He bought it with a government loan, which he can't repay because Pakistan's economy, and his income, is frozen.

The taxi offered Jan, and his family of seven children, the only way out of unemployment.

"This cab has helped to provide food and shelter to my family," he says.

Pakistanis like Jan now see Mr. Sharif, dubbed the "businessman's prime minister," as the last hope for an economy in shambles. When Sharif took office in February, inflation ran an estimated 20 percent annually, the stock market was moribund, exports were down, and business confidence was at rock bottom.

And not much has changed since.

But expectations are high. Sharif was prime minister from 1990 to 1993 and gets high marks for an ambitious reform program. Businesses received licenses to operate private banks for the first time in almost 20 years, and foreign investors got their first-ever ticket to buy into the stock market.

He also cut red tape, reducing the approval time for new businesses.

Big promises

He has begun his second tenure with promises of revamping the tax system and more cuts in red tape.

"We have to rationalize the tax system by lowering the tax rates so that more people pay taxes," Sharif says. "There will have to be incentives" for investors.

Many businessmen are encouraged by his decision to sack about a dozen tax collectors on charges that they had harassed businesses without any reason.

In a widely publicized move, he asked Pakistan nationals worldwide to donate or deposit $1,000 in a foreign exchange bank account in Pakistan to raise the country's foreign exchange reserves.

If bank reserves grow, the government will have easier access to foreign exchange to finance Pakistan's trade deficit. Currently, the government must seek money from outside banks that often attach rigid conditions.

Sharif "is seen as business friendly, which will help investments to grow and in turn improve Pakistan's economy," says Nasir Bukhari, chief executive of Khadim Ali Shah Bukhari, a prominent Pakistani investment house.

Foreign debt weighs heavily

But skeptics say Pakistan's economic problems are almost unsolvable.

The country's $30 billion in foreign debt weighs heavily on the economy, while foreign exchange reserves trail at a meager $1 billion.

Some $2.3 billion is due in debt repayments by June.

Pakistan's options are also limited by the International Monetary Fund (IMF), which insists on a budget deficit no greater than 4 percent of gross domestic product (GDP), in return for $830 million in loans.

Last year's deficit rang in at 6.3 percent of GDP.

Slashing the deficit generally adds up to higher taxes and less spending - none of which sits well with voters.

Unrest, fed in part by dissatisfaction over IMF restrictions, brought down Benazir Bhutto, Sharif's predecessor.

Mending fences with neighboring India - a top Sharif priority - could make room for cutting defense spending.

Sharif's best hope lies in privatization, selling state-owned companies.

He has no shortage of potential offerings - small factories, an airline, banks, telecommunications companies.

What is in shorter supply are buyers, foreign investors, who want to see some measure of economic stability before arriving with checks in hand.