Quotes of the Day

"When you think of Pakistan, I suppose you imagine some man with a big beard screaming anti-American slogans, and not a woman who wants a Botox filler," Mabroor Bhatty says with a smile. Dr. Bhatty, 47, a plastic surgeon in Karachi, Pakistan's business capital and largest city, says that every month he does between 15 and 30 such fillers—injections of Botox into the forehead and the sides of the face. The procedure isn't cheap—it costs $230—but Bhatty says demand is rapidly increasing. "Things are changing in Pakistan," notes Bhatty. "People have money to spend, and they are more conscious of how they look."

Not far from Bhatty's clinic, in Kashmir Colony, one of Karachi's poorer neighborhoods, Palim Khan, a 70-year-old watchman with a big white beard, sits in a grocery store under a poster of Osama bin Laden. If there is an economic boom going on in Pakistan, Khan doesn't know of it.

He earns $70 a month and supports seven family members. He complains about the rising cost of food and the lack of water. "The government of this country might say we are now rich, but the poor here have nothing, not even water," Khan says.

Pakistan—where many suspect bin Laden is hiding—is growing at an impressive clip. The economy, which grew at just 1.8% in 2000-01, expanded by 8.4% last year, one of the best rates in Asia. Evidence of the boom is visible in much of Karachi, where giant billboards advertise Japanese cars, Finnish mobile phones and American fast-food chains. Low interest rates have spurred a consumer finance revolution, and the middle class is rushing to buy cars on attractive payment schemes. Three years ago, shops in Karachi's Electronics Market were selling fridges and radios; today, they overflow with Nokia and Samsung phones. Foreign investors are getting interested in the country, whose government has embarked on an ambitious privatization program. In June, Etisalat, a Middle Eastern telecom firm, offered $2.6 billion for a 26% stake in Pakistan's state-owned telecommunications company. "Pakistan has gone through a tough metamorphosis," Prime Minister Shaukat Aziz told Time. "We see a feel-good factor." For many Pakistanis, the current boom is just the break their nation required. "This economic activity was the need of the hour for Pakistan," says Amer Siddiqui, an executive at the National Bank of Pakistan. "It's cooled things off inside the country. Young men in this country now want to get rich, not go to madrasahs."

Not so fast. Pakistan is not yet an Asian economic tiger. On May 27, a suicide bomber detonated his explosives in a popular shrine in Islamabad, killing 20 people. Three days later, a bomber blew himself up in a Shi'ite mosque in Karachi, killing himself and four other people. The crowd near the mosque went wild, attacking shops and cars, before taking out their rage on a nearby KFC, which they set on fire. Four KFC employees died in the blaze; two others hid in the restaurant's freezer, and froze to death. Even business leaders aren't convinced by the economic figures. "The problem with this boom is that it's all in the air, it's not on the ground," says Javaid Puri, a Karachi-based textile businessman. Puri notes that Pakistan's economy was a major beneficiary of evolving global politics after the Sept. 11 attacks in the U.S. Fearing that they would be targeted for being Muslims, Pakistanis living in Europe and America began sending money home: remittances went up from about $1 billion in the 2001 fiscal year to $4 billion by the 2005 fiscal year. At the same time, recognizing the country's importance in the war on terror, Pakistan's donors agreed to restructure part of its external debt. Overseas remittances flowed into stocks and property—the price of prime real estate in cities like Lahore and Karachi has shot up by 300% or more in the past two years—and triggered the current effervescence. But they have done little to stem the most ominous long-term crisis facing Pakistan: a steady increase in poverty.

In the late 1980s, the poverty level in Pakistan stood at about 17%—quite low by South Asian standards. A decade of misrule later, however, one-third of the country's populace was poor. Since the population of Pakistan is expanding fast—it has doubled since 1975—the sheer number of the poor has grown tremendously. Prime Minister Aziz, a former banker picked by President Pervez Musharraf to turn the economy around, insists that the nation's impressive economic growth is gradually reducing poverty, but many experts disagree. Akmal Hussain, a development economist based in Lahore, points out that although Pakistan's industrial sector grew by more than 15% last year, large-scale job creation—the surest means of fighting poverty—is not occurring. Instead, the flood of foreign cash, low interest rates and higher fuel prices have combined to boost inflation. Most disturbing, the rate of increase in food prices—which directly hurt the poor—rose from 7.9% at the end of last year to 15.7% by April.

The boom is opening up a huge divide between the better-off and the poorer in Pakistan. In cities like Karachi, the rich are enjoying not only an economic revival but also an easing of the rigid Islamic regulations that governed life in the 1980s. New restaurants with names like Espresso and Limoncello seem to open every other week in Karachi. A vibrant contemporary-art scene has taken off. "Musharraf is the best thing that has happened to this country for years," says Mohsin Sayeed, a Karachi fashion journalist, echoing the views of many in the middle class. Inside the slums, however, few sing the praises of the President. In a shantytown in Kemari, a Karachi neighborhood, social worker Farhad Ali speaks of the ways in which life has become worse for slum dwellers in the past two years—the price of wheat flour and of bus tickets has gone up, while wages have stayed stuck. "We have cell phones, but we don't have as much drinking water as we did five years ago," says Ali. "The population of this area is growing, but we have only one medical dispensary for 250,000 people. We need schools, which we don't have; we need lady doctors who can see our women, which we don't have."

The gulf between the rich and the poor adds a wild card to the next parliamentary election, scheduled for 2007. Pakistan's fundamentalist Islamic parties could yet be the beneficiaries of the unbalanced economy. "Of course, there is anger on the streets," says Syed Munawar Hasan, secretary-general of the Jamaat-i-Islami, a key fundamentalist party. "The government's economic policies have failed the common man." Yet although Pakistan's fundamentalists sound confident of electoral success, analysts like Husain Naqvi of the Human Rights Commission of Pakistan argue that the country's poor, who have rarely supported the fundamentalists electorally, will not vote them into power in 2007 either.

But growing poverty provides a continuing base of discontented young men who may be lured by preachers from radical madrasahs. Sharfuddin Memon, a businessman who heads the Citizens-Police Liaison Committee, a crime-fighting NGO in Karachi, says: "A poor man in this city spends his morning looking for a job, which he may or may not find. He has to stand in a bus for two hours in the heat and pollution to get home. He is told that the price of vegetables has gone up. He has five or six children screaming for his attention. Do this to him day after day, and he becomes a ticking bomb." Nobody thinks that reducing poverty will automatically end terrorism, but it may eventually drain the pool from which terrorists recruit. Which is why the outside world needs to understand the obstacles that stop Pakistan's boom from producing more jobs. Security is the first problem. Prime Minister Aziz insists his government is curbing lawlessness, yet businesspeople throughout the country say that everything from suicide bombings to extortion to kidnappings inhibit investment. Then there's corruption. Musharraf's government has been free of the mammoth scandals that tainted the democratic governments of the 1990s, yet Pakistanis complain that corruption continues to be rampant at the lower levels of the administration.

Musharraf and Aziz have improved the standard of governance in Pakistan, but they have not yet reversed two major poverty-generating trends: deteriorating infrastructure and low levels of education. Prosperity in Pakistan's countryside—where the majority of its poor live—depends on massive new investments in irrigation, roads and agricultural technology. The country also needs to improve the education it can offer its poor. From 1992 to 2004, the central government spent 18 times more on its military than on education, according to UNICEF. Aziz says his government is aware of the pressing need to tackle issues such as education and population control. Yet there is little sign that he and Musharraf can curb the most significant drain on Pakistan's economic vitality—its armed forces, which consume a fifth of the government's spending. Restricting defense expenditure would open up funds for social spending and infrastructure, but the recent budget saw an increase of more than 15% in military spending.

To be sure, Pakistan is making real progress. Moazzam Malik, director of BMA Capital Management, a Karachi-based financial firm, points out that the boom has brought three "economic revolutions" to the nation: consumer finance, cell phones, and large numbers of TV channels. "Together, these three have the potential to transform this country," Malik says. But Pakistan always had potential. It is realizing it that has proved tough. Analysts such as Iqbal Mustafa, a Lahore-based newspaper columnist and investment consultant, say the real change in Pakistan must come from within—in the form of a concerted crackdown on corruption, misgovernance and runaway military spending. And if President Musharraf cannot bring about these changes? "Then," says Mustafa, "the divide between the rich and the poor in this country keeps growing. And that's good news for no one."

• Aravind Adiga | Islamabad
• By the numbers, Pakistan is booming—but it's still not creating the type of jobs that will win the fight against poverty