Argument

Uh-Oh. Pakistan Can't Pay Its Electric Bills.

How an energy crisis became an economic and political crisis too.

Over the course of its four years in office, the embattled government of Pakistani Prime Minister Yousuf Raza Gilani has weathered challenges from opposition parties both new and old, threats of military intervention or coup, and most recently, a conviction sentence from Pakistan's iconoclastic judiciary for its unwillingness to seek the reopening of corruption charges against President Asif Ali Zardari -- which may eventually lead to Gilani's disqualification from office. Although the government has shown remarkable tenacity in the face of these challenges, its fights for political survival -- taking place as relations with Pakistan's principal sponsor, the United States, have plummeted -- have obscured the worsening state of the country's economic health at home.

Pakistani leaders have, of course, long grappled with mounting debt obligations, chronic revenue shortages, and a persistent power crisis that threatens Pakistan's ability to meet its growing population's need for energy and sustained economic growth. But a new warning sign came this week when nine of the country's independent power producers invoked charges of sovereign default against the government, saying they would pursue legal suits unless they received approximately $375 million in outstanding dues, dating back to last fall, before week's end. These producers have used such brinkmanship tactics in the past to force government action, and officials are now scrambling to take out new loans to make the payments. Even if this latest challenge is resolved at the eleventh hour, however, the cumulative trend is clear: Pakistan can't keep the lights on.

Demand for energy in Pakistan now outstrips its capacity to supply electricity to industry and households by several thousand megawatts. With preliminary census projections of a population of more than 192 million and the share of the urban population rising, the challenge to power Pakistan will only grow more difficult. Already, hours-long interruptions in power have dragged down productivity in key sectors like the textile industry and sparked confrontations between rural and urban political leaders and the transportation, agricultural, and manufacturing sectors for priority access to what energy is produced.

These gaps in capacity are compounded by the "circular debt" crisis facing the power sector, which lies at the heart of this week's charges. The short version -- without attempting to untangle at length the complicated networks of government-managed and private energy suppliers, generators, and distributors involved -- of the circular-debt story is that Pakistani government regulators have habitually set end-consumer energy prices below the cost of production. But the government's inability to keep up with its pledges to make subsidy payments has left the power sector struggling and trapped in this cycle of interconnected debts.

Those difficulties have been further exacerbated by theft, leakage, and weak collections, including from the government, which routinely can't even pay its own electricity bills, let alone the subsidies. As these dues go unpaid, distribution companies are unable to repay their debts to generators for the purchase of energy, which are in turn unable to repay debts to suppliers for the purchase of the oil or natural gas by which energy is produced.

The energy crisis has been bubbling underneath the surface of Pakistan politics for several years now. Efforts to gradually bring subsidized prices more in line with actual costs inevitably draw widespread protests from those most affected and have on occasion cost the government the support of groups like the Muttahida Quami Movement -- a key swing bloc in national ruling coalitions with a strong political hold over the country's largest city, Karachi -- forcing a rollback. Last November, the government attempted to resolve the issue by assuming responsibility for approximately $3.4 billion in power-sector circular debt, transforming it into sovereign debt and borrowing heavily to do so. Private debts among producers, suppliers, and distributors have continued to mount, however, and the fundamental disconnect that drives circular debts in the power sector remains unresolved.

These nine independent power producers -- which collectively produce 8 to 9 percent of Pakistan's energy supply -- now warn that they can no longer continue operations if government payment is not immediately forthcoming. With fresh borrowing plans, the government is likely to negotiate another settlement with these companies. But the overall state of the power industry offers few incentives for large-scale investment, with grim implications for efforts to increase production capacity.

Here again, Pakistan's tangled politics are forestalling solutions. The Pakistan People's Party government's efforts to preserve the broadest coalition of supporters possible to guard against its many rivals have hampered its ability to advance serious structural reforms -- such as the removal of exemptions on politically powerful sectors such as those on agricultural income -- that could close the budget gap and allow it to make good on its subsidy pledges. At approximately 9 percent of GDP, Pakistan has one of the lowest rates of tax revenue collection in the region (though the exact calculation has been called into doubt thanks to a back-and-forth dispute between statistics officials and the Finance Ministry over the exact size of the economy itself). Pakistan's debt crisis is significant and growing; approximately half of this year's federal budget expenditures were devoted to debt repayment, far eclipsing military spending, government salaries, or development investments.

Prior to the power-sector default, the IMF had projected that Pakistan would need to refinance the equivalent of 30 percent of its GDP this year to cover maturing debt and budget deficits; with this additional blow to its creditworthiness, borrowing costs are likely to increase in the future. Buoyed by approximately $16.4 billion in foreign currency reserves, cushioned by several years of high remittance flows from Pakistanis living abroad, Pakistani finance officials have expressed confidence in their ability to remain in good standing on external debt repayment obligations; the most recent World Bank figures from 2010, however, estimate that its reserves amount to only 4.7 months' worth of imports.

As foreign lenders turn leery, the government over the past year has turned to domestic sources, becoming the country's largest borrower and amassing domestic debts equivalent to approximately 38 percent of GDP as of December 2011 (total debts exceed 62 percent of GDP). To date, Pakistani banks have shown willingness to continue purchasing government treasury bonds -- judging them a safer bet than nonperforming private-sector loans -- but the country's central bank has repeatedly warned that government borrowing is crowding out other potential borrowers from domestic sources of credit, choking off the country's growth. Again, the story here only gets grimmer: More than half of Pakistan's domestic debt is in the form of short-term loans that must be rolled over with new financing at least once per year -- the costs of which may now increase.

For all the focus on Islamic militancy and drone strikes, it is the mounting energy and debt crises that may present the most serious threat to Pakistan's future, bringing not only severe pain to Pakistani citizens in the near term but also preventing them from investing effectively in their future. With a history of coups and extraconstitutional transfers of power, Pakistani political leaders have limited experience with being held publicly accountable for their management of the country's economic development. But the prospects for Pakistan's democracy and long-term stability will ultimately depend on it.

ASIF HASSAN/AFP/Getty Images

Argument

A Man for All Seasons

Egypt's presidential front-runner is a fascinating political chameleon. But does he have enough real support to win the upcoming election?

In January, Abdel Moneim Aboul Fotouh was a long shot to become Egypt's next president. When I walked into the Islamist candidate's basement in a far-flung Cairo suburb -- which was doubling as a "backup" headquarters -- it made me think back to the early, insurgent days of Barack Obama's campaign, when Hillary Clinton was still the presumptive Democratic nominee. The basement, with its large spare rooms, was packed with young volunteers. It had a chaotic, bustling feel. Aboul Fotouh's supporters may have hailed from radically different backgrounds, but they believed, above all, in the candidate. They wanted to transcend the old battle lines of "Islamist" or "liberal" and reimagine Egyptian politics in the process.

What those grand ambitions mean in practice is, at times, unclear. As Aboul Fotouh has risen to front-runner status in the first ever competitive presidential election in Egypt's history, he has become the Rorschach test of Egyptian politics. Liberals think he's more liberal than he actually is. Conservatives hope he's more conservative.

It's an understatement to say that the Aboul Fotouh campaign is a big-tent movement. A former leader in the Muslim Brotherhood and, for decades, one of Egypt's most prominent Islamist figures, he has become the standard-bearer of many of the young liberals who led Egypt's revolution -- including Google executive Wael Ghonim. He is also, however, the preferred candidate of the country's hard-line Salafi groups, including the al-Nour Party and its parent organization al-Dawa al-Salafiya, one of Egypt's largest religious movements. This is all the more impressive considering that, unlike the United States or most European countries, the primary political cleavage in Egypt has little to do with economics and much more to do with religion.

Aboul Fotouh's success stems in part from his ability to neutralize this religious divide. One of his messages -- and one that has appeal for liberals and hard-line Islamists alike -- is this: We are all, in effect, Islamists, so why fight over it? As he explained to a Salafi television channel in February, "Today those who call themselves liberals or leftists, this is just a political name, but most of them understand and respect Islamic values. They support the sharia and are no longer against it." In a creative attempt at redefinition, Aboul Fotouh noted that all Muslims are, by definition, Salafi, in the sense that they are loyal to the Salaf, the earliest, most pious generations of Muslims.

Aboul Fotouh is able to make this argument, and make it sound convincing, in part because of who he is. He is the rare figure who has been, at various points in his career, a Salafi, a Muslim Brother, and, today, a Turkish-style "liberal Islamist." In the 1970s, he rose to prominence as a leader and founder of al-Gamaa al-Islamiya, the religious movement that wrested control over universities from the once dominant leftists. In his memoirs, Aboul Fotouh recalls the early Salafi influence on his ideas: He and his fellow students aggressively promoted sex segregation on campus. At one point, they tried to "prove" to the Muslim Brotherhood's leader at the time, Umar al-Tilmisani, that music was haram, or forbidden by Islam.

Over the course of the decade, Aboul Fotouh developed close relationships with those who would later become the leading lights of Salafi thought. After the 2011 revolution, Aboul Fotouh, then in the process of splitting with the Brotherhood, was one of the few politicians to take Salafists seriously. It helped that he knew them. While the Muslim Brotherhood tended to treat Salafists as immature, younger brothers in the Islamic family, Aboul Fotouh exaggerated their power -- he once claimed that Salafists outnumbered Muslim Brothers 20-to-1 -- and pledged to seek their vote. Respect, it turns out, can go much further than ideological proximity.

But the ideological tensions within the Islamist camp remain, even if Aboul Fotouh's message tends to paper them over. According to him, all Islamists agree on the usul (the "fundamentals") but differ on the furu (the "specifics") of religious practice. In his February interview on Salafi television, he estimated, implausibly, that Islamists agree on 99 percent of the issues.

Thus far, his liberal supporters have dismissed such comments or explained them away. Part of it is the lack of alternatives. The other front-runner, former Foreign Minister Amr Moussa, is seen as felool, a derogatory term used to describe "remnants" of the old regime. Part of it, however, is that they really seem to believe Aboul Fotouh is who they want him to be. Although Aboul Fotouh is adamantly an Islamist, he has also broken with his former organization, the Muslim Brotherhood, and other Islamists on key issues. Last year, for instance, Aboul Fotouh asserted that a Muslim has the right to convert to Christianity -- a particularly controversial position for a presidential candidate to take, given that most Sunni scholars hold that the punishment for apostasy is death.

Aboul Fotouh has often insisted on the dangers of mixing preaching and party politics, a position that appeals to liberals as well as some Islamists. When I met with him in 2010 at the height of the Mubarak regime's repression -- and just months before the most rigged parliamentary elections in Egyptian history -- he spoke at length about the need to separate the two. The Muslim Brotherhood, he said, can deal with political issues but should leave competition over power to political parties.

"Putting religion and political authority within one hand is very dangerous. That's what happened in Iran," he told me, peppering his measured Arabic with choice English words for added emphasis. "Historically, famous preachers were not part of the power structure. It's these [autocratic] regimes who put the two together -- putting al-Azhar [the preeminent center of Islamic learning] under the control of the state."

Aboul Fotouh consistently valued the Muslim Brotherhood's social and evangelical work over its accumulation of political power. In July 2008, I asked him what would happen if Hosni Mubarak's regime shut the Brotherhood out of parliament. Faced with the prospect of even more repression, he seemed surprisingly calm. "The Muslim Brotherhood is a social movement in the first place. Its presence in parliament is useful and good, but lack of parliamentary representation does not have an existential effect on the Brotherhood. From 1970 to 1984, we weren't in parliament, and they were 14 of the most active years for the Brotherhood's work of preaching and education."

In this respect, Aboul Fotouh is an old-school Islamist, seeing himself as a faithful heir to Brotherhood founder Hassan al-Banna's legacy. According to its bylaws, the group's original aim was "to raise a generation of Muslims who would understand Islam correctly and act according to its teachings." Until 1934, the bylaws forbade direct political action. Decades later, General Guide Tilmisani, fearing party politics would corrupt the Brotherhood's soul, prevented the organization from contesting parliamentary elections for many years.

There is a tension, however, between Aboul Fotouh's sometimes liberal pronouncements and his essentially majoritarian understanding of democracy. When I sat down with Aboul Fotouh for the first time in the summer of 2006, I wanted to understand his philosophy of government, to the extent that he had one. He repeatedly emphasized that the people, represented by a freely elected parliament, are the source of authority. On the thorny question, however, of what Islamists would do if parliament passed an "un-Islamic" law, he dismissed the concern: "The parliament won't grant rights to gays because that goes against the prevailing culture of society, and if [members of parliament] did that, they'd lose the next election," he explained. "Whether you are a communist, socialist, or whatever, you can't go against the prevailing culture. There is already a built-in respect for sharia."

This notion has a long pedigree in Islamic thought: Prophet Mohammed is believed to have said, "My ummah [community] will not agree on an error." Likewise, Aboul Fotouh was confident that once Egyptian society was free, the best ideas would rise to the top. There was little need, then, to regulate society from the top down. On their own, without government getting too much in the way, Egyptians would do the right thing. And this would inevitably help Islam. "What happens in a free society?" Aboul Fotouh went on. "I hold conferences and spread my ideas through newspapers and television to try to bring public opinion closer to me.… We have confidence in what we believe."

If people are looking for a consistent strain in Aboul Fotouh's thought, it is this: that Islam has already won out and will continue to win out. Islam is a source of unity and national strength rather than one of division. Depending on where exactly an Egyptian voter stands, this is either reassuring and somewhat banal, or mildly frightening, particularly for the country's Christian minority.

Nevertheless, it is an idea with analogues elsewhere in the region, most notably in Turkey and Tunisia, where "moderate" Islamists came to power by tapping into a religious mainstream that had lost faith in the secular project of previous decades. Turkish Prime Minister Recep Tayyip Erdogan, for example, used democratization to strengthen the place of Islam in public life. He embraced European Union accession talks while knowing full well that the required liberal reforms would weaken the military's influence and empower Islamic currents in a country where the right to openly express religious values had been severely curtailed. In Tunisia, Rached Ghannouchi and his al-Nahda party have backed off from demands that Islamic law be enshrined in the Tunisian Constitution, perhaps knowing that Islamization of Tunisian society is already well under way, regardless of what the Tunisian Constitution says.

Indeed, the same attacks that follow Aboul Fotouh's counterparts in Turkey and Tunisia will be used against him: that he is a proponent of "stealth Islamization" and that he remains faithful to the project of applying sharia. The critics might be right. If Aboul Fotouh becomes president, there will be a battle -- between his liberal, revolutionary supporters and his Islamist backers -- over the direction his presidency takes. Now that the major Salafi organizations have endorsed him, they are likely to have significant influence in an Aboul Fotouh administration, pushing his presidency to the right on social and moral issues.

But though Salafists are a critical bloc of support for the Aboul Fotouh campaign, they have little presence in the candidate's inner circle and campaign organization, which is composed mostly of ex-Muslim Brotherhood members, liberals, and revolutionary youth. One of Aboul Fotouh's closest aides is Rabab El-Mahdi, a Marxist political science professor, who says her "biggest project" is ending the Islamist-secularist divide and focusing on the bread-and-butter issues that actually matter in people's lives. Another is the 30-year-old Ali El-Bahnasawy, a self-described liberal who is Aboul Fotouh's media advisor. He told me that the Salafists' endorsement was "amazing" and credited them for realizing that "Egypt needs to end the polarization in the country now." For him, this is the essence of Aboul Fotouh's appeal. "We need someone," Bahnasawy said, "who can talk to the Islamists and speak their language and talk to the liberals and gain their trust as well."

The popularity of Aboul Fotouh's campaign is partly a reaction to growing polarization in Egypt, where fears abound of an "Algeria scenario" of annulled elections, dissolved parliaments, and military coups. But just as the high hopes of the Obama campaign were dashed by the political compromises inherent in governing, an Aboul Fotouh administration may find it difficult to transcend the basic realities of Egyptian political life. If he wins, his supporters will soon find that the divisions between Egypt's feuding political currents do not dissipate quickly, if at all.

It is perhaps telling that Aboul Fotouh's rise comes at a time when religious belief has become an easy substitute for real discussion on economic recovery, security-sector reform, or how to fight income inequality. For the vast majority of Egyptians, the debate over sharia has been utterly beside the point. It is an elite debate and, in some ways, a manufactured one. As Aboul Fotouh will be the first to say, all major political forces support Article 2 of the Egyptian Constitution, which states that the "principles of the Islamic sharia are the primary source of legislation." Even the most "secular" party -- the Free Egyptians -- took to campaigning in rural areas with banners reading "The Quran Is Our Constitution." Meanwhile, it was the Salafists, and not the more moderate Muslim Brotherhood, who entered into serious negotiations over forming a parliamentary coalition with liberal parties. As a senior official in the Salafi al-Nour Party once put it to me, "Here in Egypt, even the liberals are conservatives."

Sharia has become the "hope and change" of Egyptian politics -- all say they like it, but no one quite knows what it means. As the most powerful man in Egypt and with a bully pulpit to match, Egypt's first revolutionary president will have a fleeting opportunity to redefine the meaning of Islam in public life.

In the introduction to his electoral program, Aboul Fotouh, the candidate, embraces the application of sharia. But there's a caveat: "The understanding of implementation of Islamic law is not, as some people think, about applying the hudud punishments [such as cutting of the hands of thieves]," the program reads. "In its complete understanding, Islamic law has to do with realizing the essential and urgent needs of humankind." The program then goes on to list combating poverty and fighting corruption as two fundamental components of applying Islamic law. For Aboul Fotouh, sharia is both everything and nothing all at once. For now at least, that seems to be exactly the way he wants it.

AMRO MARAGHI/AFP/Getty Images