Leading article: A nation that needs to be handled with immense care

Pakistan's security and its economy are intimately connected

In recent years, the world has tended to concentrate on Pakistan primarily as a security problem. It is not difficult to see why. No single nation straddles the front line between the forces of pluralist democracy and murderous fanaticism as dramatically as Pakistan.

The country's lawless western border regions have provided a safe haven for the Taliban. And Pakistan has an internal insurgency crisis of its own. Last month's horrific bombing of the Marriott hotel in the capital, Islamabad, shows the determination and capabilities of these fanatics.

In recent months, the army has stepped up its efforts to impose the government's authority on its western border, but serious doubts remain about the extent of extremist infiltration of the country's powerful security services. And cross-border strikes, many of them inaccurate, by US forces based in Afghanistan are gifting the insurgents with a potent propaganda tool. The world can hardly ignore, either, the fact that Pakistan is a nuclear power. If Islamabad falls, we enter a new world of unprecedented danger.

If there is cause for optimism it is that Pakistan is no longer under the rule of Pervez Musharraf, the former general who tried to subvert the rule of law to protect his own hold on power. But there are some uncomfortable questions about the mental state of the new President, Asif Zardari.

As we report today, there is enough combustible material here to give diplomats restless nights for the next century. But they would be advised to broaden their imagination, even at the risk of worse nightmares. The reason is that Pakistan's economy is in almost as parlous a condition as its security situation. Another poisonous legacy of the Musharraf years is a serious imbalance in the nation's finances. The former president spent heavily on the military, but neglected sectors of the economy such as education and agriculture. His government also borrowed recklessly.

Now Pakistan is paying the price. Annual inflation is currently running at some 25 per cent. The Government's budget deficit is spiralling and the country's foreign currency reserves have plunged. The rupee is heading south on international markets and foreign investment is being withdrawn at an alarming rate.

The immediate threat is that Pakistan will default on its foreign debt. Mr Zardari's government decided yesterday to approach the International Monetary Fund for a loan to ease the crisis, but only after exhausting every other avenue of securing funding. This reticence is understandable. Taking money threatens to be a deeply unpopular move domestically for the Government. This is a nation already paranoid about external influence. And other Asian nations that were subject to the bitter "medicine" administered by the IMF, in return for its loans, in the late 1990s came to resent the experience.

There are signs that the IMF has shed some of the ideological dogmas of those years, which led to it demanding drastic cut backs to social programmes and rapid budgetary tightening. But Mr Zardari can hardly be blamed for remaining wary. An overly restrictive reform programme could easily deliver a boost to the extremists.

As IMF officials draw up their rescue plan in coming days, they need to be sensitive to the plight of the democratically elected administration. Meanwhile, the world needs to wake up to the fact that, in Pakistan, economic stability and internal security are intimately connected. There cannot be one without the other. That should be the guiding thought as Pakistan's allies come together to help the country out of its present hole.