At a briefing this afternoon, David Rothkopf, who is, among other things, an expert in emerging markets, noted something extremely worrisome that I haven't seen mentioned much at all: Pakistan, not the most stable country to begin with, is suffering extraordinary economic problems connected to the global financial crisis and that most pernicious of instruments, the Credit Default Swap. The Financial Times is reporting that there is a 90 percent chance that the country will default on its debt, with high inflation (25 percent!), and both fiscal and trade deficits contributing to the situation.
As these problems continue, there are a number of negative repercussions that could affect our national security. One, the already tenuous Zardari government continues bleeding legitimacy, making it an increasingly problematic ally in the fight against al-Qaeda groups based in Pakistan. Two, it may lead them to a deepening relationship with China, with the added incentive of a nuclear deal similar to the one the U.S. gave to India, which would further weaken U.S. influence in the region. And of course the overwhelming fear is that Pakistan could collapse into a failed state, putting its nuclear arsenal at risk. Another reminder of the relationship between the U.S.'s economic strength and it's national security, and the linkages between global political stability and global economic stability.
--Tim Fernholz
