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Assassination shakes up U.S. firms’ relations

The assassination of Benazir Bhutto is likely to further complicate business relations between the U.S. and Pakistan, which is already a major manufacturer of clothing.
/ Source: The Associated Press

The assassination of Benazir Bhutto is likely to further complicate business relations between the U.S. and Pakistan, which is already a major manufacturer of clothing and has been pushing for deeper private-sector ties.

U.S. corporations have poured billions of dollars into the country in recent years, both as direct investment and to pay for a rising tide of imported products. Experts say some of that investment could be at risk.

"The real question right now is whether the supply chain will remain intact. Right now, we don't know," said George Friedman, chief executive of global intelligence firm Stratfor. "The key variable is the cohesiveness of the Pakistani Army."

U.S. trade with Pakistan has risen sharply in recent years as manufacturers shifted more and more jobs to low-cost countries. Last year, the U.S. imported $3.67 billion worth of Pakistani goods, up from $2.25 billion five years earlier, according to the Census Bureau. Cotton goods such as clothes, thread and fabric made up the biggest share of imports.

U.S. direct investment in Pakistan has also grown sharply. In the five years between 2001 and 2006, investment more than doubled. The new dollars really began to pour in starting in 2003, and by 2006 had reached $1.23 billion per year, according to the Commerce Department's Bureau of Economic Analysis.

That investment might also dry up if the political and security situation deteriorates further.

"Foreign direct investment would be hurt by a period of prolonged political violence," said John B. Chambers, managing director and chairman of Standard and Poor's sovereign rating committee. "If you've got an uncertain political environment, that's going to depress stock prices."

S&P cited Pakistan's volatile political and security situation when it lowered its rating outlook on the country to "negative" after President Pervez Musharraf declared a state of emergency last month. Chambers said Thursday's attack raises further concerns about the nation's financial stability.

"If this assassination ushers in a period of heightened political uncertainty and violence, the rating will be lowered," he said. "Obviously, since we put the negative outlook on Pakistan, the political situation has deteriorated."

The attack seemed to rattle U.S. markets Thursday. Crude oil futures rose to their highest point in more than a month. Traders also drove up the price of gold, a commodity seen as a haven in times of political uncertainty.

The Dow Jones industrial average fell by more than 100 points in midday trading. And while no Pakistani shares trade on major U.S. exchanges, those of large Indian companies that do fell sharply.

Dan Markey, a senior fellow at the Council on Foreign Relations, said the Pakistani stock exchange in Karachi will likely feel the first effects of any financial fallout from the attack.

"I think you're going to see the market tumble," he said. But, he added, most foreign investors understand that putting money into Pakistani stocks entails political risk.

"The money may come back," he added.