COLUMN ONE : Karachi's Chaos May Be Costly : The woes of Pakistan's richest city, which is awash in murder and mayhem, may drive away what the country needs--foreign investment.

TIMES STAFF WRITER

The day two employees of the U.S. Consulate were ambushed and murdered, the Karachi Stock Exchange's KSE-100 index dropped 29 points, or 1.5%.

But the average rebounded the next day, after traders had time to reflect. The slaying of the Americans, they concluded, might not be all bad.

"Finally we may get some honest people here," said broker Yasin Lakhani, the exchange's immediate past president. "Finally, something may be done."

If a city can have a nervous breakdown, Karachi, one of the world's great metropolises and Pakistan's largest and wealthiest city, is surely in the throes of one.

While Prime Minister Benazir Bhutto faces many problems--from drug mafias to a rabid political opposition--Karachi's turmoil is the greatest and most urgent one.

"Come and invest in Pakistan; your investment is very safe," Lakhani joked. "Only your life is not safe."

The afternoon when the stockbroker spoke to a visitor in his cubbyhole office, police had just cleared the exchange because of a bomb threat, forcing clerks and brokers onto the street next to the gauzy awnings where bookies take illegal wagers on cricket games.

Take a taxi to the airport along Shahrah-e-Faisal, the road where the Americans were ambushed March 8 while riding in a consulate van, and the cabby may exceed 75 m.p.h. to avoid trigger-happy snipers.

Karachi's boiling stew of ethnic, political and sectarian tensions has even reached the newsroom of Dawn, the city's most famous newspaper.

There, staff members from Islam's minority Shiite sect joke--but is it really a joke?--about altering their names to sound like those of majority Sunnis, so it is less likely they will be prey for armed Sunni zealots.

This troubled seaside city of 10 million people has become the Indian subcontinent's most violent and dangerous, with no end in sight. A few snapshots:

* Armed robbers held up a computer trading company across from the Central Police Office and netted more than 500,000 rupees, or $16,000. The frantic victims summoned police. It took officers 45 minutes to cross the street.

* Murder and kidnaping have sown widespread fear: Prominent business people, a well-known journalist and an aide-de-camp to a senior army officer were among the more than 1,260 people slain since the beginning of 1994. No one feels safe. Mosques have been bombed and invaded by assassins packing AK-47s, and tradesmen have been murdered as they served customers in their modest curbside shops. Four paramilitary Pakistani Rangers recently were abducted, bound hand and foot, and shot in the head. Their corpses turned up on a garbage heap.

* Karachiites dismiss police as cowardly and more interested in bribes than in restoring order. In any event, police have been wholly ineffective at halting the violence. Nightly, 110 mobile units patrol the streets, "but they've never confiscated a single firearm," a high-ranking police official complained. Constables are scared and demoralized. "If we catch anyone, it's by chance," the official admitted. "We've become nothing more than a registration agency."

Karachi, Pakistan's only major port, accounts for about two-thirds of the country's trade and industry and almost half of its gross domestic product.

"The progress of Karachi is synonymous with the progress of the nation," said Nisar A. Memon, general manager in Pakistan for IBM. If so, some business people say, this city and the nation are in trouble.

At the Top Taste bakery, bakers are turning out 2,900 pounds of bread a day, 35% less than last year. Crime and the fear of crime have shut many shops and bazaars, eating into Top Taste's sales.

Frightened by the unrest, 15 migrant laborers who lived with their families on the bakery's fourth floor have gone back to their native Punjab.

"Business is over here; it's finished," manager Malik Asif lamented.

Last March, the 29-year-old businessman picked up his .32-caliber pistol and shot to death two of three burglars who broke into his home. In a polite but menacing letter, the survivor, who is now on trial, has threatened to come after Asif unless he is set free.

"The courts will probably never convict him, they're so corrupt," a police officer said.

According to police sources, prisoners on trial in Karachi have bribed guards so they could slip out of court and commit new crimes, secure in the knowledge that their trials gave them a cast-iron alibi.

Bhutto insisted on Tuesday that in Karachi's sprawling 500 square miles, "police are not overwhelmed." During a visit this month to the city beside the Arabian Sea where she was born 41 years ago, Bhutto noted that Karachi is not the only big city plagued by crime and violence.

"The city is a little bit like New York or Bombay, where there are areas of problems, but areas where there is also growth," Bhutto said.

This month alone, the prime minister noted proudly, she attended the dedication of a half-billion-dollar petroleum refinery project, and during a visit to Singapore, she negotiated the final details of a deal for the construction of a $190-million highway bypass to speed traffic to and from Karachi's port.

When Bhutto visits the United States next month, she doubtless will repeat those figures and arguments to try to coax more investment and trade for her country, where the average income is $410 a year.

However, some well-informed Karachi residents believe that the ambush-murders of U.S. Consulate workers Jackie Van Landingham and Gary C. Durell, plus a general increase in homicides and violence, have brought affairs to a critical mass.

More than 100 people, the two Americans included, have been slain this month, and at least 340 this year.

"This city could become worse than Somalia--there are so many arms, so many affected and sorrowing families who are now ready to kill, so many unemployed youths," said Ghulam Hasnain, a respected crime reporter for Dawn. "Every day, more angry people are emerging."

In a week of interviews with Karachiites from all walks of life, not one expressed the certainty that things would get better soon.

One recent Friday, as the midday service was ending at the Rehmania mosque in the violence-ridden district known as P.E.C.H.S., the imam asked for divine help.

"Pray to God that there be an end to all this killing," he implored the faithful, his Urdu-language homily booming on loudspeakers throughout the neighborhood. "Pray that there be peace and an end to the suffering for our families. Let all of it come to an end."

In the walled-in graveyard by the mosque, half a dozen freshly dug graves strewn with rose petals held the remains of six men and boys. All had been slain when three gunmen invaded a modest P.E.C.H.S. apartment rented by a 55-year-old man who sold tax stamps at Karachi District Court.

The gunmen rounded up the males, made them lie on the floor and bed, and methodically shot them in the head, one after the other, as the women were held captive in the next room. A 13-year-old, Furqan Ayub, survived only because the hands of one killer trembled violently as he pumped a bullet into his skull.

If robbery was the motive, the murders seemed stupid, since acquaintances said the stamp seller--Furqan's father, Shaikh--earned $200 a month. For Karachiites, the senseless act was yet another reason to fear for their own lives.

Since Bhutto took office in October, 1993, vowing to reduce bureaucracy, liberalize the economy and open her country wider to foreign investment, $12 billion worth of contracts and memoranda of understanding have been signed with U.S. and other foreign companies.

But in most cases, the final deals still need to be closed, local business leaders say, and Karachi's reign of terror has put many Western investors into a wait-and-see mode.

"Unfortunately, we have to get business people back here to follow through on these agreements," said IBM's Memon, who also presides over Karachi's Overseas Investors Chamber of Commerce and Industry. "For the moment, I'm afraid, the only category of foreign visitor that will be on the increase in Karachi is journalists."

Continued jitters about the city's future have helped pull the KSE-100 index down by about 25%, or $2 billion in lost market capitalization, since August.

Nervous foreign investors, made even warier by the recent crash of the Mexican economy and general disenchantment with emerging Third World markets, have withdrawn about half of the $3 billion they had plowed into the 735 companies listed on the Karachi exchange.

Bhutto and her leadership are betting the downturn is a passing thing and have ordered a series of measures--including increased police patrols, powers of arrest and investigation for the Rangers and a crackdown on Bangladeshis and other illegal immigrants--to try to quell Karachi's disorders.

But her government is so discredited in the city that few expect any improvement.

"It is a law of the jungle, a free-for-all," former Prime Minister Nawaz Sharif, leader of the opposition Pakistan Muslim League and a vociferous Bhutto critic, said Saturday. "I see a worse future for Karachi unless peace is restored."

Preparing for the worst, the U.S. government on March 15 ordered the evacuation of school-age children of employees at its Karachi consulate, and said other dependents could leave if they chose.

"While there are currently no credible reports of any specific threats against Americans in Karachi, such threats cannot be ruled out," the State Department said in Washington.

Americans had already been instructed by Ambassador John C. Monjo to minimize travel and take other security measures, such as varying routes to and from work.

Before the Americans were slain, an estimated 3,000 U.S. citizens were in Karachi: About 50 diplomats and consulate employees, women married to Pakistanis, staff members at Aga Khan hospital, teachers at the Karachi American School, import-export traders or employees of companies such as Caltex, the export arm of Chevron and Texaco.

Some of those expatriates are not particularly worried by the nasty turn of events, saying they use common sense to stay out of trouble. Others say they detect a rising anti-Americanism fueled by Islamic militancy, resentment over U.S. policy toward Pakistan and Karachi's fractious ethnic politics.

"When I lived here 15 years ago, people would ask, 'Are you Jewish?' Now they ask, 'Are you American?' " said Janice J. Burns of Leonia, N.J., who works for a Japanese engineering company.

To avoid trouble, Burns' landlord tells people that Burns is Belgian.

Bhutto this month said the United States must bear some of the blame for the turmoil in the city.

This charge too is likely to be repeated during her U.S. trip as she campaigns for a lifting of the virtual cutoff of American aid that was imposed in 1990 because U.S. officials maintain Pakistan is developing nuclear weapons.

"At the time of the Afghan war, the entire West landed over here and created holy warriors whose job it was to go into Afghanistan and fight a holy war," Bhutto said. "When that holy war ended, the West packed up its bags and left. And it left countries like Egypt, Algeria and Pakistan picking up the pieces of warriors who had been trained and wanted new wars to fight."

Growing Islamic militancy, animosity between militants from the the Shiite and Sunni sects of Islam and ethnic rivalries are among the social and religious underpinnings of Karachi's chaos. There also is a surfeit of guns and experienced gunmen, in part because of the Western aid to the Afghan moujahedeen during the 1980s that Bhutto mentioned.

She is also charging Pakistan's powerful heroin dealers with bankrolling the Islamic militants as revenge on her government for its stricter anti-narcotics policies and recent decision to extradite some drug traffickers to the United States.

Bhutto said Tuesday that it is still not clear whether the murders of the two Americans were in retaliation for Pakistan's extradition of Ramzi Ahmed Yousef to the United States to face charges in the World Trade Center bombing after his arrest in Islamabad last month. But, she has said, the United States and the entire world have a stake in stamping out violence in Karachi.

"We feel the battle we are fighting is the battle for Pakistan's stability, regional stability and indeed global stability," she said.

However, for Pakistan's most important city to return to normalcy, many Karachiites, from IBM's Memon to high-ranking police and army officers, believe that the government needs to negotiate with the most powerful party representing the city's Urdu-speaking majority, the Mohajir National Movement.

The movement, commonly known as MQM from its name in Urdu, is the most powerful voice of Karachi's Mohajirs, or Muslims and their descendants who fled from India after its partition from Pakistan in 1947. In present-day Pakistan, they complain of discrimination and victimization.

In 1993, the Karachi Municipal Corp. was dissolved, depriving the MQM of a democratic and legitimate institution to rule Karachi. Since then, there is little question that militants of the tightly organized party have engaged in extortion and murder. In a deadly sideshow, MQM is also at war with a splinter group, MQM Haqiqi.

Bhutto on Saturday flatly refused to negotiate with exiled MQM leader Altaf Hussain, who lives in London. More than 100 criminal cases of murder, kidnaping and other offenses have been lodged against Hussain. And Bhutto charged that most people arrested in Karachi for sniping, kidnaping and robbery were MQM militants.

"We don't believe that anybody who picks up a gun and shoots an individual is a politician," Bhutto said. "He is a criminal pure and simple."

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