THE biggest banking rescue in US history has been authorised by the White House and congressional leaders. At stake is nothing less than the financial system of the US, and large parts of the world, which has been brought to its knees by the implosion of mortgages and securities backed by them. The extraordinary price tag — up to $700bn — reflects the extraordinary worry of American politicians. Here in Pakistan, the question is, how will the crisis affect us? Directly, Pakistan's exposure to the US financial system is minimal and there is little risk of sinking American firms taking Pakistani-owned dollars down with them. Indirectly, the situation is more complex — and potentially grave. First, Pakistan's ability to raise money in the international financial market at a reasonable rate can disappear in the weeks ahead if the market is not calmed by the US Treasury rescue effort. While much of the focus has been on the tottering US housing sector, the real global worry has been that financial institutions are reluctant to part with their cash in a market where no one seems to know how badly the balance sheet of any given institution has been affected by the crisis. In economic parlance, lenders have become risk-averse.

Unfortunately for Pakistan, this general risk aversion has coincided with a dire local need for dollars to finance a record current account deficit measured at $2.6bn in July and August against foreign exchange reserves of less than $9bn. The only cushion against this double whammy is that Pakistan does not rely much on commercial external debt. However, Pakistan's preferred route for raising money internationally — privatising assets such as the Qadirpur gas field — will almost certainly be impacted by a limp financial system. And foreign direct investment from the US could be affected — in July and August, the US was the largest direct investor in Pakistan ($127mn) if one-off payments from Singapore and Malaysia are overlooked.

Finally, if the crisis spills over from Wall Street to Main Street, one of Pakistan's largest export markets, worth approximately $300mn a month, may shrink significantly. The benefits of a lower import bill, if oil and food prices continue to fall in a weak global economy, may then be lost by weakening exports. In the weeks ahead, finance ministers of many countries will watch nervously as the world financial market digests the American rescue package. No doubt our finance minister will be one of them.