Experts See Security Risks in Downturn

This year, the presidential transition is occurring as American households and financial institutions are under severe economic strain, and political leaders are devoting great time and effort to that crisis. Frances Fragos Townsend, who previously served as Bush's homeland security adviser, told a gathering of terrorism experts last month that the confluence of events is "not lost" on bin Laden.

"We know from prior actions that this is a period of vulnerability," Townsend said.

As bad as economic conditions are in the United States and Europe, where outright recessions are expected next year, they are worse in developing countries such as Pakistan, a state that was already struggling with violent insurgencies and widespread poverty. Some analysts warn that a prolonged economic crisis could trigger a period of widespread unrest that could strengthen the hand of extremists and threaten Pakistan's democratically elected government -- with potentially grave consequences for the region and perhaps the planet.

Pakistanis were hit by soaring food and energy prices earlier in the year, and the country's financial problems have multiplied since late summer. Islamabad's currency reserves have nearly evaporated, forcing the new government to seek new foreign loans or risk defaulting on the country's debt. The national currency, the rupee, has been devalued, and inflation is squeezing Pakistan's poor and middle class alike.

Shahid Javed Burki, a native Pakistani and former World Bank official, said job cuts and higher food costs are behind much of the anger and desperation he witnessed during a recent trip. "I'm especially worried about the large urban centers," said Burki, author of several books on Pakistan's economy. "If they are badly hurt, it creates incentives for people to look to the extremists to make things better. It's a very dicey situation."

U.S. officials are following developments with particular concern because of Pakistan's critical role in the campaign against terrorism, as well as the country's arsenal of dozens of nuclear weapons. Al-Qaeda has appealed directly to Pakistanis to overthrow their government, and its Taliban allies have launched multiple suicide bombings, some aimed at economic targets such as the posh Marriott hotel in Islamabad, hit in September.

Economic and social unrest has helped drive recruiting for militant groups that cross into Afghanistan to attack U.S. troops.

The Bush administration has counterpunched by striking unilaterally at al-Qaeda-allied militants in the autonomous tribal region along the Afghan border.

More than 15 such strikes, using unmanned Predator aircraft piloted remotely by the CIA, have killed dozens of suspected insurgents since late August.

The financial crisis has also prompted security concerns about China, though experts are divided over how the country will fare if the recession is long and deep. Already, China's export-driven economy has suffered a major jolt, prompting Beijing to announce an economic stimulus package worth hundreds of billions of dollars. Job losses and shuttered factories have spurred social unrest, prompting some China-watchers to predict a reduction in spending on its armed forces and space programs as the nation turns its focus inward.

In the past month, factory closings have sparked protests and highlighted the growing gap between social classes.

China turned down a request by Pakistan for a $4 billion loan, and its economic stumbles have dampened hopes that it might, by itself, pull the global economy out of its slump.