More money passes through this teeming frontier city in a year than Pakistan's treasury has in foreign currency reserves.
And it is subject to no government tax. For here in Peshawar and in the dusty towns and cities of the province of North-West Frontier is a thriving underground economy centered on smuggling, arms, and drugs. It is an economy and society evoking an image of the American Wild West, controlled by the tribal elders as their fathers and grandfathers controlled it before them.
Little has changed here for centuries, except in the last three years, which have seen the development of a flourishing heroin business and the arrival of nearly 3 million refugees from across the border in Soviet-occupied Afghanistan. Both are becoming explosive issues, as government officials acknowledge, though mostly privately.
US Drug Enforcement Administration officers estimate that over half of America's heroin supply either originates in or is transported through Pakistan. The trade is worth billions of dollars.
In the bustling open bazaar of Landi Kotal, in the Khyber Pass, a gram of pure heroin goes for about $5. A faithful rendition of the Soviet automatic rifle, the AK-47, or Kalashnikov, sells for about $2,000, down from 1980 figures by nearly 50 percent.
''The market is flooded,'' a disgruntled shopowner says. ''We have not only everything that is being manufactured here, but the mujahideen are selling a lot of weapons on the open market. Prices are depressed.''
And herein lies one of the major problems of the Afghan refugees. The ''mujahideen,'' or fighters, who cross the largely unpatrolled Pakistan-Afghan border at will to conduct raids on Soviet positions, are slowly infiltrating two vital areas of the economy of the frontier - the arms business and the profligate smuggling of consumer goods.
And nonfighting refugees are causing tensions as well. Large numbers of Afghans are beginning to infiltrate the lucrative transport run of contraband and smuggled consumer goods.
Other refugees have had disputes with locals over scarce water and grazing lands for the livestock they brought, estimated at some 2.5 million camels, sheep, and goats.
And still others, those of the upper class, have forced real estate prices in Peshawar up nearly 100 percent. A comfortable bungalow with garden which rented for less than $500 monthly four years ago is now going for $1,000, the highest rates in all of Pakistan.
Thus, after three years of remarkable tranquillity, considering the numbers involved, Pakistanis now grumble openly that they wished the Afghans would go home.
But Afghan refugee compounds strike visitors with how permanent they are. Some even have electricity. And in almost all of the 282 camps in the North-West Frontier the refugees are not living in tents, but in adobe-like houses, made of mud, dung, and straw.
A number of refugees told this correspondent that with all of the services provided by the Pakistan government, United Nations organizations, and other international relief groups, they've never lived such a comfortable life. In fact, in the parched, rocky reaches of the North-West Frontier, they are living considerably better than the frontier's own lower and lower middle class.
And herein lies a major problem for the government of Pakistan. What happens if there is a political settlement for Afghanistan but the refugees refuse to go home? They share the same religion and culture of the Pathans of the frontier. By all assessments they appear to have settled in.
One high-level government official acknowledged that this would be a ''horror.'' The enormous refugee burden amounts to $1 million a day. Nearly half is borne by the Pakistan government, and direct costs this year will be nearly $ 250 million, a significant amount for a country with a nearly $3 billion annual trade deficit.
The implications could be even more formidable if Pakistan's own economy begins to decline, if international agencies diminish their relief, or if Pakistanis working in the Gulf states return home in large numbers.
In this highly closed society, which prospered for centuries as a key route of passage on the Chinese silk route, the tribal elders hold the reins of commerce and jurisprudence firmly in their hands. What the Pakistan government can, or will, do about these problems is hard to say.
For 2,000 years Peshawar has flourished as the capital of the North-West Frontier. And for nearly 100 years the entire population of Darra, a Khyber Pass village, has lived by the faithful copying and manufacture of some of the world's most highly reputed arms. Fields of poppies now cover, conservatively, 45,000 acres of this rocky, barren land, and the government acknowledges the existence of, minimally, 30 highly sophisticated heroin production labs.