Source: reuters // Reuters
By Chris Allbritton
ISLAMABAD, Dec 1 (Reuters) - August's catastrophic floods in Pakistan sharply raised the risk level in a country already contending with widespread insurgency, a feckless(Lacking purpose or vitality; feeble or ineffective.
) government and an economy propped up with aid.
The stock market more than doubled from lows hit last year during the global crisis, lost ground in recent months due to the impact of the floods, but has since recovered to flirt with yearly highs. Few foreign portfolio investors have significant holdings, and local investors tend to be less risk-averse.
Following is a summary of key Pakistan risks to watch:
THE IMPACT OF THE FLOODS
Pakistan's floods displaced millions of people, and destroyed crops and livestock. The government has estimated direct loss to the economy of almost $10 billion, far short of the initial damage estimates of $43 billion - almost a quarter of Pakistan's 2009/10 GDP. The IMF offered $450 million in emergency aid to cope with the immediate impact of the disaster.
But the longer term consequences also pose major risks for investors in the region and for geopolitical stability.
The competence of the government of President Asif Ali Zardari once again has been found wanting -- its response to the crisis was widely condemned as inadequate, and this was compounded by the fact that Zardari left the country during a critical period in the unfolding catastrophe for a visit to Europe that included a helicopter trip to inspect his French chateau.(A French castle.
A French manor house.
)
Popular anger with the government continues to grow, with the lack of basic services in the rural areas a source of great frustration. The military is seen as having provided a much more organised and efficient response, and the crisis has certainly strengthened the hand of the Pakistani armed forces in their perennial power struggle with civilian politicians.
But the greatest beneficiaries of the crisis may well be the Pakistani Taliban and other radical groups, which provided well organised aid to flood victims in several areas. With the civilian government weaker than ever and anti-government sentiment running high, this is a situation that extremist militant groups can exploit to increase their influence and territorial grip.
What to watch:
-- Political fallout. The damage to Zardari's government isn't over and winter is coming on. With millions still homeless, how badly will Zardari be damaged by popular anger at the government's response to the crisis? Will it allow the military even more autonomy from civilian control?
-- Economic impact. Growth was forecast at 4.5 percent for the current fiscal year, but because of the floods the central bank cut it to between 2 percent and 3 percent.
-- Security implications. To what extent will the misery, dislocation and anti-government anger caused by the floods allow extremist groups to gather strength?
INTERNAL SECURITY Large swathes of Pakistan remain outside government control, run by the Taliban and tribal leaders. Last year's military campaign to roll back Taliban territorial gains saw some successes, but insurgents have shown they can launch major attacks in urban, industrial and commercial centres with relative impunity. The U.S. troop surge in Afghanistan could also cause more instability in Pakistan's border regions.
What to watch: -- Ability of militants to launch attacks. Several assaults on military facilities in particular have shown the continued ability of Taliban militants to attack even protected targets. There is no sign of a sustained improvement in security despite offensives against the Taliban. Pakistan's markets have long grown accustomed to the level of violence and bomb attacks will not have a significant short-run impact on prices unless key government or military leaders are killed. Investors are more sensitive to attacks in Karachi, the commercial hub and home to the main financial markets, the central bank and the main port, but several recent bomb attacks did not spark heavy selling. Investment will be deterred by continued instability, with negative implications for long-term growth.
-- Safety of Pakistan's nuclear arsenal. Pakistan's poor record of preventing attacks on even secure military targets has raised concern that militants could penetrate a nuclear facility. Analysts say while there is minimal risk insurgents could get their hands on a nuclear missile, a potential danger is that they could steal some fissile material which could be used to build a "dirty bomb". This scenario would unsettle markets not just in Pakistan but also in India.
EXTERNAL SECURITY Relations with India are in an uncertain phase. Talks between the countries' foreign ministers produced no progress and may even have moved relations backwards. Unrest in areas of Kashmir under Indian rule has raised tensions.
Washington has been trying with some success to persuade Pakistan to focus on the Taliban threat within its borders rather than the perceived external threat from India. But with many groups in Pakistan still sworn to launch more attacks in India, particularly over disputed Kashmir, there is constant risk of another sudden chill in relations. With two nuclear-armed powers facing off, there is also the risk an accident or misunderstanding escalates into major conflict. [ID:nSGE61501S]
Relations with Afghanistan could also be better. Afghan President Hamid Karzai called for NATO attacks on Taliban sanctuaries in Pakistan after the release of tens of thousands of classified U.S. military reports by the website WikiLeaks that appeared to implicate Pakistan's spy agency, Inter-Services Intelligence, in supporting the Afghan Taliban. Pakistan reacted with denials and fury.
What to watch: -- Attacks in India. Any attack with Pakistani fingerprints could spark a serious confrontation, pushing down markets on both sides of the border.
-- Any sign of progress on talks. India has been reluctant to broaden the agenda to problems such as Kashmir until more is done in Pakistan to deal with those behind the Mumbai attacks.
GOVERNMENT EFFECTIVENESS The government has limited control over the military, and has also been undermined by tussles with the judiciary. It has been relatively ineffective in tackling corruption and reforming the economy. President Zardari signed into law constitutional amendments transferring important powers he held to the prime minister and parliament, but this has done little to placate his enemies. His government remains weak and prone to splits.
Problems in formulating and implementing policy will continue to act as a drag on investment. The impact of the floods and continued violence in Karachi will only worsen the situation.
What to watch: -- Changes in political balance of power. Markets will be watching manoeuvring by opposition parties and the military to gauge the possibility of a challenge to the government. Most analysts expect the government to remain in power for now, but distracted from reforms because of its focus on survival.
-- A December 2009 decision by the Supreme Court that a 2007 amnesty decree was unconstitutional has opened some close allies of Zardari to charges, further weakening the government and distracting from policymaking. Zardari, though protected from old charges by presidential immunity, could face legal challenges to his eligibility to be president. Such challenges would likely unnerve investors, not because Zardari is seen as indispensable but because political turmoil would distract the government from efforts to improve security and the economy.
ECONOMIC REFORM AND INFRASTRUCTURE Pakistan's economy is propped up by an $11 billion loan programme from the International Monetary Fund as wel
=====
UPDATE 2-US says Pakistan government crisis internal issue03 Jan 2011
Source: reuters // Reuters
(Adds fresh quotes)
WASHINGTON, Jan 3 (Reuters) - The U.S. government regards Pakistan's ruling coalition crisis as a strictly internal matter and does not see it as a distraction from Islamabad's fight against Islamic militants, U.S. officials said on Monday.
Pakistan's political upheaval comes at a time when the Obama administration has increased pressure on Islamabad to go after militant groups in its territory to help the United States turn around what many analysts see as a faltering war effort in neighboring Afghanistan.
Pakistani President Asif Ali Zardari on Monday expressed full confidence in the country's beleaguered prime minister, who is scrambling to prevent his government from falling after a key coalition partner quit.
Prime Minister Yusuf Raza Gilani's U.S.-backed government lost its majority in parliament on Sunday when the Muttahida Qaumi Movement, or MQM, bolted to the opposition due to government fuel price policies it said were "unbearable" for Pakistanis.
"This is about internal politics within Pakistan, which has a parliamentary system," U.S. State Department spokesman P.J. Crowley told reporters.
"I can't say at this point that the fact that they have this current political situation necessarily distracts them from ... what else they're doing," he said. "We are going to continue to work with the Pakistani government."
A White House review of President Barack Obama's Afghanistan war strategy reported last month that U.S.-led forces were making headway against the Taliban and al Qaeda but warned that the gains were "fragile and reversible." It cited Pakistan's cooperation as "central" to success in the region. (Reporting by Matt Spetalnick and Arshad Mohammed; editing by Christopher Wilson)
========
UPDATE 6-Pakistani president vows support for embattled PM04 Jan 2011
Source: reuters // Reuters
* President backs PM Gilani after coalition partner quits
* Unclear if opposition will press for confidence vote
* Government lacks seats to ensure survival in vote
(Adds U.S. reaction paras 5-6, analyst paras 18-20)
By Kamran Haider and Augustine Anthony
ISLAMABAD, Jan 3 (Reuters) - Pakistani President Asif Ali Zardari expressed full confidence on Monday in the country's beleaguered prime minister, who is scrambling to prevent his government from falling after a key coalition partner quit.
Prime Minister Yusuf Raza Gilani's U.S.-backed government lost its majority in parliament on Sunday when the Muttahida Qaumi Movement (MQM) bolted to the opposition due to government fuel price policies it said were "unbearable" for Pakistanis.
Gilani's government could fall if the divided opposition decides to pursue a no-confidence vote. Zardari's backing on Monday suggested the president would not bow to any opposition pressure and push Gilani to seek a vote in parliament himself.
The upheaval coincides with incresaed U.S. pressure on Pakistan to go after Islamist militant groups to help it turn around the faltering war in Afghanistan.
Washington said it would offer no comment on Pakistan's coalition politics -- an internal political matter - but suggested the turmoil should have no effect on the campaign against the militants.
"I can't say at this point that the fact that they have this current political situation necessarily distracts them from... what else they're doing," State Department spokesman P.J. Crowley told reporters. "We are going to continue to work with the Pakistani government."
There has been speculation in the media that ties between Pakistan's president and prime minister have grown strained, but both are from the same political party.
"(Zardari) has full confidence in Prime Minister Yusuf Raza Gilani and solidly stands behind him in foiling any attempt to destabilise the coalition government," the presidential spokesman said in a statement.
It compounds the government's difficulties in battling domestic militants and struggling to meet demands from the International Monetary Fund, including politically sensitive tax reforms, in return for an $11 billion loan.
Even before the latest setback, the government faced opposition from almost all political parties to its bid to implement a reformed general sales tax (RGST) -- a key condition for the release of a sixth IMF tranche.
Analysts doubt Gilani will see out his term, which ends in 2013, but divisions within the opposition make it unlikely it will unite and form a new ruling alliance.
Former prime minister Nawaz Sharif's Pakistan Muslim League (PML-N), the biggest opposition party in parliament, is expected to meet on Tuesday to decide a course of action.
It is likely to be the pivotal force in determining the government's fate, as it is the only opposition party with the numbers to force a no-confidence vote on its own.
Following the defection of the MQM, the government is 12 seats short of the number needed to survive a no-confidence vote.
Were it to lose such a vote, the country would hold early elections. Gilani has been scrambling to win the support of opposition leaders to save his alliance.
"From this point onward, the government will be on crutches. The no-confidence vote is a threat for it," said analyst Ahmed Bilal Mehboob.
The country's main stock index ended 1.44 percent lower, in contrast with rising stocks elsewhere in Asia, reflecting concerns over the stability of the government, traders said.
MILITARY INTERVENTION SEEN UNLIKELY
Analysts say they do not expect the military to intervene, but do not rule it out if the situation degenerates. The military has ruled Pakistan for more than half of its history.
Some analysts said political trouble could prompt Washington to rely more on Pakistan's military.
"Given the political upheaval inside Pakistan, then the only stable entity that remains is the military, so the U.S. will put all its eggs in that basket, or will be seen as putting its eggs in that basket," said Shuja Nawaz of the Atlantic Council think tank.
On Monday, exiled former President Pervez Musharraf said from Dubai that the new party he launced in October, the All Pakistan Muslim League (APML), stood ready to contest early elections if they came.
The MQM said its senators had submitted a motion seeking a rollback of fuel price rises, but had taken no decision on whether to press for a no-confidence vote.
Petrol prices were raised by 9 percent on January 1, adding to inflationary pressure in a country where frustration is spreading over poverty, corruption and power cuts.
While anger over fuel prices prompted the MQM to leave the coalition, it has been complaining for months that the government is not doing enough to improve security in its home base of Karachi, Pakistan's financial capital and biggest city.
The MQM pulled out after Jamiat-e-Ulema-e-Islam (JUI), a pro-Taliban religious party, quit the coalition last month and went into opposition because Gilani sacked one of its ministers.
The party repeated its call for Gilani's resignation and said it ruled out rejoining the coalition.
"Gilani has no moral grounds to stay in power. He should step down himself instead of someone else throwing him out," said deputy party leader Abdul Ghafoor Haideri. (Additional reporting by Zeeshan Haider, Faisal Aziz, Sahar Ahmed and Rehan Sheikh and Arshad Mohammaed in Washington; Writing by Michael Georgy; Editing by Ron Popeski) (For more Reuters coverage of Afghanistan and Pakistan, see: http://www.reuters.com/places/pakistan) (If you have a query or comment about this story, send an e-mail to news.feedback.asia@thomsonreuters.com)
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Tuesday, January 04, 2011
EDITORIAL: Precarious survival
If the PPP government thought that 2010 was a tough year, 2011 is proving to be even worse. On January 1, petroleum prices were increased. The public was aghast. On January 2, the MQM dropped another bombshell, this time for the government instead of the public. The MQM decided to withdraw from the coalition government at the federal level and sit on the opposition benches. On December 27, 2010, the MQM’s two ministers left the federal cabinet. Within a week, the MQM has made two important decisions but the third and the most important one, i.e. the Sindh coalition government, does not seem to be forthcoming so far. With the JUI-F’s announcement of quitting the coalition government at the Centre and now the MQM’s pullout, the PPP is officially a minority government. Theoretically, a minority government can continue in power but there are obvious disadvantages that such a government faces.
Prime Minister Gilani said that he does not “see any crisis” after the MQM’s withdrawal. Mr Gilani’s bravado notwithstanding, we are in for a political crisis. If the government is defeated in a bill, it will force the president to either change the prime minister or go for new elections even though President Zardari said he “solidly stands behind [Mr Gilani] in foiling any attempt to destabilise the coalition government”. The onus of proving a majority is on the premier and legislation is the responsibility of the government. A legislative defeat will mount pressure on the government, as this is what parliamentary convention is all about.
The prime minister is trying to salvage the situation by meeting with the PML-Q leaders who have assured him of their support. So far, it seems that no one in the opposition would like to rock the PPP’s boat as far as a vote of no-confidence against the government is concerned. The reason for this could be simple. Pakistan is going through one of its toughest phases right now. The economy is in the doldrums, the law and order situation is out of the government’s control and corruption is rampant as ever. If this government falls and fresh elections are held, there is a good chance that the leading party would still not get a majority and would have to cobble together another coalition. The PPP’s experience of a coalition is daunting for all political parties. Thus, they would all rather wait for the PPP to rule right now, albeit with great difficulty. When the general elections were held in February 2008, the PPP got the sympathy vote yet it was not enough for a simple majority in parliament. The fractured mandate forced the PPP to opt for a coalition government. The first blow to the coalition came when the second largest party, the PML-N, withdrew from the government and took on the part of the opposition. It is time that the government takes stock of what went wrong in less than three years since it came to power.
There are speculations that the security establishment might be behind the JUI-F and MQM’s moves in order to derail the democratic process. On the face of it, nothing can be ruled out. But even if this is true, the government has to realise that it provided a chance to the establishment for backdoor political manoeuvring. It is tragic that the PPP has frittered away(To break, tear, or cut into bits; shred.
) its goodwill since the February 2008 elections. All the good work done under this government — for instance, the 18th and 19th constitutional amendments and the NFC Award — are now under threat. A paralysed government is not just bad for the PPP but for the country as a whole. When governance and management becomes even more difficult, the PPP might just be forced to go or willingly seek a fresh mandate. Whatever happens, the end game for this government appears closer. *
SECOND EDITORIAL: Making up with the Taliban
The setting up of a High Peace Council by the Karzai government last year to initiate talks with the Taliban was a welcome move. The visit of a 15-member delegation of the council led by former Afghan president Burhanuddin Rabbani indicates that the Afghan government understands Pakistan’s standing in negotiations with the militants. The delegation is coming in the backdrop of the Taliban’s moves to convince international players to allow them to establish a base in a neutral host country with no track record of interference in Afghan affairs, and which enjoys the confidence of all parties. It would afford them an opportunity to transform from guerrilla fighters into politicians, who could conduct negotiations without any pressure. This makes sense, because all neighbouring countries of Afghanistan have supported one group or the other in the past. Pakistan’s acceptance and open support for the Taliban government in Afghanistan is well known. A distant neighbour Saudi Arabia at one time actively funded the Afghan jihad. India too is desirous of expanding its influence in the war-torn country.
In an interview with The Telegraph, former Taliban spokesperson Mullah Zaeef has floated the names of UAE, Germany, Turkey or Japan. However, this idea is hard to implement. In the given scenario, where Obama is being held hostage by his generals who want to first weaken the Taliban before bringing them to the negotiating table, this course of action may not find resonance with Washington. But the US would do so at its own peril.
There are indications that the Taliban will sustain the pre-withdrawal period and may emerge stronger in 2014 when the NATO and US troops are slated to withdraw from Afghanistan than they are now because neither the foreign forces nor the Karzai government enjoy credibility. There is a continuing impasse in the battlefield, with the possibility that the guerrillas will compel the Afghan government to accelerate the peace process. Of all the possible solutions on offer right now, this appears to be the best one. The Afghan people want peace, and the Afghan government may have to swallow the bitter pill of sharing power with the Taliban to achieve this goal. We cannot say with certainty what will be the outcome of the meetings of the High Peace Council delegation in Pakistan, but the negotiating parties must consider that prolonging the war is in no one’s interest. *
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