Pakistan Update

General Pervez Musharraf’s government has made progress restoring its financial credibility, and has begun the Herculean task of rebuilding its institutions. It faces a growing challenge to state authority, however, from militant organizations involved in Kashmir and Afghanistan. Musharraf is likely to bring back civilian government in 2002, while remaining as president. Pakistan’s friends can help by encouraging serious economic and institutional reforms. But the job of shoring up the state has to be done from within Pakistan.

Moving toward civilian government: 

The military regime’s goal of removing Nawaz Sharif and Benazir Bhutto from the political scene has largely been achieved. Nawaz Sharif is in exile in Saudi Arabia. Although the Supreme Court has invalidated Bhutto’s corruption trial, she cannot return without facing jail and a new trial. Bhutto’s and Sharif’s supporters have tried to generate a popular movement to demand immediate elections with their participation. The government has reacted harshly, with two waves of arrests. If anything, the roundups have enhanced the credibility of those arrested.

As the Supreme Court’s deadline of October 2002 approaches, General Musharraf seems likely to follow the path trod by Pakistan’s earlier military rulers. He has developed a working alliance with those in the Pakistan Muslim League (PML) opposed to Nawaz Sharif, the so-called “like-minded Muslim League.” He is expected to extend his army service beyond his normal retirement date of October 2001. The “like-minded” group, with the support of the army and the intelligence services, expects to win elections the following year or, alternatively, to emerge on top after the restoration of the National Assembly that was suspended in 1999. The new parliament would amend the constitution to legitimize the military government’s actions, restore the president’s authority to name the military service chiefs, dismiss the prime minister, and dissolve parliament. A “like-minded” Muslim Leaguer would be chosen as prime minister. General Musharraf would become president, and might eventually retire from the army and remain in office as a civilian. Elite circles are greeting this prospect with tired cynicism.

Grass Roots Reforms: 

The government released a devolution proposal in March 2000, hoping to rebuild Pakistani politics from the ground up, and has held two rounds of elections for local bodies. Political parties were banned from formal participation but most of the candidates’ political affiliations were well known. In the second phase of these elections, in late March, the voter turnout was a dismal 30 percent, and army-backed independent candidates won only about 30 percent of the seats, with the larger share going either to Bhutto’s Pakistan People’s Party (PPP) or Sharif’s faction of the Muslim League. Despite deep disaffection with their leaders, the PPP and the PML are still a force to reckon with. The restoration of democracy in Pakistan will be incomplete without their active participation.

Economic Revival: 

When the military took over, government finances were in desperate shape. A narrow tax base and unsustainable public debt had led to recurring crises. Poverty and underinvestment in the social sectors clouded the longer-term outlook. With good crops, however, the large rural population has been spared an acute crisis.

The government has made considerable progress in getting its finances under control. Pakistan has met virtually all the targets for its International Monetary Fund standby, and has received the second installment of that program. Other multilateral donors are resuming new lending. The Asian Development Bank announced that Pakistan will receive $2.5 billion in loans within the next five years, and new or resumed World Bank loans totaling about $400 million are moving forward. Pakistan hopes to move to a multiyear IMF program before the end of the year, making possible a multiyear debt rescheduling.

The government’s structural reform program will take longer. It is considering wide-ranging proposals for reform of the Central Board of Revenue (CBR), key to both its revenue problem and the rebuilding of state institutions. Tax collections in the first half of the current fiscal year were 15 percent higher than in the same period last year. Privatization, if successful, will generate funds for debt retirement and the social sector. Banking reforms are on the agenda, though these may be complicated by the Supreme Court decision requiring Pakistan to institute “Islamic Banking,” a directive that in the past has been met by subterfuge.

On the minus side, this year’s drought has reduced all major crops and will cause immediate hardship in the rural areas. Finance Minister Shaukat Aziz has estimated the cost to the national economy at $2 billion. Investment has fallen dramatically: the last significant inflow of foreign direct investment was for the private power industry in the mid-1990s, and the first half of the current fiscal year showed a 71 percent drop compared with last year. The growth estimate for the national economy has been lowered to 3.5-4 percent for this year from 4.5 percent.

The balance of payments will remain under pressure. The trade deficit is up by 8 percent, and reserves in late February had fallen to the equivalent of five weeks’ imports. Exports were up by 8 percent, though this year’s weak crops will make that growth harder to sustain. The drought will also lead to increased oil imports, especially since the government has had to hold back water normally used for hydroelectric power generation. A bright spot was the 20 percent rise in remittances in the first half of this fiscal year, after several years’ decline. Groups of expatriates, especially in the United States, have begun funding private development efforts in education and health, an especially welcome effort to mobilize talent and energy from within Pakistan. So far, expatriates have generated little investment; that will await a more stable economic situation.

Rebuilding institutions: 

Besides the reform of the CBR, the government has targeted the police, the judiciary, and the civil service. In an early move toward transparency, the Finance Ministry has begun putting economic data on its web site, revealing very frankly the country’s economic and financial situation. These targets are well chosen, and the reform program long overdue. The job is an immense one, however, which will require extended and steady follow-up.

The prospect of a change in government in October 2002 raises questions about policy continuity and about how policies can be sustained during an election campaign. Another 18 months is a short time in which to create popular payoff from reforms and reduce pressure for populist policy changes. It is clear from the reaction to Musharraf’s coup that visible moves in the direction of transparency and accountable enjoy tremendous popular support, even if they trouble political and business elites.

Kashmir and Afghanistan: 

Security issues, defined largely in military terms, still trump the rest of the government’s objectives. In practice, this means pursuing Pakistan’s interest in Kashmir and securing a friendly government and “strategic depth” in Afghanistan.

Since India declared a unilateral Indian ceasefire in Kashmir in November, Pakistan has thinned out its forces along the Line of Control, called for talks with India, and begun signaling that it is prepared to let the Kashmiris, rather than Pakistan, have center stage in dealings with India for the time being. Nonetheless, short-term prospects for a serious dialogue with India are bleak. The Indian government’s decision to appoint K.C Pant as special negotiator with the Kashmiris is a step in the right direction, but he is not authorized to negotiate with Pakistan.

But Pakistan also continues to support militancy in Kashmir. Some apparently believe, unrealistically, that India can be “bled” to a point where it will pull out its troops from Kashmir. The more common view is that support for the insurgency is a card Pakistan cannot afford to give up, and that India will ignore Kashmir if the violence stops. Pakistan also continues to work closely with the Taliban in Afghanistan, although the Taliban have shown little inclination to respond to Pakistan government requests. Pakistani pleas that the Taliban not destroy the Buddhist statues in Bamiyan fell on deaf ears.

Challenge to the State: 

The government’s overwhelming preoccupation with the Indian threat has led to a very cautious policy toward militant organizations active in Kashmir and Afghanistan. It has announced a ban on the public display of unlicensed weapons and placed some limits on their fundraising. These limited objectives have met with only partial success. Musharraf’s concern about the political fallout from a tougher policy is understandable. The militants are fighting for a popular cause, especially in Kashmir. However, their ability to flout law enforcement represents a real challenge to a state already seriously weakened by institutional decay. This, more than the specter of fundamentalism, makes these organizations dangerous to Pakistan’s future.

Relations with the United States: 

Senior U.S. officials stress that the United States has no intention of “abandoning” Pakistan in pursuit of closer ties with India. However, relations with the United States will remain troubled by Afghanistan’s unwillingness to release Osama bin Laden to American justice and Pakistan’s inability to change Afghan policy. Pakistan’s stance toward militant organizations that operate in Kashmir has put the country in danger of being declared a “state sponsor of terrorism.” Even if militants avoid the terrorist label, violence against military targets increases the risk of India-Pakistan war. Most fundamentally, given the weakness of the state, the U.S. government has doubts about the effectiveness of a supportive policy toward Pakistan.

Redefining security and self-help: 

The Musharraf regime can take satisfaction in its progress in managing the country’s precarious economy, and knows that the remedy to Pakistan’s ills must come from within the country. But its concept of Pakistan’s security is still a limited one, centered on military defenses, Kashmir, and the threat from India. Pakistan’s poverty, its economic fragility, and especially the challenge to the authority of the state may represent a greater risk to Pakistan’s integrity than more conventional military questions. Unless these questions are addressed with the same urgency, Pakistan faces a future dangerous for itself and for the region.

The South Asia Monitor is published by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific public policy positions. Views expressed in this publication are those of the authors.

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