Political and Internal Developments

The government has approved imposition of the Reformed Goods and Services Tax (RGST) at a uniform rate of 15% and have decided to bring a bill in parliament for this purpose. In addition, a one time 10% flood surcharge has been levied on income tax for the remaining six months of the current fiscal. The two measures, which are to come into force by January 1, are expected to yield a revenue of around Rs 65 billion.

The RGST and surcharge on income tax are unpopular and are being opposed by the opposition parties, by allies like the MQM and ANP, by the business community, and by the provincial governments.

The pressure for introducing these measures comes from international donors as well as the IMF which made it clear that the last two tranches of IMF assistance totalling $ 3.6 billion would not be released until there was progress on the ground not just on the taxation front but also in power sector reforms.

In the face of a deteriorating economic situation characterised by rising debt, - 12% in the last nine months and a debt-GDP ratio of over 63.4% - and a resource crunch which has worsened because of the inability of the government to cut either debt servicing or defence expenditure, massive cuts are being imposed on development activity. Nearly 300 new development projects have reportedly been put on the backburner and existing projects are also facing cuts. There are also reports that the government is planning to cut budget spending by a whooping Rs 330 billion and ministries and divisions have been asked to cut their spending by 40%.

In what would be good news for Pakistan, the World Bank appears to have withdrawn its objections to the Diamer-Bhasha dam in Pakistan-occupied Kashmir and hinted that it could fund some components of the $ 11.3 billion project. There was further good news after two Chinese companies expressed interest in taking up the Bunji, Bhasha and Kohala hydel power projects on a BOT basis. Together the three projects are expected to produce 14000 mw of electricity. In addition, there are reports that the Chinese are planning to supply Pakistan with yet another nuclear power reactor – the fifth.

With the economy in a tailspin, and on top of hikes in oil prices and energy tariffs, has come the ‘sweet shock’ with sugar prices touching Rs 120 per kg. The skyrocketing prices of sugar have been blamed partly on the inability (lack of money) and incompetence of the government to balance demand and supply and largely on the infamous sugar cartel which is believed to have manipulated the sugar prices to earn billions of rupees. While the sugar mill owners, which include top members of both the government and opposition, have pleaded innocence, the Competition Commission of Pakistan has squarely placed the blame for the escalating sugar prices on the sugar cartel.

The sugar crisis gave yet another handle to the opposition, with the PMLN spokesman blaming President Asif Zardari and Prime Minister Yusuf Raza Gilani for allowing profiteers to loot the people by manipulating sugar prices. The war of words has come even as PMLN chief Nawaz Sharif wrote a letter to President Zardari asking him to improve governance by controlling corruption and inflation, ending the lack of accountability of ministers, implementing Supreme Court orders and making the PSUs profitable. Earlier, the PMLN decided to get rid of the label of ‘friendly opposition’ by launching a mass contact campaign to pressure the government to improve its performance. Nawaz Sharif is however restraining the hard-line elements in the party who are keen to pull down the government by raising the temperature on the streets. According to reports, Nawaz Sharif has cautioned his party to first test the waters before plunging into a headlong confrontation with the PPP.

Despite Nawaz Sharif’s caution, relations between the PPP and PMLN are in a downslide. Not only is the PMLN ratcheting up the pressure on the PPP to quit the coalition government in Punjab, there are also reports that angry over the contacts between the PPP and PMLQ, around 15 MNAs of the PPP have approached the PMLN. Meanwhile, Federal Law Minister Babar Awan has ridiculed Nawaz Sharif by calling his proposal for developing a political consensus on a Charter of Pakistan (Meezaq-e-Pakistan) – a 25 year agenda for the country – as Mazak-e-Pakistan (joke of Pakistan). The PMLN has forbidden its members from meeting any member of the federal cabinet, including the Prime Minister, without first taking clearance from the party.

With the PMLN starting to take the gloves off in confronting the PPP, political manoeuvres on the Muslim League front have acquired a new edge. In an effort to reunite the various Muslim Leagues, former Prime Minister Zafarullah Jamali took the initiative to meet Nawaz Sharif. Although Jamali continues to be optimistic about reunifying the Muslim Leagues, the PMLN has apparently decided against the mergers of the various Muslim Leagues. Nawaz Sharif and other senior members of the PMLN continue to harbour very strong feelings on sitting together with the people who betrayed the party and joined hands with Gen. Pervez Musharraf. The PMLN has reportedly decided to shun any alliance whose sole purpose is to acquire power. At the same time, the PMLN has softened its stand on taking back less controversial members of the PMLQ and has started admitting some of these people in the party.

Last week saw two big terrorist attacks in Pakistan. The first attack was a suicide bombing of a mosque in Darra Adam Khel in the Northwest. The attack, which is believed to have been prompted by infighting among the Taliban groups, killed over 70 people. The second attack had lesser casualties but in terms of impact was more serious. A team of terrorists attacked the office of the CID unit investigating terrorism related crimes in the heart of Karachi. The attack culminated with a truck bomb driven by a suicide bomber exploding after banging against the police building, killing around 20 people and injuring over a hundred. Although the Tehrik-e-Taliban Pakistan has taken responsibility for the attack, the authorities have pinned the blame on the Sunni terrorist group Lashkar-e-Jhangvi.

The Baloch nationalist leader and former chief minister, Akhtar Mengal, has written to the UN Secretary General to send a mission to Balochistan to investigate both the wanton killing of Baloch people by Pakistani security forces and the cases of thousands of missing persons who are believed to have been picked up by Pakistani intelligence agencies. While the Baloch nationalists and freedom fighters are engaged in their struggle against the Pakistani state, the chief minister of Balochistan, Aslam Raisani, has decided to challenge the handing over of the Gwadar port to Ports Singapore Authority (PSA). It is still not clear if Raisani is doing this to assuage the sentiment in Balochistan or please his masters in Islamabad who are keen to cancel the contracts with the Singapore company and hand over Gwadar to the Chinese. On its part the Supreme Court of Pakistan has issued notices to both the Gwadar Port Authority and PSA.

In what is likely to be another major problem for the federal government, the provinces have refused to absorb the federal government employees working in departments that will be handed over to the provinces under the devolution scheme contained in the 18th Amendment. While the government is believed to have worked out a three-phase plan to devolve the functions of ministries and departments to the provinces, there is no clarity on how the provinces are to meet the financial burden that will fall on them after they take over these functions. Two provinces – Sindh and Khyber-Pakhtunkhwa – have already expressed their financial inability to take over these functions.

Foreign Policy / Foreign Relations

President Asif Zardari is on a visit to China as a guest of honour at the Asian Games being held in Guangzhou. He has called for greater Chinese investment in Pakistan and appreciated Chinese assistance for Pakistan during difficult times.

The EU has approved the trade concessions package for Pakistan, which some observers complain has been greatly watered down to address concerns of member states.

On the eve of US president Barack Obama’s visit to India, the US imposed new sanctions on Pakistani terrorist groups Jaish-e-Mohammad and Lashkar-e-Taiba. Meanwhile, the US defence secretary Robert Gates has said that the Afghanistan-Pakistan border region remained the ‘heart of the Al Qaeda.” With the first review of the Afpak strategy expected to come out in December, there are reports that elimination of terrorist safe havens in Pakistan would be a ‘key item’ on the US agenda. In other words, pressure is likely to mount on Pakistan to launch operations in North Waziristan, something that the Pakistan army has been reluctant to do since it would mean disturbing terrorists whom the Pakistanis consider as ‘strategic assets’. The US is likely to sweeten the bitter pill of North Waziristan operations by introducing the Reconstruction Opportunity Zones (ROZs) legislation in the US Congress.

Pakistan is incensed at Obama’s endorsement of India’s claim to a permanent seat on the UN Security Council. In an effort to pre-empt such a move the Pakistani foreign office on the eve of the visit declared that “Any endorsement of the Indian bid will have serious implications on the direction and merits of this question that has been under consideration in the UN General Assembly. It will also have negative effects on issues relating to peace and security in South Asia.” Following the endorsement, the Pakistan foreign office reacted by saying that US “support adds to the complexity of the process of reforms of the council and contradicts the fundamental principles of the UN Charter”, adding that “Pakistan hopes that the United States...will take a moral view and not base itself on any temporary expediency or exigencies of power politics.” Furthermore, the foreign office conveyed its ‘disappointment’ to the US ambassador, and Pakistan also decided to take up the issue with Gen. David Petreaus.

The federal cabinet “expressed its serious concern and strong disappointment over the decision” and said “it is incomprehensible that the US has sought to support India, whose credentials with respect to observing UN Charter principles and international law are at best checkered (sic.).” The cabinet also pointed to what it self-servingly called “India’s disregard of Security Council Resolutions on Jammu and Kashmir and gross and systematic violations of the fundamental human rights of the Kashmiri people” to oppose the US backing for India.

The Pakistan parliament passed a unanimous resolution expressing “serious concerns and disappointments on the decision of the US to support the permanent seat for India on the UNSC.” Calling the US endorsement for India “a counterproductive move that disregards Pakistan’s principled position and sensitivities on the issue of reforms of the UNSC”, the resolution used some very strong language against India by noting “India’s disregard of Security Council’s resolutions on Indian-held Kashmir and its gross and systematic violation of the fundamental human rights of the Kashmiri people makes the US endorsement a specific threat to peace, security, regional balance and stability in South Asia, and also shows the double standards with regard to implementation of Security Council’s resolutions.”

While all this screaming and shouting brought little comfort to Pakistan from the US, the Pakistanis did manage to win the support of Italy in opposing India’s claim to a permanent UNSC seat. The visiting Italian foreign minister did not restrict himself to the UNSC seat and went on to make gratuitous remarks on the Kashmir issue calling it “a problem for Pakistan [that] needs to be addressed through dialogue” and that “it was in India’s interest to have excellent relations with Pakistan and that New Delhi should work for ‘positive movements’ to resolve the dispute.” Using the occasion of his joint press conference with the Italian foreign minister, the Pakistani foreign minister Shah Mehmood Qureshi said that India’s efforts to gain a permanent membership could be a long-drawn and complicated process and delivered “a message for the people in Delhi - Hunooz Dilli door ast”.

Relations with India

The double-faced nature of the Pakistani state came out last week when even as foreign minister Shah Mehmood Qureshi said that “Pakistan was willing to engage constructively with India and collectively work to dismantle terror machines” and President Asif Zardari reiterated that Pakistan would not allow Pakistani soil to be used by terrorist against any country, the terrorists were openly operating and plotting against India from Pakistan occupied Kashmir. According to reports in the Pakistani media, jihadist terrorist groups and Islamist political parties are planning to collect thousands of people and breach the Line of Control in Jammu and Kashmir. In another shocking incident, Hafiz Saeed, head of the terrorist organisation Jamaatud Dawa which is supposed to be banned by the Pakistani authorities, was invited by the Lahore High Court Bar Association to deliver a talk in which he once again preached terrorism against India. So much for civil society in Pakistan!

Pakistan has meanwhile asked India to allow a Pakistani commission to visit India to collect evidence for the 26/11 trials that are underway in Pakistani courts.

The Pakistan Rangers have backtracked from an understanding they had reached with the Indian BSF to tone down the flag hoisting and lowering ceremonies at the Wagah border. Calling the aggressive posturing during the ceremony as ‘enthusiastic style’, the commander of the Pakistan Rangers has said that there won’t be any change in the drill except for reviving the practise of a formal handshake between the officials of the two sides.

The junior minister in the Pakistan foreign office has accused India of mistreating Pakistani prisoners in India and violating the consular access agreement between the two countries.

Amidst reports of problems in the Neelum-Jhelum hydel power project being built by Pakistan in Pakistan occupied Kashmir, Pakistan's Indus Waters Commissioner Jamaat Ali Shah has accused India of violating the Indus Waters Treaty by constructing Kishanganga, Nimoo Bazgo and other hydropower projects on Chenab, Indus and Jehlum rivers.

Even as Pakistan continues to sponsor terrorism in India and tries to put diplomatic obstacles in India’s path, the laws of economics seem to be having a telling effect. The Pakistan government has allowed import of vegetables from India to keep prices under control. Meanwhile, India’s share in Pakistan's tea market has been steadily increasing and in October 2010 Pakistan imported nearly 30% of its tea requirement from India.