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Pakistan and the new Great Game By Shahid Javed Burki Published: January 16, 2012 The writer is a former vice-president of the World Bank and a former caretaker finance minister of Pakistan The latest American defence strategy revealed by President Barack Obama, on January 5, could result in the South Asian subcontinent becoming the stage on which the large powers will play the new Great Game. India and Pakistan are likely to find themselves on the opposite side of the new great power divide. It would not be healthy for South Asia if the United States growing concern about China’s increasing influence results in promoting rivalry between China and India. A healthy competition between the two Asian giants will serve the two well. What would not help is Washington’s use of India to balance China’s rise and thus have New Delhi serve its strategic interests. The deteriorating relations between the US and Pakistan, as result of a series of events in 2011 , have presented the policymakers in Washington with a choice. They can work to resolve the differences and remain engaged with the country that remains critical to its long-term — not just short-term — strategic interests or, they can simply walk out of the country as was done in 1989 when Pakistan’s usefulness to the US was diminished after the Soviet Union was pushed out of Afghanistan. There is considerable temptation to adopt the latter approach. That is certainly the case in the US Congress, which has already declared its intention to reduce the amount of military assistance and economic aid promised to Pakistan .

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Pakistan and the new Great Game

By Shahid Javed Burki

Published: January 16, 2012

The writer is a former vice-president of the World Bank and a former caretaker finance minister of Pakistan

The latest American defence strategy revealed by President Barack Obama, on January 5, could result in the South Asian subcontinent becoming the stage on which the large powers will play the new Great Game. India and Pakistan are likely to find themselves on the opposite side of the new great power divide. It would not be healthy for South Asia if the United States growing concern about China’s increasing influence results in promoting rivalry between China and India. A healthy competition between the two Asian giants will serve the two well. What would not help is Washington’s use of India to balance China’s rise and thus have New Delhi serve its strategic interests.

The deteriorating relations between the US and Pakistan, as result of a series of events in 2011, have presented the policymakers in Washington with a choice. They can work to resolve the differences and remain engaged with the country that remains critical to its long-term — not just short-term — strategic interests or, they can simply walk out of the country as was done in 1989 when Pakistan’s usefulness to the US was diminished after the Soviet Union was pushed out of Afghanistan. There is considerable temptation to adopt the latter approach. That is certainly the case in the US Congress, which has already declared its intention to reduce the amount of military assistance and economic aid promised to Pakistan.

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The new US defence strategy, by focusing so much attention on China, is bound to further complicate the situation and add another element in the American-Pakistani equation. With heavy dependence on external flows to retain some dynamism in the economy and with the Americans threatening to reduce their assistance, Islamabad has already reacted by attempting to draw even closer to Beijing. This effort was only partially successful; Beijing, with its eye on Washington, was not inclined to walk into Pakistan to fully compensate for the threatened American withdrawal. But Beijing may rethink its cautious approach. If the defence strategy sends the message to Beijing that China-containment had become the main interest for the US in world affairs, the Chinese may seek to list Islamabad as its partner to counter the American moves. And if the US responds by getting even closer to India what will result is a four-power ‘Great Game’ with America and India seeking to contain China and China and Pakistan working together to limit Washington’s influence in their geographic space. This will be an unhappy development for South Asia.

What is needed instead is a deep American involvement in helping Pakistan to develop its political system and its economy to guide the ongoing revolution in the Middle East and several other Muslim countries into the right channels. Drawing a connection between the Arab Spring and Pakistan’s development as a way of helping the West’s strategic interests may, at first sight, seem a bit of a stretch. But such a link becomes apparent when the dynamic unleashed by the events in the Middle East is put in a historical perspective.

What is at issue now is the direction the Arab Spring is likely to take. The first series of elections in the Arab world — in Morocco, Tunisia and Egypt — following the street-inspired revolutions have brought parties with strong Islamic roots into prominence. In Egypt, it is already clear that the party affiliated with the Muslim Brotherhood will have the largest presence in the newly elected assembly. It has won close to one-half of the seats, while another quarter has gone to the Salafists. The revolution was brought about by disaffected youth but its consequences will not bring them into political power. “So why are so many Arabs voting for parties that seem regressive to Westerners?” asks John M Owen, a professor of politics at the University of Virginia and the author of an important book on the clash of ideas and politics. His answer: “Liberalism in the 19-century Europe and Islamism in the Arab world today, are like channels dug by one generation of activists and kept open, sometimes quietly, by future ones. When the storms of revolution arrive, whether in Europe or in the Middle East, the waters will find those channels. Islamism is winning out because it is the deepest and widest channel into which today’s Arab discontent can flow”.

But today’s revolutions are different from those that came earlier; they are taking place in full global view where those participating in them are in constant communication with those watching them. It is unlikely that the liberal forces that relieved the countries of absolutist leadership will easily give way to the dominance of political forces that may take the affected countries towards another form of control. This happened in Iran in the late 1970s. To ensure that Islamists, even if they win elections, will not dispense with liberal democratic forms, the liberal forces are looking for models in which religious parties are embedded within democratic systems.

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Pakistan could become such a model if its fledgling democratic system succeeds. Pakistan, at this time, is deeply involved in containing the rise of Islamic extremism. One way to deal with it is to combine the use of force with accommodation. Those not prepared to work within the established legal framework must be dealt with firmly while those inclined to use the norms of democracy to advance their agendas must be given accommodation. Pakistan’s difficult political evolution is being watched by many in the Middle East. If it succeeds, it will be seen as an example to be replicated. However, the United States by withdrawing its support at such a critical time and forcing the new Great Game on South Asia, will unleash another dynamic that could seriously set back the Pakistani experiment. A strong anti-American sentiment would undoubtedly help the Islamic groups and inhibit the more liberal forces. In other words, Washington must look at Pakistan through the lens of the Arab Spring rather than as a player on the other side of the game to contain China.

Published in The Express Tribune, January 17th, 2012.

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Water scarcity and pricing By Shahid Javed Burki Monday, 22 Aug, 2011 PAKISTAN is one of the world’s most arid countries with an annual rainfall of less than 240 mm. At the same time agriculture is an important part of the economy, accounting in 2010 for over one-fifth of the gross domestic product. Since the time of the British who invested heavily in tapping the Indus River system for irrigating the virgin lands of the Punjab and Sindh, agriculture has become an important part of the sector. Over 80 per cent of the cropland is irrigated. Most of the important crops — wheat, rice, cotton and sugar cane — rely on surface irrigation. As discussed below some of these would not be part of the farming pattern if water was properly priced. According to one expert, until relatively recently, “agriculture was characterised by low cropping intensity and production dominated by low-water requirement crops like food grain. During the last decade, however, the pressure on water has drastically increased with more competition for quantity and quality of irrigation water within the sector.” There is a move towards the production of high-value crops which produce more jobs per unit of water and per unit of land than traditional crops. Pakistan has been unable to develop the capacity for storing water largely for political reasons. According to a 2009 report by the World Bank, the United States and Australia have over 5000 cubic meters of storage, while China has 2000 cubic me ters. Pakistan’s capacity is only 150 cubic meters. Inefficient use of water that flows into the vast irrigation system that has been developed over time is another problem the country has to deal with. Of the water diverted from the river system, 96 per cent is used for agriculture while four per cent is consumed by industry and households. However, a significant part of the water that flows into the irrigation system is wasted because of its antiquated design and poor maintenance and poorly leveled fields. More than 50 per cent of the water in the system is lost by way of evaporation or seepage into the ground. The water that seeps into the ground is recovered by half a million tube wells that have been installed over the last 50 years. Ground water pumping has increased from 3.34 MAF n 1959 to 55 MAF in 2009.Tapping of this resource is done without regulation. The result is that

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there is “mining” of water with the amount extracted exceeding the amount of natural recharge. About 70 per cent of the working tube wells are producing hard or brackish water which is exacerbating the salinity problem. Climate change is also affecting Pakistan’s water situation. Glacier retreat is likely to reach 40 to 50 per cent of the area currently under ice cover and as the Pakistani rivers receive most of their flow from melting ice. This will have serious consequences for the availability of water. As the World Bank stated in a major report on Pakistan’s water resources, “while the science is still in its infancy, best estimates are that there will be 50 years of glacial retreat, during which time river flows will increase. This — especially in combination with predicted more flashier rainfall — is likely to exacerbate already serious problems of flooding and draining, especially in the lower parts of the basin in the next few decades. But then the glacial reservoirs will be empty, and there are likely to be dramatic decreases in river flows, conceivably by terrifying 30-40 per cent in the Indus basin.” Some of the problems that are taking the country towards water scarcity can be resolved by adoption of appropriate public policies. But this, as in so many other cases, will need the exercise of political will. The level of resources needed for development — building of new storage dams and improving the system of irrigation — will have to be increased. This will require a greater fiscal mobilisation effort which means plugging of loopholes in tax structure, widening the tax base and improving the efficiency of the tax collection machinery. With increased resources, the country will be able to commit more funds for further developing its already impressive irrigation infrastructure. Country’s political masters must gather the will to convince those who oppose the construction of such large dams as the one at Kalabagh that this type of investment is not a zero-sum game where one party’s loss is equal to other party’s gain. A well integrated system for managing the flow in the rivers will benefit all citizens. Water pricing is another critical public policy issue that needs to be addressed in order to improve utilisation of this precious but declining resource. Pakistani farmers don’t pay the price for water that appropriately reflects the present and future scarcity value of this commodity. Charging the users on the basis of scarcity would improve the efficiency of water use in many ways. Farmers will have an incentive to level their fields to minimise the waste of water. They will also move away from cultivating such water-intensive crops as sugar cane. Correct pricing of water for non-agricultural use is also important since both industry and households will have the incentives to minimise waste. It has been found that where water is correctly priced there is greater recycling. Israel is one of the countries that has learnt to use water with great efficiency. It is the world’s leader in developing drip irrigation.

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Pakistan has paid no attention to developing a regulatory system that would watch over the use of water. For instance, the use of ground water for irrigation, manufacturing and domestic use is hardly regulated. The result is mining of water which is causing a sharp drop of the water table in many areas. To prevent the further deterioration of the situation, the policymakers need to work not only on installing the right price regime but also supporting it with a regulatory system. Water is one of the important inputs that are now under stress because of underinvestment by the public sector. In the earlier decades, the share of water in the public sector development programme was 20 per cent of the total. In the 1990s it declined by nearly one-half, to only 11 per cent. This means that there was significant reduction in potential increase in GDP because of the lack of sufficient investment in improving the availability and flow of water for agriculture. The elasticity of agriculture growth to water is 0.48. Dealing appropriately with the problem of water scarcity is on important way for bringing health back to a sick economy.

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Good governance issues in South Asia By Shahid Javed Burki Published: September 12, 2011 The pressure by the citizenry in two South Asian states to improve the quality of governance is taking two different forms. There are different reasons for popular discontent. In India, the problem lies in the way the fruits of extraordinary economic growth have been distributed among different segments of the large Indian society. Some people and regions have benefitted more than others. Some 50 years ago, political economists began to warn countries in the developing world, that were beginning the process of ‘planned development’, that high rates of growth can — in fact often do — produce societal tensions that cannot be absorbed by weak political systems. That was the case in Pakistan with Ayub Khan, when the regime he headed collapsed quickly and unexpectedly. The much stronger Indian political system would have been able to deal with the adverse distribution consequences of rapid growth if another perception had not gained ground — that some of what made the rich very rich were not the consequences of risk-taking entrepreneurship, but the monetisation of close contacts with the policymakers. This group includes India, but not Bangladesh and Pakistan. India, of course, produced in quick successions two egregious examples of the personal wealth created because of influence over government policymaking. The first was the estimated loss to the government of perhaps as much as $40 billion by the grant of mobile phone licenses to a number of companies favoured by the minister in charge in the government headed by Prime Minister Manmohan Singh. Under pressure from the citizenry, the minister had to resign his position and landed in jail. This “large amount of money for favours” episode happened under the watch of the prime minister representing the Congress. But it quickly turned out that such practices were not confined to one political party. Soon after the mobile-phone scandal became public, it came to light that governing members of the opposition Bharatiya Janata Party had their hands in the till as well. There are deep concerns about the quality of governance in Pakistan as well. However, since the economy has been stagnating, there are not many rewards of growth that can be captured by narrow and powerful political elite. The Pakistani concerns are focused entirely on different aspect of governance. It is on the absence of quality governance by the legal and judicial systems. Those in Pakistan, who have focused on this aspect of good governance, have concentrated their efforts on ensuring judicial autonomy and on the reform of the legal system where it comes into contact with the common citizenry. The activists have been more successful in obtaining some movement in the former case — judicial autonomy — than in the latter, reform of the legal system.

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The country’s sordid political history when the senior judiciary — the provincial high courts and the Supreme Court — were quick to give cover to palpable misuse of executive power to ride roughshod over the constitution of the day created a powerful precedence. This trend started under Chief Justice Muhammad Munir in the 1950s when he brought forward the “doctrine of necessity” to justify the dismissal of the constituent assembly by Governor-General Ghulam Muhammad. This line of thinking was happily followed by a number of successor courts when called upon to rule over the acquisition of authority by the executive at the expense of the legislature — sometimes also at the expense of the judiciary itself. This has led to the growth of two very different citizens movements in these two South Asian countries. The focus in India in the campaign led by Anna Hazare, a Gandhian, is focused on creating an accountability mechanism that will be free of influence of the executive and legislative branches of the government. In fact, it will also have a degree of autonomy from the judiciary, the third arm of the government. If the Hazare movement succeeds in achieving its immediate objectives, it will have consequences for the working of the Indian democracy. This worries even the liberal community in India and also liberal watchers outside the country. In Pakistan, however, the concentration of citizen’s effort has been on getting an autonomous senior judiciary to watch over the working of the executive and legislative branches of government. The activists seem to have concluded that given the country’s poor record with accountability mechanisms, concentrating on judicial independence is the way to go.

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The Pakistani ‘state’ under stress — I

By Shahid Javed Burki Published: September 20, 2011 The state of the Pakistani state is currently weak and is becoming weaker with every passing day. To understand what is happening, it would be useful to look briefly at the country’s roller-coaster political history which has resulted in confusing the meaning of the state as understood in Pakistan. In going into the history, I will also briefly write about a conversation I had with President Ziaul Haq a few weeks before he was killed in an airplane crash. Look at any dictionary for the meaning of ‘state’ and clues begin to appear why this particular organism is so much under stress in most parts of the world. My dictionary attaches many meanings to the word ‘state’. It says: “It is the supreme public power within a soverign political entity”. Or is it? In some of the South Asian nations, the state can no longer be said to exercise the supreme authority given to it by the basic law of the land — the constitution. Competing sources of power have emerged. This is particularly the case in Pakistan. Is the state the supreme public power in the soverign entity called Pakistan? According to the second dictionary definition, the state is “the sphere of supreme civil power within a given polity”. According to this definition, the state is equated with civilian authority and that authority is put into place by the people through elections. It is widely known — at least widely understood — that on several matters, the legally constituted state in Pakistan does not exercise the powers given to it by the 1973 Constitution. On issues pertaining to external security and on matters concerning India, the elected government does not have the ‘supreme authority’. It must listen to the military and within the military to the army high command. The other example of the state not performing its functions as defined by law also comes from Pakistan. On two occasions, the ruling authority — in both cases a military leader who usurped power — amended the constitution to make the president rather than the parliament the supreme authority in the country. This was done by General Ziaul Haq’s Eighth Amendment to the constitution adopted on November 9, 1985. The amendment shifted the locus of authority from the parliament to the president. A provision was added to Article 48 according to which “the validity of anything done by the president in his discretion shall not be called into question on any ground whatsoever”. To this provision was added a new clause to Article 58 according to which “the president may dissolve the National Assembly in his discretion where, in his opinion, a situation has arisen that the government of the Federation cannot be carried out in accordance with the provision of the constitution and an appeal to the electorate is necessary.” General Zia used this provision in May 1988 to dismiss Prime Minister Muhammad Khan Junejo and

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dissolve the National Assembly. The dismissal came with the announcement that general elections would be held in October as provided by the amended constitution. However, the president had no intension of keeping his word. He told me, in a meeting I had with him, on July 30, in his office in Islamabad, that he was working on drastically changing the constitution by going in for a presidential form of government. The country was to be divided into 20 provinces, each to be administered by an appointed governor. This, he said, was recommended by a commission he had appointed under one Justice Ansari. He provided me with this information after offering me the position of finance minister in the caretaker government he had put into office after dismissing Junejo. When I demurred saying that I wished to continue with my job at the World Bank, he said with a smile that he knew why I was reluctant to accept his offer. “You think elections will be held in October and I will hand over power to the elected prime minster. None of this will happen. I am going to be around for a long time”. This was the last time I met him. He was dead within less than three weeks of this meeting. Under the eighth amendment President Ziaul Haq, in other words, had acquired almost dictatorial powers. This provision remained and was used three times by two of his civilian successors. It was removed by the 13th Amendment to the constitution approved in 1997, when an elected government with a large mandate took office. It was reinstated by the Seventh Amendment, introduced into the constitution by General Pervez Musharraf, the fourth military man to govern the country. This was adopted on December 17, 2003 before the army chief of staff was prepared to share power with an elected parliament. The amendment restored the powers of the president to dissolve the National Assembly and dismiss the prime minister. It also incorporated 10 laws into the sixth schedule of the constitution, four of which established the system of local government in the provinces. These laws “could not be replaced or amended without the previous sanction of the president.” This encroachment by the president into the powers of an elected parliament was removed for the second time by another amendment — the 18th Amendment — adopted by the parliament, elected in February 2008. The amendment was approved in April 2010 and signed into law by President Asif Ali Zardari on April 2010, a year and a half after being elected president. Has the 18th Amendment restored a parliamentary form of government in the country? The answer is no, since the president continues to wield power that goes beyond that permitted by the constitution. He does that by virtue of the fact that he is also the head of the political party that has the largest presence in the national assembly. The prime minister, the constitutional head of the government and directly elected by the people is, in practice but not in terms of law, subservient to the head of the state, who is indirectly elected. In other words, in practice, Pakistan is not being governed according to the basic law of the land. The supreme power in the state is in the hands of a state functionary who is exercising power that goes beyond that sanctioned by the constitution. This confusion about the locus of power hurts the working of the state and is weakening it.

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The Pakistani ‘state’ under stress — II

By Shahid Javed Burki Published: September 25, 2011 I return to the subject I introduced in this space last week. In the previous article, I suggested that the state in Pakistan is not organised the way it should be; it does not function according to the meaning that is generally attached to the word ‘state’ in most dictionaries. Nor does it tally with the expectation political scientists have about the functioning of democratic states in the developing world. What is present in Pakistan today, is a confused state of affairs about the legitimate functions of government. There are good reasons to raise a number of questions about the functions of the state: what should they cover, who should perform them and from where they should be performed? I will ask what I consider to be important questions; the answers to them will be implicit in the way the questions are phrased. History is one reason why the confusion about the meaning of the state prevails in Pakistan. Often, those who had become responsible for the state — or had made themselves responsible for it — did what they were not expected to do. They undermined the basic law of the land. On two occasions the constitution was abrogated, in both cases by military leaders who were convinced that their mandate for taking those decisions was implied in the positions they occupied. On a number of other occasions the constitution’s basic structure was seriously compromised. It is happening once again, since, the locus of executive authority rests with the person and in the place where it shouldn’t be under the constitution, as amended recently. That Pakistan has a long history of deliberately confusing the assignment of responsibility to various actors in the functioning of the state is not good enough reason to continue with this practice. Lack of clarity about the locus of power is particularly troubling at a time when the country is dealing with so many crises at the same time. Pakistan is now in the eye of a perfect storm. As I write this, The Washington Post reports on a series of meetings held between the senior American and Pakistani leaders. US Secretary of State Hillary Clinton, met with Pakistani Foreign Minister Hina Khar in New York; Admiral Mike Mullen, chairman US Joint Chiefs of Staff, met with General Ashfaq Kayani, Chief of Staff of the Pakistan Army in Madrid; and David Petereus, Director of CIA met with Lt. Gen. Ahmed Shuja Pasha, Director of ISI, in Washington. While these meetings were being held, Leon Panetta, the new Secretary of Defence in the Obama administration, issued what the American press called an ultimatum to Pakistan. Islamabad was being asked to move against the Haqqani network operating out of North Waziristan. It was held responsible for the recent attack on the American Embassy in Kabul and possibly also for the assassination of Burhanuddin Rabbani, who was attempting to negotiate with the Taliban on behalf of the government in Kabul and the US. It is clear that Pakistan is now in America’s cross-hairs. Will Washington move against the country, if Islamabad does not, to do its bidding?

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It is not clear who has the responsibility of crafting an appropriate Pakistani response to the pressure from the US. Does the responsibility rest with the prime minister and the parliament as it should under the constitution or is the president in charge? The constitution assigns the president a very limited set of responsibilities. If he is calling the shots from where does he draw that authority? Is the military formulating the policy response to the Americans? If so why? Then there is trouble brewing on the economic front. Pakistan appears to have decided to terminate its relations with the International Monetary Fund. This will not only deprive the country of some $4 billion of additional money which remains undisbursed from the arrangement concluded in 2009. It will seriously limit the country’s access to other sources of official finance. Once again it is not clear who took the decision and for what reasons. Did the cabinet decide to walk out of the arrangement? Was the decision the result of the reading by the politicians in power that they did not have enough clout with the citizenry to do what the Fund wanted Pakistan to achieve: to raise enough resources from within the economy to provide the government the money it needs to fulfil its many basic functions. Whoever took the decision to walk out of the Fund arrangement should have looked at the alternatives that are available for financing the legitimate functions of the government. If the politicians do have some alternatives in mind, what are they and how will they be tapped? Pakistan is once again dealing with devastating floods caused by rains that were expected. Were preparations made to save the people from being hurt once again after they had suffered so much from the Great Flood of 2010? What were the lessons learned from the government’s handling of the disaster last year and how were these applied for managing similar emergencies? Have the policymakers given any thought to creating an institutional mechanism for dealing with the type of emergencies and crises the country faces? Most countries have some variant of National Security Councils that pull in various functionaries from different branches of government as emergencies arise. Such an institutional structure exists in countries as diverse as the US and India. In both cases, high quality staff does the background work to facilitate the making of policy. Such an institutional structure was in place when General Pervez Musharraf was the head of the state. It functioned for a brief period when the current rulers came to power. In both cases the councils were not adequately staffed. Why was this mechanism for providing professional backing for serious policymaking done away with? Could it be that the ad hoc way of policymaking suits the temperament of those who deal with the affairs of the state at this time? Pakistan is too large a country and faced with just too many crises to handle state matters with such casualness. The questions raised here and several other that are also important need to be asked and the policymakers who are determining the future of 180 million people need to provide some convincing answers. Published in The Express Tribune, September 26th, 2011.

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America-Pakistan ties — where are they headed?

By Shahid Javed Burki Published in Express Tribune, July 18, 2011 Although history may not always repeat itself, it does provide some clues about the future. Pakistan’s relations with the United States have taken a nosedive in the last few weeks. How sharp the descent has been, has surprised many — if not most — observers. It would be instructive to go back to history to remind ourselves why Pakistan became such a close American ally more than half a century ago. When the British left two parts of their Indian domain that had with Muslim majorities, in the hands of a Muslim elite, they helped found a state that proved not to be viable. It was also a state that was not welcomed by the much larger part of the British Indian colony — the India of today. This bred a sense of deep anxiety among those who governed Pakistan during its formative years. There were two outcomes: A deep suspicion about India’s intentions towards it Pakistan, and a deep yeaning to find friends outside the borders that could produce a feeling of security. There were four states in the new country’s immediate neighbourhood. India, China, Afghanistan and Iran. Modern China was still not born when Pakistan achieved independence. It was only on October 1, 1948 that the communist party led by Chairman Mao Zedong marched into Beijing and took over the reins of a vast country in total disarray. For the new government in Beijing, the first task was to stabilise the country, not to form alliances with its many neighbours. Afghanistan was deeply hostile to the creation of an independent state that had a large proportion of Pakhtuns in its population. There were, at the time perhaps five million Pakhtuns residing on the other side of the border drawn by the British and forced upon Kabul. The rulers of Kabul wanted to redraw the Durand Line — the border left by the British between Afghanistan and Pakistan — and push it, as far as possible, towards the western bank of the Indus River. In those circumstances, Afghanistan could not be a friend of Pakistan. Finally, there was Iran. This was the only predominantly Shia state in the Muslim world. It had an uneasy relationship with its Sunni neighbours. There were, thus, good reasons why Tehran did not immediately open its arms to receive a new Muslim state. Pakistan, in other words, was cast into an uncomfortable geopolitical environment. Anxiety about perceived Indian intentions was one reason why the first generation of Pakistani leaders felt the need to cultivate foreign states as friends. The other was economics. Pakistan had been founded on the basis of a promise to provide better economic conditions for the Muslims of British India. This meant accelerating the rate of economic growth in what was once the poorest part of the subcontinent. The rate of domestic savings was low; certainly not high enough to produce a rate of GDP growth that would help to alleviate poverty. The only way option was to augment domestic savings with foreign flows. At that time, the world had as yet to organise itself to provide cheap development finance to poor

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countries — for instance, the establishment of the International Development Association was still a decade and a half away. Approaching some rich countries as benefactors was one way of dealing with the situation. The US appeared to be a good candidate to play the role of a rich uncle. Washington, too, had begun to develop an anxiety of its own. It was deeply suspicious of the intentions of the Soviet Union, its erstwhile ally in the Second World War. The defeat of Germany had opened an opportunity for the government in Moscow that, led by President Joseph Stalin, was able to fully exploit. While London and Washington watched helplessly, the Soviet Union expanded and consolidated its hold over Eastern Europe. In a way, the Soviet Union emerged geographically stronger compared to its former allies. The US made no territorial gains and the UK lost a good part of its empire in 1947, only two years after the collapse of Germany in Europe. Accompanying these changes was the communist advance in East Asia. Mao Zedong’s forces were advancing in China while Ho Chi Minh had begun to threaten France’s hold over Vietnam and the rest of Indo-China. The only option Washington felt it had to deal with this developing situation was to throw a set of chains around the countries that had fallen to what it saw as the communist menace. John Foster Dulles, secretary of state in the administration headed by President Dwight Eisenhower, built three chains around the Communist world: The North Atlantic Treaty Organization, (Nato), for Western Europe; the Baghdad Pact, later renamed the Central Treaty Organization, (Cento) for the Middle East and West Asia; and the Southeast Asia Treaty Organization, (Seato) for East Asia. Pakistan joined the last two, thus becoming an important link in the chains to contain the spread of communism. Pakistan’s entry into these alliances was not motivated by ideology or any fear about the advance of communism into its territory. The first generation of country’s leaders had other worries. They were busy creating a new central authority where none existed. They had to settle eight million Muslim refugees who had arrived as total destitutes from India. Economic stability and territorial integrity thus were the main concerns of the fledgling government. A close alliance with the US promised help in both areas. The situation has not changed since then. More than six decades later, as the world around it is being rapidly reshaped, Pakistan still remains deeply concerned about these two elements pertaining to statecraft. It remains nervous about the intentions of most of its neighbours. And it is still woefully short of resources with which it can build a strong economy. Half a century ago, the US was the only country that could provide some comfort in both these areas. But that seems unlikely now. Given this, what are the options available to Pakistan today? This is a question I will take up in this space next week.

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Economics and political evolution

By Shahid Javed Burki Published: August 7, 2011 While politics and political science are not my fields, I have always maintained that it is difficult to understand economic history without bringing them in as explanatory factors. Without an appreciation of the environment in which policymaking is carried out, it is hard to fully understand why those in power do what they do. Why did Governor Shahid Kardar of the State Bank of Pakistan resign after being in office for only a few months? Why, after the governor’s departure, did the central bank decide to lower the rate of interest when Pakistan has the second highest rate of inflation in Asia? Economic theory and practice would have suggested a tightening of money supply, not its easing. This was not expected by a dozen or so senior economists, who, when they were questioned before the Bank’s credit committee met, predicted that either the policy won’t change or there may be a slight rise in the rate. The bank’s action confounded economists and further eroded the confidence of those watching economic developments on the seriousness of policymakers with regard to addressing the grim economic situation the country currently faces. The answers to these questions are not to be found in economics but in politics. As democracy continues to take hold in the country, policymakers are working to ensure their survival by not keeping the men in uniform satisfied with their performance. This is what happened when a series of prime ministers were sent home by the powerful military for having failed to provide good economic management. Their removal was in fact demanded by senior politicians who occupied the opposition benches in the legislature. And when the military intervened, even the press welcomed their arrival. There are no calls this time around for history to repeat itself. The reason is that political forces are looking at some of the developments outside the country’s borders and drawing important lessons for shaping their own actions. Three of these developments are particularly important. Two of these occurred — or, more accurately are still occurring — in the Arab world, while the third took place in Turkey. The first of these is the effective use by the youth in the Arab world of new media to get organised and challenge the established political order. They used such new instruments of communication as Facebook and Twitter and such devices as the iPad and mobile telephones to gather and demonstrate on the streets. This expression of discontent didn’t need political organisations for mobilisation. The strength of this uprising was drawn from the depth of despair that had built up over years and decades. The authoritarian regimes in Tunisia and Egypt were not able to use their well-developed security forces to keep themselves in power. Once the military establishment in these two countries indicated that it would not intervene to keep in place the discredited leaders, regime change became inevitable. Yemen, Libya and Syria have not gone the way of Tunisia and Egypt for the reason that those in power have

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managed to stay there by exploiting the social, cultural and religious divisions in their societies. They may have bought some time for themselves but not longevity. The second lesson is that the ‘political street’ has been inserted as another balancing factor in the evolving political systems. If there is general dissatisfaction with the way the executive branch is acting and its actions cannot be constrained or controlled by the legislature and the judiciary, the street will be prepared to act. The street is not just in the Arab world but in all parts of the Muslim world. It is ready to throb with activity because of the age of the population. The median age of the populations in Muslim countries is much lower than in other parts of the world. It is only 21 years in Pakistan, which means that some 90 million people in a population of 180 million are below that age. Most of them are not active participants in the established political order. They are deeply concerned about their present economic situation and future prospects and could come out on the streets if they lose hope in their future. The third important development of note is the sudden departure of all senior military commanders in Turkey. As Anthony Shadid, the Pulitzer Prize-winning journalist, wrote recently in The New York Times, “50 years ago, when a populist prime minister tangled with the Turkish military, he ended up on the gallows, the mandate of three election victories little consolation. This time around, the rivalry climaxed with most of Turkey’s military high command resigning simultaneously, its leader complaining of powerlessness and bad press.” There is a consensus among analysts that this action by the commanders has strengthened the position of Recep Tayyip Erdogan, the thrice elected prime minister, rather than weakened it. The once powerful militaries in the Muslim world have had to recognise that the people of their countries want representative political orders in place rather than rule by strongmen. The main lesson Pakistan’s political establishment has drawn from these developments is that it cannot simply rely on the support of its traditional constituencies. It has to keep an eye on the way people are reacting to their policies. The street also matters. The politicians have also gained some confidence that the military, while still influential in several aspects of policymaking, is not likely to directly intervene. These are reasonable responses to the important developments outside the country’s orders but they have not resulted in good economic policymaking. One important illustration is the way Islamabad is dealing with the State Bank and the way it is using the monetary policy to keep the street on its side. Most political mistakes are made by sacrificing the future to the present. It is quite clear that the current rulers are getting ready for the next general elections. They have to be held in the next 20 months. If held under the current political dispensation, this would be the first time that an elected government would have completed its full term. To get to that point, the PPP-led government seems to have concluded that it is important to bring growth back by easing money supply and that tightening of money would reduce investment by the private sector and thus slow down the increase in employment. These are short-term responses to a difficult economic situation but their consequences will, in the long run, be politically and economically grim.

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Published in The Express Tribune, August 8th, 2011 Economics and political evolution – The Express Tribune

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Chinese investments in water projects

By Shahid Javed Burki Published: June 13, 2011 There is news in the western press that the Chinese may be getting ready to make large investments in developing Pakistan’s water resources. These investments will be made to increase the amount of water available for irrigation and using water to generate electricity. According to an item in a recent issue of the Financial Times, the contemplated amount of investment is of the order of $15 billion. This amount has been proposed by the Three Gorges Project Corporation, the entity that built and operates the largest water control project in the world. The Chinese company would like to write a new master plan for using the available flows in the Indus River. A total of $50 million would be spent on the plan and would draw upon the studies carried out several decades ago by the World Bank and the United Nations Development Programme. The earlier plans had also identified a number of potential sites for the development of the enormous hydroelectricity potential of the rivers of the Indus basin. But the plans remained just that, plans. No action was taken either for political reasons or for the reason that the various administrations that held the reins of power at various times did not pay attention to the development of the sources of energy supply. Now as energy shortages are taking heavy economic and social tolls, Islamabad has begun to look around for help. China is one direction in which it is heading. In 2010, China and Pakistan agreed on an investment deal to build the Bunji dam on the Indus. In additions to this investment, the new plan that China is offering to develop will include large projects at sites such as Kohala and Dashu. If these investments materialise, China will bring to Pakistan its expertise in building large water projects. It is ironic that some of the knowledge China will bring to Pakistan was learnt initially from Pakistan itself. In the 1970s, Pakistan was recognised as the leader in the developing world on the management of large river projects. China then looked to Pakistan to learn what it needed to know when it turned its attention to harness its many rivers. The dam on the Yangtze at Three Gorges has provided China unparalleled experience in managing large projects. The country has replaced Canada, Italy, Germany and the United States in terms of hands-on experience with water investments. When Pakistan built the lndus Water Replacement Works in the

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1960s, it engaged several western companies to design, build and supervise the construction of the projects on the three western rivers in the Indus system. The Indus, the Jhelum and the Chenab had come to Pakistan’s share after the signing of the Indus Water Treaty with India in 1960. China was then absent from the scene. Now no other country has the kind of experience with large water projects that China has accumulated in three decades. It is interesting to note how China developed this expertise. My own involvement with the Three Gorges project exposed me to the way China does large water investments. In 1987, I was appointed to head the department responsible for the Bank’s operations in China. One of my early responsibilities in the new job was to chair the three-man Three Gorges Committee. The other two members were from China and Canada. The staff work for the committee was done by the Yangtze Valley Authority and the World Bank. At our very first meeting, the Chinese made it clear that their interest in turning to the Bank was not to obtain financial support from the institution. They were much more interested in getting the Bank to use its knowledge of large water projects to help them with the design of the Three Gorges development program. By that time the Bank had acquired worldwide reputation in the area of water management. Much of this rested on the Bank’s work in Pakistan and some of the engineers who worked on the various Bank-funded and supervised projects were from Pakistan. The Bank’s technical staff – many of them from Pakistan – told me to press the Chinese on three issues: To satisfy the global community that the project would not be an environmental disaster, that the large number of people it would displace would be properly settled and that water shortages would not result downstream of the project. At the first meeting of the committee under my chairmanship, I made it clear that the feasibility report would not be approved unless the committee was satisfied on these three counts. The effect of this was to postpone the decision on the project by several months. I had expected that the Chinese would be unhappy at this decision since they were keen to proceed with implementation. That did not turn out to be the case. In fact, they were pleased that I was able to bring to the table some of the knowledge the Bank had accumulated in the area. It was the Canadians who were unhappy with the delay. They were anxious to have the project go forward. They hoped to pick up a number of contracts once Beijing started to build the massive dam. We hired a number of consultants to look at the three aspects of the project with the result that a great deal of additional work got done on environmental and settlement issues. A year later, the committee approved the project and once that was done the Chinese told me that they would not ask the Bank for financial support nor would they engage foreign consulting companies for implementing the project. Given this experience, what would be my recommendation to Islamabad for managing the Chinese involvement in water management in Pakistan? I recommend bringing in the World Bank and the Asian Development Bank as advisers, once the Chinese have done the spade work. Islamabad may also consider establishing a new authority committed entirely to the implementation of the Chinese plan. And, special emphasis should be given to addressing the types of issues we examined when the feasibility report of the Three Gorges Project was being looked at.

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Chinese investments in water projects – The Express Tribune

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Afghanistan and the US troops’ withdrawal

By Shahid Javed Burki Published: July 4, 2011 The American leadership positioned in Afghanistan was confident that it had turned the Taliban tide in the country. It was reluctant to lose that advantage by too precipitous a withdrawal. One indication of success was the relative quiet in the southern districts bordering the province of Balochistan in Pakistan. According to a recent New York Times (NYT) report, “the poppy harvest is over and the fighting season has arrived in southern Afghanistan — except this year the Taliban have not returned in their usual numbers to intensify the war”. This change in what had been the normal pattern was ascribed to the presence of large American troops in the region. The change was palpable not only in the province of Helmand that had been since long a strong base of support for the Taliban. It was also apparent in the neighbouring province of Kandahar, the heartland of the insurgency. “In both places, the insurgency is now mostly limited to small groups of local fighters who lay mines or carry out assassinations or suicide bombings in the cities, attacks that are more important psychologically than strategically,” said the same report. The weakening of the Taliban presence allowed some signs of the government’s presence to re-emerge. Hundreds of Afghan police officers guarding outposts along the main road allowed traffic to flow again, while crews began clearing the irrigation canals that run along the road. For a number of years, roads were dominated by the Taliban who used roadside bombs to discourage people from using them. Lack of maintenance of the irrigation system affected agriculture and crop productivity. These improvements made it possible for people to return to work. Development aid provided by the Americans and their allies to the southern provinces also helped. Helmand received the most aid per capita of any province in the country in 2010. Aid projects to pave roads, dredge canals, construct schools and clinics improved economic life in the area by providing thousands of new jobs. Will this success be maintained now that the American pull-out is underway? The answer to the question depends on a number of factors. The most important of these is the manner and speed of the pull-out. It is unlikely that having achieved some success in the south, the Americans will abandon the area in order to satisfy a political timetable of their own. The Afghan forces may be much more developed than was the case six years ago but they were still not strong enough to prevent the Taliban from re-entering the area as they had done in 2005, when the Americans withdrew some of their forces in order to fight the war in Iraq. The United States and Nato aimed to build up the Afghan Army and the police to a force of 395,000 by 2014, the year by which all foreign troops were to leave the country. But at issue was the competence

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and loyalty of the Afghan force. Loyalty became a real concern once some soldiers trained by the US and Nato turned their weapons on their benefactors. According to another NYT report, “since March 2009, at least 57 people including 32 American troops have been killed in at least 19 attacks in which Afghan service members had turned their weapons on coalition forces. Another 64 were wounded. More than half of the casualties in the first five months of this year, signalling an escalation in the number and intensity of the attacks. But while the Taliban often take credit for these attacks, Nato officials say the majority of the episodes stem from disagreements and arguments that escalate into violence.” Also troubling for the government was the heavy loss of innocent lives as result of Taliban activity and the military effort by the United States and its allies. According to the United Nations, May 2011 was the deadliest month for Afghan civilians since it began to keep count in 2007. It estimated civilian deaths during the month at 368. “The majority of the casualties, 82 per cent, were caused by Taliban and other militants, while 12 per cent were caused by Nato troops and Afghan force; in six per cent of the cases, it was not clear who was responsible.” The Taliban continued to target security forces as well as those whose beliefs differed from their own. For instance, on June 11, they attacked two buses that were carrying members of two families who were travelling to a shrine in Kandahar province to pray for the health of a sick child. The uneasy relationship between Afghan President Hamid Karzai and the American government became even more uncomfortable as Washington inched closer to making the decision about the number of troops it planned to pull out of the country starting July 1, 2011. On July 18, reports said Karzai “appeared to have crossed a line” when, in “a rambling speech” to a youth convention in Kabul, he accused the United States and other western allies of using his country for their own purposes. He asserted that they take away more money than give, pollute Afghanistan’s environment and ‘dishonour’ the Afghan people. This was not the first attack by him on the US and its Nato allies. According to reports, in an “emotional speech” in the eastern city of Asadabad, he called for Nato and the United States to stop military operations in Afghanistan; officials later issued a clarification, saying he was referring only to operations that caused civilian casualties. At a news conference in May, he threatened to denounce Nato as occupiers if they did not stop air attacks that caused civilian casualties. That was in response to an air strike in Helmand province that was aimed at Taliban insurgents but killed several civilians, including women and children. On at least two occasions, most recently in April, Mr Karzai has threatened at closed-door meetings of parliament to join the Taliban, according to published accounts.” Given this background, Afghanistan is not likely to move on a smooth road once the Americans begin to pull back.

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