Power sector: the coming constraints
 

[B][U][CENTER][COLOR="DarkGreen"][SIZE="5"][FONT="Georgia"]Power sector: the coming constraints[/FONT][/SIZE][/COLOR][/CENTER][/U][/B]

[B]By Shahid Javed Burki
Monday, November 09, 2009[/B]

DURING my recent brief visit to Pakistan, I attended a meeting in Islamabad on the energy crisis which shows no sign of easing. There were two interruptions in power supply during the meeting arranged by a private consulting group hoping to take advantage of the priority, energy has been given in the recent Kerry-Lugar Act.
The US is prepared to put a fair amount of money into the sector. The American interest in the area is related to the damage energy shortage is doing to the economy, in particular to those parts of the economy that are important for providing employment to the restive youth.

Already the shortages experienced over the last two years have taken a heavy economic toll. While all sectors of the economy have suffered, industry is particularly affected. Within the industrial sector, small and medium enterprises have suffered more since it is not practical for them to install their own power generating units.

The question asked at the meeting was what the government in Islamabad should do to ease the problem and get industrial production back on track. There were two presentations on the potential sources of supply. One dealt with the abundance of coal in the country. We were told that Pakistan has the world’s fifth largest coal reserve. Fully exploited it could take care of our energy needs for the next 200 years. This was encouraging but the related question whether the country would be allowed to go that route was not raised.

Another speaker focused on the po tential offered by the fast flowing rivers in the north and northeast. Some familiar arguments were made and some known data offered. The point made was that with proper planning and appropriate amount of political will, Pakistan could generate an additional 40,000 MW of electricity over the next two decades. This is economically and technically feasible but the real question is, whether the politicians are in the position to move their constituencies towards the resolution of the problems that have held back public investment in hydro power generation.

I drew two conclusions from this meeting. One, the private sector needs to get more involved in planning for a better energy future. Second, both the public and the private sectors will have to inform themselves much more about the global environment in which they will have to operate because of the treaties and agreements that will be negotiated among the world’s nations in the next few months.

Pakistan will not be able to ignore these treaties/agreements. This is relevant for both the private and the public sectors. I recall the indifference shown to international agreements on the use of child labour by our small and medium sized operators working in industries such as sports goods and carpets. The realisation that the world had a way of enforcing these agreements came when sports goods and carpet importers in Europe and the United States refused to buy the products of those producers who were not in compliance with international laws and regulations on the use of child labour. The same will happen in the area of energy and environment.

Where is the world today in terms of subjecting the producers of energy to agreed environmental standards? As an analyst put it, “when historians look back at 2009, they may judge the most significant event of the year to have been not the global recession, or the war in Afghanistan, but the UN climate talks in Copenhagen in December.

At that meeting the world faces a choice between agreeing to mount a concerted effort to – and eventually reduce – greenhouse gas emissions, or decide that the costs of doing so would be too great, and the attempt will have to be put off for another time. Whichever way the meeting goes, it will have profound implications for the energy industry worldwide.

There are three issues which policymakers assembling in Copenhagen in December, will have to decide. I don’t believe Islamabad has taken a position on any of these or that the private sector has developed its own views on these subjects. It needs to do that to have an impact on what Pakistan’s representatives will say when they go to Copenhagen. The first issue concerns the universality of the targets to be agreed on at the summit.

If an agreement that applies to all countries is negotiated, it will have a severe impact on the development prospects of less developed countries. They emit much less carbon per head of the population than do the world’s more developed countries. However, if different standards are adopted, they will give a competitive edge to the more advanced countries in the developing world. Businesses in developed countries fear a serious loss of competitiveness if their industries face tougher standards on carbon emissions than those in emerging economies.

Even if some kind of mechanism can be found that would level the playing field, what should be done to prevent “leakages” from the agreed regimen. These fears have led to demands from industrial lobbies in some countries such as France and the United States to impose taxes on imports from countries that do not adopt stringent greenhouse gas targets or cheat in implementing the targets even if they sign a global treaty.

What these deliberations make clear is that countries and businesses will face serious limitations on the types of energy sources they develop. That is why those who dream of turning coal into a major source of energy in Pakistan may remain just that – a dream. Pakistan will not be able to put this resource to use unless new technologies come along that trap carbon dioxide that coal-fired plants emit. As in so many other things, the country has lost an opportunity. It paid no attention to the development of this resource while there were no global standards to observe.

The countries that use coal as a major source of electric power – these include China, India and the United States – will probably be allowed some time to adjust. It is unlikely that new entrants such as Pakistan will be permitted to set up coal-using power plants using existing technologies. External assistance will certainly not be available for this effort.

I also believe that it will not be possible for the private sector to invest in “captive plants” to generate power for their own use if they are environmentally unfriendly. If they do, those who sell their products in the international market place may not be able to do so. Here the example of what happened to those who ignored child labour regulations is instructive. If moral pressure and international treaties don’t work, the pressure of the market place will yield results.

The conclusion that I would draw from this analysis is clear: both the private sector and the government need to get fully informed about the constraints that will inevitably come as concerns about global warming increase.

[B][U][CENTER][COLOR="DarkGreen"][SIZE="5"][FONT="Georgia"]Terms of reference[/FONT][/SIZE][/COLOR][/CENTER][/U][/B]

[B]By Shahid Javed Burki
Tuesday, 10 Nov, 2009[/B]

HILLARY Clinton, the US secretary of state, has come and gone but her visit to Pakistan will reverberate for a long time. It may be useful at this stage to summarise what she was expected to accomplish in Pakistan.

If she was given some terms of reference they may have read something like this: ‘Madam Secretary, you know Pakistan well; you have visited the country before but this is your first visit as the senior-most diplomat in the administration of President Barack Obama. Your visit is of great importance for both the United States and Pakistan. The two countries need each other at this time. This was also the case when, on a number of previous occasions, Washington and Pakistan worked together.

‘This relation was always asymmetric, however. To a certain extent that is inevitable. We are a superpower with the world’s largest economy and with military strength that is unmatched by any other country. Pakistan is poor and even after more than 60 years of having achieved independence it is still attempting to define itself.

‘During your three-day stay you will attempt to achieve the following four objectives: the first one is to convince your audience in Pakistan that the Americans don’t have a quarrel with the Muslim world. Unlike his predecessor, President Obama is making a genuine effort to improve America’s relations with the world of Islam. He gave a major speech in Cairo in June this year explaining how he views the Muslim world and how much he appreciates the fact that the followers of the Islamic faith have made contributions to science and learning. ‘But that was in the past, 1,000 years ago. Over the last few decades — in particular since the terrorists attacked the United States on Sept 11, 2001 — a segment of the Muslim population has decided it prefers obscurantism to the accumulation of knowledge as its goal. There is ferment in the Muslim world. This has produced both despair among Muslims and extreme hostility towards the outside world on the part of the few who are trying to redefine their religion to take it back to medieval times. You will recall what Samir Kassir, the respected Lebanese scholar wrote in an essay in 2005: “It’s not pleasant being Arab these days. Feelings of persecution for some, self-hatred for others; a deep disquiet pervades the Arab world.”

‘He paid for his life for these words when he was gunned down on June 2, 2005. What he said about Arabs applies to most Muslims around the globe.

‘If this approach continues, the Muslim world will fall further behind. Pakistan has already been left behind other countries of Asia including India in its immediate neighbourhood. In comparing Pakistan’s situation with India’s, you will, of course be appropriately circumspect. Most Pakistanis remain suspicious of India’s intentions with respect to their country, remembering the harm India tried to do to Pakistan just as it was finding its feet after winning independence.

‘But that is more than 60 years ago. The situation has changed, especially over the last quarter century. Pakistan could benefit enormously by developing a close relationship with its large and now much more affluent neighbour.

‘The second issue you will need to deal with is also very important for Pakistan. Madam Secretary, you might want to focus on India-Pakistan relations during your brief stay in Pakistan. The United States will need to work on both countries to convince both policymakers that they should work to help rather than hurt each other. The Obama administration believes that this realisation has come to Islamabad but not to New Delhi. Once you have given that message to the Pakistanis we will follow it up with the Indians.

‘Third, you arrive in Pakistan at the time of a lively debate on the Kerry-Lugar bill that President Obama has signed into law. Most of the debate is focused on a misunderstanding of what the act purports. You know from the internal debate in the administration that we dealt with a number of concerns in putting together the bill. We were anxious to place our relations with Pakistan on a longer-term basis rather than on the achievement of our short-term strategic objectives. Pakistanis, unlike the Americans, have long memories. They remember how quickly we abandoned them once they had done our task of expelling the Soviet Union from Afghanistan. They were left holding the baby, including, most importantly, extremism.

‘We also wanted to shift our focus to economics rather than simply provide additional weapons to the military. This would be the first time that we will be dealing with a civilian government rather than the military while increasing the flow of our money to the country. At the same time we should keep in mind that the money we are providing is only a small fraction of the amount the country receives as remittances from its own citizens working and living abroad. This means that $1.5bn a year won’t provide us with the kind of leverage we had in earlier periods. We should not exaggerate about what we can purchase with the money on offer.

‘Fourth, Madam Secretary, you will run into a great deal of hostility towards the United States. This is not unique to Pakistan; it is shared by many other countries in the Muslim world. We don’t think we have made a serious attempt to study the reasons for this or to direct public policy towards bringing about changes in attitudes.

‘Our stance in the long-enduring Arab-Israeli conflict; the way we went into Iraq and conducted our operations there; the humiliation Muslims — in particular the young people of Pakistan — face in obtaining visas to travel to the US; the way we have obstructed the development of genuine democracy in Muslim countries, including Pakistan; and, in Pakistan’s case, our attempt to develop strong ties with India even though New Delhi is considerably less forthcoming are genuine reasons for discomfort concerning us.

‘These are rich terms of reference and you will not be able to accomplish all of this or much of this during three days. But we hope you will be able to make a start. Have a good stay in Pakistan.’

[B][U][CENTER][COLOR="DarkGreen"][SIZE="5"][FONT="Georgia"]Is India making gold return to the reserve system?[/FONT][/SIZE][/COLOR][/CENTER][/U][/B]

[B]By Shahid Javed Burki
Monday, Nov 16, 2009[/B]

ON November 3, India shook the international gold market and sent shivers down the spine of the international financial system by announcing the purchase of 200 tons of gold from the International Monetary Fund.
The $6.7 billion transaction cost was paid from the foreign exchange reserves it had accumulated over the years. The Indian purchase was slightly less than one-half of 403 tons the institution plans to sell in the market in order to finance its programmes to help the countries that find themselves in acute economic stress. The list of the states that have gone to the IMF includes Pakistan. In a way it can be argued that the Indians are paying for Pakistan’s rescue.

By making the purchase India was signaling that it saw an end of the system dominated by the dollar as a reserve currency. The move marks the end of the socalled anti-gold sentiment that had prevailed for more than 20 years among central banks. Since 1989, the official sector has been a net seller of gold, increasing supplies and thus depressing prices. Most of the sales were made by the European central banks.

While the Europeans were selling gold, the Asian central banks were hoarding their accumulated wealth mostly in the US Treasuries. As a consequence, by the end of 2008, the share of gold in the world’s official reserves had fallen to a record low of 10.3, down from 32.7 per cent in 1989. As governments abandoned gold, the price of the metal declined to a low of $250 an ounce in 1999.

The Indian move reversed the trend. It pushed the price of gold to a record $1,087.45 per ounce on the day the purchase was announced by the Reserve Bank of India. “We have money to buy gold. We have enough foreign exchange reserves”, said Finance Minister Pranab Mukherjee announcing the purchase in New Delhi. “Europe collapsed and North America collapsed. We are strong”, he continued.

The Indian finance minister also recalled the time when one of his predeces sors had to carry gold in the hold of his aircraft to raise funds for his country to pay the bills it owed to its creditors. That was in 1991 and Dr Manmohan Singh was finance minister who had to humble himself to get the money his country badly needed. Seventeen years later, India was buying gold rather than pledging it.

The transaction boosted the Indian gold holdings to 6.2 per cent of its foreign exchange reserves, higher than that for China. The Chinese have also been accumulating gold but they have made their purchases secretly so as not to disturb the gold market or depress the value of the dollar.It had doubled its holdings over the last six years. Beijing holds about 1,054 tons of gold, equivalent to about two per cent of its much larger reserves.

India is the world’s largest consumer of gold. Most of it is held by private citizens in the form of jewelry. The government has made an effort to get the propensity to hold wealth in the form of gold to create liquidity. It has allowed private investment banks to issue gold bonds. In the same spirit the government had not relied on gold to hold its reserves. Its official gold holdings had fallen in recent in years. Fifteen years ago, the Reserve Bank of India held 20 per cent of its reserves in gold. But since 2004 gold had dropped to 3.6 per cent of an estimated $285.5 billion foreign exchange reserves.

Producers of gold continue to add about 2,500 tons of gold every year to the total world stock. If countries such as India continue to purchase the metal for their official reserves, gold price will keep on increasing.

At the annual meeting of the London Bullion Market Association, this time held in Edinburgh, a poll of delegates present at the meeting forecast that the price in September next will be 10 per cent higher and touch $1,183 an ounce. Some traders predicted the price to rise to as much as $2,000 an ounce.

What are the broader implications of the Indian action? For centuries gold was the only commodity in which those who had the means were prepared to store their wealth. One reason for this was the metal’s properties, the most important of which was that it did not react with oxygen and, therefore, unlike silver, was not tarnished. The metal lost some of its lus tre with the development of paper currencies and the ability of governments to protect their value.

But one problem remained. How should the trading communities around the world, including governments, settle their accounts. This issue was addressed by the conferrees that met at Bretton Woods, a small town in the northeast of the United States. They established a new financial system based on an international reserve currency.

The United States agreed that it would be prepared to exchange the reserves held by countries in exchange for gold. The price of gold was fixed at $35 to an ounce. Most countries pegged their currencies to the dollar and the dollar, in turn, was pegged to gold. This was the Bretton Woods system that lasted for over a quarter century. It was dismantled in 1971 by the administration of President Richard M. Nixon when it floated the dollar with respect to gold.

Since then most large economies have allowed their currencies to float. The only exceptions among the word’s ten largest economies who are managing their currencies are China, India and Brazil. The Chinese have pegged their currency to the dollar at a rate considerably below what would be the case if it was allowed to float. This has helped the country to become highly competitive in the global market place. This has been a bone of contention between Beijing and Washington for several years. The result of China’s management of its currency by the state rather than by the market is enormous imbalance that exists in the global economy.

The Chinese continue to accumulate reserves while the Americans continue to pile up debt to foreign nations, particularly to China. One way of dealing with this situation may be to allow the emergence of a new global monetary system less dependent on the American dollar and more on a multiple of currencies as well as gold.

The secret Chinese purchases of gold and the more open Indian action may push the world in that direction. But there is still a long distance to go. In spite of these moves, gold represents only a minute share of total world reserves. Europe still holds about 60 per cent of its reserves in gold.

[B][U][CENTER][COLOR="DarkGreen"][SIZE="5"][FONT="Georgia"]AfPak policy a mistake[/FONT][/SIZE][/COLOR][/CENTER][/U][/B]

[B]By Shahid Javed Burki
Tuesday, 17 Nov, 2009[/B]

[B][CENTER][SIZE="3"][I][FONT="Georgia"]PAKISTAN is not Afghanistan. By coupling the two countries together and calling it ‘AfPak’, the United States’ intention was to make policymaking simpler. It may have had the opposite effect.[/FONT][/I][/SIZE][/CENTER][/B]

The idea was that by lumping Afghanistan and Pakistan into one analytical framework, Washington and its allies would be able to focus on one geographic entity and would be able to use the same strategy to counter the threat posed to the West by the rise of Islamic extremism.

Looking at the threat from the prism of 9/11, Washington and other western capitals worried about the launch of another attack perhaps even more lethal than that of Sept 11, 2001. But there are a number of flaws in the unfolding strategy aimed at the AfPak region.

The first, of course, is the enormous difference between Afghanistan and Pakistan. Afghanistan was not colonised. This meant that it did not develop what the West knows as the ‘state’. It did not develop a strong central authority that could manage disparate regions within the country and the people that reside in them. There was relative peace when Kabul, ruled mostly by monarchs but most recently by presidents, left local chieftains and warlords alone.

The latter allowed a small portion of the resources collected from the people over whom they ruled to go to Kabul to provide the central authority some funds to pay for its basic needs — the running of the king’s or the president’s palaces, funding of a small federal bureaucracy, and the upkeep of a small army. Until the Cold War contestants developed some interest in the country, the few urban centres — Kabul, Kandahar, Herat, Jalalabad and Mazar-i-Sharif — were poorly connected.

The Afghans were not a mobile people. They mostly stayed in their villages and insularity became their defining characteristic. All this changed when the US built all-weather modern highways in the south and the Soviet Union followed with roads in the north. The state made little investment in human development and not much in anything else. Afghanistan, consequently, was one of the most backward societies when the Soviet Union sent its troops in 1979 in an attempt to create a vassal state.

Moscow’s aging leadership — once again — got the wrong message from history. The Soviet leaders believed that what had worked in other Muslim states in Central Asia could also work in Afghanistan. But Moscow did not succeed and a loosely knit alliance of warlords, aided by the US and Saudi Arabia, with Pakistan providing essentially logistical support, was able to expel them from the country.

Afghanistan would have reverted to its traditional but stable state had the Taliban administration in Kabul not granted sanctuary to Al Qaeda. That led to a chain of events that included the 9/11 terrorist attacks on the United States and the American counter-attack. In the post-Soviet era the country would have been carved into a number of fiefdoms each controlled by the Mujahideen warlords who had collaborated with the West to push the Soviets out. That is not the way the country went. Led by the US, the West attempted to force a system of government and economic management that is totally foreign to Afghanistan.

Thirty years of instability and a stagnating economy have left the country enormously polarised. A small class of enormously rich people, drawing income and wealth from corruption and the production of poppies and the associated drug trade, are attempting to establish their control with the help of private armies — the lashkars — that are loyal only to them.

They don’t have an interest in creating an Afghan state that would work for bringing economic development or improving the welfare of the common man. Women in particular remain suppressed. The few that have benefited from some openings in the system that accompanied the overthrow of the Taliban regime once again fear for their lives and their social status.

But Pakistan is different. When it emerged as an independent state in 1947 it already had a functioning state with functioning institutions put in place during the long British rule. Although there is not much resemblance between the Pakistan of today and the one at the time of independence, it has the makings of a modern state. Two things set it apart from Afghanistan: it has a large, well-organised and disciplined military with 650,000 men and women in uniform and a large and growing middle class.

The latter is particularly important for Pakistan’s economic and political future. Numbering about 50 to 60 million and with per capita income two-and-a-half times the national average of $1,000, it has a great deal at stake in the direction the country takes. This class has already shown its political muscle in support of the judiciary. An impressive campaign that lasted for two years forced former president Pervez Musharraf out of office and also persuaded Asif Ali Zardari to reinstate the judges fired by his predecessor from the provincial high courts and the Supreme Court. The middle class also has a strong presence in the armed forces.

It appears that the campaign the army has launched in the hills of South Waziristan has the full backing of the powerful middle class. It has now recognised that the war being fought in that inhospitable territory is their war; it is not a proxy war being waged on behalf of the US. This suggests that the West needs to work with this class of people and help it gain a firmer footing in Pakistan’s fertile economic but troubled political soil.

Treating Pakistan in the context of an AfPak strategy would be a colossal mistake. The West under the leadership of President Barack Obama needs two different strategies, one for Pakistan and the other for Afghanistan.

[B][U][CENTER][COLOR="DarkGreen"][SIZE="5"][FONT="Georgia"]Oil and the national economy[/FONT][/SIZE][/COLOR][/CENTER][/U][/B]

[B]By Shahid Javed Burki
Monday, 23 Nov, 2009[/B]

The country’s economy suffers from many structural weaknesses. These have been identified by many analysts over a long period of time but those in policymaking positions have found it difficult to address them.

Without resolving them, the country will not be able to put the economy on the trajectory of high rates of growth on which it can remain without having to deal with disruptions. One of the more serious problems is the inability of the economy to match the increased demand for imports with an equally large – in fact larger – increase in exports. It is only when the rate of increase in exports overtakes the rate of increase in imports by a wide margin that the country will be able to deal with the recurring balance of payments problem.

One reason why imports continue to increase much faster than exports is the economy’s increasing dependence on imported oil. A significant share of the import-export difference is accounted for by oil. This deficit increases when the price of oil in the international market goes up. This happened in most of 2008 with the consequence that the economy plunged into a deep crisis from which it has not yet fully recovered.

But the price of oil plunged as quickly as it had increased. Now, after a pause, it has begun to rise once more. It has almost doubled over the last six months. This has begun to strain the economy once again. Where is the oil price headed and will Pakistan be able to cope with another increase?

There is consensus among experts that while there will be a gradual increase in the price of oil for many years to come, the type of escalation that occurred last year will not happen again. Then the oil markets were caught by surprise because of the unanticipated increase in demand in China and India. This led to a great deal of speculation in the market which pushed up the prices.

Both the markets and the producers are prepared this time. Saudi Arabia, by far the world’s largest producer, has prepared itself well for another run up in prices. It has developed a significant surplus capacity it can use to moderate an increase in oil prices. It is not in the Kingdom’s interest to have the price go much beyond $75 a barrel which is where it seems headed at this time.

Saudi Arabia’s oil reserves are estimated at more than 250 billion barrels about twice as much as Iran’s the second largest holder of reserves. Iran is estimated to be sitting on 130 billion barrels. Iraq with 120 billion barrels has the third largest reserve, followed by Kuwait with 100 billion barrels and UAE with 98 billion.

Venezuela with 80 billion barrels is the largest non-Arab oil country followed by Russia with 55 billion barrels. Khalid al-Falih, the head of Saudi Aramco, the state-owned oil company, expects that demand will grow at a “reasonable pace” by perhaps 1-1.5 million barrels a day from 2010 and beyond.

The Kingdom has recently increased its production capacity to 12.5 million barrels a day following a $100 billion development programme aimed at preparing some of the known reserves for exploitation.

The Saudi officials are much more relaxed now than they were a year ago when there was a great deal of Western pressure – in particular pressure from the United States – to expand supply. They believe that with the implementation of the ambitious development plan they can raise their daily production to 15 million barrels. That would be enough to calm the markets. This is 18 per cent of the global demand of 85 million barrels a day.

The International Energy Agency which advises rich nations on energy matters has also forecast that the type of pressures that were felt by the market in 2008 will not materialise. It is projecting an increase in demand in the next 20 years by a total 25 per cent which would bring global consumption to 106 million barrels a day by 2030.

According to one analysis of the developing situation, “If demand pessimists are correct, future increases in the price of crude could be damped as weaker consumption stretches world oil supply by billions of barrels. Various estimates maintain that the roughly two per cent increase a year average growth rate in world oil consumption seen earlier this decade – the biggest reason for crude prices increases hitting a record $147 a barrel last year – may turn out to an anomaly and that annual growth in the neighbourhood of 0.5 to one per cent is more the norm”.

With that cushion available, the Saudis are beginning to focus on developing their gas reserves for which there is a growing domestic demand. “The big story today is gas”, Mr. Falih told the Financial Times in an interview. The Kingdom is the world’s fourth largest holder of gas reserves but with domestic demand increasing at seven per cent a year, it has no plans to become an exporter, leaving the gas market to countries such as Qatar, Russia and Iran that have large exportable reserves. Mr. Falih says that his company, Aramco, is “exploring kingdom wide” with drilling to begin in 2012 in Red Sea for the first time in order to increase the production of gas.

What do these changes in market conditions and market perceptions mean for Pakistan? A less excited market implies that the country won’t be faced with the kind of crunch it had to deal with in 2008. However, with the price of oil settling at between $70 and 80 a barrel still means a considerable balance of payments burden. There are two options policy makers have to deal with this situation, of which the first can be effective only over the long-run.

A concerted effort should be made to reduce the dependence of the economy on imported oil by developing domestic sources of energy supply. These include not only hydro and coal but also wind and solar. Pakistan, as in so many other things, could take a leaf out of the Indian book. New Delhi has launched a well-funded programme to develop renewable sources of energy, including research in the area.

While it has more financial resources to spend than Pakistan, Islamabad could get the private sector interested in investing in these programmes by offering tax relief. The second is to improve the efficiency of the economy in order to reduce the rate of increase in the consumption of energy.

Among the countries at Pakistan’s level of development, consumption per unit of gross domestic output is high as is the rate of increase in anticipated demand when the economy expands. The recent increases in prices of the products controlled by the government should slow down the rate of increase in energy demand. However, along with the increase in prices the government needs to provide relief to the poor through income transfers.

[B]SHAHID JAVED BURKI[/B]

DATE OF BIRTH: [B]September 14, 1938[/B]

PLACE OF BIRTH: [B]Simla, India.[/B]

[B][SIZE="4"]EDUCATION[/SIZE][/B]

M.Sc. Physics, Government College, Lahore, 1959
M.A. Economics, Oxford University, 1961
M.P.A. Kennedy School, Harvard University, 1968
PH.D. Economics (not completed), Harvard University, 1974
Advanced Business Management, Harvard Business School, 1998

ACADEMIC AWARDS AND FELLOWSHIPS

Rhodes Scholar, Oxford University, 1961-1963
Mason Fellow, Kennedy School, Harvard University, 1967-1968
Public Policy Scholar, Woodrow Wilson International Center for
Scholars, 2004

[B][SIZE="4"]WORK EXPERIENCE[/SIZE][/B]

2003-2006: Consulting.
1999-2003: CEO, EMP-Financial Advisors, LLC
1994-1999: Vice President of the Latin America and Caribbean Region,
The World Bank
1996-1997: Finance Minister, Pakistan
1987-1994: Director for China and Mongolia, The World Bank
1983-1994: Director of the International Relations Department,
The World Bank
1981-1983: Senior Economic and Policy Advisor, External Relations,
The World Bank
1976-1981: Division Chief, Policy Planning and Review Department,
The World Bank
1974-1976: Senior Economist, Policy Planning and Program Review
Department, The World Bank
1974-1976: Senior Fellow, Development Advisory Service, Harvard University, Cambridge, Massachusetts
1973-1974: Advisor, Ministry of Commerce, Government of Pakistan,Islamabad
1972-1973: Senior Fellow, Center for International Affairs, Harvard
University, Cambridge, Massachusetts
1971: Chief Economist, Government of West Pakistan, Lahore
1970-1971: Economic Advisor and Deputy Secretary to the Governor,
West Pakistan, Lahore
1966-1967: Deputy Secretary (Foreign Aid), Planning and Development
Department, Government of West Pakistan, Lahore
1964-1966: Director, Rural Works Program, Government of West
Pakistan, Lahore
1963-1964: Deputy Commissioner, Sheikhuipura, West Pakistan
1964: Sub-Divisional Magistrate, Shadara, West Pakistan
1963-1964: Sub-Divisional Magistrate, Shujabad, District Mukan,
West Pakistan
1963: Assistant Commissioner (Under-training), Jhelum District,
West Pakistan
1961: Assistant Commissioner (Under-training), Rawalpindi
District, West Pakistan
1960-1961: Under-training at the Civil Service Academy of Pakistan,
Lahore

[B][SIZE="4"]BOARDS[/SIZE][/B]

Netsol Technologies, California, USA. (Member of the Board, Chairman
of Compensation Committee, Member of Audit Committee).
EWW-Vista, Washington DC. (A non-profit organization working to bring
new technologies to the poorer regions of the developing world.
Education Testing Service, Princeton, USA. (Member of the Advisory
Board.)

[B][SIZE="4"]SELECTED EXPERIENCE[/SIZE][/B]

[B][I]The World Bank[/I][/B]

• Head of the World Bank staff team working on the Development
Committee (1978-87).

• Designed and implemented the World Bank’s lending program in China – at one point the largest Bank-financed program in the world. Under his direction, the World Bank devised a large lending and policy analysis program for Shanghai. Supervised and directed the World Bank’s ambitious program of analysis of various aspects of the Chinese economy.

• As Director of China and Mongolia Department (1987-1994), dealt extensively with all aspects – environmental, technical, political, etc. – of the Three Gorges Dam project, as well as numerous lower profile projects.

• Formulated the World Bank’s response to a number of county
crises, including those experienced by Mexico (1994-95),
Argentina (1995) and Brazil (1998-99).

• Chairman, the World Bank Task Force on Social Development,
1998..

• Chairman, the World Bank-Commonwealth Joint Task Force on
Small States, 1999-2000.

[B][SIZE="4"]Special Projects for the World Bank[/SIZE][/B]

• Led the team that prepared the World Bank sponsored study, IDA
in Retrospect (World Bank, 1986).

• Secretary, Development Committee Task Force on Concessional
Flows. The Task Force was chaired by Professor John Lewis of
Princeton University.

• Oversaw the writing of the book by Robert Cassen, Does Aid
Work, sponsored by the Development Committee.

• Chairman, World Bank’s Task Force on Social Development.

• Chairman of the World Bank-Commonwealth Task Force on Small
States.

[B][SIZE="4"]Government of Pakistan[/SIZE][/B]

• In July-October 1994, responding to an invitation from Prime Minister Moeen Qureshi, served as advisor to the Prime Minister, and formulated and implemented an ambitious program of economic reforms.

• In November 1996, at the request of the President of Pakistan, took a sabbatical from the Bank to join the interim cabinet that took office following the dismissal of the government of Benazir Bhutto. As Finance Minister, was in charge of the portfolios of finance, planning, economic affairs and statistics in the caretaker cabinet.


[B][SIZE="4"]LIST OF RELVANT PUBLICATIONS[/SIZE][/B]

[B][I][SIZE="3"]Books:[/SIZE][/I][/B]

• A Study of Chinese Communes, Harvard University Press, 1969

• First Things First (With Paul Streeten and others), Oxford University Press, 1981.

• Globalization: An Agenda for Policy Analysis (with Joseph J. Savitsky). Washington, D.C., Emerging Markets Partnership, 1999

• Changing Perceptions and Altered Reality: Emerging Economies in the 1990s. Washington, D.C., The World Bank, 1999

• Development in Latin America and the Caribbean: The Challenges of Reform (with Sebastian Edwards and Sri-Ram Aiyer). Washington, D.C., The World Bank, 1997

• Development in Latin America and the Caribbean: Decentralization and Accountability of the Public Sector (with Guillermo Perry). Washington, D.C., The World Bank, 2000

• The Long March: A Reform Agenda for Latin America and the Caribbean in the Next Decade (with Guillermo Perry). Washington, D.C., The World Bank, 1997

• Development in Latin America and the Caribbean: Poverty and Inequality (with Sri-Ram Aiyer and Rudolf Hommes). Washington, D.C., The World Bank, 1998

• A Revisionist History of Pakistan, Vanguard Books, 1998

• Beyond the Washington Consensus: Institutions Matter (with Guillermo Perry). Washington, D.C., The World Bank, 1999

• Pakistan: A Historical Dictionary, Scarecrow Press, London 1999

• Pakistan: Fifty Years of Nationhood, Westview Press, 1999

• Pakistan: Continuing Search for Nationhood, Westview Press,
1991

• Pakistan Under the Military: Eleven Years of Zia ul-Haq (with
Craig Baxter), Westview Press, 1991

• Pakistan: A Nation in the Making, Westview Press, 1986

• Pakistan: Development Choices for the Future, Oxford University
Press, 1986

• Pakistan’s Development Priorities: Choices for the future (with Robert Laporte), Oxford University Press, 1980.

• State and Society in Pakistan 1971-77, The Macmillan Press Ltd,
1980

[B][SIZE="4"]Articles:[/SIZE][/B]

• Several articles published in various journals including Journal of Asian Studies, China Quarterly, Asian Review, Middle East Journal, Pakistan Development Review.

• A weekly column published in Dawn, Karachi.

[B][I]source:[/I][/B] [url]http://www.pndpunjab.gov.pk/user_files/File/sjb%20resume,%20Cosmos.pdf[/url]

[B][U][CENTER][COLOR="DarkGreen"][SIZE="5"][FONT="Georgia"]The path of corruption[/FONT][/SIZE][/COLOR][/CENTER][/U][/B]

[B]By Shahid Javed Burki
Tuesday, 24 Nov, 2009[/B]

CORRUPTION is back in the news. Several newspaper columnists have written about it and it is the favoured subject of TV talk shows these days. Prime Minister Yousuf Raza Gilani has set up a task force to look into the problem.

Headed by Finance Minister Shaukat Tarin, the group has promised to report back to the government in four weeks.

I was queried by the Voice of America on the subject some days ago. The host of that programme played a clip from a statement by Minster Tarin who said that it was well known that large sums of money were being siphoned off by people who had the power to dispense services. It was also known, he went on to say, which government institutions were corrupt. The government was aware of what needed to be done, he seemed to imply. What was required was the political will to take action. He was right on both counts.

What has occasioned this revival of interest in the subject is the publication of the 2009 report of Transparency International which once again shows that Pakistan is doing poorly in the area although not as poorly as was the case a decade or so ago. Then the country was ranked as one of the most corrupt places on earth. The dubious honour belongs to even more troubled countries such as Somalia and Afghanistan. Rather than being the second most corrupt country in the world as was the case then, it is now a middling one.

Looking at the subject from the perspective of economics provides some useful insights into the practice. Corruption as a phenomenon can be easily explained in economic terms and economics also guides us towards some of the solutions. Corruption becomes endemic for a number of reasons. It may result when the cost of the services provided far outweigh the compensation given to those who are giving them away. This leads to a temptation on the part of those who have the authority to dispense these services to charge the receiver.

A policeman has the authority and the ability to maintain law and order. Security means a great deal to the people over whom the policeman has some authority. The people may be prepared to pay the officer for providing the services they need.

The same happens on the demand side of the equation. When the benefit of the services being received is much greater than the price being charged for them, those who want them would be prepared to pay additional amounts to receive them. This economic calculus can be changed by altering the cost benefit ratios for both the provider and receiver of services. There are some interesting examples of the reduction in the incidence in corruption when those with authority were given better compensation.

Singapore is often cited as an example of a country that has succeeded in practically eliminating corruption by giving handsome salaries to its senior public servants, including ministers. But we don’t have to go to Singapore to underscore the point that narrowing the difference between legitimate rewards to government employees and the cost to the receiver of the services they provide lowers the incidence of corruption.

The Motorway Police in Pakistan has a good reputation. Those who serve in this force are well compensated by the state. They also follow the procedures that are hard to circumvent. The latter point leads me to the second approach for controlling corruption. This is to strengthen the system and the processes used to provide services. Those who provide services and those who receive them should be clear about the procedures that have to be followed. Transparency has to be part of a system of controls. Any wilful departure should be brought to the attention of those who hold public servants accountable.

This brings me to the subject of accountability and corruption. Pakistan has a long history of coming up with accountability systems that were put in place to curtail corruption. Both Gen Ayub Khan and Gen Yahya Khan fired scores of civil servants to pacify the citizenry when corruption became a serious issue. This was an ex post way of dealing with the problem; to take action once the crime was committed. The first Nawaz Sharif administration set up an elaborate system of accountability. This was the ex ante approach, to address the problem before it became one.

The Sharif system was massively tinkered with by his successors and was scrapped by Gen Pervez Musharraf. The military government then went on to institute a system of its own, setting up elaborate investigative procedures as well as accountability courts for trying the cases investigated by the National Accountability Bureau.

Eventually, as is well known, the NAB process itself was corrupted and used for political purposes. The lesson to be drawn from this experience is that continuity of approach is vital. A jerky response to the problem does not create enough confidence on the part of the citizens that the system works to their advantage.

The Shaukat Tarin task force does not have to cover any new ground in pointing the government towards adopting the right set of solutions. Instead, it needs to watch over the implementation of the proposals it would be putting out. The proposals should be directed towards achieving three objectives. The system of compensation has to be drastically revised as should the systems of hiring and firing of people in government service, including the corporate sector controlled by the state.

Sound proposals were made by the commissions headed by Ishrat Husain and Moeen Afzal in this context. These need to be implemented. Along with better compensation should come accountability and that should be embedded in the legal system. No changes should be allowed once the system is in place. This can only happen if there is a broad political consensus behind its creation. Finally, while compensation for providing services should be increased so should the cost of being corrupt. Only then will the calculus change in favour of cleaner governance.

[B][U][CENTER][COLOR="DarkGreen"][SIZE="5"][FONT="Georgia"]Obama in China[/FONT][/SIZE][/COLOR][/CENTER][/U][/B]

[B]By Shahid Javed Burki
Tuesday, 01 Dec, 2009[/B]

[CENTER][B][I]By moving to grant China an equal status, Barack Obama moved light years away from the approach adopted by his predecessor President George W. Bush.[/I][/B][/CENTER]


IF there were any doubts that the global economic and political order was being reshaped they were set aside by the outcome of President Barack Obama’s recently concluded threeday visit to China.
That was the high point of the nineday trip to Asia. It has great significance in terms of charting a new course for American diplomacy not only in Asia but in the world.

By moving to grant China an equal status, President Obama moved light years away from the approach adopted by President George W. Bush, his predecessor. Under Bush, the United States proclaimed its intention to remain the world’s sole superpower, declaring formally that it would resist any effort by any other country to claim an equal status. That course was abandoned by the new American president.

President Obama invited Beijing to join Washington within a G2 configuration — it was never called that in official or other pronouncements but the meaning was clear — that would take the world towards peace and greater pros perity. According to Geoff Dyer and Edward Luce of the Financial Times, who have watched the evolution of AmericaChina relations for years, this signals a shift in America’s “specific approach to China — arguably the first time Washington has acknowledged an equal or near equal partner since the dying days of the Cold War. Perhaps counterinstitutively for a candidate who inspired so much youthful idealism on the campaign trail, Mr Obama’s extended hand of friendship to China also ushers in a new era of realist diplomacy in Washington”.

What was the Chinese response to this initiative? How will it be viewed in the United States? What mechanisms will be used to move forward this relationship? How will some of the other power centres in the world react to this reconfiguration in world politics? The Chinese, ever cautious, had been preparing for the time when their arrival on the stage of international politics and economics would be taken seriously by other powerful states.

The discussion about China’s new role starts with Deng Xiaoping’s 1989 slogan “hide the brightness and nourish obscurity”. The highly pragmatic Deng wanted China to concentrate on developing its economy without inviting a great deal of attention from its competitors. He had given his country about 50 years to develop an economy that would begin to have a large presence in the world. This happened sooner than he had envisioned. While obscuring its intention, Deng promised that the country would “accomplish some things” by adding this phrase to his edict. This year the Chinese added the word ‘actively’, to the old slogan, meaning they were prepared to actively achieve something.

A question has been asked at this point in China’s evolving relationship with the United States: whether the country is ready to partner with the Americans in the context of what is being called a G2 arrangement. This is an old relationship; it was mostly based on trade. The first merchant vessel to sail from New York to Canton in 1784 was on a tea buying voyage.

For centuries the Chinese admired America and what it had achieved in a relatively short period of time. But the American model now seems to the Chinese to have limitations. According to Simon Schama, an old China hand, “the secret truth is that the Chinese have not yet become accustomed to being the strong party in this relationship. The communist oligarchs who have made eyes at the American model for so long can hardly bear to see it as it is: lying in the dust, reduced to just another broken model, no more attractive than the dim and dusty memory of Karl Marx”.

While the Chinese were moving forward cautiously in establishing themselves as the joint leaders of the international community, the Americans moved in that direction briskly. Since Washington’s move meant reducing its stature in global politics and economics, it was not received with much enthusiasm by various segments of the American population. There were loud criticisms of the way President Obama handled himself in Asia, in particular in China.

“The trip was a template for rising American anxieties about the rising Asian power,” wrote The New York Times in an editorial assessing President Obama’s China trip. “President Obama went into his meetings with President Hu Jintao with a weaker hand than most recent American leaders — and it showed. He is still trying to restore the country’s moral authority and a battered economy dependent on Chinese lending. Yet the United States needs China’s cooperation in important and difficult problems, including stabilising the global financial system, curbing global warming, persuading North Korea to give up its nuclear programme and preventing Iran from building any nuclear weapons.” How did President Obama play this difficult hand? The New York Times, reflecting the views of the liberal community in the United States, came up with a mixed review. “President Obama was elected in part because he promised a more cooperative and pragmatic leadership in world affairs. The measure of the success (or failure) of his approach won’t be known for months, and we hope it bears fruit. But the American president must be willing to stand up to Beijing in defence of core American interests and values.” There were concerns in some places outside America that President Obama was perhaps moving too quickly to bring Beijing into a G2 relationship with Washington. This was especially the case with India that had begun to expect it would have a major role in the reconfigured world order.

Many influential Indians had convinced themselves that their model based on democracy was more durable than that of China directed from the top by a small coterie of unelected leaders. They saw China’s remarkable growth as a flash in the pan while there’s was sustainable. India’s hurt pride was assuaged to some extent by the warmth with which Prime Minster Manmohan Singh was received on a state visit to Washington. This was the first state visit for the Obama presidency and the president heaped a great deal of praise on the Indian leader as well as on his country.

[B][U][CENTER][COLOR="DarkGreen"][SIZE="5"][FONT="Georgia"]The Dubai default [/FONT][/SIZE][/COLOR][/CENTER][/U][/B]


[B][I][CENTER]What would be the impact of the Dubai meltdown on Pakistan? For several years now Pakistan has drawn closer to the Gulf States as sources of fi- nance. That happened as other financial and capi- tal markets became increasingly shy of putting money into Pakistan. In 2008, the UAE provided 20 per cent of the total foreign direct investment that came to Pakistan. Dubai had agreed to participate actively in the financing of several mega projects launched by the Musharraf government. Their total cost was estimated at $36 billion.[/CENTER][/I][/B]

[B]By Shahid Javed Burki
Monday, 07 Dec, 2009[/B]

FOR a number of years Dubai’s model of economic development seemed to be a spectacular success.
Among its main elements was competition among the several companies owned by the state; the decision by the managers of these companies to invest in the service sector, thus leap-frogging into the most dynamic part of the global economy; to leverage these investments by borrowing abroad, often using the sukuk, an Islamic bond, for this purpose; and the belief that, in case of financial difficulties, Abu Dhabi, the emirate’s oil rich neighbour, would come to its rescue.

The economy was centrally managed with the full involvement of Sheikh Muhammad bin Rashid alMaktoun, the head of Dubai state. The sheikh had been personally involved in encouraging the development of many projects in Dubai and was convinced that by turning the emirate into an airline hub, a tourist attraction and an educational and health centre for the region, he would give a non-oil base to the economy.

Initially, there was concentration on developing housing and office space in Dubai. However, the economy came under considerable strain when real estate prices fell by 40 per cent, repeating the pattern seen in other highly leveraged world economies. This put a tremendous strain on the highly leveraged Dubai firms.

The announcement on November 26 that Dubai World, the emirate’s flagship company, will default on its $3.5 billion bond due for maturity on December 14, 2009 shook the world of finance. The state owned company was struggling under the burden of $59 billion in liabilities. Dubai’s total debt was estimated at $80 billion, equal to its gross domestic product. The unexpected action by the government sent shivers down the spines of the international financial and capital markets. It will also have profound consequences for Pakistan, a country that had become increas ingly integrated with the economies of the Gulf states. I will get to the likely impact on Pakistan later in this article.

In announcing the decision, Dubai government did not use the word “default”; it called it “debt standstill” and asked that the creditors they will need to accept a six months moratorium on the payments on the bond. In the world of finance a failure to make payments on time is called default. It is no wonder that the action by Dubai had such an impact on the global markets.

According to one analyst, “the restructuring of Dubai World’s debt has been in the works for some time, but investors had grown confident that the Islamic bond, or sukuk, guaranteed by the stateowned company would be treated separately and would be paid off to maintain confidence in the trade and finance-oriented economy.” It appeared that the government was working to ward off the possibility of default. The department of finance had issued $5 billion bonds from two Abu Dhabi-controlled banks. But the government made clear that the resources raised would not be used to pay the Nakheel bond. That may have been a requirement of the Abu Dhabi government, the oil rich and more conservatively managed sister state of Dubai.

These bond issues were one-half of the second tranche of $10 billion that the Dubai government is raising after borrowing $10 billion from the United Arab Emirates central bank in February. Apparently officials in Abu Dhabi – the country that is acting as the lender of last resort for its financially troubled neighbour – were not aware of the default decision. There was considerable consternation in Abu Dhabi’s official finan cial circles.

According to one London based fund manager, “it’s good that Abu Dhabi isn’t going to support every white elephant in Dubai. It’s a hard but a correct decision. It would have been irrational to write the cheque for Nakheel.” Abu Dhabi sits on nine per cent of the world’s oil reserves and manages the world’s largest sovereign wealth fund but was not prepared to finance its sister state’s extravagant ways.

Sheikh Ahmed bin Saeed Al Maktoum, chairman of the Supreme Fiscal Committee, said: “While the government understands the concerns of the market and the creditors, it had to intervene because of the need to take decisive action to address its particular debt burden.” He said that the payment moratorium was needed to restructure Dubai World and place its business on a sound footing. The main problem with the company was the aggressive play by Nakheel, a property company, a subsidiary of Dubai World. The cost of insuring Dubai’s debt jumped to five per cent a year.

Restructuring of Dubai world would involve considerable pain, including the scaling down of some of the expensive properties owned by the subsidiary companies of Dubai World as well as the sale of some of the properties acquired in some of the world’s more prestigious addresses.

Istithmar, the investment arm of Dubai World, owned a number of prime properties around the world including some in London and New York. These will probably be offered for sale as a part of the restructuring of the parent company. More problematic will be the properties Nakheel has developed in Dubai including Palm Jumeirah, the first of three artificial islands off the Dubai coast and the acquisition of Q2 luxury liner which will be anchored outside Dubai and become a hotel. The liner has as yet to make it to Dubai; it has been diverted to Cape Town and will serve as a hotel for the World Cup football contest in that city in 2010.

What would be the impact of the Dubai meltdown on Pakistan? For several years now Pakistan has drawn closer to the Gulf States as sources of finance. That happened as other financial and capital markets became increasingly shy of putting money into Pakistan. The UAE investment community was less shy and was prepared to bring finance into Pakistan. This was particularly the case in the sectors in which the Gulf States had gained some experience. These included banking and real estate.

Heavy investments were made in these two sectors of the Pakistani economy by the public and private companies in the Dubai and Abu Dhabi. The UAE investment in Pakistan is estimated at $13.1 billion. In 2008, the UAE provided 20 per cent of the total foreign direct investment that came to Pakistan. Dubai had agreed to participate actively in the financing of several mega projects launched by the Musharraf government. Their total cost was estimated at $36 billion.

Shunned by western airlines, a number of Gulf carriers had aggressively penetrated the Pakistani market. The Dubai problem, however, will make the investors from the Gulf more weary of taking risks in a country faced with numerous crises including a security situation that is keeping away the Westerners from the country. In fact, I had come to believe that Pakistan could play the role of a bridge between the oilrich countries of the Middle East and China to its east and India to its south. Such ambitions may to be put on hold while Dubai comes to terms with its new economic situation.

[B][U][CENTER][COLOR="DarkGreen"][SIZE="5"][FONT="Georgia"]An important factor[/FONT][/SIZE][/COLOR][/CENTER][/U][/B]

[B][I][CENTER]The response in Pakistan to the country’s inclusion in the refined Afghan strategy was mixed. There is no doubt that as the new strategy unfolds, Pakistan will be in the middle of things.[/CENTER][/I][/B]

[B]By Shahid Javed Burki
Tuesday, 09 Dec, 2009[/B]

THE decision to send in more American troops to Afghanistan was a long time coming. In his recent speech US President Barack Obama walked a fine line between the two positions advocated by his advisers: some wanted to pursue what has come to be called the counter-insurgency approach while others advocated a counter-terrorism strategy.
The first is aimed at using considerable amount of force to overcome the insurgency while undertaking intensive development of the liberated terrain. The second is aimed at concentrating firepower on the strongholds from where the terrorists are launching their attacks. Areas in Pakistan are not to be spared since US intelligence had concluded that the insurgents had made these not only their sanctuaries but also their training grounds.

The military did not get all it wanted but it got more than President Obama’s most ardent supporters would have wanted him to provide. The long process of deliberation that resulted in the decision to send 30,000 additional soldiers — a process the president’s detractors called “dithering” — resulted in giving the commanders additional troops so that they could concentrate their effort in the south and southeast, in the provinces that border Pakistan.

President Obama told his audience that it was neither his intention to go over the distraction of the war in Iraq from America’s mission in Afghanistan nor to repeat the “wrenching debate over the Iraq war”. Instead he wished to detail why America needed to recommit itself to winning the struggle against extremism. He wanted to speak to the nation “about our effort in Afghanistan — the nature of our commitment there, the scope of our interests, and the strategy that my administration will pursue to bring this war to a successful conclusion”.

He acknowledged that mistakes had been made under the watch of his predecessor although he did not refer to them as mistakes or directly referred to the policies pursued by President George W. Bush. “But while we’ve ach ieved hard-earned milestones in Iraq, the situation in Afghanistan has deteriorated. After escaping across the border into Pakistan in 2001 and 2002, Al Qaeda’s leadership established a safe haven there.” Pakistan, in other words, had become an important factor in the Afghan equation.

President Obama told the American nation — and the world — that while he planned to send an additional 30,000 troops “this burden is not ours alone to bear. This is not just America’s war.” Nato forces were likely to increase to 40,000. The additional American troops would be moved quickly but it would take six to eight months to complete the deployment. By late July or early August 2010, the full American force would be present on the ground. This would be the peak of the fighting season in the country. Most of the American troops would be concentrated in the provinces bordering Pakistan.

What purpose was to be served by this buildup in the size of the American contingent? “Our overarching goal remains the same: to disrupt, dismantle and defeat Al Qaeda in Afghanistan and Pakistan, and to prevent its capacity to threaten America and our allies in the future.” The new mission will last at its peak for a period of 18 months after which “our troops will begin to come home. These are the resources that we need to seize the initiative, while building the Afghan capacity that can allow for a responsible transition of our forces out of Afghanistan”.

President Obama recognised that nothing would succeed in Afghanistan unless Pakistan was helped to stabilise its economy and equipped to handle insurgency. “... [W]e will act with the full recognition that our success in Afghanistan is inextricably linked to our partnership with Pakistan. We’re in Afghanistan to prevent a cancer from spreading through that country. But this same cancer has also taken root in the border region of Pakistan. That’s why we need a strategy that works on both sides of the region. In the past, there have been those in Pakistan who’ve argued that the struggle against extremism is not their fight, and that Pakistan is better off doing little or seeking accommodation with those who use violence. But in recent years, as innocents have been killed from Karachi to Islamabad, it has become clear that it is the Pakistani people who are the most endangered by extremism. Public opinion has turned. The Pakistani army has waged an offensive in Swat and South Waziristan. And there is no doubt that the United States and Pakistan share a common enemy.” This time around, President Obama promised an enduring relationship with Pakistan that would go beyond contacts with the military and the intelligence services. He had already signed into law the Kerry-Lugar bill that promised Pakistan $1.5bn of economic assistance a year spread over a period of at least five — possibly 10 — years.

“In the past, we too often defined our relationship with Pakistan narrowly.

Those days are over. Moving forward, we are committed to a partnership with Pakistan that is built on a foundation of mutual interest, mutual respect and mutual trust. We will strengthen Pakistan’s capacity to target those groups that threaten our countries, and have made it clear that we cannot tolerate a safe haven for terrorists whose location is known and whose intentions are clear. America is also providing substantial resources to support Pakistan’s democracy and development. We are the largest international supporter for those Pakistanis displaced by the fighting. And going forward, the Pakistan people must know America will remain a strong supporter of Pakistan’s security and prosperity long after the guns have fallen silent, so that the great potential of its people will be unleashed.” The response in Pakistan to the country’s inclusion in the refined Afghan strategy was mixed. Prime Minister Yousuf Raza Gilani worried about the movement of the Afghan insurgents into Balochistan as the pressure on Afghanistan’s province of Helmand increased. He wanted some assurance that the American troops will block these escape routes. There is no doubt that as the new strategy unfolds, Pakistan will be in the middle of things to come. ¦