Tag Archives: economy

Atlantic Council Report Calls for India and Pakistan to Reinvest in Economic Relations

Atlantic CouncilWASHINGTON – A report released today by the Atlantic Council’s South Asia Center argues that heavy military spending in India and Pakistan has in fact been detrimental to the citizens of both countries in terms of security and economic growth, and calls on leaders to reinvest in trade and confidence building.

In India and Pakistan: The Opportunity Cost of Conflict, Atlantic Council South Asia Center Director Shuja Nawaz and Nonresident Senior Fellow Mohan Guruswamy explain how high defense spending and low economic integration into South Asia’s regional economy have come at the expense of those living in poverty. Although many now favor rapprochement, Nawaz and Guruswamy argue that unless both sides begin a dialogue on economic and military relations, these issues will only worsen.

In addition to military spending, a lack of strong bilateral trade relations between India and Pakistan has also exacerbated South Asia’s socioeconomic challenges. From GDP to job losses to investment, the non-fulfillment of trading potential is a cost that “neither of the two countries can afford to ignore.”

Nawaz and Guruswamy provide a set of actions both countries can take to decrease military spending and promote confidence building:

  • Increase the distance between land forces by withdrawing from border areas
  • Engage in direct communications between militaries, including exchange visits
  • Invest jointly in energy, water, and export industries
  • Open borders for trade and eventually tourism

Such measures will have a lasting impact beyond India and Pakistan, as the authors note: “economically intertwined and mutually beneficial economic systems in both countries will create a huge peace constituency that will not only be good for the two nations, but also for the region and the entire world.”

Read the full report here.

Listen to audio from the Report Launch here.

Tax Evasion Report Misses The Bigger Picture

Pakistani currency

A new report by the Center for Investigative Reporting in Pakistan (CIRP) thrilled reporters nearly as much as it embarrassed Pakistani politicians. Finally, in black and white, evidence that confirms what many believed anyway – Pakistan’s lawmakers don’t pay their taxes. But as much as CIRP’s research confirmed people’s perceptions about politicians, it fails to address the fact that tax evasion is a ubiquitous phenomenon in Pakistan.

CIRP’s report repeats the claim that if elected officials do not pay taxes, no one else will either. This may be true, but in Pakistan it is complicated by the fact that tax evasion is not limited to elected officials. In fact, tax evasion is so pervasive that CIRP itself describes tax evasion as “a social norm” in Pakistan. This raises some difficult questions about the report’s conclusion that “the problem starts at the top.”

If tax evasion dissolves the moral authority of elected officials to demand payment of taxes by private citizens, does chronic tax evasion among private citizens erode their moral authority to demand it of elected officials? Certainly we expect elected officials to lead by example, and because of that we hold them to a high standard – one that involves consequences like the public “naming and shaming” carried out by CIRP. But expecting elected officials to pay taxes and absolving everyone else of the same responsibility is not holding elected officials to a higher standard, it’s holding them to a different one.

Recently, the Supreme Court ruled that Pakistan’s Public Accounts Committee could not audit the financial conduct of any Judge of the Supreme Court or of a High Court, whether sitting or retired. And no one has dared to follow up on the research by Dr. Ayesha Siddiqa, author of the book Military Inc: Inside Pakistan’s Military Economy which found that Pakistan’s military operates a multi-billion dollar business enterprise that is virtually unaudited.

Neither the judiciary nor the military are investigated in CIRP’s report.

Second (and more to the point) if tax evasion disqualifies an individual from governing, and nobody pays taxes – who will be qualified to govern? Certainly none of the over 2.3 million of Pakistan’s wealthiest citizens who fail to pay taxes. And it’s not just the rich who don’t pay taxes in Pakistan – almost no one does.

This is confirmed by CIPR’s report:

Out of over 180 million people, around two percent have [National Tax Numbers] (NTN), and less than one-fourth of them actually pay tax. Millions of Pakistanis with taxable incomes are not even registered with the authorities.

Let’s be honest: people aren’t failing to pay taxes just because they see elected officials doing so, they’re refusing to pay taxes because they don’t want to pay taxes and they do not believe that tax evasion bears any real risk.

It’s convenient to excuse this behavior by claiming that Pakistanis don’t pay taxes because politicians don’t, or because they don’t trust the government not to steal the funds; but even if that were true, CIRP acknowledges that Pakistan has a long history of popular tax evasion that has persisted across different civilian and military regimes. This suggests that the true cause is more than mere aping of or distrust in whoever happens to be in government at the time.

Instead of dismissing the question by suggesting that Pakistan’s politicians don’t pay taxes because they’re crooks, we should be asking why nobody in Pakistan pays taxes, and then looking for a way to improve systems to close the tax gap not only among lawmakers, but all Pakistanis. Just don’t expect it to be as easy as embarrassing politicians.

Sec. Clinton, Amb. Rehman focused on improving Pakistan’s economy

State Dept Spokeswoman Victoria Nuland

QUESTION: Ambassador Rehman also said that what Pakistan is looking – not aid from the U.S., but trade, and she said that as far as textile tariffs are concerned – and also, what I’m asking you is: Is Pakistan – is U.S. focusing more to spend money more on the development in Pakistani people in order to have a better image of U.S. in Pakistan?

MS. NULAND: Well, Goyal, as you know, the Secretary has been one of the most vocal advocates of switching as much of our economic relationship with Pakistan from aid to trade. That’s been the focus of the Department’s efforts with the Pakistani Government over the last couple of years, and some of the internal reviews we’ve done are focused on that. So we are investing in the economic health and strength of the country. We are investing in energy. We’re investing in education. We are investing in democracy programs and development, so – and micro-lending and all of these kinds of things. So it’s not about improving our image. It’s about helping to strengthen a stable, peaceful, democratic Pakistan.

Path to stabilizing US-Pakistan relations: Trade

Dr. Abdul Hafeez Shaikh

As US-Pakistan relations continue to focus on difficult and controversial security negotiations, a path to more productive relations was laid out by Pakistan’s Finance Minister, Abdul Hafeez Shaikh, at the Atlantic Council on Monday. To build a foundation of trust and cooperation relations should be founded in an interest both countries share – improving the economy.

Speaking to a packed room of academics, policy experts and government officials, Dr. Hafeez Shaikh noted that for the first time in decades, Pakistan’s civilian institutions are beginning to operate in an autonomous, independent manner. While there are still reforms and improvements needed, much has improved – courts are functioning independently, coalition and opposition parties are engaged in dialogue and consensus building, and President Zardari has voluntarily ceded powers accumulated under past rulers making parliament supreme in its position to decide policy.

As the discussion turned to the impact of international relations on economic growth, Dr. Hafeez Shaikh said that it is imperative for Pakistan to improve its economic ties with other countries as these can serve as the bedrock of strong and lasting international relations. Governments come and go, he observed, but economic relations are evergreen.

While US lawmakers debate whether aid to Pakistan is an effective tool, they should look at how India is changing the paradigm in Indo-Pak relations by liberalizing trade and normalizing business relations between the two rivals.

Commerce ministers from both countries met in New Delhi on Wednesday and decided to liberalise terms for issuing business visas soon by allowing multiple entry to more than one city. The two also decided to work on allowing investments from each other’s countries and encouraging joint ventures. “We engaged in a frank, open and constructive manner and our discussions will define the future roadmap of our engagement,” commerce minister Anand Sharma told reporters after the bilateral meeting, adding that the visit of a commerce minister from Pakistan after 35 years reaffirmed growing understanding between the two countries.

Since transitioning to democracy in 2008, Pakistan’s civilian leadership has consistently repeated that “trade, not aid” is key to growing Pakistan’s economy. It could be the key to stabilizing US-Pakistan relations as well.

“Saathi”

Diamer Bhasha DamYesterday’s post about the successful Pakistani operation that captured three top al Qaeda figures with the help of American intelligence was meant to highlight how, working together, US and Pakistan are more effective in fighting terrorists than trying working alone. Mosharraf Zaidi, a Pakistani columnist and policy adviser, responded with one word: “Saathi”.

“Saathi” is an Urdu word which means “partners” or “friends.” It also happens to be the name of Pakistan’s most popular brand of condoms. Zaidi’s comment was more than clever wordplay, though – it was a warning that American officials would do well to heed.

There’s a popular saying that the US treats Pakistani like a condom (in more polite recitations, Kleenex is substituted) – use it when you need it, then throw it away. The most commonly cited evidence is America’s withdrawal from engagement with Pakistan after the Soviets withdrew from Afghanistan in the 1980s. Pakistan expected the US to continue its policy of looking the other way on their nuclear program and providing aid and assistance to repair damage done during the Afghan war. Instead, in 1990, the US cut aid to Pakistan citing the 1985 Pressler Amendment which required the president to certify that Pakistan did not have a nuclear weapon.

Today, Pakistan is believed to control the world’s fourth largest nuclear arsenal. The Pressler Amendment, for all its intentions, did nothing to prevent this reality. What it did do was convince many Pakistani officials that the US is an unreliable partner. With troop drawdowns in Afghanistan scheduled over the next few years, many Pakistani officials are having a feeling of ‘deja vu all over again.’

American officials including Ambassadors Marc Grossman and Cameron Munter have met with the Pakistani leadership to convey their assurance that past mistakes will not be repeated, and that the US will not abandon Pakistan to fight against militant groups alone. But more can, and should be done to assure Pakistan of American intentions.

One way the US can provide this assurance is through making long term investments in Pakistan’s civilian infrastructure. A recent report in The Guardian (UK), notes that the US is considering providing financial support for the $12 billion Diamer Bhasha dam, which would provide 4,500MW of additional green energy, and go far to solving Pakistan’s crippling energy crisis. Mosharraf Zaidi told The Guardian that this is just the type of project the US should be investing in.

“Diamer Bhasha would be tremendously good for Pakistan and would show that the US is invested in a long-term relationship with Pakistan, no matter how bad things look today.”

Improving Pakistan’s energy capacity is about more than just keeping the lights on. According to the LA Times, Pakistan’s chronic electricity shortages are bleeding the country of economic opportunities. In a nation of 180 million where half the population is under 22 and and a quarter of the population lives below the poverty line, diminishing economic opportunities fuel political frustration and, in turn, instability – something no amount of military aid can fix, but one hydroelectric dam can.

This week’s statement by Pakistan’s military is an olive branch extended, once again, to their American counterparts. It’s an opportunity US officials should be loath to pass up. Significant financial support for the Diamer Bhasha dam would not only go far towards repairing America’s reputation in Pakistan, it would do so the right way – by demonstrating a sincere desire to help Pakistanis improve their own situation. Saathi. Partners, not patrons.

President Zardari Addresses Parliament

President Asif Ali Zardari today addressed a joint session of parliament today and laid out the state of the nation in 2011. The president began by recognizing the sacrifices of Pakistan’s religious minorities in the fight against extremism and intolerance, described the progress Pakistan has made in both political and economic reforms since 2008’s democratic elections, and the nation’s continued commitment to democracy, justice, and “defeating the mindset that preaches violence and hatred.”

An Economic Task Force For Pakistan

Delivering aid in Pakistan faces several challenges including a lack of capacity among local Non-Governmental Organizations (NGOs) in some areas and critical perceptions of American intentions among the local population. While vital to laying the groundwork for economic development, aid is not enough. What Pakistan needs is greater access to world markets and increased foreign direct investment (FDI) to develop under-resourced sectors of its domestic economy. President Obama should facilitate this investment by convening a new economic task force for Pakistan.

Pakistan's under-resourced industries are an economic opportunity for American investment

“Trade, not aid” has been a consistent theme of Pakistan’s President Asif Ali Zardari. During last summer’s historic flooding, the Pakistani leader thanked the world’s nations for their generous assistance, but reminded them that what the country really needs is greater access to the global marketplace – a point reiterated by President Zardari during a visit to Washington earlier this month to honor the late Ambassador Richard Holbrooke.

An article by Muhammad Aftab, an Islamabad based journalist, in Monday’s Daily Times examines the current state of foreign direct investment in Pakistan, and identifies several opportunities for increased investment in Pakistan’s under-resourced energy sector including oil and natural gas exploration and production, hydro and thermal power, and enmerging sources of renewable energy.

To facilitate Pakistan’s domestic economic growth and advance our shared goal of a stable, prosperous and peaceful Pakistan, President Obama should convene a special task force similar to his recently announced Council On Jobs And Competitiveness headed by GE CEO Jeffery Immelt to develop a strategy for shifting from aid-based investment to private sector/FDI based development.

The task force should comprise a joint public-private venture of corporate executives and diplomats with experience in South Asia, and should be tasked with a mission to identify opportunities for American companies to invest in Pakistan and areas where the government can help facilitate such investment either through federal regulation or international diplomacy.

Unlike aid-based development, this approach would directly benefit both parties by opening a two-way path for economic expansion between US and Pakistani markets while simultaneously bolstering Pakistan’s developing economic sectors with much needed capital and expertise. Additionally, it will avoid past misunderstandings as the results of the task force will not be money ‘with strings attached’, but cooperative efforts between American and Pakistani industry.

In convening this task force, President Obama would also clearly demonstrate that the US is not repeating past mistakes by using aid as a temporary incentive for Pakistan’s support in Afghanistan, only to abandon the country when the fighting ceases. Such a move could have a significant impact in reducing anti-American sentiment once the Pakistani people see that the US is not a fair-weather friend, but a long time partner and ally with a long-term interest in Pakistan’s success.

According to Finance Minister Dr Hafeez Sheikh, “Pakistan has a very liberal investment regime. There are no restrictions on FDI and inflow of capital and outflow dividend income. The current investment policies are tailor-made to meet the investors’ needs.” Sheikh also said, “There is a great potential for investment in the fields of oil and gas, corporate faring, agriculture and infrastructure.”

China recognizes the untapped economic potential in Pakistan, which is why President Hu Jintao recently signed trade and investment deals with Pakistan worth $35 billion. The US would be remiss to pass up such an opportunity.

Strong US-Pakistan Partnership Benefits Both Countries

A strong US-Pakistan partnership can and should benefit both countries. That was the message of Pakistan’s Ambassador to the US, Husain Haqqani, at a speech before the City Club of Cleveland last week.

Haqqani pointed out that Pakistan is a nation of 180 million consumers and is about twice the size of California.”Such a country needs goods, services, infrastructure, motor vehicles, railway wagons, passenger aircraft, a communications network, power stations, dams, bridges and roads etc,” he said.

Pakistan offers tremendous economic opportunity. Even in these difficult times many multinational US companies are doing good business in Pakistan, Haqqani said.

There were also larger political dividends to the US investment in Pakistan, the ambassador argued while remarking that Pakistan is one of the few genuine democracies in the Muslim world.

While US-Pakistan relations tend to focus on discussions of security, the fact is that broad cooperation between the two nations can have wide-ranging positive impacts. Pakistan’s economic potential remains largely untapped by American investment and ingenuity. While the security and stability of Pakistan’s democracy will continue to be a priority, we must begin to look beyond short-term goals and act on long-term opportunities that will help secure economic and social partnerships well into the future. For both countries, that’s a winning plan.

It's the Economy…

Textiles

Bill Clinton knew it. Hu Jintao certainly knows it. Barack Obama is learning it the hard way. And if we really want to ensure democracy and justice in Pakistan, Congress needs to figure this out, too: It’s the economy, stupid.

Pakistan’s democratic government continues to suffer incredible attacks from militant extremists. Just last week, Lashkar-e-Jhangvi – a terrorist group affiliated with Al Qaeda and the Tehrik-e-Taliban Pakistan – attacked a security compound in Karachi killing at least 18 and wounding over 100. And this was only the latest in a wave of deadly attacks that have plagued the city in recent months.

Karachi is financial heart of Pakistan. That may be one reason terrorist militants are so keen to destroy it. Undermining stability in Karachi has a direct impact on foreign investment in Pakistan; undermining the nation’s economy undermines support for the democratic government. It creates a feeling of hopelessness and frustration that militants use to recruit new foot soldiers.

Discussing the nation’s education system, Pakistani analyst Mosharraf Zaidi told PBS Frontline that a lack of economic opportunity can have dire consequences.

“You look at the consequences of these kids not going to school — and let’s set aside the fearmongering and the scare-mongering of saying, you know, ‘What if all these kids become terrorists?’ Setting that aside, the real problem is that, if you aren’t capable of participating in the global economy, you will be very, very poor. And desperate and extreme poverty has some diabolical consequences for societies and for individuals.”

Michael O’Hanlon, Senior Fellow at the Brookings Institution, writes that one of the keys to creating peace and stability in Afghanistan and Pakistan is economic stimulus for the region through trade liberalization.

Struggling economically, Pakistan needs such a shot in the arm, and a trade deal could arguably do even more than aid at this point.

Over the weekend, the US and Pakistan agreed to cooperate on a new $375 million wind farm near Karachi to provide 150 megawatts of power. This is a good start. Projects of this nature go beyond mere aid and create sustainable infrastructure that can reduce Pakistan’s dependence on foreign energy supplies while also providing a much needed boost to employment.

This is a good start, but the US needs to do more if we’re going to continue to have a strong relationship with the South Asian power. Pakistan’s president Zardari is no American puppet, and he has been making successful overtures to Chinese investors keen to profit from Pakistan’s unrealized potential.

The President said that there existed a great potential between Pakistan and China to further expand their bilateral trade and Pakistan was keen to welcome greater Chinese investment in the country.

He said that Pakistan and China have established a Joint Investment Company (JIC) with the help of China Development Bank to assist joint ventures and signed the Free Trade Agreement on goods and services, which were helping integration of Pakistani and Chinese economies.

The President said that the Government has put in place policies directed towards rapid economic growth, employment generation, poverty alleviation and encouragement of the private sector.

And it’s not only the cash-flush Chinese who are looking – the UK is also beginning to see the potential of investment in Pakistan.

[British Deputy High Commissioner] Robert Gibson pointed out that British entrepreneurs working in Pakistan were having continued interest to work and safeguard their businesses and were looking forward to opportunities to further increase their operations by expanding existing projects and explore new avenues for investment.

The US can begin its program of economic investment by liberalizing trade, specifically through granting preferential market status to Pakistani textiles, a policy encouraged in a new report by the Council on Foreign Relations.

“To reinforce US-Pakistan ties and contribute to Pakistan’s economic stability in the aftermath of an overwhelming natural disaster, the Obama administration should prioritize and the Congress should enact agreement that would grant preferential market access to Pakistani textiles,” former deputy Secretary of State Richard L. Armitage and former national security adviser Samuel R. Berger, stress in the report.

This agreement would help revive the Pakistani industry and all of the associated sectors of the economy, including Pakistan-grown cotton, the report adds.

Additionally, Congress should revisit legislation establishing Reconstruction Opportunity Zones (ROZ), a bill first introduced by President Bush and passed by House Democrats in 2009.

Conventional wisdom says that American policy towards Pakistan should involve ‘carrots’ and ‘sticks.’ This thinking is misguided. Targeted aid packages like Kerry-Lugar and flood assistance are necessary, but not sufficient if the goal is to develop a strong and lasting partnership. Pakistan has demonstrated that it will not be a client state, nor should any such outcome be at the heart of American foreign policy. Only by developing economic partnerships that benefit both countries will lasting trust be established. Investment in Pakistan may involve certain risks at this time, but ignoring this opportunity poses greater risks still.