GLOBAL RISK ASSESSMENTS Executive Briefing Book€¦ · When President Asif Ali Zardari called...

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© 2013 American International Group, Inc. All rights reserved. Analysis When President Asif Ali Zardari called together the first government under his presidency, in March 2008, few commentators would have given much chance of it surviving to complete its five-year term. A sympathy vote for his assassinated wife, Benazir Bhutto, had propelled their Pakistan People’s Party (PPP) to be the largest party in the National Assembly. Its rule rested on a tenuous coalition from which one major participant -- the Pakistan Muslim League-Nawaz (PML-N) -- soon moved out into open opposition. Displacing the discredited military regime of President Pervez Musharraf, Zardari’s government earned the immediate suspicion of the army, which deepened as his pro-Washington leanings exposed the country to US-NATO operations from across the Afghanistan border. In addition, he incurred heavy censure from the judiciary, which pressed allegations of corruption dating from his past. Further pressures came from the explosions of civil violence ignited by domestic Taliban groups, challenging a ‘godless’ state they saw as a client of the US, and by various ethnic groups -- Mohajirs, Balochs, Pashtuns -- fighting for turf. Through most of the last five years, lurching from one crisis to another, Zardari’s government has given the impression of living permanently on the edge of breakdown. And yet it has survived and, when the next general election is held in mid-May, will have bequeathed Pakistan a rare legacy of democratic continuity and prospect for renewal. Indeed, the dissolution of parliament on March 16, in preparation for that election, will signify only the second time in Pakistan’s 66-year history that an assembly has served its full term. Pakistan/Impending Election After weathering many severe storms, President Zardari’s party is in line to win a fresh term. 03 Mar 2013 Key Judgements The Pakistan People’s Party (PPP) looks set for re-election -- despite its exceedingly poor record in managing the economy and internal security. President Zardari, who leads the PPP, has proved a shrewd operator, ultimately outsmarting the military and the judiciary, which have sought to neuter or oust him. Zardari’s chief political rivals, Nawaz Sharif and Imran Khan, have been damaged by perceived association with, respectively, Islamist extremism and the army. The economy has suffered relentless deterioration, with the government failing to tackle vested interests, check rampant bureaucratic corruption, and widen the tax net. Reforms that aim to strengthen the authority of provinces against the center, and to curb Punjab’s primacy, have the potential to enhance democratic accountability. The US-NATO pullout from Afghanistan should relieve some of the intense pressures on Pakistan which have brought governance towards breaking point. Who will win the general election in May? Zardari, a consummate survivor GLOBAL RISK ASSESSMENTS Executive Briefing Book

Transcript of GLOBAL RISK ASSESSMENTS Executive Briefing Book€¦ · When President Asif Ali Zardari called...

Page 1: GLOBAL RISK ASSESSMENTS Executive Briefing Book€¦ · When President Asif Ali Zardari called together the first government under his presidency, in March 2008, few commentators

© 2013 American International Group, Inc. All rights reserved.

Analysis

When President Asif Ali Zardari called together the first government under his presidency, in March 2008, few commentators would have given much chance of it surviving to complete its five-year term. A sympathy vote for his assassinated wife, Benazir Bhutto, had propelled their Pakistan People’s Party (PPP) to be the largest party in the National Assembly. Its rule rested on a tenuous coalition from which one major participant -- the Pakistan Muslim League-Nawaz (PML-N) -- soon moved out into open opposition.

Displacing the discredited military regime of President Pervez Musharraf, Zardari’s government earned the

immediate suspicion of the army, which deepened as his pro-Washington leanings exposed the country to

US-NATO operations from across the Afghanistan border. In addition, he incurred heavy censure from the judiciary, which pressed allegations of corruption dating from his past. Further pressures came from the explosions of civil violence ignited by domestic Taliban groups, challenging a ‘godless’ state they saw as a client of the US, and by various ethnic groups -- Mohajirs, Balochs, Pashtuns -- fighting for turf.

Through most of the last five years, lurching from one crisis to another, Zardari’s government has given the impression of living permanently on the edge of breakdown.

And yet it has survived and, when the next general election is held in mid-May, will have bequeathed Pakistan a rare legacy of democratic continuity and prospect for renewal. Indeed, the dissolution of parliament on March 16, in preparation for that election, will signify only the second time in Pakistan’s 66-year history that an assembly has served its full term.

Pakistan/Impending ElectionAfter weathering many severe storms, President Zardari’s party is in line to win a fresh term. 03 Mar 2013

Key Judgements•The Pakistan People’s Party (PPP) looks set for re-election -- despite its exceedingly poor record in managing the

economy and internal security.

•President Zardari, who leads the PPP, has proved a shrewd operator, ultimately outsmarting the military and the judiciary, which have sought to neuter or oust him.

•Zardari’s chief political rivals, Nawaz Sharif and Imran Khan, have been damaged by perceived association with, respectively, Islamist extremism and the army.

•The economy has suffered relentless deterioration, with the government failing to tackle vested interests, check rampant bureaucratic corruption, and widen the tax net.

•Reforms that aim to strengthen the authority of provinces against the center, and to curb Punjab’s primacy, have the potential to enhance democratic accountability.

•The US-NATO pullout from Afghanistan should relieve some of the intense pressures on Pakistan which have brought governance towards breaking point.

Who will win the general election in May?

Zardari, a consummate survivor

GLOBAL RISK ASSESSMENTS

Executive Briefing Book

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How has Zardari outfoxed his adversaries?

Surrounded by contending forces of opposi-tion, Zardari has shown a remark-able deftness at playing them off against each

other. Against military challenges, he has posed the specter of the alternatives to himself: either a government based around Nawaz Sharif’s PML-N, which has soft con-nections to the Islamist militant groups responsible for the death of many soldiers in recent years; or else a return to military dictatorship, which would certainly cost the army much of the US aid on which it depends.

Frustrated by its lack of room for political maneu-ver, the military in recent months is rumored to have sponsored reform movements, which demand an end to ‘old corruption’ and the restructuring of democratic institutions. However, it is now too late for them to make a decisive impact on the impend-ing election -- to which military commander-in-chief Ashfaq Parvez Kayani, who retires in Novem-ber, has now given his blessing.

Against challenges from the judiciary, Zardari has posed his own democratic mandate and the specter of a return to rule by the military -- against which the Supreme Court has launched charges of torture and murder far more serious than any against the president himself. In the end, after or-dering the removal of one prime minister for refus-ing to pursue corruption charges against Zardari, the Court desisted from ordering the removal of a second. Thus, the Supreme Court, too, seems to have concluded that Zardari represents the least worst alternative presently available to it.

Elsewhere, the president has skill-fully used strategies of ‘divide and rule’ to keep enemies from his door. Mili-tant Sunni Muslim groups, allied to the

Taliban, have found it far easier to take out their frustrations on Shia sectarian rivals than on heavily protected targets of the state. In Karachi, Pashtuns and Mohajirs -- whose political parties, the Awami National Party (ANP) and Muttahida Qaumi Move-ment (MQM), are both notional members of the same PPP-led national government -- have been permitted room to fight each other to a standstill, largely unhindered by the law.

Zardari has presided over the resulting chaos like a viceroy of old, secure in his well-guarded palace while blood runs freely in the streets.

What have been the economic costs of Zardari’s ‘indirect’ rule?

In five years, the economy has suffered relentless deterioration. GDP growth has been stuck in the 2-3% range; inflation has run at 15-25%; fiscal deficits have topped 6% of GDP; the Pakistan rupee has lost 40% of its value against the US dollar. In December 2011, the IMF signaled that it had had enough and abandoned its attempts to engineer a rescue -- withdrawing the last $1.3 billion tranche of its proffered loan facility.

The Fund’s irritation centered on the government’s failure to tackle vested interests --especially those of the feudal landlord class -- and to check rampant bureaucratic corruption. Pakistan’s big landlords still pay virtually no tax and, in its last report, the country’s tax commission estimated evasion at $30 billion a year.

The economy’s parlous condition is most evident in the power sector. Pakistan now has a peak-time electricity deficit of 30% and runs daily brownouts of 12-16 hours, especially during the summer months. The total blackout that occurred on the night of February 24 was but symptomatic of a much wider malaise marked by

Military machinations have failed to hit the ground running

Karachi, ethnic and sectarian flashpoint

February blackout compounds economic fragility

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gross administrative incompetence and dwindling investment.

How critical is the breakdown in civil order?

Following the military operation in Swat in 2009, Taliban-related violence has turned away from the remote tribal regions and advanced towards the cities. Lahore and Islamabad can no longer count themselves immune, and Sunni attacks on the Shia have impacted Karachi and Quetta. The latest bombing in a Shia neighborhood of Karachi on March 3 claimed the lives of at least 45 people.

While a broad-based insurgency has been avoided in Baluchistan, daily acts of inter-ethnic violence continue and Mohajir-Pashtun conflict in Karachi has rendered large parts of the city ungovernable. Whether at work or home, significant sections of Pakistan’s once-privileged urban middle class now find their lifestyles in physical danger.

Who will win the election?

With a performance in government as poor as this, the PPP might be expected to face a new election with considerable trepidation. However, early opinion polls suggest the likeliest result will be for it to be returned as the largest single party in the National Assembly, with the opportunity to re-form its ruling coalition. That, in turn, would open the way for

Zardari to seek a second five-year term as president in September.

The PPP’s promising election prospects reflect in part the problems faced by its various opponents. Former prime minister Nawaz Sharif has enjoyed only

limited success in drawing splintered party factions back into his PML-N. In desperation, he has turned for alliance to the Jamaat Ulema-e-Islam (JUI), one of the more vociferous religious parties. Yet, while consolidating support in his home province of Punjab, this maneuver will fully expose the religious orientation of his politics and, likely, provoke a strong backlash elsewhere.

The new party of reform, the Pakistan Tehreek-i-Insaf (PTI) set up by former cricket star Imran Khan, has burned very brightly in recent months but now seems to be waning. Appealing, especially, to the urban middle class (and their scions in the diaspora), it has denounced the corruption and incompetence of government and demanded a new democratic writ. However, it has been embarrassed by persistent rumors that it represents the popular front for a government of technocrats backed by the military.

It has also suffered from association with the independent reform movement of the Canadian-Pakistani cleric, Tahir-ul-Qadri, whose attempt to stage a local version of the Arab Spring ended in debacle when in January he accepted the embrace of Zardari’s ministers and ordered his encamped followers to go home. Imran Khan has now set his cap at replacing Nawaz Sharif as the principal voice of anti-Zardari opposition -- but this merely, and further, divides the forces likely to displace the PPP.

In any event, Pakistan elections are not won in the cities, but in the countryside where the PML-N and the

Qadri’s mass movement imploded in Islamabad

Imran Khan, allegedly in leaguewith the army

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PPP can draw on their respective feudal retinues. What the urban middle classes think has rarely mattered.

Has the PPP pointed Pakistan in a new direction?

Structurally, the PPP-led government has represented a radical break with Pakistan’s received political tradition. Virtually since its birth, the country has been dominated by Punjab province which contains 60% of the population and is the prime recruiting ground for the army. This has provided the foundations for a highly centrist system of rule in which power has been slow to devolve to local democratic institutions, and in which recourse to coercive authority has been never far from hand.

But the government of the Sindh-based PPP, allied to the North-West Frontier Province-based ANP and the Karachi-based MQM, has overturned this tradition. Zardari’s government represents the outer provinces against the Punjab center, and it has used its position to pursue constitutional reform aimed at deepening federalism. In this spirit, the former N-WFP has now been re-named Khyber-Pakhtunkhwa (KP) in honor of its Pashtun majority. In this spirit, too, budgets have been devolved to give the provincial assemblies greater control over state spending. Indeed, in an effort to permanently undo Punjab-centrism, the government still hopes to pass a bill dividing the present Punjab province in two before it dissolves on March 16.

For a country with Pakistan’s history of internecine strife, devolution clearly represents a risk and, thus far, the fruits of the new federalism are not clear to see. If anything, greater potential power has engendered more in-fighting between local

groups in the provincial assemblies, and multiplied the opportunities for corruption. Nonetheless, in principle, the shift offers at least the possibility of bringing state power nearer to the people and creating stronger forms of democratic accountability, which Pakistan has sorely lacked. Over the next few years, a new politics of federalism has the potential to bring about a new politics of civic responsibility.

How will change in Afghanistan impact Pakistan?

The progressive withdrawal of US-NATO forces from Afghanistan should remove a burden which has strained the legitimacy of the state, and pressed governance towards breaking point. Obliged by strategic necessity to remain allied to the US, successive Pakistan governments have nonetheless faced the task of explaining to an uncomprehending public why their own ally should be bombing their own territory and killing their fellow citizens, and why militant Islamist groups -- previously left untouched in distant tribal lairs -- should be provoked into attacking the country’s major cities. This has been an embarrassment and humiliation for all ruling parties and, no less, the military.

Now, however, there are possibilities of relief, and also for Pakistan to play a fuller and more dignified role in brokering the regional settlements which must follow in the vacuum left by the US-NATO pullout. Of course, a concomitant of the next elected government may well be a renewal of the ‘old corruption’ of the past five years. Yet, the consolidation of a new federalism and the changed situation on the Afghanistan border will offer the hope, slender as it may be, of a move towards a cleaner and more accountable system of governance.