THE NEW AF-PAK STRATEGY

We as Pakistanis should be in awe of the fact that US defence contracts have already floated a bid for increased jet fuel in Afghanistan till 2013, with the condition that it must not come through Pakistan. Does this imply that Pakistan may be under US attack from Bagram in 2012-13? Or does it mean that Pakistan would have plummeted to anarchy by that time.

Much before General Stanley McChrystal had resigned, ‘Obama’s Third Surge’ had already petered into nothingness. The operations failed to create intended effects in a highly destabilized, charged and violent region. McChrystal, the highly decorated specialist in covert operations and assassination squads of the secretive Joint Special Operations Command (JSOC) may have been brilliant and brutal tactical hit man, but a strategic failure nonetheless.

His resignation has come as no surprise to analysts following the tug of war between the US Defence and Political Establishment and how the third surge was identically conducted at the heels of the failed second surge. In both failed operations, CENTCOM conspicuously avoided Kandhar but why?

In my article, ‘The Wilting Obama Surge’ in the Nation, I had identified the fault lines within the US establishment. Even the UN envoy in Afghanistan had called it too military driven and doomed to failure. Nothing had worked as per the plan; neither the carrot, nor the stick nor stacks of cash for the breakaway Taliban. The contradictory statements of Gates, Halbrooke and the local military command spelled it all. The foreign press corps in Kabul, obscure from reality was making big news. Media was bubbling with optimism while efforts were at hand to find a scapegoat if the good news turned sour. This scapegoat is now General Stanley McChrystal.

It was indeed at the heels of this failure that USA decided to co-opt Pakistan in the Strategic Dialogue diplomacy. In a typical US media hype, much was made of the prowess of General Kayani as a brilliant military commander with an equally sharp eye on the long term vision. A leading Indian newspaper took the lead in portraying him as the man who was in charge. Guns and Roses were offered to win over Pakistan’s military establishment towards a US driven operation in the region. The entire political establishment of Pakistan was eclipsed. There may have been some tactical compromises, but as events proved, Pakistan resisted the trap. US could not have its way and a new strategy became inevitable. Time for a new plan had come.

This change of heart also caused a furore amongst the ‘Shock and Awe’ rightist who singled out Pakistan as part of the problem (Lisa and Nicholas). This same right saw McChyrstal as an upholder of US Absolutism and a Bush Strategy downgraded by the Democrats. It also set the template of the future US election debate between the Democrats and the Republicans.

Writing on Obama’s Third Surge, I had cautioned,

“The new AF-PAK strategy is a compromise with enough blank space for narratives to be filled later. It is these blank narratives that cause concern… What lies undisclosed is high intensity sting and covert intelligence operations conducted by CIA and the dreaded JSOC. The message is unambiguous. Pakistan will have to face a surge of expanded drone attacks (settled urban areas) by both JSOC and CIA, and a cruel spate of covertly sanctioned illegal assassinations, sting operations and anarchy generated by contractors with leaks capable of breaking hell in Pakistan”.

As an analyst, my biggest concern is to identify the blank spaces in the narratives that need to be filled in after the change of command in Afghanistan and what USA terms AF-PAK. This is a moot to be contended between the Pentagon and the White House in the coming months. In the interim, all ongoing operations in Afghanistan will lose their momentum and the operational pause give a much needed respite to the Afghan resistance to recoup and reorganise. The pause is also a blessing for Pakistan to put its house in order. However, given the ground realities, Pakistan’s politicians will continue to display their insensitivity to national sensibilities and allow the country to drift with only the military calling shots and determining the course of future events.

Much is also being made of the COIN Strategy cited as success in Iraq. Apparently this strategy had a socio economic pincer at the leading edge with dollars being used to buy off Sunni Muslims against hardcore militants linked to Al Qaida. Total economic destruction of Iraq had led to extreme poverty that was later exploited to trade loyalties for bread. This was a controversial US counter insurgency doctrine called COIN devised and implemented by U.S. Central Command Chief David Petraeus in Iraq.

Premised on ‘money talks’ all future operations in AF- PAK will witness a surge of monetary kickbacks as a corner stone to other factors related to combat, overt and covert violence, expanded role of drones (settled urban areas) and terrorising tactics in urban areas. A failing Pakistani economy is mandatory to the success of this strategy.

It is with this reason that my last ten articles on these pages have primarily focussed on the intrinsic link between the war in Afghanistan and Pakistan’s political economy. The focus of the primary threat to Pakistan shifted long ago from India to bad policy making and bad governance from within. In the worst case scenario, by the time US stabilises in Afghanistan, Pakistan would be a state vulnerable to a COIN Strategy.

Though the modality and command may have changed, we Pakistanis must realise that the American long, mid and short term designs and objectives in the region have not. This should also dispel any illusions that some Pakistanis may have on the benefits of the Pakistan-US Equation as a saviour.

We should rather be in awe of the fact that US defence contracts have already floated a bid for increased jet fuel in Afghanistan till 2013, with the condition that it must not come through Pakistan. Does this imply that Pakistan may be under US attack from Bagram in 2012-13? Or does it mean that Pakistan would have plummeted to anarchy by that time. Supply of jet fuel would start in 2011 about the time when new US operations would be peaking in the region.

Afghanistan is a country whose economy thrives in times of conflict. Already USA is indirectly funding the war against itself through its local contractors and efforts to buy off revolutionaries. The COIN may buy off the war lords but never the romantic revolutionaries. To the contrary, money is endemic to Pakistani Politics. It works wonders especially when it will be funnelled through methods that promote corruption and a black economy.

Under the new command, the next phase of US operations is not likely to commence before September 2010. This also coincides with the time when Pakistan army will be looking forward to a new military chief. Speculative options on the continuity of General Kayani as COAS are rife and so is the rumour and manipulation mill. Hence all rumours must be put to rest so that the military and country can concentrate on the US operations in the Kandhar region and its backwash on Balochistan in particular.

As an appropriate measure, the nation must agree to eat grass, least for the survival of its crowned jewels rather for its own national honour and pride.

If this preparation does not take place before the new surge, Pakistanis will have no option left but to look for a new social contract.

I pray it comes peacefully and not through violence.

VALUE ADDED TAX: SUCKING BLOOD FROM STONES

Brigadier (R) Samson Simon Sharaf

The progress of a country’s revenue generation directly depends on the growth of its economy and the fairness of its tax collectors to deliver. However, at the broadest and lowest level of this enforcement lie a mass of people with different ideas, idiosyncrasies, historical traditions and daily experiences. This diversity is intertwined at the very top with governance manifested by its politicians, establishment, enforcement and intellectuals. Consequently, the tax culture of a country will always take the colour of its top tier.

South Asia in which Pakistan is no exception has a very healthy and proud tradition of philanthropy and charity. The people are not averse to the concept of giving and donating as long as they know it goes to the right hands. In a modelling we carried out along with local tax officials of Gujranwala, the charity paid by small business owners was thrice the taxes paid to the government. Herein emerges a paradox. Pakistan is one of the world’s highest charities paying country per capita income, yet it has one of the lowest taxes to GDP ratios. According to Dr. Birger Nerre of University of Hamburg, the topic of Tax Culture appears precisely at the intersection of the disciplines of economics, sociology and history and this is precisely where the disconnect in Pakistan lies.

Consumer based taxes depend on the ability of the majority at the bottom of the barrel to consume. If they consume, the supply chain automatically delivers more revenue. In order to boost production and its consumption, the most viable alternative is to make others consume through exports. If both domestic economy and exports do not propel consumption, first because of a prohibitive consumer price index and second due to inability, the revenue shrinks.

In circumstances such as these, a bulwark approach in recession is surely a recipe for hyperinflation, poverty and a black hole in economy. Therefore, once an establishment that lacks good governance, accountability, impeccable character and an even handed approach in enforcement enforces more and higher taxes at the consumer end, it is another disaster in making.

Sales Tax is the oldest tax of human civilisation. It basic premise was and remains to collect a levy at every stage of transaction. Ultimately the entire burden passes on to the last buyer. This consumption forces private cash holding into circulation triggering reflation (a healthy inflation) of economy, raising Consumer Price Index (CPI) and expanding the Gross Domestic Product (GDP). In most countries of the world, this paradigm of consumerism as an end-means relationship has not changed. It also allows the effective tax rates to be much higher than the declared rate: an aspect hidden from taxpayers.

However in growing and robust economies like USA, this indirect form of taxation apart from mortgaging is the mainstay of revenue. Being domestically competitive and productive with a consumer society based on the ethos of its founding fathers, it has so far precluded the need to shift to a form of Value Addition. US paradigm remains consumption led growth. USA must produce so that rest of the world consumes.

However in countries that depend less on domestic consumption and more on exports to keep the consumption cycle positive, the Sales Tax has been reformed to a more scientific method of value addition. The purpose is not to levy additional consumption taxes on citizens but rather to determine incomes for direct taxation. France began the experimentation and was followed by EU, Singapore and the rest. The most noticeable commonality in all these countries is the prohibitive CPI in terms of Pakistani exchange rates.

In tight economies plagued by an endemically corrupt political culture and fiscal manipulation, this form of taxation becomes regressive and a precursor to hyperinflation. As the CPI becomes prohibitive, broad steep pockets of poverty appear. This is exactly the havoc being played in Pakistan through borrowed; least understood; and awfully implemented consumer based taxation systems.

The exercise to convert the General Sales Tax to a productive and acceptable social tool began in full earnest in 1999 under General (R)Pervez Musharraf. The Economics Affair Division was extremely zealous to fulfil its obligations to IMF sponsored Structural Adjustment Programme (SAP) and bring a vast sector of the undocumented, informal, comprador and black economy still going strong into the tax net (Pakistan was into its 10th Year of Nuclear Sanctions). VAT was projected as a modern methodology to document the additional transactional taxes at every stage with GST Identification. Theoretically, once the total VAT paid by any single entity in a year is determined, the ascertainment of profits is a simple calculation. So if an entity paid Rs15 in a year, its profits are Rs.85. This is the point where the Income Tax Department was to step in and tally the IT Returns of that entity with the income reflected in GST. Both Tax evaders and cheats were to be netted and income tax broadened.

During lengthy deliberations in CBR, Ministry of Finance and GHQ, we repeatedly emphasised that if the purpose of VAT was indeed broadening the tax base, then even a levy of 1% rather than 15% was sufficient to broaden the tax base through the Income Tax Department and use of computers and sale machines. Any VAT remitted as 1% meant 99% profit. During my repeated interactions with the Ministry of Finance, CBR and traders, I asserted that the purpose of VAT should not be to raise taxes but to broaden the tax net manifold through the Income Tax Department.

Perhaps this is where departmental corporatism set in. Sales Tax Department of late had become the domain of custom officials who had also absorbed some officials of the Excise Department. Moreover, Customs, Sales Tax and Income Tax zones had different geographical boundaries meaning organisational reforms within CBR. It was also a slur for the GST Department to act as a feeder to the Income Tax Department. Even if all this was accomplished, technical expertise was imperative to ensure success.

Just to prove this point, Pakistan Revenue Automation Limited (PRAL) was asked to set up a Model CBR office in Westridge and document information coming through the unimaginative Tax Survey. We set up a simple EXCEL programme to determine the profit levels of GST Returns/Invoices. The simulation gave surprising feedbacks on the tax evasion of known entities. This simulation was run by me during a cabinet meeting held in August 2000 in GHQ, showing the Income Tax rising threefold. There were valuable contributions made by Member Income Tax Mr. Mansoor and Dr. Ashfaq Ahmad the Economic Advisor both working many extra hours with us to streamline an effective methodology. But then something happened. All our efforts came to nothing at all….

Brigadier(R) Samson Simon Sharaf
The decision makers decided to revert to a consumptive Tax of 15-18% raising it to 28% in some cases. PRAL was never allowed to display its expertise. What we finally got was a regressive consumptive levy least amenable to documentation or economic growth. One of the most destructive effects of this levy was that either the small businesses particularly in the manufacturing sector closed or they in quest to avoid multiple taxations surrendered to larger businesses. The age of Cartels had arrived.

As for rest of the world, it still looks for a perfect VAT Model. Had Pakistan been so good at it, tax experts from world over would have swarmed here.

Now the history is being repeated once again. The inputs of our intellectuals are conspicuously lacking. Once again the progeny of the old guard will sit down to reinvent a wheel and once again the people of Pakistan will suffer. Dr. Farrukh Saleem was prophetic when he coined the term in 2000, “Sucking Blood from Stones”.

PAKISTAN’S ECONOMIC HITMEN: PART III How the Economy was manipulated

Brigadier (R) Samson Simon Sharaf
The first two parts of my columns explained how Pakistan’s economy was set to meltdown. Come 2007 and as of today, the meltdown continues with complete contempt to National Security. Even the national Security managers choose to look the other way. The principal dynamics that acted both as precursors and trigger points are summarised and listed below.

• The water managers within the Government of Pakistan despite being the biggest recipients of foreign loans till 2000 did not exercise vigilance on Indian water development projects mainly because they were guilty of corruption, negligence and technical insufficiency.
• The seizure of FCAs in 1997 however negative proved that a weak rupee was not a pre requisite to boost exports.
• Under the pricing mechanism of 1994, IPPs with tax exemptions had recovered investments and begun remitting profits and outsourcing costs abroad. They were the new energy manipulators to earn windfalls.
• The imposition of GST as a VAT was abandoned by CBR in 2000-1 converting it into an easy to collect levy. The incomplete GST regime did not help in documentation of the economy, and rather served to jump start inflation and discourage small sector domestic production.
• After 9/11, despite 13 Billion Dollars in the system and an appreciating rupee, the Central Bank ignored the lesson of WEAK RUPEE VERSUS EXPORTS and devalued the national currency.
• The government also ignored the basic theory that any country in a trade deficit must regard unexpected and non-fundamental appreciation of domestic currency as a boon to be used for cheaper imports and resetting of import priorities.
• Also to restore Rupee Dollar Parity, the government left Rs. 1 Trillion at the mercy of the Banking Sector, an equivalent of Pakistan’s entire National Savings from 1965 to 2001.
• Agriculture growth and pricing mechanism was deliberately discouraged and loop holes created for proliferation of Cartels.
• The circular Debt issue in the energy sector was the mechanism that set off all the triggers for meltdown.

Within the corridors of the government, many alternatives were also discussed but set aside by the Finance and Prime Minister Shaukat Aziz. Steadily, all critics of such policies were either sidelined or made OSDs. Pervaiz Musharraf and his team were convinced that Shaukat Aziz offered the best solutions to revive the economy on lines of Asian Tigers and become an economic challenge to India and Dubai. Critics who pointed out that the high growth rates were attributable more to the circulation of loose money in the economy rather than tangible sustainable growth were dismissed as cynics and disruptive. But the fact remains that Musharraf era economic policies have backfired and all critics including myself stand vindicated.

So what the Government could have done?



GST/VAT
The FBR and PRAL should have developed cash machines for receipts of Sales Tax. The cost of this system could have been met through the GST revenue. Cell phone companies with their expertise to provide value added services could have provided another method of documenting the GST paid by each individual. All consumers at the fag end of the GST cycle should have been encouraged to claim refunds for items like households, fuel, electricity, gas and telephone bills. As envisaged earlier, the Income Tax Department could have picked up all this data and worked out the profit margins of the entire manufacturing and trading sector and then challenged the Tax Returns of the business community. As per the simulations carried out in 2000, the direct taxes would have grown exponentially. This mechanism was discouraged and a short cut adopted. But better late than never, this method can still be implemented rather than an incomplete and impractical mantra of imposing a new regressive VAT on a sinking economy.

Rupee Dollar Parity
If the domestic private sector could not absorb the surplus money, the State could. With the increase of FCA remittances the Rs 1 Trillion windfall should have been easily absorbed in the State Sector through issue of Government securities at market rates to the holders. This would have appreciated the rupee, discouraged consumerism sponsored by banks and hedged national savings. Inevitably, the imports and therefore the value added exports would have become cheaper.

Privatisation
The justification that “It is not the State’s job to run commercial business” is a lie. The foreign enterprise which bought PTCL is a State Enterprise itself. Instead of privatizing the infrastructural assets, Pakistan could have built more State Enterprises instead of getting rid of the existing ones at throwaway prices. If management expertise was an issue, it could have been easily imported. Instead of giving the State Sector away to foreign businessmen who would slash employment for profitability alone and to remit dividends in dollars, the State could have instead imported the management expertise with a task to expand and justify the manpower employed. Unfortunately, Pakistan’s large scale consumer sectors like communications and energy are now foreign controlled. Unfortunately, even the reversal of Pakistan Steel Mills by the Supreme Court was not taken in this spirit and conditions created to run it dry.

Agriculture
The easy access to windfalls and mantra of privatisation obscured the importance of the agriculture sector. The government ignored that all along it was the agriculture sector that through value addition was the major component of the GNP. This effect is clearly visible in the Economic Survey of 2010 where the manufacturing growth has only picked up in the consumer sectors. Moreover, the marketing strategy of Dr. Zafar Altaf through limited intervention of imports of agricultural products had always stabilised domestic pricing and kept the pricing cartels in check. Dr. Zafar’s exit was the biggest disaster for the performing agricultural sector.

Considering that the Government never and even now refuses to set a correction course, where does the future lead us?

Even if the indicators given in the Economic Survey are to be taken at face value, the economy and social conditions are set to plummet to the lowest levels before the societal dynamics set in for a revolution. The question that still intrigues my mind and was raised repeatedly in all my columns is, ‘why must we commit this suicide bombing on ourselves?’

There are two explanations.

First, Pakistan’s elites that include militarymen, politicians, bureaucrats, technocrats, big business houses and dirty rich all have their money stacked in over seas accounts. It is neither in their financial interests nor wherewithal to challenge the equilibrium and downslide to restore Pakistan towards a performance criterion. Their only stakes in the system are political intrusions to ensure the status quo.

Secondly, the Government of Pakistan chose and continues to choose this path not because it is stupid but because it wants to do it deliberately. Consumption has to grow in all the exporting countries reliant on US as the major trading partner; otherwise the entire global monetary system will collapse along with the West and Breton Woods. The emphasis therefore has to be on CONSUMPTION, and not SELF-RELIANCE. As long as the world produces and West consumes, the system is not sustainable. Others need to consume as well.

This is why a country that survived sanctions for a very long time, despite massive influx of remittance continues to plummet to the dungeons of poverty. Societal implosion in Pakistan is seen as a viable thesis to Cut Pakistan to Size.

A note of thanks to Dr. Ashfaq, Dr. Zafar Nasir and Mr. Zahid an investment banker for their intellectual deliberations with me.

PAKISTAN’S ECONOMIC HITMEN: PART II:An Opportunity Surrendered Deliberately

An Opportunity Surrendered Deliberately

Brigadier (R) Samson Simon Sharaf
The 13 year nuclear sanctions on Pakistan served to stimulate home led growth, exports and import substitution. During this economic quarantine, the growth, inflation and poverty lines remained static while parallel economy grew. The parallel economy sustained the lower middle and poor class in terms of jobs and subsistence. This was also the time when Pakistan had to address its external balance of payments through the IMF interventions.

The nuclear sanctions failed. International consumer manufacturers were aware that they were deprived a big share of dumping their products and could ultimately be overtaken by domestic led growth.

The seizure of foreign currency accounts in 1997 broke the dollar rupee parity and Rs 47 and drove the local currency into a nose dive. It also shattered the confidence of people. Logically, the weak rupee should have led to a surge in exports that never happened. This explanation was enough to break the myth that a weak rupee was imperative to increase exports.

In the 2000s, Pakistan made concerted effort to break out of the IMF interventionist programs. The Central Bank debt retirement section and money changers worked expediently to arrest the nosedive and stabilise currency markets. However there were inbuilt Trojans at work. The import substitution programmes of car manufactures were way behind schedule and becoming a liability on impossible debt servicing costs. The Central Bank was left with just three weeks of reserves. Yet the black currency markets were growing due to unchecked flight of capital. Ironically, under the pricing mechanism of 1994, IPPs with tax exemptions had recovered investments and begun remitting profits and outsourcing costs abroad. They were now poised to play a leading role in the economic potential of Pakistan. New energy manipulators had arrived to earn windfalls.

Sales Tax started as a VAT and was abandoned by FBR in 2000-2001. It scared the small time entrepreneurs in the manufacturing sector in awe of the high handedness of FBR and military led tax surveys. This backbone of Pakistan’s very strong unregulated economy was poised to close production and change tracks as soon as time permitted. The tax became an inflationary levy benefitting the top tiers of businessmen and jump started an inflationary trend. Ultimately, the entire buck was passed on to the consumers who had no capacity to claim refunds.

As the inflation and consumer price index continued to rise, Pakistan was ripe for quick injection of funds that through consumerism could be manipulated for the benefit of overseas markets. This meant that any remittances into Pakistan had to be grabbed back through the rising import bills and short term bubbles of consumer prosperity. In the meantime the perception of Pakistan as a bankrupt and ungovernable nuclear state was reinforced. Pakistan though helpless and yearning for such cash, had no plan to absorb it into the local economies if it ever came.

Come 9/11 and the entire political economy changed. Sanctions were lifted and debt rescheduling came through. By 2002, overseas worker’s remittances and balances transferred from abroad in the banking system jumped from $ 900 million to $ 4 billion. USA pumped billions in logistical support payments for operations in Afghanistan and FATA.

In order to maintain the rupee parity the Central Bank quickly absorbed as much as it could but soon ran out of the mopping up and sterilization capacity. The rupee began to appreciate from 65 to 57. Despite over $ 13 Billion in the system reserves and ignoring the historic precedence that a weak rupee never boosted exports due to a high import input factor, the government decided to devalue the rupee.

The government also ignored the basic theory that any country in a trade deficit must regard unexpected and non-fundamental appreciation of domestic currency as a boon to be used for cheaper imports and resetting of import priorities. A strong rupee also meant lower imported energy costs but that wasn’t the priority. Rupee was prevented to strengthen to 50 versus the dollar, ostensibly not for the exporters to survive but to tie strings to the growing economy that could be manipulated later.

By 2003, Pakistan’s currency printers were in over drive. The problem that it created was that every Rupee the Central bank dished out into the market carried a return at the time of over 17% for the commercial banks while the dollars it got in return were earning less than 2%. The difference of 15% meant that the budgetary resources were to be strained to cough out the difference. Rather than address this issue, it was decided to leave Rs. 1 Trillion in the banking system to restore the parity of rupee to dollar at 2%. The negative fallout of this floating 1 Trillion that equalled the entire long term savings of Pakistan from 1965 was never addressed. This money floated around like a monster. The banks’ profits in a single year jumped from Rs. 30 billion to Rs. 100 billion because they could now lend retail at 14% while paying the depositors 2% slumping deposits.

In order to harness this windfall, the government made the third fatal error of the trickle down effect and consumer led growth that had previously failed in the ASEAN. Unlike the tourism industry of Thailand, Pakistan’s domestic growth was already squeezed due to the levy of Sales Tax. Hence began the era of import oriented consumerism. Pakistan became a haven for investors seeking quick and easy profits in the absence of hedging policies. There was too much money chasing too few goods and logically consumer imports grew rapidly and with it the exponential inflation and high cost of living.

Sadly, even the main domestic growth sectors were discouraged. The bumper wheat crop was bought at very cheap prices and exported. Later, food deficits were made up through very expensive imports. In order to ease such a damaging policy, the man planning and ushering Pakistan’s agricultural revolution Dr. Zafar Altaf had earlier been shown the door. This manipulation of wheat, sugar, rice and cotton was to become a regular feature through unchecked cartels.

The circular debt in the energy sector was one of the two manipulative triggers to collapse the economy at will. As late as 2005, WAPDA was crying hoarse on the impending crises due to pressure from IPPs. There were corporate lawyers both from WAPDA and IPPS preparing litigation cases just in case the government defaulted. Ironically, the IPPs had already recovered investments and were pledged for expansion. So was the Telecom sector that underwent exponential growth. Little did we realise that every call we made or every bulb we switched was in fact accounted against our import and profits remitted in dollars.

With 2007 elections in mind, the government remained reluctant to adjust fuel prices commensurate to the international rates. This exerted a huge pressure on the national exchequer. Belatedly, when the decision to raise fuel prices was finally taken, it also triggered the circular debt issue.

These simultaneous crises signalled the cartels to take out their money and flee. A fortune was deliberately surrendered so easily under the very nose of an India centric security establishment.

To be continued………..

PAKISTAN’S HITMEN Drowned in Rivers with no Water Part 1

Brigadier (R) Samson Simon Sharaf

Somehow, I always had a feeling that Pakistan’s bureaucracy, technocrats and the military have lived in exclusive bubbles in chagrin to long term strategic and economic interests of Pakistan. Bureaucracy and technocrats are eclipsed by the Harvard Models with their feet and heads in the air rather than sunk into the ground realities of Pakistan. The military’s focus has always been India centric from a military perspective. There never was awareness that what could not be lost on the battlefield could be easily conceded through bad planning? The imperatives of a broad policy spectrum with all encompassing instruments never formed the basis of any discussion forum. Inevitably, the bubbles burst.

After the coup of 1999, one of my biggest concerns was Pakistan’s spiraling debt with a declared foreign component of 32 billion dollars. No one in the Ministry of Finance or State Bank could confidently tell the volume and breakdown of this debt to include country-country borrowing, multi lateral loans, bonds and other encashment to provinces and autonomous bodies. After encountering many blank faces, I decided to get reports from all ministries, provinces and autonomous bodies to analyse the size and cash flows.

As volumes of reports and files continued to pour in, the figures collected cross checked and verified were startling. Pakistan’s debt was over 38 Billion US Dollars and continued to grow through the IMF borrowing and the sinking Rupee. The single biggest recipient of loans was the water sector, accounting for approximately 70% of the loan component. The shocker was that 60% of it was already spent on feasibilities that included preliminary infrastructure for Kalabagh Dam. The shocker was that nearly half of Pakistan’s foreign debt had been eaten away by drawing boards, visits, lodgings and proposals. The study also vindicated international political economists who viewed IMF and World Bank as exploitative instruments of neo-imperialism. If mega projects were to be executed, further external financial assistance was imperative.

It was a very useful study that left everyone in the Musharraf Cabinet stunned and aghast, but this is where this revealing study ended. There was no follow up. Gradually, patriotic and concerned officials were shown the door. The study got lost in the sea of bureaucracy. The economic gurus trained by International Financial Institutions and Banks have since left and replaced by a new team that speaks the same language and expected to fare no better. I was convinced then and sure now that these economic managers and experts are all part of an international cartel that controls financial institutions and hence destinies of misgoverned countries like Pakistan. They come and go with regime changes and are never made accountable. These are non state corporatists who transcend international borders and whose loyalties lie with their pay masters rather than their moorings. More than India or militants, they are the ones who have caused Pakistan major damage.

My mind goes back to two Pakistani delegations that went to India after 1997. At that time Baghliar Dam was well past its planning stages and into execution, yet despite briefs, the Pakistan delegations failed to raise the issue with India or World Bank. Belatedly in 2007, on grounds of gross neglect and technical deficiency, Pakistan lost the argument in international arbitration.

Having witnessed the apathy then, I am not sure if Pakistani experts were ever aware of the Indian plans to build scores of ‘run of the river’ projects over Jhelum, Chenab and Kishanganga? Now Pakistan’s farmers, people and energy sectors must face the music. Ironically, these water flows can also be manipulated for military purposes against the very military that allowed this to happen right under its nose.

But the apathy does not end here. Despite such huge investments on non productive feasibilities, Pakistan remains short of water reservoirs. From 1999-2003, the Board of Investments and Finance Ministry consistently blocked attempts by private investors and consortiums to construct Neelam Hydel on build operate, own and transfer basis. Rather the subject was inevitably diverted to export of surplus electricity to India and the inefficiency of the IPPs. They chose to ignore the cogent legal angle that while the Indian Kishanganga was still on the drawing boards it was urgent to begin the construction forthwith.

Come 2009-10. The biggest component of Pakistan’s debt has not performed. Rather, it is guilty of criminal negligence in safe guarding Pakistan’s interests under the Indus Basin Water Treaty and rather squandered huge sums on non productive studies by consortiums, IFIs and consultants. Kishenganga has resigned River Neelam to a trickle and all but obscured Neelam Hydel Project. India has been left free to decide when it fills its reservoirs and releases water into the rivers allocated to Pakistan. Technically, they have demonstrated its ability to reduce flows during sowing seasons and increase during monsoons. Today, there is no water, no dams and no electricity.

Pathetically, Pakistan’s entire water and energy interests were left in the hands of one commissioner, while the financial and technical experts remained busy in churning out expensive feasibility studies. Legal experts crucial to win arguments in international law were conspicuously absent.

Even the water management schemes and drainage projects are a showcase of neglect and institutional decay. Had it not been for extra ordinary spells of droughts in areas from Sulemanki to Fort Abbas, much of the land would have become an impassable quicksand.

All along the International border, India dumps untreated waste and flood waters into Pakistan. Three conspicuous points are Hudiara, Sulemanki and Haroonabad. Hudiara drain runs through the entire length of Lahore and debouches into the Ravi near Mehmoodbooti causing irreparable environmental damage. Sub soil water quality samples all along this system are unfit for human consumption. The sewage, extremely high in chemical and biological oxygen demand and laden with toxins, micro organisms and health hazards has never attracted the ire of Pakistani officials nor have they ever raised the issue with India. Water aquifers of Central Punjab are dying being recharged with contaminated waste water.

During the monsoons, India regularly floods the area between Head Signai (near Haroonabad), across Fort Abbas to Mianwala Toba, destroying standing crops. By the time the water recedes, one crop is destroyed and the other cannot be sowed. Consequently, farmers have abandoned agriculture in the area.

The saddest part of this tragedy is that despite being confronted by a hyper active neighbour, Pakistan has shown fragility to set its own house in order. It is like a rat stunned by a cobra.

Kalabagh, that hold the key to Pakistan’s future especially with the limited residual life of Tarbela has become too politicised to construct. Rather, preparations are in full swing to construct Basha on a fault line that pulverised the entire landscape from Balakot to Kashmir in 2005. In addition Korakoram Highway will have to be realigned and the entire bed of the lake treated with concrete. The wall on this fault line will overhang like a predator. In case of a massive earthquake, it could wipe out infrastructures as far away as Kotri and Sukkur.

The world’s largest irrigation network and natural river system is under threat of extinction.

http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Opinions/Columns/11-Apr-2010/Drowned-in-rivers-with-no-water

Pakistan-American Relations- Turning the Corner: ONION ACCEPTED

Only if the world had understood then, so much of mayhem and blood could have been avoided and so much money diverted to this impoverished region.

For the past two years, Pakistan’s gains have been eclipsed by more visible and pressing issues. There is national consensus on anti terrorism operations. Swat is fast returning to normalcy, lawless areas of Waziristan controlled and the strategic strip of Malkand, Bajaur and Mohmmand brought under civil administration. NFC award is a consensus document while the country is quietly reforming towards a parliamentary constitutional democracy.

However, economic management is far from effective. Pockets of poverty are broadening and steep. Consensus on upstream dams critical for future is still elusive. India’s overbearing control of rivers has resulted in water and power shortages tantamount to guillotine. All indicators are dangerously close to an implosion, but for the character of Pakistani people who unlike some elites realise that the country is at war.

After much suspicion, Pakistan-American-UK relations are undergoing a thaw on the contours presented by Pakistan as far back as 1990. Pakistan has played its role better than any other country and it is time that this great sacrifice of human lives and material losses is recognised and compensated by those who stand to benefit from peace. Only if the world had understood then, so much of mayhem and blood could have been avoided and so much money diverted to this impoverished region. At the helm of this change are the new vanguard of Pakistani leaders with self belief and mental resilience. They have turned cynic American and Indian think tanks on their heads.

At long last Pakistan’s policy makers are speaking and the world is listening. Slowly, the morphing of Shock and Awe to Mutual Trust and Cooperation is becoming visible and beyond circumspect diplomacy. Future rounds of dialogue supplemented with incremental cooperation will go a long way in resettling Afghan people and turning the tide on Pakistan’s economic recession.

Pakistan that housed Afghan refugees for more than 30 years must now play a crucial role in bringing peace, moderation and national consensus to a region torn with strife for two generations. It goes to the credit of Pakistan’s military leadership to have worked tenuously under guidelines from a civilian establishment from a point where hope was forlorn. As I had written in my grass series of articles for NEWS and NATION, “In politics, nothing is bleak forever and opportunities can be created from within the most hopeless cases. On the wide spectrum of US policy beginning with the strategy of cooperation and ending in the extremes of military intervention, Pakistan still lies in the zone between persuasions to coercion”. Pakistan has broken through that catchment.

Few agreed that this turnaround was ever possible. The young foreign minister has come of age as has the foreign secretary. The COAS commissioned in 1971 belong to a generation who were youngsters when Pakistan broke due to praetorian mindsets and exclusive politics. His Corps commanders and staff are all post 1971 and a breed far apart from the military dictators of the past.

As a subordinate, I had the privilege of candid discussions with General Kayani when he was the Director General Military Operations. In the context of the 9/11 crises, attack on the Indian Parliament and brainstorming on Pakistan’s Future War, one point came out loud and clear. He seemed convinced that if Pakistan could over ride its notional and internal contradictions, there would be no threat to security. It appears that at the fag end of his career, he is achieving this with his laid back approach, patience and deep thought. I see the article, ‘General in the Hood’ by Times of India as a tribute to a soldier, who despite tremendous odds has played his shots with precision, guile and effectiveness. Slowly and surely, he has created a space for consensus from where all routes lead to a prosperous Pakistan. His sure footed approach has helped him win the confidence of politicians in Pakistan and world over. Even more, he has restored the pride and prestige of the armed forces once seen waning.

But the road ahead for this new generation of politicians, generals and bureaucrats is laced with impediments and false starts. They have successfully turned the corner and must ensure that this engagement for peace is not derailed by narrow and short term agendas of the allies and the mindset of 1935 (Nation, 10 January 2010). Most importantly, India which feels excluded from the new initiative must never get a chance to disrupt the process through incidents like the attack on the Parliament and Taj Mahal Hotel.

For Pakistan, the massive military operations against militants are over. What remains are sting intelligence operations and limited surgical actions to target militants and their leadership. The nation can now concentrate on revival of the economy that includes energy, power, free trade, transfer of technology, investments and most, a workable plan for fast track socio economic development. The COAS has rightly offered to forego military assistance in lieu of economic revival.

Though nuclear cooperation will remain high on the agenda, Pakistan has to peg its negotiations with India. Pakistan must convince USA and its allies that henceforth Pakistan stands committed to non proliferation and counter proliferation efforts. Pakistan must remain cognisant of the fissile material protocols in which India’s Thorium Route (another fissile material) is always kept in focus.

Pakistan also needs to set up a panel of international lawyers for all international treaties and agreements, Indus Basin Water Treaty and Indian constitutional provisions relating to Kashmir. Once too often, Pakistan’s civil and military bureaucracy have been caught napping on these issues while the Indians have craftily played their cards and succeeded.

Commenting on US policy options in 2007, this seems an assessment almost prophetic. I had written this for a renowned daily that unfortunately refused to publish, deeming it unfit. This seems the blue print of the present US-Pakistan dialogue:

US Must Shift from a Coercive Military Posture to a Cooperative Strategy. Given the extremes of divide between the South Asian neighbours, Pakistan cannot be expected to make a unilateral policy shift. USA has to do enough to satisfy the Pakistani perceptions in this respect. To ensure that USA gets a whole hearted and valuable support from Pakistan, it must: -
• Dissuade India from any policies and actions that impinge Pakistan’s security concerns.
• Persuade India to exercise the principals of liberty, equality and freedom symbolised by the American Civil War on the people of Kashmir.
• Equip the armed forces of Pakistan with high tech reconnaissance and imaging equipment to monitor the lawless regions of FATA with the ability to engage in real time.
• Sharing of all intelligence with Pakistan related to operations on both sides of the international boundary and targets inside Pakistan.
• Formulate a joint and well enunciated strategy for fighting terrorism with the government of Pakistan at the highest level with the Pentagon and Joint Chief of Staff Headquarters/GHQ working within the political objectives.

Shift from a Predominantly Military to a Social Dimension of Strategy. The larger canvas will have to be built around the societal element. It is important that USA shifts its focus from military dominance to the forgotten social dimension of strategy (Michel Howard).
• Rather than individuals; establishment and strengthening of institutions, with a long term objective even if a short term gain has to be sacrificed. In this regard, strengthening of a performance driven democratic culture is most important.
• Modern education both at technical and higher levels.
• Fast track socio economic development in the deprived areas of Pakistan.
• Agriculture development and water management.
• Waiver of import barriers on value added goods from Pakistan particularly textiles.
• Foreign direct investments in the energy and water sectors.

Brigadier Samson Simon Sharaf is a retired officer of Pakistan Army and a Political Economist.

http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Opinions/Columns/28-Mar-2010/Turning-the-corner

THE WILTING OBAMA SURGE

(A Call to American Policy Makers)

Brigadier ( Retired) Samson Simon Sharaf
Obama’s Third surge has reached its predicted conclusion (Obama’s Latest Surge: A Tight Balloon in Hot Air. Nation 17 December 2009). As the Afghan Taliban melted away, the coalition forces were left to celebrate and occupy a part of the abandoned town of Marjah. While the coalition, President Karzai and the local governor set about consolidating a new civilian led administration and buy enemies, the Taliban have lived to fight another day. The major advantage that the Coalition could derive is to squeeze the poppy cultivation, the main revenue of Taliban and force them to negotiate as weaker partners. The foreign press corps in Kabul, obscure from reality is already making big news. Media is bubbling with optimism while efforts are at hand to find a scapegoat if the good news turn sour.

But in the hidden corridors of State Department, this optimism is fast being replaced by scepticism. As the coalition withdraws from the area leaving behind two battalions, it remains a hunting trip that never was. Rather than reinforce another failure, the State Department needs to listen, carry out a realistic review and policy shift crucial for a lasting peace in the region and mutual interests of all actors.

Many in the State Department know more than they concede. “We ought not get too impatient,” Gates told reporters during his unannounced trip to Kabul. “We’re there to help, and how the politics play out in the end game will have to be an Afghan-led endeavour”. Grimly he said, “I don’t think we should read too much into specific, positive signs”. He hoped for defections at low levels and turn the corner in Kandahar later this year, He also cautioned against "bits and pieces of good news on both sides of the Afghan-Pakistan border” and said “it was too soon to say whether the momentum in the more than 8-year-old conflict had finally shifted”.

In contrast, Richard Holbrooke’s statements were more circumspect. Coming from a special envoy of the region, they also reflected a sea of differences particularly with Pakistan. Despite unprecedented arrests of Taliban leaders with varying claims of ownerships by USA and Pakistan, he remained "agnostic about whether Islamabad has actually turned decisively against the Afghan Taliban” and left open questions for Pakistan like “serendipitous collection of discreet events". He said, “I have no problems with the Lahore High Court's denial to extradite the Taliban commander to Afghanistan”.

Like an iceberg, the obvious in international geopolitics is always misleading. It is the unexplained that needs to be analysed.

It appears that the ambitious third surge had a multi directional approach towards a military exit from Afghanistan based on half facts and assumptions derived from institutional biases. The hypothesis was too simplified through exclusion of both hardcore Taliban and Pakistan. Based on a misleading premise, it led to the logical. With benefit of hindsight it is worth analyzing how this game unfolded.
1. Military operations in two phases. First, to alienate and control Helmand, and them move to Kandahar, the stronghold of Taliban.
2. Install a pro Karzai US backed administration capable of holding at its own and subsequently replicate the model elsewhere.
3. Backdoor negotiations with all vulnerable tiers of Taliban leadership excluding Mullah Omar and Hikmatyar (Good and bad Taliban Theory). Money was expected to play the placation role.
4. Induction of an international team of reconstruction experts for fast track socio economic development of Afghanistan.
5. Pakistan’s role was restricted to contend with the backwash of Afghan Taliban and home grown militants reflected in my thesis ‘Political Absolutism’ (Nation 19 November 2009). Logically, this would be the main battlefield for non state actors in future.
It appears that the strategy failed in all dimensions.

The departing UN envoy Kai Eide dismissed it as too military driven. The miserly reward of Marjah cannot be attributed a strategic success. The Taliban have retained battlefield initiative to emerge at the time and area of their choosing.

Taliban have shied away from a carrot and stick engagement. Surreptitious negotiations through fringe Taliban and militants are inconclusive.

According to the State Department Inspector General, the Obama administration's political efforts in Afghanistan are hampered by a shortage of qualified personnel, a lack of housing and other problems that could disrupt time lines.

Exclusion of Pakistan from the most important aspects of the strategy has had negative fallouts on the overall coalition strategy and operation. Pakistan’s mutual distrust of USA is obvious explained beyond doubt by the word AGNOSTIC by Mr. Holbrooke.

Money has always remained a big factor in Afghan warlord and tribal politics. Empirically, Afghan unregulated economy becomes stronger as conflicts expand. Already, USA is funding the conflict against themselves through Afghan sub contractors and transporters invariably sympathetic to Taliban. Taliban are no warlords. They are romantic revolutionaries who can be cajoled through a partnership but least through money they may accept as economics of opportunity.

There was a clear deficit in the cause and effect explanation. Had USA taken the opinions of social scientists rather than pseudo experts of the region into contention, and had the psyche of such romantics studied, evaluated and factorised, the handling of the situation would have been more conducive for a political settlement.

It also appears that the backdoor negotiation with fringe Taliban elements, loaded with stacks of cash was a naïve idea that backfired through the confusing arrests of Taliban in Pakistan followed by the Taliban-Hikmatyar fight at Kanduz. The contrast in statements of Gates and Holbrooke betrays the extent of ignoring Pakistan and how an ally of opportunity was kept in the dark about designs that raise security concerns in Pakistan (Pakistan’s Crossword Puzzle, Nation, 5 May 2009).

The irony of US propensity to construe titles is that though AF-PAK remains an aspersion on Pakistan’s Pride, in the social dimension (Michael Howard) it remains a forte. International borders are irrelevant to movements of heterogeneous tribes on both sides. They flow like water chooses it course. It has a binding and cohesive ideology that brought USSR to its knees and has resisted radical agendas.

USA must acknowledge the reality that in the final analysis, least likely the edge of military technology and logistics, it is the Afghan People, resistance to occupation dubbed as Taliban, and Pakistan that finally matter. If this statement is acceptable, then the quest for a long lasting peace in the region becomes the Grand Strategy. If not, Pakistan will also be put on a road to ‘Burn Out’ (Foreign Affairs July-August 1999) raising levels of insecurity in the region to exponential instability.

The need of the hour is to contain this damage, keep extremists out and galvanise diversity to positive political engagements. There is no room for failure.

Both Pakistan and USA have to accept this onion and unravel every parchment with sincerity of intent to devise a comprehensive and fruitful strategy. As Carol Ann Duffy writes:

Not a red rose or a satin heart. I give you an onion
It is a moon wrapped n brown paper. It promises light
Like the careful undressing of love
Here it will blind you with tears, like a lover, it will make your reflection a wobbling photo of grief
I am trying to be truthful, not a cute card or a kissogram
I give you an onion.
Its fierce kiss will stay on your lips
Possessive and faithful as we are, for as long as we are
Take it. Its platinum loops shrink to a wedding ring, if you like, Lethal.
Its scent will cling to your fingers, cling to your knife.