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Aug 13, 2010

Scenarios: Political and economic impact of Pakistan’s floods

ISLAMABAD (Reuters) – The most serious floods in Pakistan in decades will compound economic and political problems for the nuclear-armed U.S. ally.

Following are some scenarios for what might unfold in coming weeks.

POLITICAL OUTLOOK

The government is in no immediate danger of being brought down. The ruling coalition, led by President Asif Ali Zardari’s party, has a comfortable majority in parliament and the military, which unlike the government is seen to have responded effectively to the disaster, is not going to stage a coup. But anger with a government already unpopular is likely to intensify. The economic impact of the floods will be severe and food shortages and rising prices could spark protests. The opposition, led by former prime minister Nawaz Sharif, has been critical of the government but has not called street protests. Analysts say the opposition is content to let the government struggle but opposition leaders could come under pressure from their rank and file to take advantage of growing discontent to go on the offensive. A well-organised opposition taking the lead of popular protests over prices and food shortages could be explosive. In a worst-case scenario, the military might feel compelled to step in if protests got out of hand. But analysts say the opposition is loathe to create the conditions which would precipitate military intervention, which would block its bid to gain power through a general election, due by 2013.

Aug 10, 2010

Q&A: What are the political costs of Pakistani floods?

SUKKUR (Reuters) – Pakistan’s President Asif Ali Zardari returned home on Tuesday from official foreign visits to a chorus of criticism over his government’s response to the worst flooding in the country’s history.

The floods were triggered by exceptionally heavy monsoon rains over the upper Indus river basin over nearly two weeks and have plowed a swathe of destruction more than 1,000 km (600 miles) long across the country.

Aug 9, 2010

Islamists win thanks from Pakistani flood victims

ISA KHEL, Pakistan (Reuters) – Pakistani Islamists have been quick to step in to help after this month’s devastating floods, winning hearts and minds as frustration with the U.S.-backed government grows.

The worst floods in 80 years have killed more than 1,600 people and left two million homeless along a broad swathe of the Indus river basin, from the north of the country to the south.

May 31, 2010

Key political risks to watch in Pakistan

ISLAMABAD (Reuters) – Pakistan remains among Asia’s riskiest investment destinations, with a weak government struggling to contain a deadly domestic insurgency.

Sovereign 5-year credit default swaps are trading at a spread of 750 basis points, down from 875 two months ago but still by far the riskiest component of the Thomson Reuters Emerging Asia Index.

May 11, 2010

Scenarios – How will Pakistan handle North Waziristan?

By Robert Birsel

(Reuters) – Pakistan is under U.S. pressure to clear the militant hub of North Waziristan on the Afghan border, a bastion of Afghan Taliban factions where allied Pakistani militants, al Qaeda and other foreigners also operate.

The attempted car-bombing in New York’s Times Square on May 1 has refocused international attention on the ethnic Pastun tribal region of rugged mountains, ravines and forests, which no government has ever fully controlled.

May 11, 2010

How will Pakistan handle North Waziristan?

May 11 (Reuters) – Pakistan is under U.S. pressure to clear the militant hub of North Waziristan on the Afghan border, a bastion of Afghan Taliban factions where allied Pakistani militants, al Qaeda and other foreigners also operate.

The attempted car-bombing in New York’s Times Square on May 1 has refocused international attention on the ethnic Pastun tribal region of rugged mountains, ravines and forests, which no government has ever fully controlled.

Lieutenant General Sardar Mahmood Ali Khan, deputy chairman of the Joint Chiefs of Staff, told Reuters in an interview on Monday his forces would take action in North Waziristan but in their own time and when adequate resources were available. [ID:nLDE64920J]

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Here are some scenarios for how events could unfold.

A LIMITED CAMPAIGN

This is most likely. Pakistan already has a sizeable troop presence in North Waziristan, most in heavily fortified positions in the main town of Miranshah, from where they occasionally strike out at specific targets. This allows the military to focus its fire on its most dangerous enemies among the various factions there. This would satisfy the United States to an extent and when U.S. pressure builds, the Pakistani army could intensify its operations. This strategy would appear to afford the Pakistani army a degree of control. The army can tailor its operations and respond to events as they unfold both at home and in Afghanistan. The Afghan factions could perhaps be pressed to enter talks in Afghanistan or even to hand over or isolate Pakistani Taliban or foreign fighters. Security force and civilian casualties could also be limited.

PAKISTAN LAUNCHES A FULL-SCALE OFFENSIVE

This is not likely although this is what the United States and Afghanistan would like to see. The Pakistani military has said there will be no "steam-roller" operation in North Waziristan, as there have been in places such as Swat, northwest of Islamabad, and South Waziristan. The army, which maintains a huge presence on Pakistan’s eastern border with old rival India, says it is consolidating gains made in places such as South Waziristan, Bajaur and Swat, where there have been signs the militants are trying to stage a comeback, and its resources are limited.

A full-scale offensive would also mean taking on the Afghan Taliban factions which have not been attacking the Pakistani state. Pakistan’s fundamental security concern is the perceived danger from India and analysts say Pakistan sees the Afghan Taliban factions as tools for its long-term objectives in Afghanistan, where it wants Indian influence kept to a minimum and a friendly Kabul government. Pakistan also believes that with U.S. forces due to begin withdrawing from Afghanistan next year, the Americans will soon be out, perhaps after some sort of a negotiated deal with the Taliban. So Pakistan would be loathe to make enemies now of the only Afghan factions over which it has influence.

A full-scale offensive also carries risk for the government of a country where anti-U.S. sentiment runs high. Heavy military and/or civilian casualties in fighting against factions not attacking Pakistan would bolster those who already say Pakistan is a U.S. puppet fighting a U.S. war. Morale in the armed forces could be undermined while militants would scatter across the northwest and into Afghanistan. Some could slip back to their homes, including the heartland province of Punjab, where they would launch bomb attacks.

PAKISTAN DOES NOTHING

This is also not likely. Many Pakistani Taliban fighters waging war against the state have fled from army offensives in South Waziristan and elsewhere in the northwest to North Waziristan from where they plot bomb attacks on the security forces and government and foreign targets across the country. The army and the civilian government know that eliminating those militants is key to ending the violence.

Doing nothing would also infuriate the United States and strain Pakistan’s relationship with its biggest aid donor. The United States, struggling in Afghanistan, would step up its attacks by pilotless drones and could even send in ground troops. That would enrage Pakistan and could lead to a breakdown of relations between the allies. Pakistan could throw the U.S. operation in Afghanistan into question by shutting down supply routes running through Pakistan along which passes a large volume of U.S. military supplies, from drinking water to fuel. (Editing by Kazunori Takada)





May 7, 2010

Q+A: Will the New York bomb bid strain Pakistan-U.S. ties?

ISLAMABAD (Reuters) – A Pakistani-American’s bid to set off a bomb in New York and the re-emergence of a Pakistani Taliban leader threatening attacks in the United States has thrown the spotlight on U.S.-Pakistani security relations.

Ties between the old allies have at times been dogged by a “trust deficit” over the years since Pakistan threw its support behind the U.S.-led campaign against militancy in the days after the September 11, 2001, attacks on U.S. cities.

May 6, 2010

U.S. seen vulnerable to radicalized immigrants

ISLAMABAD (Reuters) – A Pakistani-American’s failed bid to set off a car bomb in New York’s Times Square is bound to raise fears that the United States is just as vulnerable to violence from immigrants as other Western countries.

Attacks on London’s transport system in 2005 by four young suicide bombers, three of them of Pakistani descent, highlighted the danger of radicalization among alienated young men from down-at-heel immigrant neighborhoods in bleak British cities.

May 3, 2010

Factbox: Key political risks to watch in Pakistan

ISLAMABAD (Reuters) – Pakistan remains among Asia’s riskiest investment destinations, with a weak government struggling to contain a deadly domestic insurgency.

Sovereign 5-year credit default swaps are trading at a spread of 675 basis points, down from 737.5 a month ago but still by far the riskiest component of the Thomson Reuters Emerging Asia Index.

May 3, 2010

Key political risks to watch in Pakistan

ISLAMABAD, May 3 (Reuters) – Pakistan remains among Asia’s riskiest investment destinations, with a weak government struggling to contain a deadly domestic insurgency.

Sovereign 5-year credit default swaps <PKGV5YUSAC=R> are trading at a spread of 675 basis points, down from 737.5 a month ago but still by far the riskiest component of the Thomson Reuters Emerging Asia Index.

Pakistan’s stock market <.KSE> has more than doubled from lows hit last year during the worst of the global crisis. Few foreign portfolio investors have significant holdings and local investors are less sensitive to risk and political turmoil.

Following is a summary of key Pakistan risks to watch:

* INTERNAL SECURITY

Large swathes of Pakistan remain outside government control, run by the Taliban and Pashtun tribal leaders. Last year’s military campaign to roll back Taliban territorial gains saw a number of successes, but insurgents have shown they can launch major attacks in urban, industrial and commercial centres with relative impunity. The U.S. troop surge in Afghanistan could also cause more instability in Pakistan’s border regions.

What to watch:

— Ability of militants to launch attacks. Several assaults on military facilities in particular have shown the continued ability of Taliban militants to attack even protected targets. There is no sign of a sustained improvement in security despite offensives against the Taliban. Pakistan’s markets have long grown accustomed to the level of violence and bomb attacks will not have a significant short-run impact on prices unless key government or military leaders are killed. Investors are more sensitive to attacks in Karachi, the commercial hub and home to the main financial markets, the central bank and the main port, but several recent bomb attacks did not spark heavy selling. Direct investment, however, will be deterred by continued instability, with negative implications for longer-term growth. [ID:nLDE63J1JR]

— Safety of Pakistan’s nuclear arsenal. Pakistan’s poor record of preventing attacks on even secure military targets has raised concern militants could penetrate a nuclear facility. Analysts say while there is minimal risk insurgents could get their hands on a nuclear missile, a potential danger is that they could steal some fissile material which could be used to build a "dirty bomb". This scenario would unsettle markets not just in Pakistan but in India too. [ID:nSP474683] [ID:nN12105738]

* EXTERNAL SECURITY

Relations with India have improved from the lows hit after the Mumbai attacks in late 2008. The countries’ prime ministers had "very good talks" at a regional summit in Bhutan on Thursday and asked their officials to take steps as soon as possible to normalise relations. [ID:nSGE63S0GX]

Washington has been trying with some success to persuade Pakistan to focus on the Taliban threat within its borders rather than the perceived external threat from India. But with many groups in Pakistan still sworn to launch more attacks in India, particularly over disputed Kashmir, there is constant risk of another sudden chill in relations. With two nuclear-armed powers facing off, there is also the risk an accident or misunderstanding escalates into major conflict. [ID:nSGE61501S]

What to watch:

— Attacks in India. Any attack with Pakistani fingerprints could spark a serious confrontation, pushing down markets on both sides of the border.

— Progress on talks. India has been reluctant to broaden the agenda to problems such as Kashmir until more is done in Pakistan to deal with those behind the Mumbai attacks. Any sign of rapprochement will be greeted positively by investors, but would not have much impact on short-run market movements.

* GOVERNMENT EFFECTIVENESS

The government has limited control over the military, and has also been undermined by tussles with the judiciary. It has been relatively ineffective in tackling corruption and reforming the economy. President Asif Ali Zardari has signed into law constitutional amendments transfering important powers he held to the prime minister and parliament. This should go some way to disarming his critics. But the government remains weak and prone to splits. Problems in formulating and implementing policy will continue to act as a drag on investment.

What to watch:

— Changes in political balance of power. Markets will be watching manoeuvring by opposition parties and the military to gauge the possibility of a challenge to the government. Most analysts expect the government to remain in power for now, but distracted from reforms because of its focus on survival.

— A December decision by the Supreme Court that a 2007 amnesty decree was unconstitutional has opened some close allies of Zardari to charges, further weakening the government and distracting from policymaking. Zardari, though protected from old charges by presidential immunity, could face legal challenges to his eligibility to be president. Such challenges would likely unnerve investors, not because Zardari is seen as indispensable but because political turmoil would distract the government from efforts to improve security and the economy.

* ECONOMIC REFORM AND INVESTMENT IN INFRASTRUCTURE

Pakistan has traditionally had legislation that favours openness to foreign investment, and given the government’s need to promote growth, there is the chance of more economic reforms. These may not be enough to reverse the impact of chronic insecurity and corruption, even though the Supreme Court is taking an assertive stand against graft. Investment is desperately needed in infrastructure and energy — power shortages have badly hit the economy, particularly in Karachi.

What to watch:

— Pressure from the IMF and "Friends of Pakistan". Allies pledged $5.7 billion in aid to Pakistan in April last year, but only a fraction has arrived, with donors wanting more detail on how the money will be used. The International Monetary Fund (IMF) has put off approval of the fifth tranche of an $11.3 billion loan because of disagreements over an increase in power tariffs and implementation of a value-added tax. The IMF board will likely meet in mid-May to consider the tranche. [ID:nN23141787]

(Compiled by Islamabad bureau and Andrew Marshall; Editing by Jerry Norton)