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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)



Apr 30, 2010

Scenarios: Prospects for India-Pakistan talks

By Robert Birsel

(Reuters) – India and Pakistan hailed the first meeting between their prime ministers in nine months as a good step toward renewing dialogue that India halted after a 2008 assault on the Indian city of Mumbai by Pakistan-based militants.

Here are some scenarios for how ties could develop and the risks they face.

BROAD TALKS RESUME

Pakistan has been pressing for the resumption of broad talks, known as the composite dialogue, in which all problems, including the disputed Kashmir region, border disagreements, and trade and sporting ties, can be tackled.

Apr 30, 2010

Prospects for India-Pakistan talks

April 30 (Reuters) – India and Pakistan hailed the first
meeting between their prime minsters in nine months as a good
step towards renewing dialogue that India halted after a 2008
assault on the Indian city of Mumbai by Pakistan-based
militants.

Here are some scenarios for how ties could develop and the
risks they face.

BROAD TALKS RESUME

Pakistan has been pressing for the resumption of broad
talks, known as the composite dialogue, in which all problems,
including the disputed Kashmir region, border disagreements,
and trade and sporting ties, can be tackled.

Apr 29, 2010

Main problems between India and Pakistan

April 29 (Reuters) – The prime ministers of nuclear-armed rivals Pakistan and India held their first meeting in nine months on Thursday in Bhutan and asked their officials to take steps as soon as possible to normalise relations. [ID:nSGE63S0GX]

Pakistani Prime Minister Yusuf Raza Gilani and his Indian counterpart Manmohan Singh’s meeting signalled some improvement in relations between the two rivals. They are in Bhutan for a summit of South Asian leaders.

Here are some of the main problems between the neighbours, who have fought three wars since independence from Britain in 1947. Their relations nosedived after a militant attack on the Indian city of Mumbai in November 2008. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ (For full coverage of Pakistan click on [nAFPAK] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> SECURITY

For India, security is the top issue. It has refused to resume a series of talks on problems, known as the composite dialogue, until Pakistan takes more action against Pakistan-based militant groups.

In particular, India wants Pakistan to show it is serious in reining in the militants behind the Mumbai attacks, in which 166 people were killed.

In Thursday’s talks, Gilani assured India of bringing the perpetrators of the Mumbai attacks to justice.

India suspects Pakistani security agents support some anti-India groups, which Pakistan denies and says the peace process should not be held hostage to "non-state actors".

KASHMIR

The mostly Muslim Himalayan region of Kashmir is at the heart of hostility between the neighbours and was the cause of two of their three wars (the third was over the founding of Bangladesh).

Separatists backed by Pakistan began an insurgency against Indian rule in 1989 and tens of thousands of people have been killed. Most fighters want Kashmir to become part of Pakistan but many ordinary Kashmiris want independence from both India and Pakistan.

A November 2003 truce has largely held along the so-called Line of Control dividing Kashmir, despite occasional clashes.

Former Pakistani president Pervez Musharraf offered in 2003 to set aside a longstanding demand to implement U.N. resolutions for both sides to withdraw troops and for Kashmiris to decide in a vote on whether to be part of India or Pakistan.

He later suggested Pakistan would give up its claim over Kashmir if India agreed to soften the Line of Control and let Kashmiris administer their affairs with oversight from both Islamabad and New Delhi.

India is agreeable to the long-term goal of softening the border, without any redrawing of the ceasefire line, but autonomy and joint oversight go further than India wants.

Musharraf’s moves to break the deadlock were criticised in Pakistan for giving away too much and the government that came to power in 2008 has distanced itself from his concessions.

WATER

The two countries disagree over use of the water flowing down rivers which rise in Indian Kashmir and run into the Indus river basin in Pakistan.

The use of the water is governed by the 1960 Indus Water Treaty under which India was granted the use of water from three eastern rivers, and Pakistan the use of three western rivers.

Pakistan says India is unfairly diverting water with the upstream construction of barrages and dams.

Pakistan, dependent on the water to produce food for its growing population and to underpin its economy, wants to put water at the top of the agenda, with Kashmir. India denies any unfair diversion of water.

SIACHEN

Indian and Pakistani forces have faced off against each other in mountains above the Siachen glacier in the Karakoram range, in what is the world’s highest battlefield, since 1984.

The two sides have been trying to find a solution that would allow them to withdraw troops, but India says it is unwilling to bring its forces down until Pakistan officially authenticates the positions they hold.

Pakistan has said it is willing to do so but on the condition that it is not a final endorsement of India’s claim over the glacier.

SIR CREEK

Another boundary dispute is over the 100-km (60-mile) Sir Creek estuary flowing into the Arabian Sea.

The dispute has hampered exploration for oil and gas and led to the detention of hundreds of fishermen from the two countries, mostly in areas where demarcation is unclear.

The two sides have conducted a survey and exchanged maps showing their respective positions.

AFGHANISTAN

Afghanistan has become a major source of friction although Indian and Pakistani differences over Pakistan’s western neighbour have not been a part of their official talks.

The two countries have long competed for influence there and Pakistan is deeply suspicious of a rise in India’s presence after the fall of the Islamabad-backed Taliban government in 2001.

It accuses India of using Afghanistan as a base to create problems inside Pakistan, including backing separatists in its Baluchistan province. India denies the accusations, saying its focus is on development.

This rivalry is complicating U.S.-led efforts to end an intensifying Taliban insurgency and bring stability to Afghanistan more than eight years after the Taliban were ousted. (Editing by Bappa Majumdar)





Apr 28, 2010

Factbox: Main problems between India and Pakistan

By Robert Birsel

(Reuters) – The prime ministers of nuclear-armed rivals Pakistan and India will meet in Bhutan on Thursday in what is likely to be another step in improving their frayed relations.

Pakistani Prime Minister Yusuf Raza Gilani and his Indian counterpart, Manmohan Singh, are in Bhutan for a summit of South Asian leaders.

Mar 28, 2010

Better Pakistan-U.S. ties underpinned by Afghan aims

ISLAMABAD (Reuters) – Buoyant U.S.-Pakistani relations are being underpinned by converging interests over Afghanistan but strains could emerge if Pakistan’s expectations for U.S. help are not met and it feels it is being used.

Pakistani Foreign Minister Shah Mehmood Qureshi and U.S. Secretary of State Hillary Clinton were all smiles after their recent high-level talks in Washington aimed at reversing tempestuous ties between the allies.

Mar 10, 2010

Key Pakistan spy chief gets one-year extension

ISLAMABAD (Reuters) – Pakistan’s prime minister has extended the term of the head of the country’s main intelligence agency by a year in a move expected to preserve continuity in the fight against Islamist militancy.

Lieutenant General Ahmad Shuja Pasha, director general of the military’s Inter-Services Intelligence (ISI) agency, was due to retire this month but will remain in office for another year, Prime Minister Yusuf Raza Gilani’s office said in a statement.

Feb 26, 2010

Cynicism in both India and Pakistan after talks

ISLAMABAD (Reuters) – Commentators in both India and Pakistan greeted on Friday the first official talks between their countries since the 2008 Mumbai attacks with a degree of cynicism even though no breakthrough had been expected.

The two nations’ top diplomats met in a former princely palace in a heavily guarded New Delhi neighborhood on Thursday and agreed to “remain in touch” to build trust.

Feb 24, 2010

Factbox: Main problems between India and Pakistan

By Robert Birsel

(Reuters) – The foreign secretaries of India and Pakistan will meet in New Delhi on Thursday to resume official contacts which India broke off after militants attacked the Indian city of Mumbai in late 2008.

Here are some of the main problems between the rival neighbors, who have fought three wars since independence from British rule in 1947.

Feb 24, 2010

Main problems between India and Pakistan

Feb 24 (Reuters) – The foreign secretaries of India and Pakistan will meet in New Delhi on Thursday to resume official contacts which India broke off after militants attacked the Indian city of Mumbai in late 2008.

Here are some of the main problems between the rival neighbours, who have fought three wars since independence from British rule in 1947.

SECURITY

For India, security is the top issue. It has refused to resume a series of talks on problems, known as the composite dialogue, until Pakistan takes more action against Pakistan-based militant groups. In particular, India wants Pakistan to show it is serious in reining in the militants behind the Mumbai attacks, in which 166 people were killed. Indian Foreign Secretary Nirupama Rao said on Monday that Indian concerns about militants in Pakistan would form the main focus of the talks. India suspects Pakistani security agents support some anti-India groups. Pakistan denies that and says the peace process should not be held hostage to "non-state actors". Pakistani Foreign Minister Shah Mehmood Qureshi said this month talks would not make required progress if India insisted on focusing on security.

KASHMIR

The mostly Muslim Himalayan region of Kashmir is at the heart of hostility between the neighbours and was the cause of two of their three wars (the third was over the founding of Bangladesh). Separatists backed by Pakistan began an insurgency against Indian rule in 1989 and tens of thousands of people have been killed. Most fighters want Kashmir to become part of Pakistan. Many Kashmiris want independence from both India and Pakistan. A November 2003 truce has largely held along the so-called Line of Control dividing Kashmir, despite occasional clashes. Former Pakistani president Pervez Musharraf offered in 2003 to set aside a long-standing demand to implement U.N. resolutions for both sides to withdraw troops and for Kashmiris to decide in a vote on whether to be part of India or Pakistan. He later suggested Pakistan would give up its claim over Kashmir if India agreed to soften the Line of Control and let Kashmiris administer their affairs with oversight from both Islamabad and New Delhi. India is agreeable to the long-term goal of softening the border, without any redrawing of the ceasefire line but autonomy and joint oversight go further than India wants. Musharraf’s moves to break the deadlock were criticised in Pakistan for giving away too much and the government that came to power in 2008 has distanced itself from his concessions.

WATER

The two countries disagree over use of the water flowing down rivers which rise in Indian Kashmir and run into the Indus river basin in Pakistan. The use of the water is governed by the 1960 Indus Water Treaty under which India was granted the use of water from three eastern rivers, and Pakistan the use of three western rivers. Pakistan says India is unfairly diverting its waters with the upstream construction of barrages and dams. Pakistan, dependent on the water to produce food for its growing population and underpin its economy, wants to put water at the top of the talks agenda, along with Kashmir. Indian denies any unfair diversion of Pakistani water.

SIACHEN

Indian and Pakistani forces have faced off across the Siachen glacier in the Himalayas, known as the world’s highest battlefield at 5,500 metres (18,000 feet) above sea level, since 1984. The two sides have been trying to find a solution that would allow them to withdraw troops but India says it is unwilling to bring its forces down until Pakistan officially authenticates the positions they hold. Pakistan has said it is willing to do so but on the condition that it is not a final endorsement of India’s claim over the glacier.

SIR CREEK

Another boundary dispute is over the 100-km (60-mile) Sir Creek estuary flowing into the Arabian Sea. The dispute has hampered exploration for oil and gas and led to the detention of hundreds of fishermen from the two countries, mostly in areas where demarcation is unclear. The two sides have conducted a survey and exchanged maps showing their respective positions.

AFGHANISTAN

Afghanistan has become a major source of friction although Indian and Pakistani differences over Pakistan’s western neighbour have not been a part of their official talks. The two countries have long competed for influence there and Pakistan is deeply suspicious of a rise in India’s presence after the fall of the Taliban in 2001. It accuses India of using Afghanistan as a base to create problems inside Pakistan, including backing separatists in its Baluchistan province. India denies the accusations, saying its focus is on development. (Editing by Nick Macfie)