The Pakistani Spectator

A report is published by Reuters on 15 December, 2009 from Islamabad.  Report Excerpt as follows:

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

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 tribal leaders. This 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 key urban, industrial and commercial centres with relative impunity, which has significant implications for investment and growth. There are also concerns that the U.S. troop surge in Afghanistan could cause more instability in Pakistan’s border regions.

Key issues to watch:

– Ability of militants to launch attacks. Several assaults on key 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.

– Safety of Pakistan’s nuclear arsenal. Pakistan’s poor record of preventing attacks even on secure military targets has raised concerns that militants could penetrate a nuclear facility. Analysts say that while there is minimal risk that 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”.

* EXTERNAL SECURITY

Following a serious deterioration over the Mumbai attacks last November, relations with India have stabilised. The United States 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 a continual risk of another sudden chill in relations. With two nuclear-armed powers facing off along an extensive shared border, there also remains the risk a military accident or misunderstanding is quickly magnified into major conflict.

Key issues to watch:

– Progress on resuming substantive talks. So far, India has been reluctant to agree to any wider talks until more is done in Pakistan to deal with those behind the Mumbai attacks.

But any sign of rapprochement will be greeted positively by investors.

– Pakistan is worried the new U.S. strategy in Afghanistan will result in a spill over of fighting across the border.

Pakistan is also wary of an intensification of strikes by pilotless U.S. drones on militants in on its side of the border, in particular in Baluchistan province, where the government is trying to quell a low-level separatist insurgency.

* GOVERNMENT EFFECTIVENESS

The government has limited control over the military, and has also been undermined in recent tussles with the judiciary. It has proven relatively ineffective in making headway on corruption or reforming the economy. President Asif Ali Zardari’s government remains weak and prone to splits. Problems in formulating and implementing policy will continue to act as a major drag on investment.

Key issues 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.

– Decision of the Supreme Court on challenges to an amnesty decree (NRO). If the court rules the amnesty (NRO) was unconstitutional, some close allies of Zardari could face charges, further weakening the government and distracting from policymaking.[1]

* ECONOMIC REFORM AND INVESTMENT IN INFRASTRUCTURE

Pakistan has traditionally had legislation that favoured openness to foreign investment, and given the government’s need to promote growth, there is the chance of more economic reforms, although these may not be enough to reverse the impact of chronic insecurity and corruption. Investment is desperately needed in infrastructure and energy — power shortages have badly damaged the economy, particularly in Karachi.

Key issues to watch:

– Policy announcements. Markets are awaiting substantive announcements that would show the direction of policy.

– Pressure from the IMF and “Friends of Pakistan”. Allies pledged $5.7 billion in aid to Pakistan in April, but only a fraction has arrived, with donors wanting more detail on how the money will be used. A $7.6 billion loan from the IMF was agreed in November last year and the IMF increased the loan to $11.3 billion in July. Markets will be watching to see if donors are able to force the pace of economic reform.

* CORRUPTION AND GOVERNANCE

Pakistan is perceived as one of the world’s most corrupt countries, with rampant bribery, opaque legislation and an unreliable judiciary. The consensus view is that corruption has worsened significantly since the transition from military to civilian rule — a further deterrent for investors.

Key issues to watch:

– Corruption estimates. Investors will be watching to see whether Pakistan rises or falls in corruption perception rankings. In Transparency International’s 2009 Corruption Perceptions Index, released last month, Pakistan’s ranking fell to 139th among 180 countries, from 134th the year before.

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An Up date:

[1] Rightly so, The Apex court; the supreme Court of Pakistan finding the NRO against the spirit of Constitution of Pakistan; on 16 December 2009 declared the NRO as ‘void ab initio’ (as it was never there).

This would give a new life to all those cases granted an amnesty by General Pervez Musharraf and that—- these will be reopened under this new law.