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Economy - overview: Pakistan, an impoverished and underdeveloped country, has

suffered from decades of internal political disputes, low levels of foreign investment, and
declining exports of manufactures. Faced with untenable budgetary deficits, high
inflation, and hemorrhaging foreign exchange reserves, the government agreed to an
International Monetary Fund Standby Arrangement in November 2008. Between 2004-
07, GDP growth in the 6-8% range was spurred by gains in the industrial and service
sectors, despite severe electricity shortfalls. Poverty levels decreased by 10% since 2001,
and Islamabad steadily raised development spending in recent years. In 2008 the fiscal
deficit - a result of chronically low tax collection and increased spending - exceeded
Islamabad's target of 4% of GDP. Inflation remains the top concern among the public,
jumping from 7.7% in 2007 to 20.8% in 2008, primarily because of rising world fuel and
commodity prices. In addition, the Pakistani rupee has depreciated significantly as a
result of political and economic instability.

Definition: This entry briefly describes the type of economy, including the degree of
market orientation, the level of economic development, the most important natural
resources, and the unique areas of specialization. It also characterizes major economic
events and policy changes in the most recent 12 months and may include a statement
about one or two key future macroeconomic trends.

Source: CIA World Factbook - Unless otherwise noted, information in this page is
accurate as of September 17, 2009

The Kerry Luger bill is essentially a non military aid package granted to Pakistan by the
U.S in view of its precarious economic condition due to its indulgence in the war on
terror as a front line allied state.

This bill grants Pakistan $1.5 billion annually for five years and comes along with
stringent conditions on how to distribute and invest this money.

The conditions along with this bill come in the shape of military as well as economic
checks which have instigated a lot of debate

The Kerry Lugar Bill and Pakistan

President Barack Obama recently signed the Kerry-Lugar Bill into law. The bill which was
initiated by veteran Senators John Kerry and Richard Lugar envisages tripling of non
military aid to Pakistan to an annual outlay of
$1.5bn for five years. However, the bill comes with
strings attached and clearly that has drawn the ire
of the Pakistani people. The legislation kick started
a series of heated debates on live television in the
competitive and booming Pakistani media and the final punch before the knock out was the
announcement by the Ex-Premier Nawaz Sharif, currently the country’s most popular
politician, of his party’s rejection of the bill. The combined effect of these forces means that
President Asif Zardari’s weak administration has received yet another blow and will see it’s
fortunes plummet further.

Matters have not been helped by the way the whole exercise was handled by the ruling
coalition and the vibes from the army, the most powerful institution in the country.
Overnight the functionaries of the Government, ministers and other important officials of the
ruling party went on a media blitz trying aggressively to salvage pride and defend the bill
resembling clumsy marketing bosses angry at the failure of their products launch and the
justifiable media coverage to its side effects some of which may cause death on an overdose.
The Foreign Minister rushed to and fro between Washington and Islamabad managing to get
an explanatory note from the Americans on some provisions and conditions of the bill, his
efforts culminated in an impassioned, thunderous yet short on detail appeal in the
Parliament to accept the bill and a declaration of victory of the ruling government on
achieving an important milestone.

An important milestone it may be but clearly the Kerry Lugar bill has failed in one of its main
objectives which is improving the American image in the eyes of the common man in
Pakistan. It has on the contrary led to a further battering of the already beleaguered US
image in Pakistan and its people many of whom, fed on a mixture of conspiracy theories,
rumors and more recently by the wild growth of informed, lively, independent and outspoken
media in Pakistan stand convinced that the bill is yet another hostile American intrusion into
the affairs of their country. It is, many believe, the instrument of micro managing Pakistan.
While it may hold true for the latter, those who drafted the bill clearly left a lot to be desired
and a reading of the bill certainly gives one that feeling. Let us examine two of its most
controversial clauses being regularly debated in Pakistan. Consider Sec 203 which details
limitations on certain assistance, the gist of which is the requirement by the Secretary of
State to certify periodically that Pakistan is working to dismantle the illegal nuclear
proliferation networks. The US also has to certify that Pakistan is no longer supporting
militant groups. One of the most contentious parts of the bill is Point 2 under Section 203
which many opine was included in the bill due to the influence of the Indian lobby on the
Capital Hill, it is this part which according to many looks like it has been hand written by an
Indian diplomat. It contains more than one reference of action to be taken by Pakistan
against terrorist groups and entities involved in terrorism against its “neighboring
countries” , specifically pointing to Jaish e Muhammad and Lashkar e Tayyaba, two
formidable terrorist outfits with a history of waging terrorist violence in Indian held
Kashmir. The text states boldly enough and includes taking into “account the extent to which
the Government of Pakistan has made progress on matters such as (A) ceasing support,
including by any elements within the Pakistan military or its intelligence agency, to extremist
and terrorist groups, particularly to any group that has conducted attacks against the United
States or coalition forces in Afghanistan, or against the territory or people of neighbouring
countries”. Sec 205 details on the requirements for civilian control of certain assistance
which includes civilian oversight of “direct cash or security related assistance or non
assistance by the United States to the Government of Pakistan may only be provided or made
to civilian authorities of a civilian government of Pakistan”. This has raised eye brows within
the Pakistani security establishment and its agencies for the text makes plain the distrust of
the American security establishment for their Pakistani counterparts. The Bill has other
stringent conditions placed over aid such as Monitoring, Evaluation, Accountability, Strategy
and the inclusion of Appropriate Congressional Committees including the Committee on
Appropriations, the Committee on Armed Services, the Committee on Foreign Relations, and
the Select Committee on Intelligence of the Senate.

What could have been done to avoid this disaster? This is perhaps the question both the
Americans and Pakistanis must ask of each other. Let’s start with the Americans; clearly a
noble intention has been misfired. The bill could have gone a long way in improving
America’s standing in an important Muslim country, vital to its strategic interests and plans
in the long term at a crucial time. A higher level of economic assistance should have been
provided in the first place, the conditions put on the bill make it look like a huge chunk of
American aid money is going to one country only. The losses being suffered by Pakistan are
greater than any amount of billions can do justice to, most certainly not a paltry $1.5 yearly.
This too, when the Americans are spending billions more in the war effort in Afghanistan,
Iraq and in doling out aid to countries like Egypt, Israel which can possibly never come close
to the death and destruction that Pakistan has and continues to face. Secondly, the largest
part of the money should be going to a) infrastructure projects, roads, railways, dams, energy
by providing the requisite technology to Pakistan and b) by a massive infusion of cash and
expertise in Pakistan’s collapsing education, health sectors. Thirdly, the flow of security
related assistance to Pakistan must continue even if steadily, a greater emphasis of this must
be anti terror equipment and technology including the drones which will become a Pakistani
requirement with or without Nato/Coalition forces success or failure in Afghanistan. This
will also help to keep the all important Pakistani military and its security establishment at
ease with the whole enterprise. Lastly, the wording of the bill could have been more careful
and a un necessary furore avoided.

For the Pakistani side, there are many lessons to be learnt. Firstly, the dismal response and
handling of the Government has only compounded the problem and added to the fury against
the bill. Secondly, other donors such as EU, the FODP (Friends of Democratic Pakistan) and
even bilaterally many countries would be hesitant to offer aid in packages which are likely to
include conditions which will again be seen as intrusive by the people of Pakistan. Thirdly,
those responsible in Pakistan’s Foreign Ministry or its Mission in Washington must be held
accountable for clearly the bill could not been passed without going under their eyes.
Fourthly, the Pakistani military should not have come out with the sort of statement that it
came out with at the end of the meeting of the Corps Commanders, the military should have
conveyed its feelings through proper and better channels of communication rather than
going public with it and lastly, the Pakistani people and Government must realize that the
menace of terrorism threatens to destroy Pakistan for good if both don’t close their ranks to
fight the threat together. No amount of aid can save a nation if there isn’t a desire on the part
of a government and its people to do so by themselves, if the latter doesn’t happen the Kerry
Lugar Bill will go down in the annals of history like the Pressler and Glenn Amendments and
the later did more harm than good.

The writer is a freelance columnist. He can be reached at

Friday, 23 October 2009
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