October / November 2010

Credit Management Group

NBP Industry Newsletter
Tracking Opportunity & Risk Related Developments
SBP projects 2-3% growth (Page No. …23) IMF: Inflation 13.5%, GDP < 2.75% (Page No. …24) Fiscal deficit reaches 6.3pc in FY10 (Page No. …24) CA deficit widens by 48% (Page No. …24) Trade gap widens (Page No. …24) Bumper wheat crop likely (Page No. …15) Profitability remains up in 2010 (Page No. …09) Two nuclear reactors for Pakistan (Page No. …06) Agreement inked - TAPI gas pipeline (Page No. …06) Pakistan can produce of 7,000 MWs (Page No. …06) Pakistan forced to import over 3 M bales of cotton (Page No. …01) Kick - starting agricultural activity (Page No. …15) Agriculture may need 2 years for recovery (Page No. …14) 310,000 small businesses affected by Floods (Page No. …14) Circular debt update (Page No. …06)

Major Developments Textiles (Ginning, Spinning, 1 1 4 6 8 9 11 12 12 14 19 20 22 23 32 33
33 35 39 40 44 48 52

Pakistan forced to import over 3 M bales of cotton

Weaving, Knits, Woven Apparel)

Oil (Marketing, Refining, Sourcing) Power / Energy (Generation, Distribution) Sugar Cement / Construction / Steel Automotive Telecommunication Other Industries Agriculture Micro Business & SME Financial Services Regulatory Macro Environment Table: Risk-Opportunity Trends Accelerating Global Risks - Special Excerpts
Global Deflation Sovereign & US Debt Crises US Dollar Crises - An Alternative Reserve Currency Strategic Divergence – US vs China / Russia & Others Iran – A new Mid-East war in the making The “AF-Pak” Theater The End Game Economic Implications of US Congressional Elections (Nov 2010) Downgraded: ratings of largest banks (Page No. …20) NPLs estimate - SBP (Page No. …20)

Pakistan will be forced to import over 3 M bales of raw cotton to meet the demands of local textile industry as cotton production will remain around 11.5 M bales against set target of 14 M bales in crop season 2010-11. Officials at the Ministry of Food and Agriculture told that during the current crop season Pakistan expected to achieve the set target due to favourable conditions, but devastating floods have swept away cotton crop on 600,000 hectares. Before the recent floods Pakistan was expecting a bumper crop of 14 M bales compared to 12.8 M bales produced last year. Officials said that Pakistan's textile industry annually requires around 14 M bales of cotton, officials added. Officials said cotton crop had been sown on 3.4 M hectares, out of which 0.6 M hectares had been destroyed and the country lost about 2.5 M bales. Officials warned that the country would face serious shortage of cotton in coming days as more than 20% of the cotton crop had been destroyed by the floods.
(Business Recorder – October 13, 2010) Over 2 M cotton bales destroyed

While expressing his views in connection with the damage to the

Tracking Opportunity & Risk Related Developments
cotton crop as a result of floods, Chairman APTMA Sindh-Balochistan Region said that before the floods Pakistan was expecting a bumper crop of 14 M bales compared to 12.8 M bales produced last year. According to reasonable estimates, the floods have destroyed approximately 2.00 to 2.50 M bales leaving a short fall of about 1.00 M bales in comparison to last year; therefore, the import requirement this year will be additional 1 M bales and total import requirement would be 4 M bales, which will now be procured from international market at world prices. Under the scenario, it can not be expected that the spinning mills will import cotton at international prices in the absence of continuity and assurety of non interfering policy by the Ministry of Textile Industry, as nobody can afford to import raw material at world prices and be denied the rights to sell their product at the international price of cotton yarn in the wake of export duties and quotas. The clear proof of this can be drawn from a comparison of cotton import figures between 2008-09 and 2009-10 when the import figures were 490,000 Metric Tons (2.8 M bales) versus 337,000 Metric Tons (1.98 M bales), respectively. Had curbs on yarn export not been placed during the last year Pakistan would have imported 150,000 MT more of raw cotton at prices, which would have been much cheaper than they are today and consequently availability in the local market would have been much better.
Cotton crisis looming

destroyed by floods in the four provinces and Azad Kashmir, which might compel the country to import many agricultural products including cotton. The total agriculture sector losses are estimated to be about Rs 249 B. Due to flood damage to Pakistan's cotton crop for the 2010-11 season, the officials estimate that the country may import 3.5 to 4 M bales. Major distortion took place in major cottongrowing areas of the central Punjab and southern Sindh. According to a Food and Agriculture Organization (FAO) report, the highest losses were recorded in Punjab where about 661,637 hectares of land with standing crops destroyed. In Sindh, crops on about 357,372 hectares and Khyber Pakhtunkhwa (KP) about 191,020 hectares were damaged.
(Daily Times – September 14, 2010) Cotton output to drop by 18.5%

ginneries as on September 1 stood at 9,95,191 bales, showing a decrease of 22.95% over the corresponding period of the last year when ginneries received 12,91,550 bales. According to the Pakistan Cotton Ginners Association's fortnightly report released said that Punjab - the major cotton producing province contributed 4,88,548 bales to take the total to 9,95,191 bales. Sindh's shared in the arrival was 5,06,643 bales.

(Business Recorder – September 4, 2010) Imports of 4 M cotton bales

The cotton output in the country is likely to be lower by 18.5% because of floods, PCGA Chairman told here. "I am expecting loss of 18.5% of cotton due to recent flood in Punjab and Sindh," he said that government had targeted 14.11 M bales but now only 11.5 M bales production is expected. According to him, devastating floods and heavy rains severely damaged the cotton crop in the country. Floodaffected areas in Punjab are estimated at 1.415 M acres (1415.6 thousand acres) while in Sindh it is about 303.2 thousand acres. The total area damaged is calculated at about 1.719M acres (1719.8 thousand acres).
Cotton production declines by 22.95%

Flood damage to Pakistan's key cotton crop has cut deep into the forecast for the 2010/11 season, industry officials said, adding the country is likely to import at least 4 M bales. The monsoon flooding, which started over a month ago, damaged about 524,000 hectares (1.3 M acres), out of the total 3.20 M hectares, under cultivation in the major cotton-growing areas of central Punjab and southern Sindh province. Government and industry officials now estimate output of about 11.6 M bales of 170 kg (374.8 lb) each against the government target of 14 M bales. "We will have to probably import a minimum of 4 M bales to meet our demand this season after floods damaged up to 2.25 M bales," a senior official at the private All Pakistan Textile Mills Association, told Reuters.
(Business Recorder – September 8, 2010) Growth in Textile export

(Business Recorder – September 15, 2010)

(Business Recorder – September 14, 2010)

According to the assessment of the United Nations, over 1.31 M hectares of the cultivated area has been

Cotton production has declined by 22.95% as the arrival recorded at

The country's textile export has posted a healthy growth of 23% during the 1st 2 months of the FY 2010-11 mainly due to high unit price in the world market. 02

Tracking Opportunity & Risk Related Developments
According to statistics released by Federal Statistics Bureau, the country's overall textile export have reached $1.975 B mark during the first two months (July-August) of the CFY as compared to $1.601 B exports during the same period of the last FY, depicting an increase of 23.34% or $370 M.
(Business Recorder – September 23, 2010) Worlds cotton output, consumption

coming Christmas and New Year events in the West. "Exporters always book orders at least three months ahead of the next season, and if the raw commodity price is higher or short on the local market then striking deals with global buyers becomes difficult," Value-added Textile Forum Co-ordinator said.
(Business Recorder – October 20, 2010) Duty on PTA cut to 3%

Representatives of different valueadded organizations, while talking said on that the value added textile industry is crippled owing to frequent load shedding, high electricity and gas tariff, multiple duties and taxes, resulting in high cost of doing business in Pakistan, as compared to the neighbouring states. Chairman said that end product cost has increased manifolds, which is no more acceptable to USA and Europe. The prices of the corresponding period last year, the Federal Bureau of Statistics said. The surge in export numbers can be attributed to higher global demand and increased per unit price of Pakistani textile products. Despite surge in the amount realised, the quantity exported of almost all the products under the category witnessed decline. According to the data, raw cotton exports declined to $7.202 M during July-September against $40.458 M in the corresponding period last year, thereby, witnessing a decline of 82.2%. Contrary to this, cotton yarn exports witnessed growth. The cotton yarn exports reached up to $353.617 M, recording 2.08% growth against the previous year’s exports of $346.402 M. During the period under review, goods such as cotton cloth, knitwear and bedwear witnessed a surge of 22.88%, 15.79% and 14.73%, respectively. The exports of cotton cloth, which stood at $432.974 M, increased to $532.0.35 M, while that of cotton carded or combed dropped to $141,000 from $5.37 M. 03

World cotton production and consumption are forecast to balance around 25.1 M tons in 2010/11 due to 15% rebound in production and 2% increase in mill use, a statement of the International Cotton Advisory Committee said. The higher production in the USA and a surplus of five Mbales in India would compensate for the damage cause to cotton crop in Pakistan. It would also facilitate Pakistani spinners to cover the shortage through imports, it said. Beginning stocks will account for only 27% of the world’s supply in 2010/11, down from 35% in the previous season. The decline in stocks as a percent of supply suggests that cotton prices in 2010/11 will remain unusually susceptible to changes in crop prospects, the statement added.
(The News – September 3, 2010) $1 B foreign orders may be lost

The government has cut customs duty on the import of pure terephthalic acid, a raw material used in the production of polyester fibre, to 3% from 7%. On the contrary, customs duty on polyethylene terephthalate for bottle resin has been increased from 7.5 to 9%. This was announced in a notification issued by the Federal Board of Revenue. In another major decision, the FBR withdrew all duty concessions on the import of 12 types of raw material and different types of yarn for the textile industry. Elaborating, an FBR official said the raw material from which concessions have been removed include textured yarn (nylon), polyester and other types of yarn, mixed staple fibre, yarn made from mixed wool and other products.
(The Express Tribune – October 13, 2010) Garments export likely to come down in 2010-11

The country is likely to lose at least a billion dollars of foreign orders next summer because of the acute shortage of cotton yarn on the local market, manufacturers-cum-exporters of value-added textile sector said. Expressing fear, they said the raw commodity's scarcity could curb the value-added textile sector from meeting the export deadline for the

Due to high prices of end product, Pakistan value-added textile export did not seem competitive in Europe as well United States, resultantly export of garments is likely to come down from $3.2 B to $3 B during 2010-11.

Tracking Opportunity & Risk Related Developments
Knitwear and bedwear exports surged from $471.747 M and $420.532 M to $546.247 M and $482.461 M, respectively. Shipments of towel swelled up by 12.12% and that of tents, canvas and tarpaulin dropped by 38.67%. Readymade apparels showed escalation of 38.83%, overseas sales of made-up articles rose by 26.72% and other textile materials exports witnessed a surge of 84.27% during the period under review.
(The News – October 20, 2010)

increased following a decline in its local production by a huge amount of 700 to 800 tons per day. The prices of liquefied petroleum gas (LPG) are stable in the market despite a surge of Rs.9,360 per ton in its rate by a local producer OGDCL. This was stated by the chairman of FPCCI Standing Committee on LPG and All Pakistan LPG Distributors Association Chief in a press release.
(The Nation – September 5, 2010) Oil import bill increases

(The Nation – September 29, 2010) Oil sales down in August

products in the month of August this year as against $7.35 M of the corresponding month of 2009.

20% decline in Refinery output

The country's refinery production has declined by 28% in August 2010 as compared to previous month mainly due to production stoppage at Parco after floods devastated the transportation network in the surrounding region. According to provisional figures, the refinery production in the 1st 2 months of FY11 witnessed a decline of 18% as compared to the same period of previous FY. Reviewing refineries individually, Parco witnessed its market share falling drastically to 29% in the two months of FY11 from 42% after production closure in August 2010. PRL and BYCO too witnessed their shares deteriorating to 20% (from 21%) and 3% (from 8%) respectively during this period. On the other hand, NRL remained the key gainer witnessing its market share surging to 24% (from 13%) in the two months of FY11.
(Business Recorder – September 16, 2010) Dependency on imported LPG increases

The country’s oil import bill for the 1st 2 months (July-August) of the FY 20010-11 has increased by 25.28%, Federal Bureau of Statistics reported. Total oil imports, including crude and petroleum products, amounted to $1.9 B during July-September period of the prevalent FY from $1.52 B in the same period last year. On the contrary, the petroleum products imports stood at $933.1 M as against $994.7 M, showing a decline of 6.20% YoY in growth over the same period of FY10. Showing the similar trend, the quantum of the petroleum crude products imported into the country during the period under review reached the level of $950 M when compared to $509 M in Jul-Aug FY10. In addition, this group showed 86.90% YoY raise in growth. According to official figures released by the Federal Bureau of Statistics, in August 2010 alone, the petroleum group’s imports swelled by 16.67 per cent on month-on-month basis. Likewise the entire imports in this broad category up by 7.19%. The FBS data revealed that Pakistan spent $858 M on the import of oil

The oil sales in local market have declined by 24% to 1.418 M tons during the month of August 2010. The decrease in sales of Furnace Oil (FO) and High Speed Diesel (HSD) were amongst the major causes for the overall decline, analysts said. The sales of HSD have declined by 34% followed by FO sales, which were down 21%, an analyst at JS Global Capital said. The oil sales during the 1st 2 months of FY11 stood at 3.285 M tons, down 8% on yearly basis. PSO sales during this period dipped by 12% to 2.2 M tons mainly due to its larger presence in the flood affected areas compared to growths of 17% and 14% witnessed in the sales of APL and SHELL, respectively. As a result, PSO lost its market share by 322bps to 67.2%. Meanwhile APL and SHELL improved their shares to 6.1% (up 130bps) and 14.8% (up 277bps), respectively.
(Business Recorder – September 9, 2010) OGDCL to start drilling in Zin Block

Pakistan’s security forces have finally given clearance to the OGDCL to start drilling in one of the most prospective, but insurgency-hit parts of Balochistan, top company officials said. OGDCL will initiate drilling of the first well in Zin Block of Dera Bugti district, to check the size and quality of gas reservoir more than six years after a survey suggested presence of hydrocarbon reserves there, they said. 04

The dependency on the imported Liquefied Petroleum Gas (LPG) has

Tracking Opportunity & Risk Related Developments
“Work heads off later this month or in the first week of November,” one of the officials said requesting anonymity. “Some evaluation of the reserve needs to be carried out, but seismic and geological studies are already with us.” The largest petroleum producer has engaged six platoons, 216 soldiers of the Frontier Constabulary for security. “OGDCL will pay for their service and the company has even bought them equipment.”
(The News – October 12, 2010) OGDCL seen borrowing next year 21 gas fields - Ogra raises wellhead prices

Oil and Gas Regulatory Authority has raised the wellhead prices of around 21 gas producing fields due to variation in exchange rate and global oil prices effective from JulyDecember 2010. Ogra official said that impact of increase in recent well head gas prices will also be reflected in consumer prices effective from January 1, 2011. Ogra has revised wellhead gas prices of 32 gas fields and there has been made no change in prices of some gas fields. The government sets, through Ogra, the wellhead price and then gas is provided to the gas distribution companies, like SNGPL and Sui SSGC for sales to industrial, commercial and domestic consumers.
(Business Recorder – October 10, 2010) Oil consumption falls

B during the first quarter of the CFY from $2.188 B in the corresponding quarter FY10, showing an increase of 9.33%, the Federal Bureau of Statistics said. The import of petroleum products came down by 10.79% to $1.295 B during the period under review from $1.452 B in July-September 2009. The imports of crude petroleum, however, registered a significant increase of 49.08% to $1.096 B from $735 M. The y-o-y imports in September fell sharply by 25.65% to $509.43 M against $685.2 M during the same month last year.

Once Pakistan’s most cash rich company, OGDCL now has only Rs.6 B in liquid reserves, which will force it to borrow from banks in the first half of 2011, a top company official said. The company’s assets that can be readily converted into cash have come down sharply from around Rs.19 B in June 2010 after payments of deferred taxes and dividends, said the official, requesting anonymity. “We can avoid banks in remaining months of this fiscal (Jul/Jun 2010/11) only if inter-corporate circular debt falls,” he said. “But I don’t see that happening anytime soon.” OGDCL awaits payment of over Rs.80 B by 5 refineries and the 2 gas utilities. The company has annual cash flow of Rs.93 B from sale of oil and gas and its strong balance sheet has helped it stay away from banks during last five years. The state-run petroleum giant will have to raise between $400 and $500 M from banks in fiscal 2011/12, he said. “Loan proposals and negotiations for credit lines will start as early as December 2010.”
(The News – October 8, 2010)

(The News – October 20, 2010) Deregulation of Oil prices

The oil consumption in the country has declined to 4.7 M tons during the first quarter of FY11, 7% lower than the same quarter last year. The oil consumption continued to post weak data following the flash floods as demand dipped 6% in September 2010 as compared to the same month last year. Likewise, oil sales were 2% lower from the previous month as the seasonal Ramadan effect kicked in as well. Analysts said that the shutdown of some power plants due to flood inundation and improved hydel generation ability proved demand dampener for furnace oil (FO), while retarded agricultural activity dragged down diesel sales. Hence, consumption in the 1st Q of FY11 was down 7% on y-o-y basis.
(Business Recorder – October 8, 2010) Oil import bill up

The ECC of the Cabinet has approved, in principle, de-regulation of oil prices and Inland Freight Equalisation Margin (IFEM). The ECC has also approved to fix margins of oil marketing companies (OMCs) and dealers which will result in reduction of oil prices by 35 paisa per litre if calculated based on price of October, an official of Petroleum Ministry said. The ECC has also directed Petroleum Ministry to seek ratification of decision from the Cabinet before its implementation. "IFEM will fall in controlled-deregulation because the Oil and Gas Regulatory Authority (Ogra) will notify it from one destination to other destination but so far as prices of petroleum products are concerned, refineries and OMCs will determine the prices on monthly basis whereas Ogra will monitor it," the official said, adding that imported price will be benchmark for prices and refineries as well, as OMCs will not be allowed to charge over set 'bench mark price' to protect consumers interests. He said that in new oil 05

The oil import bill increased to $2.392

"This project is based on an agreement signed between the two countries in 2003 about co-operation in the nuclear power field. especially the refineries which are now running at 60 percent of their capacity. the role of Ogra was more effective. This was said by official of the Bradford Power (Pvt) Ltd while talking to the Minister for Water and Power. A delegation of the Bradford called on him. as compared to 63.4% on y-o-y basis. China and other Asian countries. one joint venture with Engro. Pakistan and India signed the framework of an agreement to construct a gigantic pipeline pumping natural gas to South Asia. citing plans to build the No 3 and No 4 reactors of about 300 megawatts each at Chashma. He said that there are projections that at least 2. POWER / ENERGY Two nuclear reactors for Pakistan (The Express Tribune – September 21. Her comments also suggested Beijing may see no need to seek approval for the two new Chashma reactors from the Nuclear Suppliers Group (NSG). The spokeswoman said China plans to help Pakistan expand its Chashma nuclear energy complex in Punjab by building two reactors in addition to one already operating and another nearing completion. undermining efforts of the entities working in the oil sector.000 km (1. holder of the world’s fourth-largest natural gas reserves. some of whose members have voiced qualms about the deal. including 735 km across Afghanistan and another 800 km through Pakistan. however. the government will have to take some concrete steps to resolve the issue once and for all. slightly up by only 0. 2010) Pakistan can produce of 7. 2010) Bradford Power wants to set up wind power project A foreign consortium company of Canada and China M/s Bradford Power has shown interest to set up a wind power project of 200 MW in Pakistan and estimated investment of $500 M." said he added.3% on y-o-y basis to 4. China and Monteva Holding Inc. if the infrastructure is completed on priority basis and international donors like World Bank and ADB are actively persuaded by the government. The former Soviet state is looking to diversify energy sales from its traditional market.R. 2010) Circular debt update China on gave its firmest government confirmation yet of plans to build two new nuclear reactors for Pakistan. and is courting investors from the West. one UAE Company and a joint venture between Sindh and federal government for coal gasification are at various stages of initial work and the response from is very positive and they are willing to undertake coalbased projects in Thar and other coalfields of Sindh. but a Foreign Ministry spokeswoman said she did not know about talks over a bigger reactor deal. Afghanistan. in an exclusive interview published in monthly Energy Update. The planned pipeline would have initial capacity for 33 billion cubic metres a year and would run for nearly 2.700 MW of electricity will be generated from Thar coal with the existing number of projects and current pace of development by 2015. "China “The circular debt of the petroleum ministry has soared to Rs 235 billion. increased by 2. However." he told a regular news conference. (Business Recorder – October 19.037bcfd in this quarter against 3.188 barrel per day (bpd) in the 1st Q of FY11. (Business Recorder – September 22.TAPI gas pipeline Turkmenistan. 2010) Agreement inked . and invited the IAEA to exercise safeguards and oversight of this project. an international council of governments. . (Daily Times – September 23. one Australian firm.250 miles). (Daily Times – October 8.000 MW from coal based power generation projects by 2015 if the government aggressively pursues investors. Canada for setting up wind power projects in Pakistan as 06 Turkmenistan. a Pakistani official said. Russia.” says an official.907bpd in the corresponding quarter in FY10. is keen to revive plans to build the Tapi pipeline through Afghanistan to the markets of Pakistan and India. said Secretary Coal and Energy Sindh.946mmcfd in the same quarter last year. then the power generation can be increased to 7000 MW.188 bpd per day Oil production has already notified the International Atomic Energy Agency about the relevant details.Tracking Opportunity & Risk Related Developments pricing formula. He pointed out that one British company Oracle.000 MWs The country's oil production stood at 64. (Business Recorder – October 09. P. The gas production. 2010) 64. The official informed the Minister that the Bradford Power (Pvt) Ltd is a special purpose company established by A-Power. 2010) Pakistan can produce as much as 7.

2010) adding that the project is expected to come online. the government has decided to allow distribution companies (Discos) of Wapda to enter into direct power purchase contracts with small independent power producers (SIPPs) of up to 50MW capacity under a crash programme. smaller local investors will sign sale and purchase agreements with Discos for 25 years. “The law ministry interpreted the project on the basis of partial information as a part of the summary did not reach it. 2010) OGDCL to drill 11 wells in Balochistan on June 30. An IDB appraisal mission is in Islamabad to discuss modalities of further financing for the project.000 barrels of oil equivalent (BOE) a day by 2014. (Business Recorder – September 8.7. It said that to-date 3 L/Cs have been posted to the Engineering. OGDCL has also made preparation to start drilling of an exploratory well in Zin area of District Dera Bugti as well. The company has completed geological mapping and seismic data acquisition work in Kalchas Block of Balochistan Province. the profit before tax surged to Rs. OMV said in a press release.000 BOE a day in Pakistan and 318.08bn profit after tax (Business Recorder – September 4.2. A formal request had already been submitted to IDB and Economic Affairs Division. KAPCO posts Rs 5. The EPS of the company stood at Rs 5. 2010) Further delay in LNG project The Karachi Electric Supply Company (KESC) has raised $280 M from International Finance Corporation. The ministry was asked to advise if the project should be signed in view of the Supreme Court judgment on the matter.75 per share. Two wells are already being drilled while drilling of planned wells will start during CFY. Under the new policy likely to be formally approved by the ECC of the cabinet at its next meeting. 07 (Business Recorder – September 8. "We have been successful in raising $280 M in debt for this critical project through IFC. generators and associated OMV has taken over Petronas International Corporation’s rights to explore and produce gas in Pakistan." KESC said in the letter (written to Ministry of Water and Power on August 27. 2010) Kot Addu Power Company (KAPCO) has posted a record profit after tax (PAT) of Rs 5. According to financial results. 2010) KESC raises $280 M for 560 MW power plant transformers of the project.000 MW. (Dawn – September 24. in phases. sources added. The purchase will increase OMV’s gas production in Pakistan to around 25. The Vienna-based oil and gas giant currently produces around 14. Procurement and Construction (EPC) contractor for a combined total of $215 M. a multi-billion-dollar project for import of liquefied natural gas (LNG) for 20 years through a consortium of European companies is facing ‘procedural’ problems.78. (Dawn – September 27. Seismic data acquisition work has been planed to delineate a drillable structure at the field. According to sources. Neelum Jhelum Hydro-electric Project With gas and electricity shortfalls on the rise.” an official said. 2010) Take over by OMV The Oil and Gas Development Company Limited has planned to drill 11 development wells in Uch Gas field area of Balochistan. The Bank has now offered lease financing of $220 M for turbines.000 BOE worldwide.730 B during the period under review. the petroleum ministry did not send the complete record of the project to the law ministry while seeking its advice on a deal finalised with the consortium comprising 4Gas and GDF Suez. from July 2011 to March 2012 period. 2010 and announced a final cash dividend of Rs. Purchase of power from small producers (Business Recorder – September 28. (Daily Times – September 3. Asian Development Bank and local lenders to set up 560 MW Combined Cycle Power Plant . official sources told.089 B for the year ending . 2010) The Islamic Development Bank (IDB) has reportedly agreed to extend $220 M for 969 MW Neelum Jhelum Hydroelectric Project (NJHEP) in addition to $138 M which has already been leased.Tracking Opportunity & Risk Related Developments independent power producer and the said project will be completed in two years in Sindh province. ADB and a syndicate of local lenders. it has learnt. Sources said that IDB is leasing $138 M for some of the civil work components of the Neelum Jhelum Hydroelectric Project (NJHEP). 2010) With short-term power deficit estimated at 5.

He said currently 0. has entered a joint venture with Wah Industries Ltd. He also said that INFLEX. This was disclosed by Chief Minister Sindh during a press briefing at the CM House. The total price difference has been worked out in the range of Rs. confirming that two billion tons of coal reserves are available in Block II alone – a quantity enough to generate 5. 2010) Surge in Electricity Prices from next month Giving details about the incentives. unveiled the broader contours for overhauling the bleeding The Trading Corporation of Pakistan has established two LCs worth $243 M for import of 320. (The Express Tribune – September 22.2 M tons of sugar shortfall is expected next year. 2010) Argentina expressed its interest to play the role to improve petroleum and power sector of Pakistan particularly Hydroelectricity and Gas Transportation sector. 2010) SUGAR Withdrawal of 25% regulatory duty (The Express Tribune – October 6. He.” “A 1% tariff increase amounts to approximately Rs. Mehar and Daphro exploration licences and the Mehar and Mubarak development and production leases. Ambassador of Argentina in Pakistan has been making efforts to persuade the Argentinean Company IMPSA Corporation to participate in the several hydro projects that the government of Pakistan has planned to initiate. “The declaration of the region as a special economic zone and area of strategic importance has also been approved. Thar coalfields would be declared a project of national security. holding a “zero accidents” record.” said a key official of the finance ministry who deals with public sector enterprises.000 tons of white 08 . and “we expect that the new company INFLEX-WAH would soon commence production of CNG cylinders in Pakistan to supply the internal and regional markets”. (The Express Tribune – October 20.2 b and the government has to increase the prices by at least 28 to 30% within a year if it again fails to turn around the lossmaking power distribution companies.” As part of the package.210-225 B for the CFY. the government would not charge levies. for the first 30 years in a bid to attract investors. “The Economic Coordination Committee has granted an incentive package to attract foreign investors to Thar. “Change the culture.30 B subsidy.26 M tons more sugar will arrive from India by next month. hinting at recovering the remaining Rs.1 M tons for the same period of last year and 1.6 M tons stock of sugar is available with the TCP against 1. was reluctant to share by how much the tariff would actually be increased.” said the chief minister. the man leading the reforms.” he said. (Daily Times – October 12. “The (power sector) business plan needs to be consistent with the allocated Rs.Tracking Opportunity & Risk Related Developments The agreement includes the Mubarak. 2010) Generate 5000 MWs for 50 years The ECC of the Cabinet decided to withdraw 25% regulatory duty on import of raw sugar and allowed private sector to import the commodity.180 B primarily from consumers. He said that sugar price in the international market rose by 18%. learn to provide uninterrupted services and learn to pay for services. he explained that the government would guarantee an internal rate of return of 20% to firms which will achieve financial close by 2015 and investors will be exempt from paying customs duties on the import of coal mining and construction machinery for a period of 30 years. 2010) Deputy Chairman Planning Commission. the priority would be on improving efficiency rather than on increasing tariffs. “This time. “Under the federal government’s incentive package. Briefing media after the meeting.6. Argentine Ambassador participated as guest speaker in the inauguration session of the Exhibition/Fuelling Pakistan 2010 at Karachi Expo Centre. however.” he said.” (Business Recorder – September 22. He also expressed his wishes to facilitate the contacts between the regulatory institutions of the two main markets in Condense Natural Gas (CNG).000 megawatts of electricity over the next 50 years. Secretary Finance said that 1. TCP A feasibility study of Thar coal reserves has been completed. Argentina willing to assist energy sector. including federal excise duty and withholding tax. The decision to this effect was taken by the ECC meeting presided over by Finance Minister. According to the press release issued by the Argentine Embassy.

The delay in import pushed sugar prices to Rs. The ECC of the cabinet had directed the TCP on February 3. “This will give a boost to the sugar industry and the production at the distilleries will be enhanced.72 per kg from Rs.” Cement demand would The office of the Auditor General of Pakistan has established that the Trading Corporation of Pakistan (TCP).7 B – Delay in Sugar import will not only give a boost to the textile and leather sectors but the sugar mills would be the major gainers too as the proposed programme will allow duty free exports of ethanol to the EU countries. The market leader Lucky Cement was also better off in terms profitability (13% net margin) while better performers in the north included FCCL and DGKC.000 tons annually. (Daily Times – October 09. “Cement prices after peaking at Rs. in this regard Attock Cement realised highest net margin.300 per bag. A high official of Attock Cement confirmed that the price of the commodity has fallen by about 15%.September 1. Sources told that with the opening of two LCs it is expected that first shipment of sugar would reach Pakistan in mid-September.” he said.265-275 during the next few months. One deal. Analyst said that despite worse economic conditions around the globe.” the AGP concludes in the investigation.325 per bag have started to cool down and are currently hovering around Rs. (The Express Tribune – October 14. said the analyst. the local cement companies witnessed well net margins.5 per ton with two different suppliers on August 2. rupee depreciation of 7% YoY alongside rise in power tariff and gas prices kept overall cost under check”. “On the cost front. delayed a decision on the import of 200. local agent of Scuden Middle East Dubai. declined by 09 The new plan of trade assistance by the European Union (EU) to Pakistan . of 250.2 M tons from 3. a brokerage house said. causing a crisis leading to a countrywide increase in prices and shortfall in supply. 2010) Fall in Cement prices Cement manufacturers have reduced prices by Rs.000 tons of white refined sugar.” said an analyst at Topline Securities.000 tons was signed with Meshe International. 2010) Loss of Rs. (Daily Times – October 19. Commerce Secretary said that the EU has unilaterally given the trade assistance programme to Pakistan and the 30% duties on export of ethanol from Pakistan has been withdrawn. Ethanol is the key greenback earner for the sugar mills and the country has been exporting an average of 250.Tracking Opportunity & Risk Related Developments refined sugar. remain low for next few months until reconstruction activities picked up.15-25 per bag to Rs. Analyst added that manufacturers might have to reduce the prices further because demand for cement has fallen since floods hit the nation. as average cement prices tumbled during FY10 by 18% yearon-year – topline of the sector accordingly recorded a decline of 14% YoY. 2009 to import 200. 2010 for import of 320. amid volumetric growth of 9% YoY in total dispatches during the year. 2010) However lower prices shrank revenues. “Prices may fall further by Rs. The other contract for 70.000 tons ethanol annually and after the zero-rated regime is implemented the exports could even reach 300.000 tons sugar.000 tons of refined sugar to cope with an anticipated shortfall following a decline in domestic production. tasked with ensuring the availability of sugar in the market. Exports. local agents of Agrocorp International of Singapore.25-35 in the north region because floods have brought the demand down. TCP had finalised two deals of sugar import at $724. a 100% increase. was finalised with Shanig Associates Karachi. (Business Recorder . they added. Cement prices had remained around Rs.8 M tons in the same period last year. 2010) Major gainers of Pak-EU trade CEMENT / CONSTRUCTION / STEEL Profitability remains up in 2010 Amid adverse economic conditions the overall cement sector performance was sluggish during FY (FY) 2010 – cement companies continued to perform well in terms of better profitability and higher interest coverage. “Non-compliance with (government) directives indicated that undue favour was extended to the sugar cartel. superior interest coverage while the sector also continued to benefit from superior quality and brand image (reflected by higher retention prices realised by the company compared to the sector).4. Local sales in the first two months of the fiscal year fell by 15% to 3.290Rs.325 per 50-kg for last few months.000 tons of sugar before Ramazan in 2009. which account for more than 32% of total dispatches.36.

2010) Common External Tariff on import of cement in East Africa is likely to be increased from 25% to 35% that may hurt country’s export.Tracking Opportunity & Risk Related Developments 20% to 1.18. largely in line with its 10-year average decline of 12%. resurfacing 342-km of highways. Similarly.72 in the period under review against Rs. On a monthly basis. Cement manufacturers hope that their sales will increase by 20% when reconstruction gets underway.0.6 M tones in July and August compared with 2 M tons in these two months of last year. 13. down 22% on yearly basis and the largest yearly decline since April 2001. due to Ramazan. Pakistan has one of the lowest ratios 10 . (Daily Times – October 6.275 B in FY10 against Rs. said that quota fixation for every district and underutilization of capacity are the main reasons for the fresh bullish trend in cement prices. Pakistan has about 8. They said that Saudi cement exports are coming to the forefront (following a partial cement export ban removal). Analysts expect demand to pick up post 1HFY11. has approved a credit worth $130 M in additional financing for the Pakistan Highway Rehabilitation Project to continue revitalising and modernising Pakistan's highway system. (Business Recorder – September 30. and reconstructing 128-km of damaged roads that provide vital access to remote and disaster-prone communities. The company's profit before taxation declined to Rs.900 M earned in FY09. albeit slowly. 525.581 M earned in FY09. Despite the restoration of pricing consensus among the cement manufacturers. (Business Recorder – October 20.022 M as compared to Rs. 358. with reversal in the current trend gathering pace from FY12 and beyond as reconstruction activities take shape.776. industry sources told.55 per bag in two months which. However. (Daily Times – October 3. The cost of sales increased to Rs. (Business Recorder – September 18. sales were down 16% as reduced business activity in the month of Ramazan also took its toll. 2010) DGK Cement profit declines Cement prices increased The after-tax profit of D G Khan Cement in the year ended June 30. growing at about 10% annually projected to increase to over 70 M by 2030.12.63 a year back." he said. "Current trend of cement prices may have a negative impact on the government's efforts to build houses for flood affectees.1. A cement trader.9 M tons. another cement trader said that cement manufacturers are operating at 20% capacity and any increase in cement prices reflects collusive behaviour. 2010) IDA approves $130 M credit Cement manufacturers have raised cement prices by Rs. owing to passive domestic demand following the recent flash floods. again. According to the financial results the company's net sales declined to Rs.569 B against Rs. 2010 (FY10) declined to Rs 233. analysts reckon. The project consists of three components: rehabilitating 514-km of highways. (The News – September 7.358 M. 18% lower from the corresponding period last year. unexplored potential in countries like Sri Lanka and Myanmar is expected to be the future growth avenue for local cement companies. 2010) Lowest Cement Exports since Dec 08 Cement sales in September 2010 hit a 21-month low. analysts eyeing a potential decline of 4% in the industry’s volumes in FY11. The board of directors of the company in its meeting declared that the company's EPS declined to Re.16. on a monthly basis. Pakistan cement exports could face pressure in short-term. In this regard. down 16% on yearly basis in the 1Q owing to factors ranging from the recent flash floods to poor law and order situation.8 M vehicles on the road. 2010) Housing Finance to GDP ratio International Development Association. Hence.403 M in FY10 against Rs. may compel the Competition Commission of Pakistan (CCP) to intervene. the local sales have witnessed a bruising start to FY11. However. Local cement exporters are likely to substitute African markets with Far Eastern markets. arriving at 2 M tons. sales were down seven percent. dispatches for 1QFY11 stood at 6. 2010) Pakistan’s Cement exports to suffer Analyst said that Lucky’ export concentration to the Far Eastern nations is 15% of exports while 5% DG Khan Cement exports are dispatched to Sri Lanka.038 B recorded in FY09.

who had recently visited the Diamer Bhasha Dam site.609 units in the same period last fiscal. data showed. Housing loans are normally provided to high-income groups and the share of private financial institutions is quite low.659 units in July.e.176 units from 70. said that dam would be the largest project in the country’s history. the project will also contribute 18 B units of electricity per annum to the national grid. However. has plunged to 40. Pak Suzuki Motors Co Ltd and Honda Atlas Car Pakistan Ltd – have also decided to increase prices from Rs 8.000. has marginally increase its car prices with immediate effect.000 of Honda City effective from September 18”. (The Express Tribune – October 12.561 units in July but its overall sale in July-August rose to 2.” (Business Recorder . he added. “Both the companies. Yamaha sales slightly plunged to 9.Tracking Opportunity & Risk Related Developments of housing finance to gross domestic product (GDP) in the world. Indus Motor Company. It would store 8. the amount has been handed over to deputy commissioner Diamer so as to start the land acquisition process.663 units in September.519 units in the same period last year. according to the data released by Pakistan Automotive Manufacturers Association. sale of Honda bike. (Dawn – September 22. which enjoys big share in rural areas. According to the sources of the Ministry of Water and Power. 2010) Sale of Japanese bikes falls AUTOMOTIVE Car prices increased Due to the unprecedented strengthening of the Yen which is at a 15 year high against major currencies. The report said that in contrast to the impressive growth in the banking sector.155 units in August 2010 from 45. The report said that housing finance is out of the reach of low-income groups and housing finance loans are extremely expensive.1 M-acre feet (MAF) of water and generate 4. 2010) Fund released .408 units from 1. Loans for residential housing and construction amount to less than 1% of the GDP in Pakistan.130 units in the same period of last fiscal. sources added. i.500 MWs of lowcost electricity. prices of all Corolla variants will be increased by Rs 25. “This is despite the fact that the outgoing quarter remained turbulent for manufacturing concerns as both security issues and flood devastation 11 The government has released an amount of Rs. In addition to providing water for agriculture. The ground breaking of WAPDA offices and colonies is expected next month.501 units in August 2010 from 3. while Honda has increased prices by Rs 30.588 units from 10. Suzuki motorcycle sale to 1. Similarly.700 M for the acquisition of land for the mega Diamer Bhasha Dam project as the first installment.000 on different Suzuki models.224 units in July.021 units in July. said an authorized dealer.September 16/Daily Times – September 19.184 units in July.000 per unit on all models of Honda Civic and Rs 35. The sales during July-September period increased to 33. (Daily Times – October 15. Hero bike sales improved to 3. This is in stark contrast to India where the same ratio is seven per cent. however.394 units from 1. The housing finance to GDP ratio is between 50 & 70% in developed countries. .acquisition of Bhasha Dam WAPDA chairman. the overall sale in JulyAugust 2010-11 had swelled to 85.000 while Altis price will be increased by Rs 35. In sharp contrast Habib motorcycle sales in August 2010 rose to 1. Car sales grew by 6% to 11. Pakistan’s housing finance to GDP ratio is as dismal as some of the most underdeveloped countries in the world.955 units from 2. 2010) According to figures released by Pakistan Automotive Manufacturers Association.000 to Rs 15. thus making the imported CKD and even local parts more costly as most of the raw materials are also imported. gave appreciation of yen against rupee as a reason for this increase in prices.496 units against 30. 2010) Cars sale surges by 10pc The sales of cars and light commercial vehicles in the country have increased by 10% during the 1st Q of CFY. according to a World Bank report on housing finance for low-income groups in South Asia.

2% in number and 7. 2010) Telenor Easypaisa transaction crosses Rs. 2010) Rs 4. "We have submitted a feasibility study to Balochistan government and having talks with Provincial government to conclude an agreement which will result in take-off for the project in next four years. it implies an influx of US dollars into the country while for Wateen Telecom it shows shareholders' confidence in the company and its management while supporting the business plan. Qubee committed to provide the customers amazingly reliable services. the mobile banking in Pakistan has gained tremendous popularity among customers with rapid pace as colossal amount of Rs 10 B was transacted through a single cellular operator in a year. reliable and competitively priced broadband internet to residential and small business customers across Pakistan. as compared to 8. Qubee.016 M in July 2010 as compared to $19. as the demand for low-cost multi-purposed Chinese handsets continued to grow. 2010) Injection of over Rs 2. CEO.425 M in July this year.Tracking Opportunity & Risk Related Developments restricted their business operations. 2010) TELECOMMUNICATION Mobile phone import up Import of mobile phones mounted by 100% during July this year.2 B FDI' In its initial stages. depicting an increase of $19. Balochistan will get 25% profit plus royalty and taxes to federal and provincial governments. 2010) E-payments . (Business Recorder – September 14. (Daily Times – October 15. 2 B benchmark. For Pakistan. with its various m-banking services recorded over 6 M transactions carried under its brand “EasyPaisa” by the end of first year. Telenor Pakistan. launched in Karachi early this year. 2010) Electronic payments continued to show a rising trend as both the number and value of such transactions increased in the fourth quarter (AprilJune) of the last 2009-10 FY (FY10). Chagai. (Business Recorder – September 29. respectively showing an increase of 6. (Business Recorder – September 18. Balochistan as a joint venture with Government of Balochistan with initial $3.8 trillion.2 B foreign direct investment over four years. gold mine with 2.2% increase in value in the previous quarter. the subsidiary of Norwegian telecom giant. The 1300cc market leader Indus Motor posted highest sales growth of 13% in the outgoing quarter. according to dealers at Karachi's mobile phone market in Saddar. According to SBP’s 4th Quarterly Report on Retail E-Payments and Paper Based Instruments released. according to official statistics. (Business Recorder – October 13.4 M and Tethyan Copper Company Pakistan plans to operate a world class copper. is the newest entrant in the WiMAX market of Pakistan with an initial investment of more than $70 M and a commitment to bring high speed fast. The volume and value of E-Payments transactions in the country during the 4th Q of FY10 reached to 53. (The Nation – October 8. Qubee said that Qubee has been actively involved in technology up-gradation since its launch in Pakistan.4% increase in number and 8. B OTHER INDUSTRIES 'Rico Diq project to fetch $3.” said an analyst at the Topline Securities. 2010) 12 .7% increase in value.591 M in the same period of last fiscal year 2009.1 B in the Wateen Telecom Limited during past few weeks which is likely to be welcomed warmly by the general public and stock exchanges of Pakistan. The country's import of mobile phones stood at $39. (The News – October 13. Company sources revealed the number of carried transactions has been increasing over a period of time that has reached 1 M in a single month with transacted amount crossed Rs.show rising trend Abu Dhabi Group has injected over Rs 2. dealers said. Import of mobile phones has already outnumbered the country's total import of cellular phones because they are low-priced with high communication features.2 B tons economically mineable reserves by deploying a cutting edge technology at Rico Diq.1 B Qubee invests $70m in broadband sector Qubee is receiving excellent response from its customers in Lahore and twin cities of Islamabad and Rawalpindi where the service has been launched recently.

2.116 M tons.1). HQs USA. The decrease was primarily down to a massive decline in August as a result of the floods. Pakistan and the UAE .000 tons. down 54% YoY. The offtake of DAP fertilizer is expected to decrease by 4. and a Fortune 500 company. The decline has been on account of high DAP price which averaged at Rs.02 euros and 42.000 tons of Dye Ammonium Phosphate (DAP). 44. 2010) Import 230.will face EU import duties of 139.256 M tons of previous season showing a decrease of about 2. The investment will be on the basis of $1 per share.953 per bag during the same period of last year. Fertiliser offtake during August stood at 417. March). down by 14%. it is considered necessary" to launch the new tariffs. the EU's executive Commission said in the EU's official journal. Chairman of Federal 'B' Area Association of Trade and Industry (FBAATI) and Director of Premier Cables. Pakistan and the United Arab Emirates saying the three were illegally subsidizing exports to Europe's growing softdrinks market. The duties are valid for up to 5 years and reflect Europe's concern that EU industry is falling behind oil-rich states with competitive and booming plastics markets.180 M tons against 3. Offtake of other phosphate (TSP/MAP) products may also decrease.3%. CEO Pakistan Cables Corporation said during the signing ceremony. 2010) US Company to invest in Pakistan Cables (Business Recorder – September 30. total fertiliser offtake in January-August 2010 stood at 4. He said that Pakistan managed to secure this tender after beating China and India in quality and price competition. (Daily Times – September 8.9 M tons.000 tons.Tracking Opportunity & Risk Related Developments 14% decline in fertiliser sales The floods also hurt the sale of fertiliser. “The General Cable will invest in Pakistan Cables on long-term basis after which the paid up capital of Pakistan Cables will increase to 28 M shares as compared to 21 M shares currently”. Pakistan has huge potential for export of optic fibre cable.000 tons import of different fertilizers For the first time Pakistan has started export of optic fibre cable to Afghanistan. sources told. The decision means Polyethylene terephthalate from Iran. TSP/MAP to meet the domestic demand for the coming Rabi season 2010-11. has committed to invest in Pakistan Cables by taking up a 25% equity stake in the company business. and cumulative fertiliser offtake has been down by 14% in 8 months of current calendar year. said that Pakistan exported almost 1000 km optic fibre cable to these countries. Official sources claimed the main reasons behind lower demand for urea fertilizer was said to be inundation of a large agricultural area with floodwater and high price of phosphate fertilizers prevailing in both domestic and international market for the last six months. and more orders were in pipeline for export. "In view of the magnitude of the countervailable subsidies found and in the light of the level of the injury caused to the (European) Union's industry.7% to 4. (Daily Times – September 26.used for bottles and food packaging . The urea consumption is projected at 3. 2010) New duties on Pakistan plastics The government will reportedly import 230. he added.7 M tons of last year.520 per bag compared to Rs. 2010) Urea consumption to shrink 27% in Rabi season Pakistan Cables has announced that General Cable Corporation. DAP offtake registered a decline of 53% YoY in January-August to 425. 2010) Pakistan starts optic fibre cable export duties on plastics from Iran.70 euros ($188. the overall off take of all types of urea fertilizer is likely to fall by 2. (Daily Times – September 26.3% over last Rabi 2009-10. and African countries. The import of this urea consists of 100000 tons of DAP in December 2010 and further 100000 tons in January 2011 and total import of DAP for Rabi season is 200 000 tons. and 38% MoM. According to data released by National Fertiliser Development Centre. compared to 5. Moreover the government will import 20 thousands tons of TSP/MAP and 10000 tons of SOP/MOP in October 2010. 2010) $115m for Karachi port project The European Union imposed new In the coming Rabi season (October- The Board of Directors of the World 13 .003 Mtons as compared to last year consumption of 4. (Business Recorder – September 14.34 euros per ton respectively until 2015.1. (Business Recorder – September 29.

he explained. informed CEO of Fauji Akbar Portia Marine Terminals Limited (FAP). (The Express Tribune – October 17. He said export target given by the Ministry of Industries and Production and TDAP for the said period of April 2010 was also missed by $10 M”. Many of these ventures were established with less than Rs 1. could take up to two years to start recovering from devastating summer floods.9 B has already been spent on the terminal facilities. the industry faced around 18-hour production loss on average daily. fully-automated grain and fertiliser terminal of the country at Port Qasim is all set to welcome its first vessel later this month." said a press release.3 M hectares of crops just before the harvest of key products such as rice. of which Rs. “This translated into a heavy loss to the developing export oriented industry to the tune of $21 M in JulySeptember 2010. He said the economic impact of the floods has yet to be fully quantified though it is evident that agriculture sector has been hit hardest.8 M Karachi Port Improvement Project.000 investment.000 small businesses were affected by the devastating floods across the country. commitmentlinked repayment schedule. He said during the last 18 months till September 2010. (Dawn – September 11. maize and sugarcane.Tracking Opportunity & Risk Related Developments Bank has endorsed $115. SMEDA CEO revealed this in a meeting held to discuss rehabilitative steps required to counter post-flood recovery challenges facing the nation amid the worst natural disaster and rehabilitation of small and medium enterprises.5 years. “Improving the efficiency of Pakistan’s trade corridors is a key element of the bank’s support to trade facilitation in the country. 14 The marble exports incurred a loss of . The financial close of the project was in July 2008 whereas physical work started in September-October 2008. The meeting also assured that gas curtailment to the sector would end as soon as gas situation improves. a pillar of the economy. Agriculture may need 2 years for recovery The first of its kind. All Pakistan Marble Mining Processing Industry and Exporters Association (APMMPIEA) said. he added. majority of which were subsistence enterprises with less than 10 employees and an annual turnover below Rs 500. the ADB said. and 28 years maturity including a grace period of 7.400 M a month”. 2010) Pakistan’s agriculture industry.10 B.” said WB Country Director for Pakistan. 2010) Fertiliser subsidy to continue The government will continue giving subsidy to the fertiliser sector in the post flood scenario. 2010) Marble Industry – more than $150m exports loss (Daily Times – October 3. the cargo handling time at this terminal will be a third of what it takes today at other bulk cargo terminals in the country. in an interview. level repayments. The scale of the project meant that a consortium would be required to execute it successfully. "Fertiliser sector will continue (to function) in the post flood scenario since countrywide agriculture productivity depends upon access and affordability of agriculture inputs.500. relying on loans from relatives and the accumulated life savings of these entrepreneurs. AGRICULTURE 310. “The export target set by APMMPIEA is missing by $10 M every month while production loss is being estimated to be Rs. The terminal is capable of handling 4 M tons of dry bulk cargo per annum.” he lamented. The financing is an IBRD flexible loan with fixed-spread. chairman BMG APMMPIEA. The meeting was convened to discuss national fertiliser strategy. and with an average discharge rate of over 1. 2010) Debut of Automated bulk cargo terminal more than $150 M in 18 months (April 2009-Sept 2010) due to power outages and closure of mines. The ADB and the World Bank are assessing the damage caused by one of Pakistan’s worst natural disasters.000 tons per hour. (Business Recorder – October 8.000 small businesses affected by Floods Small and Medium Enterprises Development Authority has estimated that around 310. which destroyed 1. said. The total investment of the project is Rs. This was decided at a meeting presided over by Minister for Industries and Production. 2010) (Business Recorder – September 18. 000.

55 acres of forest land 15 . sheep.Tracking Opportunity & Risk Related Developments “Once the country gets back on its feet.000 animals including buffaloes. (Daily Times – September 3. 2010) Bumper wheat crop likely these areas have the capacity to produce over 2 M tons. whereas About 1 Macres of forest land has been destroyed by floods in the four provinces and Azad Kashmir. “Filling in this gap is a long-term policy issue. while the wheat production in canal irrigated areas would be around 23 M tons.” (Dawn – September 20.50 M was compared the total livestock population 160 Mfigures as per 2006 census was to be relied.starting agricultural activity to reactivate agricultural activity. Initial estimate of this additional demand is Rs. the sources maintained. sources told. said a central banker. Officials said that due to favorable weather conditions Pakistan is in a position to produce about 25 M tons of wheat as compared to 23. (Dawn – September 20. Askari Bank and ZTBL has submitted its report. (Business Recorder – October 16. The Agriculture Finance Committee comprising representatives from NBP.250 B.8 M tons of wheat. camels. a total of 973684.5 M tons. farmers in barani areas managed to produce only 0. Banks will have to extend larger amounts of crop loans at cheaper rates Pakistan is likely to produce another bumper wheat crop during the upcoming Rabi crop season. donkeys. according to a report "Preliminary Assessment of 2010 flood impacts in Pakistan" conducted by Pakistan Agricultural Research Council (PARC). UBL. accounting for over 21% of gross domestic product. told. 2010) Kick .2000 B whereas banks’ lending remains below Rs. Officials maintained last year. The damages to total livestock became 1% if the 0. Final estimate would emerge once the SBP and the federal and provincial governments come up with precise calculations. Banks provide farm loans to about 1.” said the head of an agricultural credit of a large local bank.” he told.4 M growers or one fifth of an estimated seven M potential borrowers. Nearly 62% of the population depends on agriculture for their livelihoods. Farmers estimate cumulative annual demand for crop and agricultural development loans at Rs. particularly in the Rabi sowing season. They said that this year due to soil's better moisture level wheat production in barani areas is expected to reach 2.300 B. Even these figures were yet to be confirmed as decided in a recent meeting in ministry of livestock.000 animals perished Initial estimates of the provinces revealed that the ongoing colossal deluge about 500. This would provide a basis for an immediate agricultural revival package that the central bank may announce shortly. etc are died during the recent colossal deluge. Faysal Bank. ratio of the died animals became just one percent. According to the report available with Business Recorder. mules. “We are thinking within that time horizon we should be able to see the agriculture sector coming back.” DG of ADB’s private sector operations. Agriculture is Pakistan’s second largest sector. 2010) 1 M acres of forest land destroyed The SBP has received input from banks on what needs to be done to facilitate flood-hit growers across the country. goat. the newly-appointed SBP Governor is expected to announce a set of guidelines for concessional agricultural financing in flood-hit areas. Banks should focus now on additional demand for agricultural loans created after the floods. HBL. horses. it will be able to meet part of those agricultural import needs that will happen over the next two years.86 M tons last year. 2010) 500. But bankers say they will also have to build a mechanism for heavier disbursement of development loans to enable flood-hit farmers to buy agricultural implements and inputs and to repair damaged water courses. “Most of small and medium-sized growers have no access to agricultural loans and they borrow from informal sources. officials at Ministry of Food and Agriculture said. Now. The provincial governments were in the process of re-assessment and it would take a little more time before their final figures are tabulated. Bankers say the SBP is devising a concessional agricultural refinance scheme for banks to ensure availability of adequate financing to flood-affected farmers at single–digit interest rates.

accounts for two-thirds of national cereal production (planted on 9.827 acres and Azad Kashmir 2202. irrigation. the United Nations’ food agency said. Extensive water-logging.75 B. found that 1. “Food aid alone will not be enough.” Chief of FAO’s said. Khyber Pakhtunkhwa 46034. FAO is currently focusing on two time-sensitive challenges: (i) meeting the upcoming wheat planting season and (ii) saving livestock. sheep and goats owned by households in the flooded areas would starve if animal feed is not provided urgently. Forest land in about 41 districts across the country has been adversely affected by floods. The estimated loss to the cotton crop in recent flash floods in Punjab and Sindh stands at more than Rs.85 were damaged by the floods. rice. 2010) Immense Losses to agriculture sector likely – loss of 0. livestock.000 farming families and needed additional funding to be able to provide seeds for twice that number. farmland). Near East.6 M hectares of standing maize. followed by Sindh where 14 districts with a %age of 14. Europe and Special Emergencies.6 M tons of wheat stock needed for the wheat planting season – death of 1. the FAO said. Asia.7 acres. completed in half of all the flood-affected districts. Pakistan’s worst floods in decades have damaged 3. followed by Punjab where the recorded loss was 430887. maize.6 M hectares of outstanding crop The FAO said it had completed procurement for the provision of seeds to 200. In Khyber Pakhtunkhwa (KP) forests in 9 districts accounting for 3. the food security of millions will be at risk. citing early estimates. If wheat seeds. said.75 B loss to cotton crop The scale of losses to the agriculture sector in the country caused by the floods is unprecedented and further unfolding. The latest cumulative estimates are as follows: – The Agriculture Cluster rapid damage assessments. cotton. (Business Recorder – September 8.g. This planting season is vital as wheat is Pakistan’s main staple crop. says Food & Agriculture Organisation (FAO). beginning in September/October. orchards and vegetables) appears Pakistan’s next wheat harvest is at risk after floods destroyed more than 0.05 M tons) and provides 60% of the carbohydrate and protein requirement for an average Pakistani. (i) Wheat planting season.3 M hectares of standing crops have been damaged – countrywide damage to millions of hectares of cultivatable land. and 6 M poultry (Department of Livestock). The highest loss was recorded in Sindh where about 494559. silt deposits and damage to irrigation structures mean that work must start now to clear and prepare the soil for planting and to repair water systems for upcoming planting seasons.5-0.5 Mtons of seed stocks in Asia’s third-largest wheat producer. “Unless people get seeds over the next few weeks they will not be able to plant wheat for a year. the Food and Agriculture Organisation said in a statement.Tracking Opportunity & Risk Related Developments was damaged by the current devastating floods triggered by monsoon rains across the country. and may not be able to harvest wheat again until spring 2012. 2010) Damage to 3.” Chief of FAO’s Emergency Operations. Response to needs in the agriculture sector cannot be underestimated nor delayed. according to Pakistan Cotton Ginners Association.78 acres of forest land was destroyed. An estimated 1.25 acres. with the heaviest loss in Punjab with 18 affected districts and an 11. If the next wheat crop is not salvaged.g. Across the country. “The cotton crop in terms of value faced more than 30% of the total losses 16 . cattle.8% of total land area was destroyed while forests in 2 districts of Kashmir suffered damages. (Daily Times – September 4. sugar cane. rice.38% of the total provincial land area.2 M livestock and 6 M poultry were lost in the flooding and over one M buffalo. seed stocks. millions of people have lost their entire means to sustain themselves in the immediate and longer term owing to the destruction/damage of standing crops and means of agricultural production (e. fertilizers and farming tools are not provided rapidly. (The Express Tribune – September 1. cotton and sugar cane. many farmers will miss this year’s wheat planting season. yielding 24. 2010) Rs.05 M hectares in 2009.2 M large and small animals. including standing crops (e.

6 M hectares had been destroyed. The PDA has estimated that indirect losses to the sector stand at Rs. Hence. He said the flood affected around 600.345 M. according to the Federal Bureau of Statistics. The company was able to sell 21k units compared to 18. Hence net revenues for the company improved by 20% to Rs. Rs. He said the country lost about 2.1.644 ringgit ($850) trading break in Kuala Lumpur.890 commercial poultry. 2010) 17 . (The Express Tribune – September 1. Among two listed tractor assemblers. according to the initial surveys conducted. Additionally Rs. It is to be noted that to enhance agri activities government announced many incentives directly related to agriculture sector like removal of sales tax on tractors and Benazir Tractor Scheme. the water still floating in cultivated areas will also hurt the tractor sales in second half of the fiscal year 2010.946 livestock have been killed by the floods while another 437. which showed an increase of 9%.674 ringgit.75 m used for cultivating fodder and animal feed has also been destroyed. Our imports may decline after floods washed away our selling points and imports in July were 147. PDA data informed.86 B have either died or been otherwise affected by the deluge.666 tons.4.1% to 2.ever floods destroyed villages. according to data compiled by the Pakistan Dairy Association. With all these initiatives. Approximately 6.237 animals have been affected. 2010) Tractors sale to hurt 1H2010. buffaloes.8bn last year. highest volumetric growth was witnessed in Millat Tractors. which enjoyed 56% market share. Officials stressed that the numbers are likely to rise even further.9. (Daily Times – September 7. Palm oil has advanced 18% from near an 8 months low on July 7. Futures for November delivery declined 1. Millat Tractor.40. may buy 10% less of the commodity in October and November than in July after the country’s worst.7bn compared to Rs.4k units in same period last year.2 M in poultry feed. Cotton crop had been sown on 3. 2010) Palm-oil imports may drop Livestock losses have reached almost Rs. the highest level since Aug 16. with higher volumetric sales and better margins. the world’s third-biggest importer of palm oil.8% to 2. Industry experts said that tractor sales would likely to decline by 25% in the month of September. Poultry losses have exceeded Rs.000 hectares cotton sowing areas across the country.48.5 M bales to 12. These include deaths of more than 369. the cumulative earnings of both the companies stood higher by 27% during 1H2010. out of which 0. tractor sales have witnessed an increase of 11 percent to 38k units in Pakistan. (Daily Times – September 14. the official spokesperson of the association told. Both these measures provided impetus for additional tractor demand due to lower prices and accessibility to lower income persons.” PCGA Patronin-Chief said.05 M in feed concentrate and Rs. 2010) Rs. Prices jumped 1.5 B in Khyber-Pakhtunkhwa (K-P) due to the havoc wreaked by the recent floods. driven by festival demand in Asia. A severe jolt by this flood has also given a deathblow to the national economy. Along with this.07 M in fodders have been lost.261 domestic poultry The worst-ever flood in the history of the country has almost devastated the basic infrastructure of the country and is still engulfing agricultural lands mostly in Punjab and Sindh. And this trend would keep on at least in the short run.5.11. goats and sheep worth at least Rs. 5 B Livestock losses in KP and 220.4 M hectares. a traders’ group said.5 M bales against the production target of 14. as the figures released are based on initial reports. Cows. (The Nation – September 8. Findings have highlighted that at least 140. witnessed volumetric growth of 13% during 1H2010.50.762 B.Tracking Opportunity & Risk Related Developments to major crops in the recent devastating floods. up by 13% followed by Al-Ghazi.5 M bales in crop season 2010-11.000 hectares of land valued at Rs.

financing will be provided at affordable/concessional markup rates through banks. the Indus River System Authority said that the country might confront a 15% water shortage during the upcoming Rabi season 2010-11 for agriculture purposes as only 34. it said. and tools and by supporting the rehabilitation of land and livestock sector in Pakistan. The export in the same months last year remained $253 M. Pakistan made large palm oil purchases in September. Provisional statistics of export receipts released by the SBP show that the rice exports soared to $360. seafood exports during July stood at $14. 2010) Palm oil imports seen steady Canadian Government announced further support in agriculture sector for those affected by the recent floods in Pakistan. 2010) Rice exports up by 43% surged by 82.690 and in August it increased by 1. attributing the rise to a possible change in the consumption pattern. as traders earn profits on current stocks in a bull-run global market.74 M during the 1st 2 months of FY 2010/11. fertilizers. 2010) SBP launched concessional financing official said. (The News – September 22. The sources said that during the next crop season. experts said.55% during July/August this year amid robust demand in the international markets. According to a circular (SMEFD Circular No 15) issued – under the scheme.25% during the 1st 2 months of the CY against the same period last year. said. (Daily Times – October 6.296 M during July-August (2009/10). in a news release issued here said the contribution responds to agricultural recovery needs by providing seeds.500 M has been allocated to encourage farmers to sow canola in the flood affected areas of the country for the current Rabi season. 2010) Canada to support Pakistan in Agriculture sector Pakistan’s rice exports have registered an increase of 42.700 M against the exports of $16.000-170. 2010) Surge in Seafood exports The SBP has launched a concessional financing and guarantee scheme.Tracking Opportunity & Risk Related Developments Rabi season 2010-11 . The fish and fish preparations during July-August (2010/11) were recorded at $29. Minister of International Cooperation Canada. which will start from next month (October). Indus zone might face up to 20% water shortage. (The News – September 30.044 tons.95% increase over the same month last year. This was revealed during the IRSA technical committee’s meeting at the authority’s office under the chairmanship of IRSA Chairman to review the water availability for Rabi season 2010-11. according to the data released by the Federal Bureau of Statistics. “Buying will not be as good as in September but I think it will remain between 150. while River Chenab and Jehlum will probably deal with 5% water shortage. Canada is providing urgently needed agricultural support to make sure that farmers can recover and 18 The seafood exports from the country Pakistan may buy up to 170.Country may face 15% water shortage With 50 M acre feet (MAF) floodwater gone into the sea due to flaw in the water storage mechanism. so they are buying. when Pakistan imported about 3 M tons of palm oil. “When the market is on a bull-run.000 tons a month in the October-December quarter. Exports of seafood during August witnessed 55. According to the data.” vice chairman of the Pakistan Edible Oil Refiners Association. (The Nation – October 15.18%. “Today. Imports from Malaysia alone stood at 203. Exports in August were recorded at $15. under which an amount of Rs.” He expected overall buying for 2010 to be 10% higher as compared to 2009. everybody is making margins on the current stocks.5 MAF water would be available. a leading industry .625 during August 2009.010 M against the exports of $9.000 tons of palm oil a month in the OctoberDecember quarter. (Daily Times – September 25.

He said at least Rs. allowing these organizations to help meet the humanitarian and early recovery needs associated with the agricultural sector for the current Rabi wheat season. ‘basmati’ and ‘IRRI’ across the country.000 of these will have to be laid off if the government does not rescue the sector.595 per 40 kg in 2010-11 compared with Rs.8 B of microfinance loans were disbursed in those areas which have been adversely affected by the floods.000 borrowers and save another 4. the government has announced intervention prices for ‘super basmati’. to set The recent intervention prices were established by Agriculture Policy Institute (API) – a sub-ordinate department of ministry of food and agriculture. The payments solution will be made available through the banks electronic banking platform. and Development and Peace ($2 M). 2010) Production cost of paddy rises government decides intervention prices.” A total of $11. 2010) 40% of small borrowers are affected Production cost of Paddy (IRRI) in Sindh has increased by 21% to Rs.25 B. sanitation. Straight2Bank. which has been extended to SME customers to help them manage their cash flows through electronic channels. In line with the Bank's SME Banking platform. (Daily Times – October 19. With today’s announcement.” said CEO of the Pakistan Microfinance Network. and coordination and logistics and for the restoration of links to communities cut off by the flooding. These estimates have been provided by the Pakistan Microfinance Network. Through this arrangement Standard Chartered will provide a comprehensive payments and collections solution. if the actual market price is unfavorable for growers – the Recent floods have adversely affected . water. the sources maintained. Our help will also prevent further loss of livestock that is critical to the well-being of farmers in the flooded regions. To safeguard the interest of rice producers. sources told. the government of Canada’s response to the flood relief efforts in Pakistan now totals $52 M. signed an agreement for Small and Medium Enterprises (SME) Cash Management services.Tracking Opportunity & Risk Related Developments plant on their land in time for the critical wheat season currently underway. relief supplies.25 B.000 clients and will result in a write-off of Rs. Standard Chartered SME banking was established as a dedicated business in Pakistan with an aim to meet unique needs of its customers. 19 MICRO BUSINESS & SME SME Cash Management Services Standard Chartered and Oasis Travel. which are synchronized with their Enterprise Resource Planning (ERP) systems. The Bank's SME Banking comprises team of qualified professionals who design and structure financial solutions that fulfil customers' requirements. Rs. health services. He also said that the floods damaged 87 offices of microfinance institutions that will cost Rs. MFIs extend loans on comparatively higher interest rates to clients without collateral. Normally.1 B is required to offset the impact of the written-off loans and to give new loans to affected individuals.5 M will be provided by CIDA from the Pakistan Flood Relief Fund to the UN Food and Agriculture Organisation ($6 M).7 B worth of loans.” said the Chairman of Pakistan Microfinance Network. The network has sought a bailout package from the government and international donors to restore the livelihood of 733. shelter.000 people and 4.5. protection.97 M and the lending portfolio has reached Rs. “Preliminary estimates show that recent floods have affected 733. “The sector employs 11.000 jobs in the microfinance sector.5 M). He said that out of Rs. (Daily Times – October 17. Previous financial contributions were for the provision of emergency food.490/40 kg last year. an umbrella organization for all the microfinance institutions. Save the Children Canada ($3. MFIs’ clients have reached 1.2. 2010) four out of ten borrowers of a small loan which will lead to the writing off of almost 11% of the microfinance institutions’ balance sheets.250 M to revamp. Cash Management is one of the focus areas. (Business Recorder – September 15.

after achieving predefined results. They said that the funding. A senior banker of large a bank said banks could not afford to face further losses as the increasing load of NPLs has already reached to optimum point. (Business Recorder – October 11. NBP and UBL has been downgraded to negative. 2010) deposits and the financial strength of savings of five Pakistani banks has been changed from ‘stable’ to ‘negative’ by Moody’s Investors Service. (The Express Tribune – September 21. they apprised. is subject to certain evaluation to be conducted by Holland government officials.” he said. “We have proposed to the government to create a special fund – Credit Markup Sharing Fund – for totally or partially subsidizing bank loans to the flood-hit businesses as well as to seek foreign donations for providing grants to the affected enterprises. while three are under consideration. the ratings agency has affirmed that the foreign currency deposit ratings of ‘B3/Not-Prime’ assigned to these banks.42 B. available under 40-60 arrangement. “Our support package basically comprises two recommendations. The average loan size is $147 or Rs. open in Pakistan since 2005 with an annual budget of 70 M Euros.SBP The Small and Medium Enterprises Development Authority. Simultaneously.” commented Research Head at InvestCap. So far the reported default in the agriculture sector has reached about Rs. 2010) Reviving SME businesses Holland offers 60% of funding Netherlands has offered up to 60% of funding to Pakistani projects (SMEs) having a maximum cost of 1.2. “The profitability of banks will be affected going forward. 20 FINANCIAL SERVICES Downgraded: ratings of largest banks Outlook on long-term local currency . The long-term outlook of ABL.5 M Euros (Rs.Tracking Opportunity & Risk Related Developments As much as 55% of small loans have been extended to borrowers from rural areas. three projects in chemical industry and dairy sector are underway. The funds are released during the project. Under this programme. The damage assessment in the microfinance sector is based on the estimates of the State Bank of Pakistan (SBP). the federal government and the World Bank. recently proposed to the government fiscal measures for helping smaller enterprises hit by the recent floods.28 B while the total NPLs caused by the flood was around Rs. The SBP in an early estimate had said that NPLs could surge by another Rs. 2010) The flood has changed the trend of NPLs as most of the NPLs are being reported from agriculture sector which may hurt the government’s as well as State Bank’s move to persuade banks for greater participation for the recovery of agriculture sector. is aimed at alleviating poverty and strengthening private sector investment.176.” he summed up. The suggested package has been given to the federal industries ministry for getting the government’s approval.61 M). The suggested package envisages grants and/or interest-free loans to the flood-hit small businesses for rehabilitation. (Dawn – October 11.680 and the average interest rate is 25%. Training of people and Project management. while talking to the members and Senior Vice President of MCCI. machinery). (The Express Tribune – September 3. The officials informed MCCI officebearers that the Private Sector Investment (PSI) programme of Netherland government. About forty-one per cent has been disbursed in the agriculture sector and around a third given out in the trade sector. one project in sports wear in Pakistan has already been completed.” CEO of Smeda told.HBL. especially those extended to small and medium enterprises and to the agriculture sector.50 B due to flood. The offer was renewed by Head of Economic Affairs of Embassy of Netherlands. “Non-performing loans are expected to increase. 2010) NPLs estimate .5 M Euros allows spending on hardware (equipment. Real estate and operational costs excluded. The total funding of 1. MCB.

the listed noninsurance sector posted a decent growth in the bottom line. claimed the bank. he said. The total size of the TFCs. 2010) Merger to buy Citibank Pakistan’s house financing portfolio had been accepted. the solution has to be transformational not transitional. The amount at which the acquisition will take place has not been disclosed.” a senior Bankislami official. in the half-year period ended on June 30. Both companies are rated amongst the best managed companies in the country..7 B people in the world have no access to any formal financial services and if the financial inclusion goals are to be achieved.434 M in the corresponding period of last year.2 21 Around 70% of the population of Pakistan with currently no access to banking facilities will have financial services by 2015 through Easypaisa. “Our Shariah Board has given green signal to the deal. This acquisition will be in line with the principles of shariah.a. who did not want to be named. which may serve as an agent of positive change and a much-awaited good omen for the industry.475 M. President and CEO of Tameer Bank said this while chairing the discussion on Financial Inclusion at the United Nations Private Sector Forum on Millennium Development Goals held recently at the UN Headquarters.460 B. (The News – September 29. 2010) Bank services for all MCB Asset Management and Arif Habib Investments would be merged subject to all regulatory approvals and compliance. Bankislami said in a notice to the Karachi Stock Exchange. Bankislami announced that its offer . 2010) Citibank accepts Bankislami’s offer Engro Corporation announced the launch of Rupiya Certificates with an aim to target retail investors and gather funds to meet expansion requirements of its fertiliser and food businesses.25.31 B (approximately $370 M) between them. 2010. which Engro believes is a good attraction for people who usually invest in long-term National Savings Certificates. said. A MoU was signed in this regard by MCB Bank and Arif Habib Securities recently. which will be available at 11 banks and TCS outlets from Friday with a minimum investment of Rs. (Dawn – October 3.” The size of the Citibank’s housing portfolio is close to Rs. The merger is likely to provide the new entity the requisite critical mass to broaden the reach. The investment income increased by 23% and the general and administration expenses reduced by 2% in the 1st half of 2010 over the same period last year. The joint entity is expected to become the largest private sector asset management company.Tracking Opportunity & Risk Related Developments The NPLs of banking sector witnessed rapid increase especially in the last two years as it jumped by 137% with an addition of Rs. Analysts said that despite a 27% decline in the underwriting results.1 B. 2010) 9% rise in non-life insurance sector profits He said that more than 2.1. There are 415 customers. (The News – October 12. as compared to Rs. the initial offer is worth Rs. "This increase is primarily attributable to higher dividend income and lower provision for impairment during the first half of 2010 and low general and administration expenses". MCB Bank's 1100 branches network in the country would provide wider reach to the various products being offered by the two asset management companies.266 B to a total of Rs. The acquisition will have to wait for regulatory approval by the SBP.4 B. “The deal was delayed because the board took time to ensure that the acquisition meets Islamic banking laws. said. (Business Recorder – October 5. is Rs. Of the total. to Rs. It will bring together rich experience and skill of the two groups in the financial sector. As independent entities MCB AMC and Arif Habib Investments manage approximately Rs. said a statement issued.000. (Business Recorder – September 9. The asset-backed issue of TFCs will be for a period of 3 years offering a return of 14. who will now switch to Islamic mode of banking. and demonstrated visible strength during the severe liquidity crunch and credit crunch of 2008. 2010) Engro launches Rupiya certificates The net profit of the listed non-life insurance companies increased by 9%. analyst at JS Global Capital.5% p.

2% (70.7%. The Report pointed out that the banking system witnessed a letup in the inflow of fresh non-performing loans (NPLs) during the quarter under review that has been a leading challenge for the last two years or so. According to SBP’s Quarterly Performance Review of the Banking System for the quarter ended on June 30. 2010 regarding the subject SBP said in this connection it is advised that the federal government has included the entire textile sector of Khyber 22 . start-up and operation stages of the project. 2010) (G-1).8 % (4.2% in March-10).4% in the January-March quarter of FY10. which was adequately covered by loan loss provisioning.6 % to Rs. Security Package and Project Insurance (G-2) besides Regulatory Compliance (G-3). interbank lending. (The Express Tribune – October 15. 2010) Islamic banks grasp 6. payment of markup rate subsidy on business loans to textile sector for the period from January 1. Guidelines broadly cover areas such as Credit Appraisal SBP directed all banks and DFIs to ensure fiscal relief to rehabilitate the economic life in Khyber Pakhtunkhwa. banks/DFIs have been advised to use the guidelines for developing products for financing to infrastructure sectors according to their policy and operational and market requirements.1% at the end of June 2010 from 5. project insurance and regulatory compliance. the increase in asset base of the banking system.September 7.774 B in January-March quarter of FY10.6. According to a Circular issued by SBP.4. 2010. This was revealed in a circular issued by the SBP.782 B during April-June quarter of the 2009-2010 FY (FY10) compared with a contraction of 1.Tracking Opportunity & Risk Related Developments B with a green shoe option of another Rs. Banking industry’s deposits rose to The SBP issued revised guidelines for Infrastructure Project Finance to facilitate banks and development finance institutions (DFIs) in providing financing solutions to infrastructure projects in the country.460 B in April-June 2010 quarter (Rs. The guidelines cover areas such as credit appraisal. collateral arrangements. The SBP in its recent report noted that Islamic banking continued to flourish and increased its share in banking system to 6. 2010) Markup rate subsidy REGULATORY Infrastructure project finance Pakistan’s banking industry witnessed a 5. government papers and public sector commodity finance.1% in June 2009. mainly occurred in banks’ balances. The NPLs of banks registered a marginal growth of 0. security packages.457 B in March-10) as compared to last two years’ average quarterly growth of 9.128 B in April-June quarter compared with overall deposits of Rs.1% market share Rs 5. Collateral Arrangements.9% in March10) and net NPLs to Loans ratio declined to 3. construction.2 B. Due to contained increase in NPLs. 2010 to June 30. (Daily Times – October 7. (Dawn – October 11. the provision coverage ratio of NPLs improved to 73. 2010. which was well supported by growth in deposits. 2010) Banking industry’s asset base grown Revised guidelines for infrastructure project financing for banks and development financial institutions (DFIs) have been issued by the SBP. FATA and PATA.” said the report. (The Express Tribune . The Islamic banking witnessed a double digit growth in assets during the 2nd Q (May-June) 2010 despite the fact that a couple of Islamic banks went through consolidation phase affecting the Islamic banking activities. subject to compliance with relevant SBP regulations. The salient features of the revised guidelines include the requirement for establishing a mechanism for generating feasibility reports and assessing risk mitigation means in the development. 2010) New guidelines issued by State Bank Islamic banking institutions have improved their market share in the country’s banking industry despite prevailing of a depressive economic situation. Referring to SMEFD circular 11 July 1. etc.4% growth in its asset base to Rs. (Business Recorder – September 7.

2010. adding that this was by no means an acceptable situation. The target set in the budget was 4.1%. (Daily Times – September 8. These ratings must fulfil all requirements. (Business Recorder – September 16. downgrade and withdrawals) for accurate Capital Adequacy Ratio reporting. according to BSD Circular No 5 of October 5. as a percentage of GDP. In this regard. The SECP would also incorporate the viewpoint of the stakeholders to incorporate viable proposals to ensure protection to the investors and minimise risk to the market.2% in the preceding year. (Dawn – September 9.Tracking Opportunity & Risk Related Developments Pakhtunkhwa in Prime Minister’s fiscal relief package for FATA/PATA/ Khyber Pakhtunkhwa. The amendments are being notified in the official gazette to solicit public opinion as required under sub-section (1) of Section 506 of the Companies Ordinance. compared to 1. 2010 would be amended to allow the concept of Margin Trading System.6% y-o-y rise in its food component. 2010) Banks-DFIs to use only recognized ECAIs solicited ratings In a circular issued the SBP said that banks can charge a maximum margin of 1% on financing facilities provided to exporters. Securities Lending and Borrowing and Pledging) Rules. The report said the total public debt and liabilities had substantially 23 The SBP has said that banks/DFIs would be allowed to use only solicited ratings assigned by recognized external credit assessment institutions (ECAIs) for the purpose of capital adequacy with immediate effect. 2010) Rate of Refinance up The Securities and Exchange Commission of Pakistan has reviewed and amended the Companies (Issue of Capital) Rules. were almost equal to the combined total for health and education.5-14.5%.5% and fiscal and current account deficits at 5-6% and 3-4% of the GDP. Securities Lending The SBP revised the refinance rate under the Export Finance Scheme. 1984 (the Ordinance). 1996. 2010) Guidelines to comply Anti-Harassment Law The SBP has issued instructions to all the banks to comply with the ‘Protection Against Harassment of Women at Work Place Act 2010’ displaying the Code of Conduct within their premises. (Business Recorder – October 6. these expenditures. and all ratings used should be publicly disclosed by the ECAIs along with its history. The banks are also directed to form specific committees to address these complaints and ensure conducive environment for working women.5%. The new rate will take effect from October 1. it said. . The SECP has approved the concept of the MTS in a meeting held at the commission. 2010) MACRO ENVIRONMENT SBP projects 2-3% growth The SBP has predicted 2-3% GDP growth in the CFY despite severe flood losses. (Daily Times – September 1.” it said. The previous refinance rate was 8. banks/DFIs should have mechanism to monitor changes in ratings (upgrade. The rating agency should have reviewed/assigned the rating within previous 15 months. the SECP has also decided to amend the draft Securities (Margin Financing. It projected an average annual inflation in FY11 at 13. The draft Securities (Margin Financing. A 10.7% growth in subsidies and losses of public sector enterprises was particularly disappointing. increasing it by 50 bps to 9% per annum. 2010. The bank’s annual report for 2009-10 issued said there was a noticeable improvement in macroeconomic indicators during FY10 with the economy growing at 4. (The Express Tribune – October 1. The report said the impact of floods had strengthened inflationary expectations and the August CPI showed a 15. 2010) More risk mitigating measures added The Securities and Exchange Commission of Pakistan has approved the concept of Margin Trading System (MTS) with additional risk mitigating measures. 2010) Issue of capital rules and Borrowing and Pledging) Rules. “In FY10. In addition.

showing 14. 2010) Fiscal deficit reaches 6.8 trillion with 20. US and Europe were directly responsible for less than 15% of Asian economies’ export growth in H1-2010 (with the exception of China and the Philippines).3. adding that GDP growth was unlikely to exceed 2. Official figures released here on Friday by the federal bureau of statistics (FBS) showed that import bill increased by 19. The last FY was much better for Pakistan as external deficit fell by 63% to $3. the government’s heavy budgetary In 2010. reflecting poor performance of economy on external front while signaling a red alert for the ailing economy. The fiscal deficit has reached a record Rs.5%. Exports grew by 16. 2010 against $7. (Dawn – October 11.7% seen last year.27% in 1st 3 months of the CFY to a larger than expected $3. Prior to the disaster. 2010) CA deficit widens by 48% borrowing by the banking sources to meet inflation-hit public expenditures also swelled the size of fiscal deficit to a great extent in FY10. The government earlier had targeted GDP growth of 4. compared to 5. respectively.5% this year as massive summer floods push up prices for food and other staples. He said nearly 20 Mpeople have been displaced. 2010) Economy hit by flood Current account deficit of the country rose sharply by 48% during the 1st 2 months of the new fiscal. The heavy floods in the Indus River resulting from monsoon rains have caused widespread damage to the economy.14.Tracking Opportunity & Risk Related Developments increased from 68.586 B last year.3pc in FY10 Inflation in Pakistan is expected to accelerate to 13. Asian export recovery has been largely driven by intra-regional trade with the US and Europe.2% increase while expenditure recorded at Rs.5% surge during the entire course of FY10.5 B and $10.25%.930 B or Rs. (Dawn – September 21.” the IMF said. “The economic outlook has deteriorated sharply as a result of the floods. with losses estimated at $4 B (2% of GDP). The trade gap ballooned as imports . GDP < 2.5%.261 B in the FY 2008-09. the IMF had projected average inflation for the current 2010/11 FY at 11. floods have hit economy hard.3 % of GDP.1%.5% this year.8 trillion. while exports and imports were likely to be $20 B to $21 B and $34 B to $35 B. 24 Pakistan’s trade deficit widened by a robust 22.668 B of GDP during July-June FY10.029 B in July-Sept. economist of Standard Chartered Bank Pakistan said. analyst said. 2010) IMF: Inflation 13.148 B last year mainly due to rising furnace oil imports used in power generation. (The Nation – September 1. (Dawn – October 26. making limited contributions.7% of GDP in FY09 to 69.02% to $9. The Ministry of Finance reported that the government has collected total revenues of Rs. slightly below the 11. (Dawn – September 22.850 B against $3.5 B.5%. making this one of the worst natural disasters in history. The rise in deficit appears to go up during next months as the country will start to import more oil and food items for bridging the domestic shortfall in power and farm produce.179 B in the 1st Q of 2010 against $4. It projected that workers’ remittances were likely to stay between $9. In Pakistan.2.75% rose at a faster clip than exports during the months (July-Sept) under review after a slight narrowing in deficit in previous months.437 billion last year. whereas the IMF expected it at 4. The SBP reported that external deficit during July-August of the CFY reached $944 M against $635 M during the corresponding period of last year. high current expenditures and shortfalls in projected external financing. The higher growth in the government’s fiscal deficit is attributed to low tax revenues.2% in FY 2008-09 and higher than the revised FY10 fiscal deficit target of 5. 2010) Trade gap widens Pakistan’s fiscal deficit for the FY 200910 (July-June) is reported to have soared by 6.7% to $5.495 B against the deficit of $9. Similarly.75% this FY year. the IMF said in its country report.

over 2. Damages: The floods have damaged public infrastructure. Initial estimates suggest that total loss in the province by flood was Rs. 2010) Flood losses at $9. The Ministry of Food.000 tons.500MW disrupted due to damage to power plants.8 B.5 B (over Rs800 B) in recent floods. He said that over 7274 villages and 43 towns have been inundated. and the bad news is that it might not be able to even plant the 'Rabbi' crops in standing water. He said that the government has to take decision for import of essential commodities to avert their shortage due to losses to crops by the floods.103 B.5 B the damage caused by floods. and another $ 450 M in losses in the livestock sector. exacerbating the existing energy crisis and further stalling growth.8 B loss on account of damage to various sectors of the economy. followed by Punjab Rs. The country expects a significant slowdown in GDP growth in FY11 (ends June 2011) and lower growth forecast to 2. after the government missed key performance targets in areas including the fiscal deficit. according to the National Disaster Management Agency.5% from 4. infrastructure and public and private property in the four provinces and Fata.88 B with Rs. versus earlier forecast of 12%.5 B. According to the report. Livestock sector suffered a loss of Rs. depending on the extent of the damage and the measures taken by the government to reconstruct and rebuild the affected areas. with supply of 1. Agriculture and Livestock estimates losses to the agriculture sector at $ 2. IMF role: Relations with the IMF hit a roadblock in June 2010.446. Sources in the planning commission said the report had only highlighted . Khyber Pakhtunkhwa Rs.000 watersupply facilities have been damaged. with road links cut off. the details will be known only after the completion of a damage assessment report jointly initiated by the World Bank and the Asian Development Bank (ADB).l4 B on account 25 A preliminary Damage Need Assessment (DNA) report prepared by the World Bank and Asian Development Bank says that Pakistan suffered a loss of about $9.2 M acres of cropland is under water. 175 health centres and 1. "We will not be able to plant rabbi crops because the water which reached the province after causing devastation in Khyber Pakhtoonkhwa and Punjab is not receding at the normal pace as the slope of fields is not towards the sea". Individuals. he added. The power infrastructure has also been badly damaged.428 B. Agriculture analyst said the floods have caused widespread damage to the standing crop. Sindh suffered the maximum damage amounting to around Rs350 billion. Losses to the economy are estimated at close to $4 B (2% of GDP). leaving most of the affected households without shelter.5%.11. in terms of damaged crops. severely hampering supply of essential food commodities to villages and towns.25 M houses have been completely destroyed.1% in FY10.500 schools.000.4 46. However.8 B losses to Sindh Sindh has suffered Rs. due in October. but the reconstruction of infrastructure again and compensation to be paid to people who had lost their sources of livelihood would cast between $25 B to $30 B.55 B and Fata Rs. More than 2.000 bridges and more than 400 km of road infrastructure have been destroyed. and might remain in the cropping areas for quite some time" said by advisor to Sindh chief minister for planning and development. the backbone of the economy. Balochistan Rs. 2010) Rs. with nearly 30% of cultivable land destroyed by the flooding. (Daily Times – September 9.253 B. (Dawn – October 13.122. it said.Tracking Opportunity & Risk Related Developments Nearly 1. this would follow growth of 4. borrowing from the central bank and implementation of the value added tax (VAT). he informed.446. "The situation is that water is not receding in the affected areas of the province. he maintained.1 B in agriculture sector on account of damage to crops over 3. It is expected FY11 inflation to jump sharply to 15%. The National Highway Authority estimates nearly 1. while over 300 rice and other mills have so far been damaged. power stations shut down. suffered losses of crops and livestock to the tune of Rs. and gas and petroleum supplies suspended.

Rs.600 units was estimated at Rs. The information showed that Pakistan exported food items worth $547 M during the two months against $425 M during the corresponding period of last year. (Business Recorder – September 18. depicting an increase of $113 M.3 B because of damage to 1.52 B.5 B following destruction 8. 2010) 40.37. Developing Asia’s robust recovery from the global crisis is gaining further momentum.Tracking Opportunity & Risk Related Developments of 200. Portfolio investment mounted to $95. irrigation Rs.134. reconstruction and rehabilitation activities will subsequently have a positive impact on the GDP.40 B to municipal infrastructure as 43 towns have been affected with a loss of Rs. shortages of goods and services—even with rapidly rampedup imports—are expected to put substantial upward pressure on prices. The SBP said that the country's services sector trade deficit was gradually rising and overall imports and deficit are on surge. with a drop of 50. the economic impact will be heavily negative in the short-run. such that tepid gross domestic product (GDP) growth of 2. Export of Services trade mounted by 5% or $27 M to $589 M in 1st 2 months of CFY relative to $562 M in same period of last FY. 2010) Rise in food items export Asian Development Outlook 2010 Update The impact on Pakistan’s economic prospects of the massive flooding that began in early August 2010 is difficult to quantify.9. However.1% decline in foreign investment Services trade deficit posted an increase of 18% during the 1st 2 months of the CFY mainly due to high imports followed by rising payments on account of transportation.4 M.6 B. Services sector posted a deficit of $567 M in July-August of CFY as compared to $481 M in corresponding period of last FY. portfolio investment. (Business Recorder – September 26. The ADO Update on Pakistan said that the picture should also be a little clearer when an international donors’ conference is held in late November. According to SBP major decline took place in FDI. however. or $173.2%. imports under services sector registered an increase of 11% due to high payments on account of transportation. Economists said that increasing deficit and imports of services sector is a matter concern.2. damage to infrastructure. depicting an increase of 17.4 M in same period of last FY. as 100 health centres have been damaged. compared to the same period of last year. the likelihood of delayed sowing of crops in the upcoming season and. travel services. travel and government services. 2010) . Losses in crops and livestock.000 animals. while in health sector the loss was estimated at Rs. Nevertheless. royalties and government sector. and policy makers should take some steps to check the reason of poor performance of this sector. 2010) 18% rise in services sector deficit posted August of FY 2010-11 as compared to $1. or 40.5% is expected in FY 2011. and Rs.87% or $86 M. in the following season will create shortages of food and other commodities while 26 The flood-hit and food starved Pakistan exported 29% more food items during the last few months. due to extensive damage and reallocation of resources to cater to urgent needs.000 km roads. Moreover. and limited economic activity in a large part of the country will dampen growth prospects in virtually every sector. insurance. the ADB says in its annual flagship economic publication Asian Development Outlook (ADO) 2010 Update released.1% or $34. to $267 M during July-August of CFY against $405.10 B to government buildings.26. potentially. Total loss to the housing sector was Rs.6 M in 1st 2 months of CFY against $60. to $171. technical fee. registered a surge of 57.1%. Total loss to the education on account of damage to 4.9 M in same period of last fiscal year.156 B in July- The SBP said that foreign investment posted a decrease of $138.043 B in corresponding period of FY 2009-10. Services sector imports stood at $1.15 M in the corresponding period of last FY 2010. Similarly. mainly in stocks.000 houses.7 M.021. As the major transportation arteries of the country have been severely damaged.4 M as compared to $344. (Business Recorder – September 8. (Dawn – September 23.5.1 M.

This update projects average inflation in FY 2011 at 13%. (Dawn – September 30. Still. The budget for FY 2011 also called for an aggressive 45% reduction in total subsidies. In this context. 2010) Export to Malaysia increased The SBP once again increased the policy interest rate by 50 bps. 2010 to improve revenue. relative to the budget posted for FY 2011. is expected to be higher than the eight percent forecast in April’s ADO 2010 Update. Revenue measures are more urgent in view of the massive reconstruction requirements.5%. it will need to make substantial efforts to keep demand for credit from exacerbating inflation pressures. External support in response to floodrelated damage will contribute to higher increases in development spending with the magnitude of the increase for FY2011.2% in July to August 2010. investment spending was reprioritized to secure more timely completion of key ongoing projects in the areas of transportation. “Highly provisional estimates suggest that economic growth for FY11 could come down to 2. widening the fiscal deficit from the targeted 4%. the SBP increased the discount rate to 13. Flood-related damage and social safety net requirements will necessarily impact the expected deficit for FY 2011. as it was recorded at $986 M in July 2010 against $802 M in the same month of 2009.5%. Inflation. therefore the Government and textile stakeholders should import cotton bales in time. These lower subsidies would require efficiency measures that produce saving equivalent to the 30–40% increase in tariffs that would otherwise be required to meet cost recovery. are expected to remain strong.5% of the GDP to 4. over the same period the previous year. Pressures on the current account will also intensify in FY 2011.3% of the GDP.5 M bales of cotton in the current fiscal year. Moreover. If substantial grant aid is provided for relief. 2010) Export target linked with cotton bales import Sources in All Pakistan Textile Mills Association said that the country would face a shortfall of 4 to 4. The Government has fixed the annual textile export target at $ 14b for the CFY 2010-11 under the 5 years textile policy. include a 1% increase in the goods and services tax to 17%. which increased by 13.5% from an earlier target of 4. among other factors. (Daily Times – September 29. The SBP in its monetary policy for FY 2011 projected inflation at 11 to 12% (higher than the federal government target of 9. as are improvements in revenue administration and collection. to be determined also by the absorptive capacity of the economy. The textile export showed a healthy growth of 23pc in the first month (July) of the current fiscal year.” the SBP said. because of fears of higher government borrowing and inflation and lower economic growth and revenue during the CFY. which could lift tax revenue by 20%. The statement said the recent catastrophic floods had serious implications for macroeconomic stability and growth prospects. for the most part induced by supply-side constraints. 2010) Discount rate raised According to a Monetary Policy Statement issued. it will be even more important to address trends that were troublesome for the FY 2010 outturn. including a 67% reduction in allocations to cover electricity tariff differentials. otherwise it would not be possible to achieve the annual textile export target set for the year 2010-11. reforms to that tax from October 1. The FY 2011 budget targets a rise in federal government public sector development spending of about one third relative to the FY 2010 outturn. (The Nation – September 4. Specific tax measures included in the FY 2011 budget. while the central bank will find it difficult to fully implement its earlier monetary stance in the present circumstances. hydropower.5%). Also. Flood-related expenditure will also alter the fiscal outcome. the deterioration in the current account deficit may be limited to 4. taking outlays up from 3.4% in FY 2011.Tracking Opportunity & Risk Related Developments undermining farmers’ incomes. Additional revenue measures are being formulated to generate revenue for relief and reconstruction. workers’ remittances. and water. Pakistan's exports to Malaysia recorded a healthy increase of 81% with exports of RM 352 M in the 1st 6 months of this year as compared to 27 .

91% to $589 M during the 1st 2 months (July-August) of CFY compared to $561 M in the same period of last year. it was sufficient to move Pakistan from 101st to 123rd place among 139 nations ranked by the WEF. the reform programme envisaged a $400 M funding to support a second generation of capital market reforms. while only 35 (28.150 B in additional revenue to the exchequer.Tracking Opportunity & Risk Related Developments RM 194 M in the corresponding period of 2009 with rice and onion being the biggest contributors. Of the 123 countries with economic freedom rankings dating back to 1980. In the same way. 2010) Release of $200m by ADB The World Economic Forum has revised downward the Pakistan’s global competitiveness ranking from 101 in the world to 123rd place among 139 nations.05 out of 10.5%) saw their rankings decrease. The Asian Development Bank has decided to stop or abandon problematic projects and divert up to 28 . (Business Recorder – September 22. and yield about Rs. (Dawn – September 30. 2010) GST to cause price hike of 15-17% According to provisional statistics on services trade released by SBP. The USA fell two places to the 4th position. (Dawn – September 21. released by the Alternate Solutions Institute.50 this year. says the report.58 in 2009 to 3.2 M from $313. Pakistan’s score dropped from 3.5%) recorded increase. exports of services on month-on-month basis. building on key achievements made under the capital market development programme (CMDP) and financial (non-bank) markets and governance programme (FMGP). says a new study released. 2010) Services exports up 4. While this is a relatively modest decrease in numeric terms. Pakistan’s export earnings in services trade have slightly augmented by 4. According to the latest data obtained from Malaysian Trade Development Authority (MARTRADE) by Pakistan High Commission in Kuala Lumpur. 2010) Pakistan falls 22 places to 123 According to the Economic Freedom of the World: 2010 Annual Report. Pakistan’s score declined this year to 5. which were currently exempted from general sales tax. stood at $305. According to Global Competitiveness Report.80 from 5. the bank said in a document.95 in 2009. 2010) Trade finance programme The level of economic freedom in Pakistan dropped as its index ranking deteriorated to the 118th place from the 110th last year among 141 countries.91pc The Asian Development Bank has released the 2nd tranche worth $200 M of its “second generation of capital market reforms programme” early this month to the Ministry of Economic Affairs and Statistics of Pakistan after the bank found status of covenants of the first tranche satisfactory. would be brought under the RGST net. Switzerland retains the top overall ranking in the Global Competitiveness Report of 2010-2011. the rice made up more than half of the total exports with an export of RM 188 M compared to RM 46 M of last year registered a robust growth of 307%. (The Nation – September 22. 2010) Pakistan’s economic freedom ranking falls The withdrawal of exemptions under the proposed reformed general sales tax (RGST) early next month is estimated to increase prices of over 122 major categories. Hong Kong maintains the highest level of economic freedom worldwide with a score of 9. services exports saw an increase of $28 M in the overall volume of trade services exports largely on account of improvement in receipts under government services and higher proceeds from transportation business during the period under review. depending on the tax rate to be decided by the federal government. According to details issued by the ADB. including food items. overtaken by Sweden (2nd) and Singapore (3rd). A senior official told Dawn that preliminary estimates suggest that about 22 categories in the food group and agriculture. by 15-17%. (The News – September 14. (Daily Times – September 10.1 M in the reported months of prevailing FY. 88 (71.

He said that with a view to promote exports and encourage exporters in this regard no tax would be imposed on any export good. The E&P sector led the sector's earnings growth with a higher than expected growth of 49% on yearly basis in its profitability.1 M during the 1st Q of the CFY as compared to $636. as compared to Rs. inventory losses and higher tax expense negatively affected oil marketing companies' performance. The central bank said that net foreign investment comprising foreign direct investment (FDI) and portfolio investment had continuously weakened and net foreign investment registered a decline of $181 M during the 1st 3 months (July-Sep) of FY 2010-11. the power sector considering our sample. According to statistics. while major decline was in portfolio investment. as its profits jumped 76% on yearly basis.60. Fertiliser sector performed admirably during the 2nd Q of 2010 on the back of higher urea and DAP prices. said Federal Board of Revenue Chairman. Refinery sector profits experienced a slight breather as GRMs during the second quarter of 2010 recovered slightly. Despite the fact that KAPCO's profitability fell 8% in the 2nd Q of 2010. rising by an impressive 34% in the 2nd Q of 2010. 2010) Corporate sector profitability The government will not impose any tax on any exportable good. which are either slow-moving or problematic and could be shelved for a better cause.1 M in the same period of last FY 2009.741 B recorded in the corresponding period last year.5%. 2010) Zero rated Export Net foreign investment posted a decline of 28% during the 1st Q of the CFY. 2010) IDB approves $772.Tracking Opportunity & Risk Related Developments $1. (The Express Tribune – September 20.5% during the period. Islamic Development Bank has approved financing of new development projects worth $772.132 B in the 2nd Q (April-June) of 2010. Analyzing the banking sector's profitability based on sample of 9 banks.” he said. net foreign investment decreased to $455. Auto sector's positive momentum continued in the 2nd Q of 2010. “Exporters should keep this in mind that all export will remain always zero-rated and there should be no confusion in this regard. With current decline. According to sources. PTCL's profitability fell to 26% during the 2nd Q of 2010 deteriorated mainly owing to exceptionally high marketing expenses incurred. the bank has handed over a list of around 30 projects to the government. The Manila-based donor agency informed government officials of its decision.5 B from these sources to launching rehabilitation projects in flood-affected areas. (Business Recorder – October 16. Despite robust furnace oil sales. (Business Recorder – October 2. (The Nation – October 6. The financing was endorsed at the bank’s Board of Executive Directors meeting chaired by IDB President. Lower cement prices due to disagreement in on pricing amongst manufacturers led to the downfall of the cement companies during the 2nd Q of 2010. which includes KAPCO and HUBCO. 2010) Decline in foreign investment According to a research report of a team of analysts at JS Global Capital Limited the total profitability of the sample companies of the corporate sector has increased to Rs. registered a y-o-y growth of 14%. mainly due to low portfolio investment.3 M for its member states including Pakistan – and $90-M leasing for Uch II power expansion project. The financing includes $167.44. FDI posted a decrease of 9. recording a negative earnings growth of 24% during the 2nd Q of 2010.2 M for Reconstruction & Upgrading of M39 29 . shown a 24% y-o-y growth in the 2nd Q of CY. which stood at 67. compared to the corresponding period last year.3 M The corporate sector profitability continued to register an upward trend. Textile analysis indicates notable earnings growth in the 2nd Q of 2010 for the textile sector at large.

as compared with $806.09% lubricating oil 9. production of TV sets was up 26. signaling the improving conditions in this key sector of the economy.73 M plus $6. $80 M for Algadarif Water Supply Project – Sudan. though there will be no tariff cuts on Pakistan's main product . In Food group. Production of cotton yarn and cotton cloth dropped 12. The scheme. Ministry of Industries index registered a 1. which otherwise remained under stress throughout the past fiscal when it recorded big falls in its production.17 M during the same corresponding period of the last FY.26 percent.05% in the 1st month of CFY.66% trucks 14.05 % in CFY Jeans. (Daily Times – October 7. The production of buses was down 41. Islamabad has agreed to take back illegal migrants returned by EU states.Turkmenistan. production of tractors was higher by 15.94% and 3.06 M was sent home by overseas Pakistanis. Production of cement was down 4. vegetable oil production moved up 2.bed linen . $140 M for Padma Multipurpose Bridge Project – Bangladesh.18%. Quality Improvement of Semarang State University Project .Tracking Opportunity & Risk Related Developments road in Surkhandarya region – Uzbekistan.Indonesia. Most of the trade concessions will be on textile exports.83% and pig iron 1.3 B) in Pakistani goods allowed into the European Union duty-free from next year under EU plans for trade assistance to the flood-hit country. Ministry of Industries & Provincial Bureau of Statistics – indexes of LSM. boosting sales by about 100 M euros.40 M loan for Development.40% cooking oil 20. (Daily Times – October 1. slippers and truffles will be among 900 M euros ($1.09% LCVs 29. which indicated an across-the-board recovery in this sector.5% 3. $15.36% wheat & grain milling 6. Production of paper & board was higher by 22.86%. registering an increase of 13. During the month of July 2010-11.13 M plus $13.87%.23% diesel oil 24." EU trade chief told reporters.10 M as compared to $777. 2010) Major trade boost Remittances sent home by overseas Pakistanis continued to show a rising trend as an amount of $2.12% and motorcycles 12.64% etc. 2010) Remittances up 13. motor spirits production rose 11.12 M received in the same month last year.49% high-speed diesel 8. showing an increase of $314.69% coke 18. up 14.A. The breakup of different sectors shows that in petroleum sector.27% furnace oil 1. Federal Bureau of Statistics reported.06% kerosene oil 20.05% respectively.5%.39%. an amount of $922.77% LPG 6.. 2010) LSM up 3.5% over the same period last FY. The growth was seen in all the three – OCAC. In automobile sector.31% refrigerators 38. OCAC index posted 5. The monthly average remittances for the July-September 2010 period comes to $882. while at the same time taking into account sensitivities of EU industries.05% whereas production of deep freezers and air conditioners was down 18. In September 2010.61%. (Business Recorder – October 12.because of EU industry opposition.646 B was received in the first quarter (JulySeptember) of the CFY. "This proposal will offer a real boost to Pakistan's economic recovery. In electronics goods.29% jeeps & cars 45. In parallel.8 M or 13.67%. The plan 30 Large Scale Manufacturing was up . $136 M plus $10 M (under terms and conditions of Jeddah Declaration) plus $6 M Loan plus $45 M T.46% growth and provincial BoS index was up 5.63% and glass plates & sheets 13. The production of blended tea was down 8.64 M installment sale for Construction and Equipping of new Dental Care Project . The move is meant to help Pakistan recover from devastating floods and maintain political stability.56% and solvent naphtha 41.09% respectively.94 M.04%.01%. unveiled will suspend tariffs on 75 types of Pakistani-made goods which account for about 27% of exports to the EU.05% starch & its products 17. grant for Integrated Community Driven Development Phase-II Project – Indonesia. $25.82% soda ash 12.91 M installment sale plus $3. The production of jet fuel oil decreased 7.29% and 32.38% or $115.

1 B – each of them with record highs. Ambassador. After Dubai. 2010) NCEL grows 654% in Q1 have witnessed above $100 B capital outflow from the country in the 1st half of current calendar year 2010 amid fragile economy and lack of investment opportunities.31. During September 2010. the investors seem unwilling to invest here and they have been transferring their assets and capital to foreign countries since the beginning of this year. and KPK $65. 2010) Over $100B flew out The British Oxygen. Stabilization and Humanitarian Assistance FATA $111.156." said Ambassador. and reluctance of domestic and foreign investors to invest into the equity and real estate markets. “This represents a growth of 654% and 63% respectively”.74 B.6.762.712.711. he said. During the first quarter (July-Sept) of FY 2010-11 NCEL’s total traded volume increased to Rs. (Business Recorder – October 8.825.2 B. Economic Growth. The total amount of $831 M for this agreement is divided as follows: Social Sector Health $130. he added. Economic Opportunity $144. 31 The local capital and money markets US and Pakistan signed a five-year partnership agreement under which $831 M will be utilised on various .493. Sources said despite record-high remittances and large foreign exchange aid flow.454.51. it was Rs. EU officials said they hope for full approval by January. US Co-ordinator for Economic and Development Assistance said that the agreement was an important element in the implementation of the Kerry-LugarBerman Bill. chairman NCEL said. has started construction in Sunder Industrial Estate (SIE) on a five-acre plot recently allotted to them. It must be approved by EU governments.2 B Trading volumes at National Commodity Exchange Limited (NCEL) show a growth of 654% in the 1st Q of FY 2010-11. US sign $831 M partnership agreement programmes in key sectors. (Business Recorder – October 1. these countries are new destinations and safe heavens for the investors due to providing many initiatives and exemptions for the investors with regard to investment and regulatory environment.25 B and average daily volume was more than Rs. 2010) Investment of Rs. slowdown in FDI. Bangladesh. Sources told that the phenomenon of flight of capital has once again appeared on the economic scene of the country mainly because of exchange rate depreciation. transparent and accountable manner. While addressing the signing ceremony. Malaysia and Kuwait the said amount of foreign exchange is being transferred to Bangladesh.000 workers. Singapore and Hong Kong.425. the European Parliament and members of the World Trade Organisation. 2010) Pakistan.000. Currently. (Daily Times – October 09.264. so that the people of Pakistan and of the US know where the money is going. generating the employment opportunities to nearly 2. and will include monitoring to ensure exporters from other states do not try to smuggle their wares into Europe via Pakistan to avoid duties. Total volume in the corresponding quarter of last year was Rs.820. Education $179. including India. "We will implement our assistance in the most open. Agriculture $56. Sri Lanka and Bangladesh. This group is investing over Rs. (The Nation – October 13. Energy $44.000.76 B. which compete with Pakistan for textile sales to Europe. a noted multinational group manufacturing industrial and medical gases all over the world including India.Tracking Opportunity & Risk Related Developments foresees suspending tariffs for up to three years.957.000.87 B and in the previous quarter (Apr-June 2010). The allocation of $831 M is part of the more than $1 B in development assistance funds which US will provide to USAID programmes in Pakistan this year. high external debt and political instability. total volume was more than Rs. Canada and Indonesia through various channels.

(Daily Times – October 20.50 B a year ago. health care petro chemicals industries etc. Through its core business. 2010) Increase in Services exports 4. the Federal Bureau of Statistics said.043 billion in July-August (2009-10) to $1. SBP is gradually increasing the mark up rates. against $1.12 B in the first half of 2010.186 B as on June 30. but grew by 5% when compared to the same quarter of last year 2009.16 B Pakistan's trade deficit widened to $1. compared with $2. 2010) Exports of services sector grew by 32 . during the quarter under review. from its peak of Rs. in which outstanding amount was Rs. (industrial gases). 2010.7.Tracking Opportunity & Risk Related Developments This was stated by a spokesperson of Punjab Industrial Estates talking to a group of Journalists here. 2010) Export financing declined Table: RISK & OPPORTUNITY TRENDS (Based on Current Developments) SECTOR Textile Oil Power / Energy Sugar Cement / Construction / Steel Automotive Telecommunication Other Industries Agriculture Micro Business & SME Financial Services Regulatory Macro Environment * Up Down No Change RISK OPPORTUNITY Financing under Export Finance Scheme for export promotion witnessed a decline of Rs. Overall services exports were recorded at $589. The country's trade deficit for the first three-months of the 2010/11 FY was $3. The rising mark-up rate of EFS may be a major reason of decline in financing as the following the directives of IMF to rationalize the mark-up rates under the EFS.156 B during the same the 1st 2 months of CY. the EFS outstanding amount declined to Rs. It is worthwhile to mention that this multinational company has over 53000 employees world over.61 B in September this year. 2010 as compared to Rs. The spokesperson added that this multinational group would deal in industrial gases. Exports stood at $1. On the other hand. Imports were worth $2. it will meet the significant and emerging needs in the metal processing.78 B.177 B. At the end of June 2010.41 B in September last year. (Business Recorder – October 13. manufacturing / fabrication. (Business Recorder – October 10.16 B in September from $911 M in September last year. as compared to preceding quarter. chemicals and defense. the data revealed. construction. The services trade deficit during the period under review increased by 17.87% during the 1st 2 months of the CFY against the same period of last year.78% when compared to the deficit of the corresponding period of last year. 2010) September trade deficit at $1.198 B in December 2009 to Rs. or Rs. service imports into the country also grew by 10.186 B at the end of June.193 B in March 2010.745 M during July-August (2009-10).83 percent by going up from $1.089 M in July-August (2010-11) against exports of $561.8 B. healthcare and welding products.85 B compared with $3. data provided by Federal Bureau of Statistics reveals. (The Nation – October 9. EFS witnessed a decline of some 4%.14 B in the year-ago period. According to SBP.

the economy continues to struggle with a lack of credit. (Outlook for a) US-sovereign debt crises US Dollar-Euro crises & the rise of an alternative reserve currency (Consequent or Concurrent to the Debt Crises) Rapid strategic divergence primarily between US on the one hand. It didn’t. prone to contend that the “crises” ended sometime in 2009.Tracking Opportunity & Risk Related Developments and geo-politically. Russia. in support of the case that the worst is yet to come. (followed by Turkey. ACCELERATING GLOBAL RISKS – SPECIAL EXCERPTS We continue to be in the midst of an unprecedented global. Yet most forecasters seem to lose sight of this rather obvious reality. that would fundamentally start to alter the global power equations. the hallmark 33 . crises. Many are. This is Economics 101 and the writing is on all the walls. by Dr. 2010 • • All of these scenarios are work-in process and have deep and profound implications for Pakistan. a case is being made. uncertainty and nervousness in the global marketplace. TIGHTENING THE NOOSE ON CREDIT SPELLS DISASTER Global Research. The global economy is highly unlikely to return to a sustainable path of normalcy anytime soon. create economic and political strife and lead to radically new geo-political realities. The pied pipers. As a result there is widespread. Suffice to say that within these scenarios are embedded considerable threats as well as enormous opportunities for growth and strengthening. And there is ample proof. Britain and America in slump for a long time. has waned. however. and analytics. courtesy of unprecedented bailouts. These developing scenarios have been clubbed under the following heads: • • • (Prospects of) Global Deflation. Chapter Three of the IMF's World Economic Outlook more or less condemns Southern Europe to death by slow suffocation and leaves little doubt that fiscal tightening will trap North Europe. Brazil) on the other hand A new US driven mid-east war targeting Iran The “Af-Pak” theater and the US/NATO “end game” economy and the whole array of industries. economically GLOBAL DEFLATION IMF ADMITS THAT THE WEST IS STUCK IN NEAR DEPRESSION Telegraph. and set off global domino triggered by the next acute financial crises. and uniqueness. 2010 • If you strip away the political correctness. for the key developing scenarios that were highlighted as key risks in our Outlook 2009-10 (of August 2009). The appetite for massive new sovereign debt for the next set of bailouts is fast reaching a breaking point. Simon Johnson. So keeping in mind the gravity. if you will. By Ambrose Evans-Pritchard October 3. in favor of this perspective. its …Two years after the 2008 bailout. based on new extracts from a wide array of credible and reputable publications. and unprecedented. TRAPPED IN THE SPIRAL OF BASEL III. financial and economic. And that too is likely to happen once the next set of crises that are in the works have run their course and resulted in a global deflation (and in some places stagflation) of historical proportions. There is growing evidence. Japan. The much orchestrated “recovery”. in this month’s Tracker. of the current global situation. the ex Chief Economist for IMF offers an insightful explanation: most (global) economists aren’t forecasters any longer. and support. Ellen Brown September 18. and China. they’re market makers and confidence builders. Point in case is the specter of the recent Greek default.

The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. creating more economic activity." Slate. “‘These are regulations and burdens on bank results that only make sense in times of monetary and credit expansion. economy's biggest problem. the Fed is using its license to print money. in a vicious spiral of debt and depression. Credit is issued by banks and is the source of virtually all money today. Consumer confidence is down. and just like that (or almost)—economic growth…. ranging from the wonks at the libertarian Cato Institute to liberal Nobel-winner Joe Stiglitz. is widespread lack of demand.So the Fed is turning to a policy known as "quantitative easing. despite massive “quantitative easing” (essentially money-printing) by the Federal Reserve. The strategy has been termed "QE2" because it is the second time the Fed has used this arcane monetary policy tool…. The money supply has continued to shrink in 2010 at an alarming rate.Tracking Opportunity & Risk Related Developments of recessions and depressions. Growth this slow is the equivalent of heading downward relative to the growth needed to get us out of the hole we’re in…. There is also the risk that the Fed spooks investors. Retail sales are down. recovery could another trillion The U. there is insufficient money to buy goods or pay salaries. so it is trying to convince investors to invest and banks to lend more. And many prominent economists. a move many analysts saw as a precursor to more easing…. Fiscal policy is deadlocked. who would then spend more money. Rather than buying space in office parks or forklifts. …We are still trapped in that spiral today. WHY MOST ECONOMISTS ARE NOT HOPEFUL ABOUT "QUANTITATIVE EASING. apparently. so workers get laid off and businesses shut down." he sighed in a speech earlier this month. an office park. When credit is not available. 2010 dollars or two buy? That's a tricky question for the Federal Reserve…At the Fed's August meeting it decided to reinvest maturing mortgage-debt in Treasuries to keep its balance sheet steady. By Robert Reich. The Fed cannot just buy up goods and services. former executive director at the IMF and now dean of IESE Business School in Madrid. 2010 How much of a boost to the U. If only people and companies would buy more stuff. By Annie Lowrey October 20.The problem is that the strategy is indirect. On Nov.S. Even Fed Chairman Ben Bernanke sounds uncertain.” FED MULLS TRILLION-DOLLAR POLICY QUESTION CNBC . said the (new Basel) rules could hamper the fragile recovery. who warned: “The plunge in M3 [the largest measure of the money supply] has no precedent since the Great Depression. 3. the Fed—which purchases only government-backed assets. Housing sales are down. "Monetary policymaking in an era of low inflation has not proved to be entirely straightforward.’ he said. In an article in The Financial Times titled “US Money Supply Plunges at 1930s Pace as Obama Eyes Fresh Stimulus. Commercial real estate is in trouble.” Ambrose Evans-Pritchard quoted Professor Tim Congdon from International Monetary Research.” Juan Jose Toribio. So.Every indicator suggests third-quarter growth will be as slow if not slower than in the second quarter. the theory goes—a car. is monetary policy…. and they're in no rush to spend. 34 . September 21.2 trillion that it will then spend to help goose economic growth.September 20. WHY NO AMOUNT OF STIMULUS MONEY WILL BE ENOUGH Salon. like bonds—will probably pick up long-term Treasury debt. though.Some policymakers worry that more easing could fuel market imbalances or sow the seeds of skyhigh inflation ahead. Maybe we’re not in a double-dip but we might as well be in one.S. This is why the US is not recovering properly. the markets expect the Fed to announce that it has decided to create somewhere between $500 billion and $1. a forklift—then the stores and companies that make and sell that stuff would hire more workers. businesses and policymakers agree. are skeptical. 2010 Consumers are 70 percent of the economy.6 percent means even higher unemployment ahead." Essentially. A growth rate of 1.

despite their divergent credit ratings. DEFICIT AS % OF GDP: US: 10. the middle class no longer has the buying power to keep the economy going…. Moreover. We've outlined a comparative analysis between a typical junk-rated sovereign issues. After three decades of flat wages during which almost all the gains of growth have gone to the very top. with short-term interest rates in most …Typically. the United States actually has a worse ratio than Greece…Specifically. inflationary risks. and the United States. we are actually most concerned with the risk related to future repayment. central bankers are utilizing their next option—currency intervention…. In general." Now. Say the White House and Ben Bernanke got everything they wanted to boost the economy. the United States appears to do better than Greece.4%. if so. or GSEs. in this case Greece. their QE has had far less than the expected impact. the key ratios are: debt as percentage of GDP. By Daryl G. we’d still face the same conundrum.6%. But it can’t run on its own because consumers have reached the end of their ropes. In this instance. currency risk. Having run out of conventional options of lowering short-term interest rates and getting less from their relatively unconventional tool of buying bonds to bring down longterm rates. Greece: 115. DEBT AS % OF GDP: US: 86.S. DEBT AS % OF REVENUE: US: 358. Greece: 13. which is certainly a positive. a bond receives junk status due to its increased risk of default. But the destruction of the world's reserve currency threatens to end the Era of Globalization… The most newsworthy nation to currently be rated junk status is Greece….2%.5% (including GSE debt: 121. which we consider a 1-time expenditure. the U. September 3. typically known as austerity measures….4%. as it relates to the United States. Despite this. interest rates were slashed by central banks in reaction to the credit crisis of 2008.Tracking Opportunity & Risk Related Developments Ultimately. on what terms? On two of the ratios. Specifically.the key ratios from which we use to analyze a nation appear very similar between the United States and Greece. and so forth. Then. duration risk. 2010 First.(however) United States has been running a deficit for 22 straight months. central banks have run out of basis points. Forsyth September 17. the owner of a bond is subject to many risks: interest rate risk. with projected deficits for at least the next fifty years. government has not taken any aggressive austerity measures to attempt 35 . At some point these boosts would have to end and the economy would have to be able to run on its own. even if fiscal and monetary policy weren’t deadlocked. they ballooned their balance sheets with massive bond purchases in what euphemistically was called "quantitative easing. the main weapon in their arsenal. spending for the first 10 months of the government's fiscal year is up an astonishing 10. Specifically. economies at or near zero percent. but if we include the debt of government sponsored entities.S. is it expected that the nation will be running future deficits. Greece: 312. When normalizing for TARP. and therefore pays higher yields to the owners of the bonds to make up for the risk.6%). 2010 CENTRAL BANKS EMBRACE RISKY CURRENCY GAMBIT Barron’s (WSJ).Anyone who thinks China will get us out of this fix and make up for the shortfall in demand is blind to reality.Having the world's reserve currency gives the U.1%. SOVEREIGN & US DEBT CRISES SHOULD US GOVERNMENT DEBT BE RATED JUNK? Fortune. deficit as a percentage of GDP.1%. which require incremental debt funding? If so. By Randall W. Jones. will the United States be able to repay its debt and. and debt as a percentage of revenue. our policymakers may have to implement policies designed to narrow this funding gap. the advantage in this race to the bottom.

S." If for no other reason. By James A. 2010 CHINA'S CREDIT RATING AGENCY DAGONG DOWNGRADES U. To add insult to injury. government debt be downgraded to junk status? If we simply look at the ratios and the future outlook. most European nations have taken aggressive actions on both the revenue -. outlook to be "negative.S.S.reducing government expenditures -. We could use that term in late 2008. So. 1 owner of U.Dagong Global Credit Rating . should U. agencies employ more analytical rigor in the rating of their sovereign debt than Dagong. the answer is quite obvious.Tracking Opportunity & Risk Related Developments to narrow the current and projected deficits.” Volcker is right that the mortgage market has become a subsidiary 36 . VOLCKER: "THE FINANCIAL SYSTEM IS BROKEN" Global Research.S. the opinions of the Chinese matter whether we like them or not.lower than that of 11 other countries (including China. deficits will expand for decades. Beijing-headquartered Dagong.S. …We can debate forever whether the U.S. as part of a symposium cosponsored by the IMF. (Yes) very different view of the strength of U.which has a Paul Volcker (ex Federal Reserve Chairman) spoke at the Chicago Federal Reserve Bank on September 23rd. the firm declared the U.still give the United States a AAA credit rating. But there's a newcomer in the credit-rating game ." Chairman Guan Jianzhong told the Financial Times in July. Standard & Poor's and Fitch . and I think it’s fair to still use the term unfortunately. The Chinese finance ministry has directed the company to "participate in the construction of [the] Asian bond market. future deficits should shrink and debt balances eventually decline. debt is worth heeding because it influences the thinking of the Chinese government and those in charge of investing surplus Chinese capital. In contrast. like the mortgage market which only happens to be the most important part of our capital markets [and has] become a subsidiary of the U.S. but let's be clear about one thing: Dagong is not a chump outfit. which it awarded an AA+).and cost sides -. While Americans still tend to regard U. We know that parts of it are absolutely broken. it rated the sovereign debt of 50 nations making up 90 percent of the world's economy." Dagong has set off something of a hissy fit in the credit-rating world. The company also accused U. Treasuries as the "safest investment in the world. of contributing to the 2007-08 financial crisis by applying the coveted AAA rating to loads of junk subprime mortgage debt. finances. DEBT RATING The Washington Times.S. agencies. which share an oligopoly enforced by government fiat. under our current course. in theory. the dominant credit agency in China.S. October 3.S. "The Western rating agencies are politicized and highly ideological. He said: “The financial system is broken. This summer. government.increasing taxes -. and they do not adhere to objective standards.The result of the actions in Europe are that. U. Bacon September 2. 2010 The big three credit-rating agencies that totally missed the meltdown of the subprime mortgage market Moody's." Dagong gave our debt a mere AA . Treasury securities. including more than 200 analysts with master's degrees or doctorates and 50 with postdoctorates. The company boasts of more than 500 employees. is pushing into international markets. In contrast. As long as China remains the No.to get their fiscal houses in order….S. Dagong's appraisal of U.

The biggest risks for banks may be loans packaged into mortgage-backed securities during the housing bubble. While federal regulators and state attorneys general have focused on flawed foreclosures. 2010 BANKS CLUELESS ON FORECLOSURE MESS SEVERITY Bloomberg.and it is a no brainer to conclude that the banking crisis (if we are lucky) may be “resolved” by 2015 but it is most likely that it can be only resolved by 2017/2018 .Tracking Opportunity & Risk Related Developments of Uncle Sam. By John Gittelsohn and Jody Shenn Oct 21.. By Jonathan Weil October 20.. The reality is these companies are so big and unmanageable. mortgage lenders and servicers say they’re putting the foreclosure mess behind them. and the bailouts.“It’s troubling that the people who caused the problem have walked away and left everybody else to fight over who gets stuck with the tab. and that it never was a major problem. BASEL III: THE GLOBAL BANKS AT THE EDGE OF THE PRECIPICE.” The biggest U. of which $1. there would not be any need for Basel III regulations…. “It’s like a massive game of dine and dash. the implementation of which will be delayed till 2017 and some till 2019.S.” BANKS FACE A TWO-FRONT WAR ON MORTGAGES.The simple truth is that as long as the derivative casino is still running and banks are allowed to continue their off balance sheet activities.. In fact the banks are all insolvent. There’s no excuse this time for anyone to be surprised. 2010 deliberately misled) the underlying message of the proposals.S.. Basel III is pure spin and its timing was to assuage the deep-seated fears that there are no solutions in sight to save the fiat money system and fractional reserve banking. And it is ironic that government-owned GSEs Freddie and Fannie are shareholders of MERS one of the main sources of mortgage fraud in the country.mortgage records and foreclosure proceedings are out there waiting to be unearthed. a bigger threat may be the cost to buy back faulty loans that banks bundled into securities…. FORECLOSURES Bloomberg. …Volcker also said: “I don't think anyone doubts that the underlying problem in the markets is the too big to fail syndrome. bond insurers and private investors…. Global Research. the people in charge of running them have no way to know if that is true. The problem was compounded when the central bankers…turned a blind eye to how bankers defined what constituted “capital” so as to circumvent the need to maintain the capital ratio. but they missed (or . The aggrieved bondholders include governmentcontrolled firms Fannie Mae and Freddie Mac. It’s anyone’s guess what they might turn up…. How can the ultimate capital requirement of 8 percent be adequate when leverage under Basel III is still allowed at the astronomical rate of 33:1?. Banks were borrowing so much and so recklessly to play at the global casino that when the bets went sour. We may be witnessing the same phenomenon again. as the subprime mortgage crisis began to spiral. pitting them against U. The major global banks are all undercapitalized and this was all too apparent when Lehman Bros.. 2010 Shoddy mortgage lending has led bankers into a two-front war.” Eggert said in a telephone interview.…If the banks were at all adequately capitalized and the central bankers were prevented from manipulations. they were staring at a black-hole in the trillions. one of the lessons the public should have learned is that the leaders of these companies often have no idea what’s going on inside them. Dozens of federal and state agencies are investigating.The banks have only themselves to blame for the fix they’re in. collapsed. homeowners challenging the right to foreclose and mortgage-bond investors demanding refunds that could approach $200 billion. Three years ago. nothing will be resolved. This is an express admission that all banks would require such a long transition 37 The global Too Big To Fail banks are so precarious that literally anything can trigger a collapse in the coming months. Reading the commentaries on Basel III posted to various renowned websites and financial publications. by Matthias Chang September 20. One thing that remains unknowable is how many flawed home.3 trillion remain.

Such deepening will undermine their public finances by eroding their tax bases and will raise questions about their ability to service their sovereign debt. All of a sudden. Portugal. since the recessions of the European peripheral countries will likely deepen considerably in the year ahead as they attempt to undertake major fiscal adjustment programs without the benefit of currency depreciations. seriously threatening both the European and the global economic recovery. Sadly. 2012. which in turn will call into question the health of the European banking system. The more immediate threat to the continuation of the eurozone in its present form is the possible loss of political willingness in Europe's periphery to continue hewing to IMFstyle austerity measures. Such intensification will affect Europe's already-troubled banking system. AND SOON American Enterprise Institute. the tipping point is reached and all hell breaks loose! . Portugal. The Bank for International Settlements estimates that the French banks are particularly exposed to the troubles in the peripheral countries. hoodwinking the public and sovereign creditors that all is well. as the recession deepens and unemployment rises with no end in sight. Then.Time Line? Between now and anytime in 2011.At the latest. I cannot give a precise time-line as to how long the FED and the global central banks can prolong the confidence game. …At this moment. To use an analogy. EURO WILL UNRAVEL. which is rather optimistic for the projection implies that the patient may be able to recover. When confidence in banks evaporates for whatever reasons. There is little reason to expect a 38 The outbreak of a sovereign-debt crisis in the euro zone’s peripheral economies has been among the more important developments in the global economy in 2010. The first indication that the game is up is when US treasuries are increasingly purchased by the FED to make up for the shortfalls by foreign creditors and to finance the ballooning US deficits. …European policymakers fully understand that a default in any peripheral eurozone country would likely trigger contagion to the other peripheral members. This is essentially what happened in Argentina in 2001 after several years of painful and not very fruitful austerity measures. It is my view that Basel III is pure spin and is intended to convey the impression that the central bankers and regulators have things under control. They also understand that a series of defaults in the eurozone's periphery would have devastating consequences for the European banking system.. and the FED steps in to shore up treasuries. and . After all. …. some entities may start to get real nervous and unload the treasuries.. September 2010 Ireland is around US$2 trillion. the combined sovereign debt of Greece. the banking patient will be in Intensive Care until 2017. At some point. the consequences will be ugly and there will be massive social upheavals across the globe. Spain. serious questions may arise in the periphery as to whether these countries would not be better served by restructuring their debt and exiting the euro. and Ireland.Tracking Opportunity & Risk Related Developments period to comply with the new requirements! The stark reality is that the Too Big To Fail Banks do not have the ability and or the means to raise capital at this critical juncture. and a major part of that debt sits on the European banks' balance sheets. this crisis will likely intensify in the months ahead as markets increasingly focus on the intractable solvency and competitiveness issues confronting countries like Greece. Spain. since they have lent the equivalent of 37 percent of France's GDP to those countries. By Desmond Lachman.The eurozone's sovereign-debt crisis casts a pall over today's alreadyfragile global economic outlook.

"Once a reserve currency's value becomes unstable. The Chinese Government holds the largest stockpile of currency reserves at $2. China has signalled a shift away from dollar assets in recent months.45 trillion (£1.Charles Li. and 3pc in yen.45 TRILLION OF RESERVES STILL HEAVY IN DOLLARS Telegraph." she wrote in an article that appeared in the latest issue of China Finance. Multilateralism – with a more prominent role for emerging market countries – is essential now to prevent competitive currency debauchery by China and the US from blowing up the system. with 65pc held in dollars. and has raised its holdings of South Korean bonds. a vice governor with the People's Bank of China. 39 . a central bank magazine. Separately Hu Xiaolian. Chinese threats of dumping US Treasury bonds are perhaps overstated.AN ALTERNATIVE RESERVE CURRENCY (Consequent or Concurrent to the Debt Crises) CHINA FEARS DEPRECIATION OF $2. YUAN WILL BECOME RESERVE CURRENCY. warned that depreciation was a risk for the foreign exchange reserves held by developing countries. "A diversified international currency system will be more conducive to international economic and financial stability. 2010 China’s yuan will gradually become a reserve currency…. 2010 The external problem is China’s possible retaliation. 26pc in euros. …. America is divided. "The outbreak and spread of the global financial crisis has highlighted the inherent How ironic that the world’s reserve currency issuer (the US) and its longterm rival to that status (China) are competing to nearly debauch their own currencies? America’s behaviour – more effect than intent – takes the form of quantitative easing. But US companies are ambivalent because capital is mobile and can escape the effects of the undervaluation. HONG KONG EXCHANGE HEAD SAYS Bloomberg News September 20. AMERICA CANNOT WIN THE CURRENCY WARS ALONE Financial Times. Until now the allocation of China's foreign exchange reserves was considered a state secret. By Arvind Subramanian October 20 2010 US CURRENCY CRISES DOLLAR CRISES . The report was published in official newspaper the China Securities Journal and confirmed analysts' estimates that about two-thirds of the reserves are invested in dollars. deficiencies and systemic risks in the current international currency system. Domestically.Tracking Opportunity & Risk Related Developments different outcome in the eurozone's peripheral countries. Why would they take action that would result in the very outcome – dollar decline – that China has worked to avoid? But other retaliatory options could hurt. China could leverage its economic status as a large buyer of goods and services (commercial and defense) to hurt American businesses and jobs. At a time of high unemployment. said in a commentary on the exchange’s website today.US unilateralism runs into two difficulties. whose economic imbalances are far greater than Argentina's were. It has sharply increased its net purchases of Japanese debt." she added. there will be quite large depreciation risks for assets. 5pc in pounds. the chief executive officer of Hong Kong’s stock exchange.59 trillion). It could withhold co-operation on North Korea and Iran. in a bid to diversify. By Angela Monaghan September 3. China’s takes the form of not letting its currency strengthen (which makes the recent monetary tightening deflationary for others)." she said. calling for greater crossborder use of the yuan. labour groups seek strong action against the undervalued renminbi. internal and external.

CHINA IN THE DRIVER'S SEAT The Nation.US VS CHINA / RUSSIA / OTHERS CHINA AS A SUPERPOWER Korea Times. and yuan will share the roles of invoicing currency. To be sure. policy terms. The US has brought this on with all its deficit spending. only use their currencies in the trade. 2010 dollar. it could even emerge as the global power. Belarus. author of Rising Powers. Uncertainty about whether the European Union will hold together could limit the use of the euro. although China is aggressively promoting international use of the yuan in trade settlements. by Barry Eichengreen..the US dollar. Berkeley. thus excluding the Given its rapid and successful development. when the sterling was no longer the world’s reserve currency… Don’t blame the Chinese. professor of economics at the University of California. like bubbles. October 4. Let’s see now… China has signed up almost all of Asia. Argentina.. there can be no doubt that the People’s Republic of China will become one of the dominant global powers (soon). China will attempt to protect its domestic transformation by securing resources and access to foreign markets. "It would be disastrous for progressives to provide fodder for the military-industrial complex by demonizing China. corporate scandals. the Obama administration started laying bricks in a Great Wall of Containment around China by mending ties with a brutal Indonesian special forces unit and taking sides against China in a potentially dangerous dispute over Beijing's claim to a string of islands in the South China Sea.Tracking Opportunity & Risk Related Developments SWIMMING AGAINST THE MASTER CURRENCY CURRENT Sydney Morning Herald .. it has a way to go before its currency is attractive as a vehicle for foreign investment and holding reserves. despite the massive problems that the country is confronting. which one?. by Chuck Butler October 10. The only question is. things here in the US will change drastically… Just ask anyone who lived in the UK after WWII. either… The Chinese are only doing this to protect themselves from all their exposure to the dollar. October 19. and no longer need dollars…Let me make certain that you understand what’s happening. … In foreign- "We have to recognize that China is the first real economic competitor that has ever threatened America's standing as the global economic superpower. And you could sprinkle in protectionism measures and a host of other things that have built up against the dollar in the past decade. 2010 THE competition for reserve-currency status is conventionally portrayed as a winner-take-all game.China was gaining a wider acceptance of their currency and removing the dollar from trading agreements… Well. euro. the Indian Ocean. Willingness to hold the US dollar may be undercut by concern with America's twin fiscal and external deficits." But America doesn't adjust well. from now on. and reserve currency in coming years. It's hard to imagine a US politician making the case that Washington should pull back from its overextended posture in Asia and the Pacific or cede an expanded presence to China. And. Africa and beyond. Shrinking Planet. Brazil and now Turkey… All of these countries only use their currencies in trade. By Joschka Fischer Germany’s foreign minister and vice chancellor from 1998 until 2005. all three currencies have their critics. Only this summer. settlement currency." Few would argue that the rise of China has world-altering significance…. the Middle East." says Michael Klare. Indeed. etc. CHINESE YUAN: NEXT WORLD RESERVE CURRENCY? The Daily Reckoning. "There are 40 . Ty showed me a story from The Wall Street Journal about how Turkey and China had signed a trade agreement that would. 2010 …. …“America has to adjust. folks… The Chinese are taking steps to become the next reserve currency… And when that happens. where there is room for just one full-fledged international currency. 2010 STRATEGIC DIVERGENCE .Along with China's growing economic power comes an inevitable corollary: China's eventual emergence as a political and military power wielding its influence from East Asia to the Pacific. Robert Dreyfuss September 2.

2010 China-Pakistan nuclear ties worry U. and to influence it. U. China’s civilian nuclear investments in Pakistan have raised strategic concerns in the US and India.S. Oct 22. a conflagration between the two nuclear powers could erupt over the Chinese island. came a day after China indicated it may see no need to seek approval from the NSG. 41 In 1998. …As part of a dynamic diplomatic outreach under the Justice and Development Party (AKP). The neocon plan to transform the Middle East and Central Asia into a pliant client of the US empire and its onlydemocracy-in-the-Middle-East is now facing a very different playing field. Eric Walberg October 1. China may not seek approval of Nuclear Suppliers Group Barack Obama's upcoming trip to India provides an opportunity to jumpstart progress toward defining a true US-India strategic partnership… TURKEY AND RUSSIA DEFY AMERICA'S IMPERIAL DESIGN IN THE MIDDLE EAST AND CENTRAL ASIA Al-Ahram Weekly. the issue of Taiwan is a flash point. India. Jordan. Libya and Syria last year. A senior U. And it's not a foregone conclusion that it will be easy.S. Not only are the wars against the Palestinians. Reuters. China's Foreign Ministry said on Tuesday Beijing had invited the IAEA to "exercise safeguards and oversight of this project. writes Israel Shamir. which is tectonic. but it's our own financial. or even peaceable. …CNNC is completing a second civilian nuclear reactor in Pakistan’s Chashma and plans to build two more. "We need to find ways to accommodate China. Lebanon. 2010 ATOM BODY SHOULD ADDRESS CHINA-PAKISTAN DEAL--U. LEAVES INDIA IN SHADE Hindustan Times September 21." says Orville Schell.Tracking Opportunity & Risk Related Developments very powerful interests in Washington who want to set us on a path of confrontation. 2010 China’s largest nuclear power company. A news report quoted CNNC vice president Qiu Jiangang saying that ‘both sides are in discussions over CNNC exporting a one-gigawatt nuclear plant to Pakistan’. 2010 The new Ottomans and the new Byzantines are poised for an intercept as the US stumbles in the current Great Game. Turkey reestablished the Caliphate era visa-free tradition with Albania.S.6 billion in nuclear projects by 2020. and if relations between Beijing and Washington spiral downward. despite an array of promising advances over the past decade. the relationship between Washington and New Delhi is falling short of its full potential. Under Secretary for Nuclear Security. …"It isn't just China's rise. The comments by Thomas D'Agostino. one of the few countries outside a global antinuclear weapons pact. The empire faces a resurgent Turkey.." REJUVENATING US-INDIA STRATEGIC PARTNERSHIP Times of India. has set targets to invest $117. In February Turkish Culture and Tourism Minister Ertugrul Gunay offered to do likewise with Egypt.S. There is “a great new plan of creating a Middle East Union as a regional equivalent of the European Union” with Turkey. President . September 22. then-Prime Minister Atal Bihari Vajpayee asserted that India and the United States were "natural allies in the quest for a better future for the world in the 21st century". some of whose members have voiced qualms about the plan to build two new reactors at Pakistan's Chasma nuclear energy complex. fresh from a resounding constitutional referendum win by the AKP. but they have set in motion unforeseen moves by all the regional players. political and cultural collapse that is cause for even more consternation. which revealed plans to build a one-gigawatt nuclear power plant in Pakistan on Monday. by Richard Fontaine. official suggested on Wednesday the 46-nation Nuclear Suppliers Group (NSG) should address Chinese plans to build two new reactors in Pakistan. Twelve years later." In particular." CHINA EXPANDS NUKE PLANS. Afghans and Iraqis floundering.

2010 Russia's capacity to withstand Western pressures. strengthening its partnership with China gains it more strategic space. Medvedev's visit to China underlines emphatically that Moscow will be loath to allow the Russia-China strategic partnership to be eroded by its reset with the US. including Russia. By M K Bhadrakumar October 2. the growing strategic partnership with China enhances The news that Turkey and China had organized a joint military exercise at the huge Konya airbase in Turkey's central Anatolian region last month came as a surprise to many. With this in mind. it will be about offering incentives to Russia to hold it back from diversifying away from Western energy markets towards China. Turkey has never officially supported the Uighur separatist movement. of Rising Powers. especially in Central Asia and Afghanistan. Looking at it another way. … What explains such a dramatic improvement in relations between Turkey and China? And how should this military exercise be understood Michael T Klare is a professor of peace and world security studies at Hampshire College and the author. by Mehmet Ozkan 22 Oct 2010 in the context of the current shifts taking place in global power politics?. Its defiance of Israel after the Israeli attack on the Peace Flotilla trying to break the siege of Gaza in June made it the darling of the Arab world. CHINA: ENERGY SUPERPOWER Asia Times By Michael T Klare …What emerges is that the trajectory of Russia-China cooperation is beginning to substantially impact on the Western countries' core interests. TURKEY-CHINA MILITARY DRILL REVEALS DEEPENING TIES.. At that time. …. Instead. creating the basis for a new alignment of forces. His previous book. the two countries signed several agreements (and)… Since then.. What all this adds up to is that Russia is practicing its own version of a reset with the US.ties between the two countries have been deepening since former Chinese President Jiang Zemin's visit to Turkey in April 2000 opened a new chapter in bilateral relations. How Russia and China safeguard their growing strategic partnership from Western pressures will become clearer in the coming period. there is immense geopolitical significance to the fact that Russia has appeared by China's side over the current tensions in the AsiaPacific region involving Japan. Shrinking Planet. was made 42 . most recently. and the latter cannot but aspire to try to deflect it. including the construction of new pipelines and nuclear energy facilities. IS RUSSIA PLAYING THE "CHINA CARD"? Asia Times. where from the US angle the great game is no longer about driving a wedge between Russia and Western Europe. The US reset with Russia already has an unobtrusive objective of incrementally eroding the Russia-China strategic understanding so as to isolate China. which has historically been the main obstacle in Turkey-China relations…. Turkey. but emboldened them to work together. For Russia. Syria and Iran…. Blood and Oil. since it concurrently acquires the leverage to compel the West to negotiate with it. just as the latter has been doing with Russia. so to speak. invasions by the US and Israel in the Middle East and Eurasia have not cowed the countries affected. In a delicious irony.This is the natural regional geopolitical logic. not the artificial one imposed over the past 150 years by the British and now US empires….Turkey's bold move with Brazil to defuse the West's stand-off with Iran caught the world's imagination in May.Tracking Opportunity & Risk Related Developments Turkey also established a strategic partnership with Russia during the past two years. But safeguard it they will. WIDENING REACH World Politics Review. with a visa-free regime and ambitious trade and investment plans (denominated in rubles and lira).This brings us to the threshold of a tantalizing prospect: is the great game over Caspian oil withering away? How relevant are US-Russia energy rivalries with the appearance of China in the equation as an energy guzzler that can keep buying all that Russia can supply? This is a new ball game.

WHILE U. 2010 Hu Jintao and Kim Jong-il in Jilin province explicitly placed China's Korean Peninsula eggs in the North's basket. Because energy is tied to so many aspects of the global economy. Rarely has a simple press interview said more about the global power shifts taking place in our world. Sudan. '10 Bristling over territorial disputes in the South China Sea fits American concerns that China is deliberately nudging the US out of East Asia at a time it is trying to reassert its primacy. The idea that Beijing will acquiesce to the collapse of the Pyongyang regime and reunification under the aegis of South Korea is a discounted commodity. Tensions are also high on most fronts associated with China's attempt to reclaim what it sees as its rightful place. the chief economist of the International Energy Agency (IEA). Angola. China called South Korea's bluff . Libya. At this point. By Robert D. China obtains most of its imported oil from Saudi Arabia. the decisions China makes regarding its energy portfolio will have far-reaching consequences. IS DISTRACTED. Iran. Peter Lee September 2.Tracking Opportunity & Risk Related Developments into a documentary film and is available at www.S. Although not competing with Washington when it comes to military aid. On July 20. not only in the South China Sea. That's the news for our energy future and for the future of greatpower politics on planet Earth. to download it to your iPod. … by becoming the world's leading energy consumer. told the Wall Street Journal that China had overtaken the United States to become the world's number one energy consumer. Kaplan September 26. RISING CHINA TESTS THE WATERS Asia Times. China will also become an ever more dominant international actor and so set the pace in shaping our global future.and the United States is ill-equipped to respond. Russia. An anemic international reaction will embolden Beijing. Kazakhstan. '10 Beijing views the South China Sea as a leading indicator of how the international community will respond to China's growing power and assertiveness. China for the first time imported more Saudi oil than the US. Especially striking has been the way Beijing has sought to undercut US influence in Saudi Arabia and with other crucial Persian Gulf oil producers. Jingdong Yuan Aug 19. but elsewhere as well. promising to support Saudi aspirations without employing the human rights or pro-democracy rhetoric usually associated with American foreign policy. China's state-controlled energy firms have also forged "strategic partnerships" with counterpart enterprises in these countries and in some cases acquired the right to develop major oil deposits as well. watch China.and with some of the same countries. Oman. Fatih Birol. the greater the risk of friction and conflict with the United States… CHINA MAKES ITS NORTH KOREA MOVE Asia Times. only one thing is clear: the greater China's reliance on imported petroleum. This is exactly the path once taken by Washington . In 2009. in some cases providing them with significant economic and military assistance.bloodandoilmovie. Abraham M Denmark and Daniel M Kliman Aug 19. Washington is already watching with anxiety. CHINA DEVELOPS SEA POWER Washington Post. Kuwait. DEEP REASONS FOR CHINA AND US TO BRISTLE Asia Times. Beijing has established close ties with their leaders. click here or. and because doubts are growing about the future availability of oil and other vital fuels. To catch Klare discussing China's energy superpowerdom on Timothy MacBain's latest TomCast audio interview. Beijing has been dispatching its top leaders to woo Riyadh. At present. a geopolitical shift of great significance given the history of USSaudi relations. Eager to ensure the reliability of the oil flow from these countries. here.com. 2010 A long handshake between President The greatest geopolitical development 43 . The United States should insist on open access. If you want to know which way the global wind is blowing (or the sun shining or the coal burning). and Venezuela.

By Clifford McCoy 16 Sep. That sea grants Beijing access to the Indian Ocean via the Strait of Malacca. through which passes a third of all commercial maritime traffic worldwide and half of the hydrocarbons destined for Japan. sea control is critical. Myanmar leader Senior General Than Shwe's visit to China last week won public support from Beijing for his government's planned national elections on November 7. No matter how the international situation changes. China is building a blue water navy. Myanmar's generals can now proceed unconcerned by Western criticism of the election process or the results…. this policy will not alter. to the Indian Ocean. ultimately to be protected by its warships… America's preoccupation with the Middle East suits China perfectly. The United States and others consider the South China Sea an international waterway." WHEN NORTH KOREA FALLS . 2010 The most important lesson to have come out of the financial crisis is to worry about "black swans.A NEW MIDEAST WAR IN THE MAKING 44 .this is what could produce serious geopolitical instability. from East Africa to Southeast Asia. With that backing.. it is easy to imagine chaos on the Korean peninsula that triggers a series of reactions from Beijing and Washington that are competing and hostile. China is building a far-flung trading network."…China seeks domination of the South China Sea to be the dominant power in much of the Eastern Hemisphere. MYANMAR REAFFIRM STRATEGIC VOWS Asia Times. Washington Post. in Nassim Nicholas Taleb's formulation. 10 saying. In geopolitics there is one such event that should have us all thinking hard -.… CHINA.the collapse of North Korea…..to the second island chain (Guam) and in the opposite direction.China has the world's second-largest naval service. Once it becomes clear. China considers it a "core interest. by Fareed Zakaria October 18.When North Korea collapses. To wit. even as it is helping to fund and construct ports in Burma.. "China pays a great deal of attention to relations with Myanmar. at the northern end of the South China Sea…. that the United States cannot credibly defend Taiwan. And with 90 percent of commercial goods worldwide still transported by ship. and thus to the entire arc of Islam. We are paying in blood and treasure to stabilize Afghanistan while China is building transport and pipeline networks throughout Central Asia that will ultimately reach Kabul and the trillion dollars' worth of minerals lying underground. Sri Lanka.Tracking Opportunity & Risk Related Developments that has occurred largely beneath the radar of our Middle East-focused media over the past decade has been the rise of Chinese sea power. Forget genteel rows over the yuan's value -. the Korean Peninsula and northeastern China.…these harbors will be visited by Chinese warships and will provide warehousing for Chinese consumer goods destined for the Middle East. Bangladesh and Pakistan. . We underestimate the importance of what is occurring between China and Taiwan.In an apparent snub to international opinion. after only the United States…China's 66 submarines constitute roughly twice as many warships as the entire British Royal Navy…If our economy remains wobbly while China's continues to rise this will have repercussions for each nation's sea power. Consolidating and developing SinoMyanmar cooperation and friendship is our unswerving policy. Hu was quoted on state television on September 8 IRAN . events that are unlikely but with the potential to cause major disruption. . The geographical heart of America's hard-power competition with China will be the South China Sea." These are.China is quietly incorporating Taiwan into its dominion. China will be able to redirect its naval energies. a few years hence.

45 . it will cost him the election…. Obama appears vulnerable and the Republican nomination has become extremely valuable. With the Iowa caucuses about 15 months away and the Republicans holding momentum. he takes credit for it. The outcome is already locked in. it is clear that he will not be able to push through any significant legislation without Republican agreement.Tracking Opportunity & Risk Related Developments WOULD A BEATEN OBAMA ATTACK IRAN? Stratfor/Real Clear Politics. the president will have to begin his campaign.Interestingly. and the Iranian issue wide open. Obama does not have much time to lose in reshaping his presidency. Israeli-Palestinian talks are also faltering. The first is that the country is focused on the economy and on domestic issues. which would reinforce his image as an accommodationist in foreign policy. and there are a host of other foreign issues. economy does not improve by 2012. The founders created a system in which the president is inherently weak in domestic policy and able to take action only when his position in Congress is extremely strong. If he focuses on foreign policy and the U. one option he has had is to appear powerful by focusing on foreign policy. the Democrats will lose the ability to pass legislation at the will of the House Democratic leadership.S. cooperate with the Republicans and re-establish his image as a centrist. midterm elections. troops still there. The war in Afghanistan is reaching a delicate negotiating state as reports of ongoing talks circulate. This was how the founders sought to avoid the tyranny of narrow majorities. If the domestic situation improves.S. and party discipline will not be strong enough (it never is) to prevent some defections. 2010 We are a week away from the 2010 U. …The international environment allows him to take a much more assertive stance than he has over the past two years. The first is to continue to press his agenda. he runs against Republican partisanship. Whether they lose the House or not. ranging from China's increasing assertiveness to Russia's resurgent power to the ongoing decline in military power of America's European allies. they will still not have the votes to override presidential vetoes. when the president has been weak domestically. which is not particularly new territory. they made the president quite powerful in foreign policy regardless of Congress…Historically. The second option is to abandon his agenda. Both have political advantages and disadvantages and present an important strategic decision for Obama to make. If it doesn't. When we consider the difficulties President Barack Obama had passing his health care legislation. A negotiated settlement will be portrayed by the Republicans as capitulation rather than triumph…. Whether the Republicans take the House or the Senate is close to immaterial…. Afghanistan offers the least attractive venue. by George Friedman October 26. The result will either be gridlock or a very different legislative agenda than we have seen in the first two years. with 50.The Democrats will lose their ability to impose cloture in the Senate and thereby shut off debate.The second problem is that his presidency and campaign have been based on the general principle of accommodation rather than confrontation in foreign affairs. …Given his low approval ratings.S. For his part. Should the Republicans win an overwhelming victory in both houses next week. with the sole exception of Afghanistan…where he was assertive is unlikely to yield a major foreign policy success. or continued war. even with powerful majorities in both houses. which is to shift his focus from domestic policy to foreign policy. His choices are negotiation. There are a range of issues that need to be addressed at the presidential level. Obama now has two options in terms of domestic strategy. Obama also has a third option.000 U. At the same time. many of which would resonate with at least some voters and allow Obama to be presidential in spite of weak political support. There are two problems with Obama becoming a foreign policy president. The large majority held by the Democrats will be gone. unless that success is a negotiated settlement with the Taliban. The Iraq war is far from stable. if Obama's goal is to appear strong on national security while regaining the center. knowing that it will be voted down.

The Arabian Peninsula. given that Obama does not have the 2003 weapons-ofmass-destruction debacle to deal with and has the advantage of not having made such a claim before. while the Democrats would be hard-pressed to challenge him. but it would be extremely unlikely that such an effort would end well. Foreign policy presidents need to be successful. after all. particularly Saudi Arabia. He could. the claim would confirm the views of the Republicans. Obama's credibility in making the assertion would be much greater than George W. Nor would the claim be a lie. He could appear reluctant to his base. The Iranian Option: This leaves the obvious choice: Iran. but that would require Hamas to change its position. Obama's policy toward Iran has been to incrementally increase sanctions by building a weak coalition and allow the sanctions to create shifts in Iran's domestic political situation. The Israelis. which adds little to his political position… Obama could attempt to force an Israeli-Palestinian settlement.S. who are assumed to be more moderate and less inclined to pursue nuclear weapons. The idea is to weaken President Mahmoud Ahmadinejad and strengthen his enemies. The Russians like the Iranians are a thorn in the American side. In addition. is afraid of Iran and wants the United States to do something more than provide $60 billion-worth of weapons over the next 10 years. as are the Chinese.Tracking Opportunity & Risk Related Developments He could deploy even more forces into Afghanistan. the situation in Iraq would improve if Iran were to be neutralized. and achieve some positive results in relations with foreign governments. so a confrontation with Iran would require a deliberate shift in the U. the one place he could do it would be Iran. military action against Iran's naval forces would be needed to protect the oil routes through the Persian Gulf from small boat swarms and mines. stance. First. Destroying the facilities might take an extended air campaign and might even require the use of special operations units to verify battle damage and complete the mission. The Europeans are hostile to Iran but want to avoid escalation. There is little to be done in Iraq at the moment except delay the withdrawal of forces. second. The European. but it can be aligned with reasonable concerns. particularly after the crackdown on the Green Movement. Russian and Chinese situations are of great importance. Its nuclear facilities are in a number of places and Iran has had years to harden those facilities. hurt him more than an aggressive stance against Iran that failed to achieve its goals or turned into a military disaster for the United States. which is unlikely…The problem with Israel and the Palestinians is that peace talks have a nasty tendency to end in chaos. are hostile. anti-ship missile launchers would have to be attacked and Iranian air force and air defenses taken 46 . The issue is what he might have to do and what the risks would be. no one would be in a position to challenge the claim. Defining what it means to almost possess nuclear weapons is nearly a metaphysical discussion. The Republicans could not easily attack him. and the psychology in Afghanistan could also shift. It requires merely a shift in definitions and assumptions. Obama has avoided overt military action against Iran. hurling troops at the enemy without a clear plan. Coming from Obama. In the face of this assertion. … destroying Iran's nuclear capability does not involve a one-day raid. Moreover. Many of the Democrats see Iran as a repressive violator of human rights. nor is Iran without the ability to retaliate. Bush's. Whether or not this is true would be immaterial. If Obama were to use foreign policy to enhance his political standing through decisive action. unless it ends quickly and successfully and without a disruption of oil supplies. The Republicans have portrayed Obama as weak on combating militant Islamism. create a massive crisis with Pakistan. Obama would be forced to take action. but neither would have much choice should the United States deal with Iran quickly and effectively. given the situation in Afghanistan. but then would risk looking like Lyndon Johnson in 1967. of course. So far. obviously. This is a cynical scenario. Nothing could. decisive to the rest. and. which would require a justification. The most obvious justification would be to claim that Iran is about to construct a nuclear device. but they are not conducive to dramatic acts. Iran is the one issue on which the president could galvanize public opinion.

These two developments may be connected. It can go either way. at least for a while. Ryan Jones September 21. so these forces would have to be attacked and reduced as well.…. The other option for Obama is to look for triumph in foreign policy where he has a weak hand. Sanctions are having almost no impact. Like Yugoslavia in 1999. It could change the dynamics of the Middle East and it could be a military failure. calm the Saudis and demonstrate to the Europeans American capability and will. and.Tracking Opportunity & Risk Related Developments out. physical confrontation rolls ever closer. Israeli Defense Minister Ehud Barak warned US President Barack Obama that history will judge his administration largely on 47 Mahmoud Ahmadinejad’s provocative posturing in Lebanon last week showed Iran is unlikely to change its ways. it would be an extended air war lasting an unknown number of months. nor would it be a short war. A campaign against Iran would have its risks. It could also create a civil war in Iraq. charging that he refused to adjust to the electorate's wishes.”…But Europe and the Obama Administration have signaled they have absolutely no intention of using force to stop Iran. Ahmadinejad's provocative posturing in Lebanon last week made that plain enough. according to STRATFOR's thinking.” Yatom told his audience. Obama needs to be seen as an effective commander in chief and Iran is the logical target. It would also cause the Russians and Chinese to become very thoughtful. This has its advantages and disadvantages. to . In an interview with Fox News on Monday. a shift to a foreign policy emphasis makes sense. sending the global economy into a deep recession on soaring oil prices. the risks outweigh the rewards. Iran could launch a terrorist campaign and attempt to close the Strait of Hormuz. 2010 Israeli officials are becoming increasingly frustrated by the international community’s footdragging regarding Iran’s defiant nuclear program. at least to delay it for years to come. …I am arguing the following. … If the campaign were successful. strategic position is to attack Iran. He can craft a re-election campaign blaming the Republicans for gridlock. or can be forced. the Iranian regime would be stronger politically. This would not solve the problem of the rest of Iran's conventional forces. withdrawal from Iraq. Obama will be paralyzed on domestic policies by this election. it seems the world has accepted a nuclear-armed Iran as a foregone conclusion. if not to completely remove the threat. AN IRAN CONFLICT IS DRAWING CLOSER The Guardian. ISRAEL: NO CHOICE BUT TO ATTACK IRAN Israel Today. The only obvious way to achieve success that would have a positive effect on the U. But neither sanctions nor diplomacy can wholly obviate the dreaded possibility of military confrontation unless something fundamental changes soon at the heart of Iran's fundamentalist regime. An attack on Iran would not be an invasion. the Republicans. A successful campaign would ease the U. but eviscerated militarily. and there is no credible threat of force. can blame him for the gridlock. And so the dread juggernaut of direct. First.S. For most Israelis.given the domestic gridlock that appears to be in the offing. Simon Tisdall 21 October 2010 fundamentally change its ways. and so Israel must retain the right to self-defense. which would represent a threat to the region. U. …. The US is quietly ratcheting up economic and financial pressure on Iran amid signs that talks about Tehran's suspect nuclear program could resume next month.S.S. Speaking at a counter-terrorism conference at the Interdisciplinary Center in Herzliya on Sunday. Such an attack would have substantial advantages and very real dangers. former Mossad chief Danny Yatom (said)…“If the modern air forces led by the United States mobilize their capabilities it is possible. All of these are possible risks. “Figure out for yourselves what that means.there is little or no evidence so far that Iran's top leadership is willing. intelligence could have missed the fact that the Iranians already have a deliverable nuclear weapon.

for example. we should present clear. almost inadvertent. 2010 …The U. Pakistan has long played a vital positive part — and a troublingly negative one. Pakistan’s institutions. particularly the country’s security organs. this aggressive approach would require the United States to think through a series of likely Pakistani responses. 2010 THE “AF-PAK” THEATER – THE END GAME THE U. By Zalmay Khalilzad. unpunctuated with military disasters. Iraq and the United Nations during the Bush administration. To deal with an interruption of our supply lines to Afghanistan. Both are undesirable options. with or without Pakistani consent.Tracking Opportunity & Risk Related Developments whether or not Iran went nuclear on his watch. October 19. They are confident that if they continue to frustrate our military and political strategy — even actively impede reconciliation between Kabul and Taliban groups willing to make peace — pro-Pakistani forces will have the upper hand in Afghanistan after the United States departs. significant incentives. from the Philippines). Conrad Black October 21. the U. In the region and in the wider war against terrorism. disorganized (Britain’s from India and Palestine. at the cost of many young American lives and many billions of dollars. the United States should offer to mediate disputes between Pakistan and Afghanistan. and the American people will not miss their 65-year total immersion in the world any more than the world will be heartbroken to be less dominated by the Americans. high-level talks to end the war — cutting through this Gordian knot has become more urgent and more difficult than ever before. 2010 48 . it could be much sooner. With Pakistani civilian and military leaders meeting with Obama administration officials this week in Washington — and with The Times report on Tuesday that Afghan and Taliban leaders are holding direct. help establish a trade corridor from Pakistan into Central Asia. …To induce quicker and more significant changes. Pakistani military leaders believe that our current surge will be the last push before we begin a face-saving troop drawdown next July. Washington must offer Islamabad a stark choice between positive incentives and negative consequences. National Review.’S DISORGANIZED RETREAT: OUT OF IRAQ. the United States will have to choose between fighting a longer and bloodier war in Afghanistan than is necessary.S. Sensible. In exchange for demonstrable Pakistani cooperation. was the ambassador to Afghanistan. the USSR’s from Poland). The United States should demand that Pakistan shut down all sanctuaries and military support programs for insurgents or else we will carry out operations against those insurgent havens. AFGHANISTAN — AND THE REST OF THE WORLD. by Eric Walberg September 20.S. not a serious plan of systematically handing over security matters to carefully prepared indigenous forces. …Pakistan gives not only sanctuary but also support to the Afghan Taliban…What’s more. But it all has the appearance and feel of a default position. GET TOUGH ON PAKISTAN New York Times. is conducting a more or less orderly retreat. and ensure that Pakistan’s adversaries do not use Afghanistan’s territory to support insurgents in Pakistani Baluchistan. Zalmay Khalilzad. Nonetheless. we must stockpile supplies and start bringing in more material through the northern supply routes and via air. or disastrous (Napoleon’s from Russia). are sufficiently strong to preclude such an outcome. of unplanned. Barak said that it would be no more than a year or two before Iran fields a nuclear weapon. or accepting a major setback in Afghanistan and in the surrounding region. feckless retreat. strategic withdrawals can be elegant (de Gaulle’s from Algeria. Arguments that such pressure would cause Pakistan to disintegrate are overstated. At the same time.S. …Without inducing a change in Pakistan’s posture. US ENDGAME IN AFGHANISTAN: THE EVIL OF THREE LESSERS Al-Jazeerah. and depending on what is in all those secret underground facilities Iran is building.

This. would require a revolution in US thinking: mend fences between it and Iran. will continue India will have to learn to live with the new Russian-Pakistani 49 . ultimately extending up to Gwadar on the Mekran coast. 2010 to escalate attacks with Hellfire missiles against whomever it chooses.…US is finally talking to the Taliban commanders." In language that has been heard again lately in Washington and Brussels with nothing but the place names changed . and soon thereafter departed Southeast Asia in defeat. 2010 …NATO will continue to launch lethal attacks inside Pakistan against whichever targets it sees fit and will proffer neither warnings nor apologies.Forty years ago Obama's predecessor Richard Nixon began his speech announcing the expansion of the Vietnam War into Cambodia…He claimed that "enemy sanctuaries" in Cambodia "endanger the lives of Americans who are in Vietnam. offering to cede control of the south to the Taliban while keeping control of the north. NATO EXPANDS AFGHAN WAR INTO PAKISTAN Global Research. however inaccurate." and "if this enemy effort succeeds. That is the policy of the Obama Administration. however.. but for the purpose of ending the war in Vietnam. CHINA: CHECKMATING INDIA IN AFGHANISTAN Indian Defense Review. if very poor and devastated country. Council for Foreign Relations President Richard Haass suggests partitioning Afghanistan. mediated by Pakistan and the Saudis.. Its second option is to let the regional governments take over in stabilizing the current regime. the proposed line in Afghanistan will meet the requirements of a copper mine which China is developing in the Aynak area in Afghanistan. By Rick Rozoff September 28. The US support for the Chinese policy will be to the detriment of India. leaving vast stretches of Vietnam and Cambodia in ruins. but. including Sirajuddin Haqqani.…. absolutely. By B Raman September 27th..Indian role in Afghanistan—yes. Vladimir Radyuhin September 9. The U. The Chinese policy in Afghanistan has two objectives— -to enhance its strategic presence and influence and to checkmate the Indian strategic presence and influence. will meet the external trade requirements of Chinese-controlled Xinjiang and other regions of Western China. And that means cleaning out major North Vietnamese and Vietcong occupied territories…The practical application of the policy was that "attacks are being launched this week to clean out major enemy sanctuaries on the Cambodian-Vietnam border. Iran has offered to help do this.Nixon claimed: "We take this action not for the purpose of expanding the war into Cambodia. anecdotal and self-interested the reports upon which they are based prove to be. Cambodia would become a vast enemy staging area and a springboard for attacks on South Vietnam…The course he ordered was to "go to the heart of the trouble. Its third option is a lame compromise between the above. While the railway line through GilgitBaltistan. …The total value of the Chinese investment in the copper mine alone will be almost three times the total value of the Indian investments in all projects in Afghanistan….Tracking Opportunity & Risk Related Developments The US has three choices at this point: the easy one is to just pull out and leave the Taliban to disarm the Western-created warlord militias and to work with the less odious members of the Karzai regime to create a viable regime in a peaceful. Afghanistan and Pakistan will not fare any better.S. This is a recipe for unending civil war too horrible to contemplate. with what disastrous effects the world is fully aware. CHANGING FACE OF RUSSIAPAKISTAN TIES The Hindu." Washington indeed expanded the Vietnam War into Cambodia. Chinese role in Afghanistan—yes. It holds the fate of this US endgame in its hands. 2010 China has shown interest in the construction of two railway lines—one in Pakistan via the Gilgit-Baltistan region and the other in Afghanistan. handing over Pashtun areas to the Taliban and arming the other ethnic groups to defend themselves.

By George Friedman …Pakistan is an American ally which the United States needs. chief of the Pakistani army and the most powerful figure in the country…. Medvedev in Sochi gave the green signal for an inaugural meeting of the Russian-Pakistani Inter-Governmental Commission on Trade and Economic and Scientific-Technological Cooperation in Islamabad this month. the Americans met privately with Gen. By Bob Woodward September 29. but Indian presence there looks doubtful now in the context of the emerging Russia-AfghanistanPakistan-Tajikistan axis. just a statement of political fact. has made clear it is not eager to take over the government. But this can by no means be taken for granted. the SUV had blown up in Times Square. angered by the inept handling of the country’s devastating floods and alarmed by a collapse of the economy. but he refused to do much. we wouldn't be having this conversation. all bets are off. Should a future attempt be successful. THE CANCER IS IN PAKISTAN' Washington Post. who could deliver nothing. Obama would be forced to do things that Pakistan would not like.Jones said he was alarmed that success in Afghanistan was tied to what the Pakistanis would or would not do. The two countries agreed to set up the joint commission 10 years ago but Moscow has. September 2010. in Pakistan. both Jones and Panetta said. just as Russia has taken India's entanglement with the U. The Obama administration had a "retribution" plan." the security adviser said. till now." Jones did not give specifics about what he meant. Nobody could tell him otherwise. HOW PAKISTAN CAN END THE AFGHAN WAR September 28. By Jane Perlez September 28. Obama had said toward the start of his fall 2009 Afghanistan-Pakistan strategy review that the more pressing U. India and Russia had planned to jointly use the Ayni airfield. There might be no way to save the strategic partnership. God forbid. "If that happens.Tracking Opportunity & Risk Related Developments bonhomie. "No one will be able to stop the response and consequences. No.If. which India helped to renovate. in its stride….Kayani would not budge much. The effects and implications will extend beyond the 12% of the Pakistani population who have been directly affected by the floods and will impinge upon the policy objectives of the US-led coalition engaged in Afghanistan…. both to balance growing Chinese influence in and partnership with Pakistan.S. Kayani had the power to deliver. 'WE NEED TO MAKE CLEAR . Mr. a nuclear power with a fragile civilian government. military officials and politicians said. PAKISTAN'S FLOODS: BROADER IMPLICATIONS International Institute for Strategic Studies (IISS). preoccupied by a war against militants and reluctant to assume direct responsibility for the economic crisis. . GENERALS IN PAKISTAN PUSH FOR A SHAKE-UP OF GOVERNMENT New York Times.The Sochi summit also dimmed India's hopes of gaining a strategic foothold in Tajikistan.S. one of the most sensitive and secretive of all military contingencies. Jones told Zardari. as it has many times before. The plan called for bombing about 150 identified terrorist camps in a brutal. 50 . Ashfaq Kayani." Afterward.The United States was getting nowhere fast with these guys. interests were really in Pakistan.It is also possible that the political shock induced by the floods and a successful reconstruction effort entailing abundant job opportunities will stimulate new thinking and bring about hitherto-elusive beneficial structural change …Fears about Pakistan had been driving President Obama's national security team for more than a year.In another breakthrough for Pakistan. Panetta said. a dominant military and an intelligence service that sponsored terrorist groups…. Underscoring Jones's point. They were talking with Zardari. 2010 The Pakistani military. "This is not a threat. 2010 (Floods) have also exposed with yet greater clarity Pakistan's political and institutional shortcomings. is pushing for a shake-up of the elected government…The military. He had other concerns…. . 2010 Stratfor. blocked its launch…. punishing attack inside Pakistan. The bottom line was depressing: This had been a charade….

Tracking Opportunity & Risk Related Developments and to contain India. The original goal of the war is irrelevant. The United States has no strong national interest in how Afghanistan is run so long as it does not support and espouse transnational jihadism.S. Pakistan has every reason to play this role.-Pakistan axis is pivotal for the U. India's long-running Maoist insurgency has increased in intensity in recent months. the U. However.Most important. the Taliban wants to run Afghanistan.S. Kayani will seek his pound of flesh on Kashmir. KASHMIR: THINKING THE UNTHINKABLE (INDIA SHOULD GIVE KASHMIR TO PAKISTAN) The Hindu. 2010 The political reality is that Pakistan has escalated its rhetoric on Kashmir. and Pakistan can provide the cover for turning a retreat into a negotiated settlement. and the current goal is rather difficult to take seriously. The political reality is that Pakistan has escalated its rhetoric on Kashmir…. Such a strategic shift is not without profound political complexity and difficulties.S. Dr. The Intifada unfolding in the Valley has diverse moorings and the killing of innocents may well turn out to be a sideshow in the 20-year deadly game that is far from played out. INDIA'S MAOIST INSURGENCY International Institute for Strategic Studies (IISS) September 2010 The Intifada unfolding in the Valley has diverse moorings. but a defeat could harm U. It needs the United States over the long term to balance against India. Pakistan needs the United States for the same reason. Therefore. However. coined the phrase ‘thinking the 51 . We need to carefully measure the timeline available to normalise the J&K situation. It needs an end to U. It must have a stable or relatively stable Afghanistan to secure its western frontier. the Dantewada massacre was a 'wake-up call' that emphasized the urgency of addressing the Maoist insurgency. The government's invitation to China to invest in the development of J&K indeed underscores our growing sense of awareness. According to Chidambaram. something the United States could benefit from. Meanwhile. His government. forays into Pakistan that are destabilizing the regime. INDIA'S UNFOLDING INTIFADA IN KASHMIR The Hindu. Even a victory. interests. We suspect that all sides are moving toward this end. Politicising the crisis will be a most irresponsible thing to do. A regime change in Srinagar is not the priority today. regional strategies in Central Asia and in a not-toodistant future Mr.S. And playing this role would enhance Pakistan's status in the Islamic world. the United States needs a withdrawal that is not a defeat. Herman Kahn. Bhadrakumar September 20. whatever that would look like. M. this is an ambitious goal. too. would make little difference in the fight against transnational jihad.…Prime Minister Manmohan Singh has described the rebellion as 'India's gravest security threat’. 2010 Could Indian withdrawal from Kashmir initiate the Dulles nightmare of a domino effect? Back in the bad old days of the Cold War. The United States isn't going to defeat the Taliban. under strong pressure to act decisively against the Maoists. the heaviest of the backroom hawks of the Pentagon. Vithal Rajan October 9. few measures have been put in place that will enable the government to fulfil its pledge to overcome the problem of left-wing extremism within three years. But it needs its withdrawal to take place in a manner that strengthens its influence rather than weakens it. K. has pledged that 'the problem of left-wing extremism [will] be overcome in the next three years'.

cruelty. because the people there do not consider Let us ask another hard question. Would withdrawal increase militancy? Most probably. It has taken Great Britain 60 years to realize it is no longer the centre of an empire. India's inveterate enemy? On the contrary. and a bankrupt diplomatic policy. it should not fritter away its resources on nuclear weapons. and strictly prevent any more human rights abuses. would it jeopardise the security of Indians? Not really. and that is the real reason for their hegemonic control over the region. Can we use similar hardline approaches to review the Kashmir imbroglio? The first question to ask is. they are spread thinly everywhere and new partitions are a geographical impracticality.Tracking Opportunity & Risk Related Developments unthinkable. The mountainous barrier between the Kashmir Valley and India is a better defensive line to guard than the present long untenable frontier of the Line of Control. The government must cauterise the Kashmir wound. or Commonwealth Games. we mean the ordinary aamjanta of the poor. Indians have no such reason to retain control of Kashmir.' meaning strategies for wiping out the Soviet Union with nukes. India should use its scarce resources where they are most needed. modern standards of governance. to regain if possible. Hanging on to the great economic resource drain of Kashmir will only worsen the situation. do Indians need Kashmir? By Indians.' Indians are not the leaders of Asia — the Chinese are. Would not letting Kashmir go give the palm to Pakistan. the supply of which is crucial for our well-being. elitist. ECONOMIC IMPLICATIONS OF US CONGRESSIONAL ELECTIONS (NOV 2010) . to help people raise themselves out of poverty. If India wishes to be considered a good second to China. aircraft carriers. not only among Muslims but across a wide section of the poor and middle-classes. Indian rulers have yet to realize they are no longer in charge of ‘the jewel in the crown. but that is the end result of poor governance.' and wish all Indians to go to the devil. Ronald Reagan had a better idea. India must be proactive in demanding an immediate international settlement of a problem created by Nehru. with all Indian Muslims rising up as one man to demand more partitions? While few Indian Muslims have any reason to thank the Indian state for the non-benign neglect they have received over 60 years. tighten military spending. high-handedness. because the people of the Valley are dependent on our protection? ‘No'. What will be lost along with Kashmir? An unreal and bloated sense of self-importance. If Indian troops are out of Kashmir. and the struggling middle classes. it might catastrophically weaken its real enemy…Whatever the final shape of the outcome. 52 Could Indian withdrawal from Kashmir initiate the Dulles nightmare of a domino effect. perhaps unjustly. Luckily for all of us. The American people are dependent on oil from the Middle East. The answer clearly is a resounding ‘No'! There are no ‘resources' of any kind from Kashmir. and non-democratic rule is widespread. the same result could be achieved by an undeclared economic war and arms race that would force the communists to scratch themselves out of the tournament. themselves ‘Indians. is the answer once again. because discontent against corrupt. Should we be there in Kashmir against all odds out of moral obligation.