AMBASSADOR MEETS WITH FINANCE ADVISOR TAREEN

UNCLAS SECTION 01 OF 03 ISLAMABAD 003375

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN ETRD PREL PGOV PK
SUBJECT: AMBASSADOR MEETS WITH FINANCE ADVISOR TAREEN


1. (SBU) Summary. Ambassador met with newly appointed de facto
Finance Minister Shaukat Tareen on October 23 to discuss economic
affairs. Tareen noted that he supports the IMF program and thinks
the final plan will be concluded soon. He also noted that the
Government of Pakistan (GOP) will be ready to discuss a menu of
options for the Friends of Pakistan after the IMF deal is finalized.
He confirmed that the Karachi Stock Exchange floor will be removed
on October 27 and noted that he expects foreign investors to
withdraw significant funds from the markets. The free flowing
discussion covered Tareen's overall strategy for the governmental
institutions which focus on Pakistan's economy. Other issues of
bilateral importance such as Coalition Support Funds, Shared
Objectives funds, development in the Federally Administered Tribal
Areas (FATA) were also discussed. End Summary.

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OVERALL ECONOMIC STABILITY
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2. (SBU) Ambassador met with Shaukat Tareen, Advisor to the Prime
Minister on Finance and de facto Finance Minister, to discuss the
current state of the economy. Tareen noted that he was working to
develop a comprehensive plan with all segments of the society
included and not just based on "elite thinking." Referencing his
nine point plan which will emphasize macro economic stability,
Tareen noted that he believes the most important aspect of this plan
over the long term is to improve the competitiveness of
manufacturing machinery and to develop human resources capabilities
to allow Pakistan to remain competitive in the manufacturing
sectors. Tareen noted, however, that at present the most important
aspect for Pakistan is to stabilize the macro economic indicators
"which are hindering all other issues."


3. (SBU) Noting that during his recent trip to the World Bank
meetings, he had called President Zardari from Washington to discuss
his talks with the International Monetary Fund (IMF) and "told
Zardari that we must help ourselves first" and "if we are serious
about our plan for the economy then we should not be scared of the
IMF." Responding to the Ambassador's question about Zardari's
comfort with moving forward on the IMF program, Tareen indicated
that Zardari is still a bit apprehensive.


4. (SBU) Noting that the GOP team is in Dubai now for continuation
of talks with the IMF, Tareen noted that he expected the IMF loan to
be front loaded and to have incremental conditionality. Referring
to his recent talks with Treasury's Deputy Secretary Kimmitt, Tareen
noted that he expects to get USD 5.5 to 6 billion despite the IMF's
initial offer of only USD 4 billion for the loan. Tareen noted "if
we are meeting the conditionality on our own, why not explore" the
option for getting more money "so that we can really turn around
Pakistan's economy."


5. (SBU) Tareen noted that the GOP would be able to discuss "the
menu" for the Friends of Pakistan (FOP) and "plan for the next
meeting after the IMF plan is finalized." Noting that Pakistan
needed to have a "market oriented menu available," he mentioned oil
concessions, the securitization of remittances, investments such as
in textile mills, bank shares as well as market access "in
Reconstruction Opportunity Zones or whatever" as possible items for
inclusion on the FOP menu.

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REFORMING THE GOVERNMENT
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6. (SBU) Stating that "Pakistan needs an institution to take the
country's vision forward," Tareen emphasized that he wants to make a
difference in industrial planning and proclaimed that Pakistan
currently lacks an institution to take the vision forward. Noting
that he believes that the Planning Commission should become the
fundamental planning organ for the government and serve as a think
tank with linkages to the Ministries, Tareen further explained that
he envisions the Planning Commission's role to be focused on
implementation with regular follow up meetings to measure progress
every two months. (Note: With the Prime Minister as the head of the
Planning Commission, Salman Faruqui currently serves the Deputy
Planning Commission at a Ministerial level. End Note.)


7. (SBU) Tareen noted that civil servants have no motivation to work

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given the low levels of their salary and no incentive mechanisms.
He further explained that a Federal Secretary is currently paid
55,000 (USD 680) rupees per month as a base salary which is expanded
to 300,000 rupees (USD 3,700) per month with expenses such as
housing and car. Noting "if that is what you can expect after 30
years of service," Tareen questioned "why should civil servants work
hard?" Ambassador agreed that civil servants are critical to the
government's overall success and the future of the country.

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COALITION SUPPORT FUNDS
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8. (SBU) Turning to the Coalition Support Funds (CSF),Ambassador
noted that we need to mutually stabilize the CSF payment process.
Explaining that the CSF program contributes USD 1.2 billion in cash
to the Pakistan economy for expenses incurred in the war on terror,
Ambassador further noted that there are currently issues between the
army and the government on what is covered as a reimbursable
expense. Ambassador further noted that the USG and the GOP need to
look at the overall practice and work out problems in the billing
process. Noting that he wants to cooperate and solve any
outstanding issues, Tareen suggested that GOP and USG officials meet
to discuss the issues and ensure that there is transparency in the
process so that genuine expenses are paid. Further noting that he
expects there will be an understandable lag in the payments while
the US verifies the monies, Tareen emphasized that transparency in
the system is critical. Ambassador noted that the "process has
improved but that the Army still doesn't think it is getting
adequately reimbursed." Tareen suggested that we find a point
person and stated "I was a Citibanker- I get that you need to have
transparency."

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SHARED OBJECTIVES and FATA
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9. (SBU) Ambassador noted that last fall the USG transferred the
Shared Objectives money from direct budgetary support to specific
projects. Explaining that this shift in US policy occurred due to
Pakistan's State of Emergency declaration, Ambassador noted that "we
need to look at these projects to ensure that we are on the same
page" since there have been several shifts in the Ministry. Tareen
agreed to cooperate in any efforts.


10. (SBU) Turning to the FATA, Ambassador also noted that we are
having some difficult issues with the implementation of our projects
in the FATA and emphasized that we need to appoint a single point of
contact who can bridge the divide between the federal and provincial
authorities and navigate the bureaucratic maze. Citing the recent
work with the internally displaced persons, Ambassador noted that we
experienced difficulties with internal competing authorities in the
Pakistani system which has slowed the relief work considerably.
Ambassador further noted that if the World Bank Trust Fund evolves
then a leader such as General Nadeem who was instrumental in the
success of the earthquake reconstruction will be essential for
making success on projects in the FATA. Tareen stated that he wants
to be helpful and noted that he believes economic issues are fueling
terrorism in Pakistan so he would do his part to assist in whatever
was needed.

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KARACHI STOCK EXCHANGE (KSE)
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11. (SBU) Ambassador asked Tareen about what he expects to happen
when the floor is removed from the KSE. Tareen noted that the KSE
floor will be removed on Monday, the 27th and stated that the GOP
has stop intervening in the market in the future. He noted that the
GOP announced a new measure which will be available only to foreign
investors. This measure will give foreign investors who were
invested in the KSE on August 27 when the floor was imposed a put
option for up to 30 billion rupees. Tareen noted that he still
anticipates that foreign investors will leave with significant
levels of funding but that the GOP can only do so much to assist in
these economic situations. [Note: After a late night meeting on
October 26, the KSE Managing Director Adnan Afridi announced that
the floor will not/ not be removed "until a later date" but failed
to gave any indication of the exact timeframe. End Note.]

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INTERNATIONAL MONETARY FUND
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12. (SBU) Responding to the Ambassador's question about whether he
plans to travel to Dubai for the IMF discussions, Tareen noted that
there was no point in his travel since Finance Secretary Waqar
Masood Khan and State Bank Governor Aktar were there. He noted that
the IMF negotiations were almost finalized while he was in DC but
that the IMF now wanted "backup numbers." He stated that he hopes
to "stabilize the current macro situation with IMF help by December
so that by January the real work on the economy can begin."

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PRIVITIZATION and the BIT
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13. (SBU) Tareen responded to the Ambassador's question about plans
for privatization by noting that his personal opinion is that "the
government has no business running business" and that privatization
plans need to move forward. He noted that he has discussed
privatization issues with Zardari and that he envisions plans "where
the government can maintain a percentage but allow complete
management control and a controlling stake to the private sector."
Ambassador also noted that concluding the bilateral investment
treaty (BIT) would send a strong signal to foreign investors that
Pakistan is open for business. Econ Counselor noted that the USG
has not received a response from the GOP on proposed dates for the
BIT negotiations to be held in November in Washington. Tareen noted
that he "would follow up immediately and intended to get the BIT
done quickly."

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COMMENT
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(SBU) Comment: During the Ambassador's meeting, Tareen mentioned
with passing reference "his new nine point plan." Post consistently
scours the local press for any economic developments and was unaware
of any such announcement by the newly appointed de facto Finance
Minister. Contacts at the Finance Ministry subsequently confirmed
that Tareen has announced a new economic plan with the following
"action items." The nine point plan is as follows: Stabilize macro
economic indicators such as inflation, budget deficit and exchange
rate; Introduce social safety nets such as Benazir Income Support
Program; Promote agricultural development; Encourage manufacturing
sector competitiveness; Develop human resources; Launch an
integrated energy development plan; Promote private public
partnerships; Work on capital market reforms and Consolidate and
upgrade administrative machinery through civil services reforms.
None of these points have any implementation measures associated
with them nor have them been explained in any detail publicly.

(SBU) Comment continued. Tareen is the third Finance Minister to be
appointed since the ruling government came to power in the February
18 elections. He is clearly engaged on macro economic issues and
appears to be in more regular and closer consultation with Zardari
than former Finance Minister Qamar. Tareen stated that he is
working for the GOP for only one rupee per year as a salary. He
noted that he also asked for housing and a car but felt that "he
needed to take this job for the national good and to put the country
back on track." Publicly, Tareen continues to make statements to
soften the population towards the inevitable IMF program by claiming
that no GOP decisions will be necessary until mid-November; however,
Tareen privately acknowledges that Pakistan needs the IMF and is
working behind the scenes to secure the necessary support among the
GOP leadership. End Comment.

PATTERSON