Identifier
Created
Classification
Origin
09ISLAMABAD718
2009-04-06 06:48:00
CONFIDENTIAL
Embassy Islamabad
Cable title:  

FINANCE ADVISOR OUTLINES STRATEGY FOR DEPSEC LEW

Tags:  PREL PGOV PTER EAID ECON PK 
pdf how-to read a cable
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C O N F I D E N T I A L SECTION 01 OF 03 ISLAMABAD 000718 

SIPDIS

E.O. 12958: DECL: 03/19/2019
TAGS: PREL PGOV PTER EAID ECON PK
SUBJECT: FINANCE ADVISOR OUTLINES STRATEGY FOR DEPSEC LEW

Classified By: Anne W. Patterson, for reasons 1.4 (b)(d)

C O N F I D E N T I A L SECTION 01 OF 03 ISLAMABAD 000718

SIPDIS

E.O. 12958: DECL: 03/19/2019
TAGS: PREL PGOV PTER EAID ECON PK
SUBJECT: FINANCE ADVISOR OUTLINES STRATEGY FOR DEPSEC LEW

Classified By: Anne W. Patterson, for reasons 1.4 (b)(d)


1. (C) During an April 1 dinner for Deputy Secretary Lew,
Finance Advisor Tareen outlined Pakistan's nine-point
agenda for economic development. He recommend the USG
focus on poverty alleviation, education and energy as
sectors best organized to absorb assistance. Benazir
Income Support Program (BISP) Chair Raja outlined plans to
conduct a needs survey of Pakistan's poorest districts as
the newly created BISP doubles its recipients. Higher
Education Commissioner Wazir Ali emphasized the need to
provide assistance beyond just the tribal border regions
and urged a focus on job training for youth. Tareen
explained the need for civil service reform to improve
implementation of programs and described his daily visits
to the Federal Board of Revenue to press them for
private-sector tax collection. The good news is that the
GOP is working to put meat on the bones of this ambitious
economic development plan. We will continue to press the
GOP to prioritize its goals as we tailor current and
pending USG assistance to Pakistan's ability to absorb
aid. Septel will provide an overview of how the Mission
proposes to spend and monitor pending increases in economic
and military assistance. End Summary.


2. (SBU) Ambassador hosted a dinner for Deputy Secretary
Jacob Lew April 1 with Finance Advisor Shaukat Tareen,
State Minister for Economic Affairs Hina Rabbani Khar,
Chair of the Higher Education Commission Shahnaz Wazir Ali,
and Chair of the Benazir Bhutto Income Support Fund Farzana
Raja. Also attending were USAID Senior Deputy
Administrator Jim Bever, DepSec Chief of Staff Piper
Campbell, USAID Country Director, Polcouns and Econcouns.


3. (C) Deputy Secretary Lew noted that the Congress was
in the midst of reviewing the Administration's new strategy
for Pakistan and Afghanistan and pending legislation to
expand both economic and military assistance. The
Congress, he noted, would be more inclined to support this
increased assistance if the GOP was able to articulate a

concise economic development strategy. The U.S. also
wanted to ensure there was adequate capacity in Pakistan to
absorb this assistance. Tareen agreed and laid out a
nine-point strategy:

--economic stabilization (reducing the fiscal deficit,
bringing down inflation, and building up foreign
exchange reserves);
--poverty alleviation (using the Benazir Income Support
Fund);
--strengthening the agricultural sector (productivity
enhancement, water management and livestock and dairy
improvement) ;
--consolidating the fractured manufacturing sector and
making it more competitive (reducing tax burdens);
--developing an integrated energy plan (to include hydel,
coal and alternative sources such as solar and wind, which
Pakistan has in abundance);
--infrastructure improvements (funded by public-private
partnerships);
--financial sector reform (focusing on the stock market and
introduction of a debt market);
--human resources development (job skills development); and
--administrative reform (reducing and improving the civil
service through salary reforms).

Targeting Assistance


4. (C) Tareen suggested that U.S. assistance be targeted
on poverty alleviation, education, and energy because the
GOP's structure in these areas was best able to absorb
support. Beyond this, he recommended a sequenced approach
to assistance, based on absorptive capacity. Ambassador
noted that we were considering assistance to the Benazir
Income Support Fund (BISP) as part of our contribution to
be announced at the Donors' Conference. She said we were
consulting with the GOP about the Mission's plan to
target USAID programs to specific geographic areas where
poverty, unemployment and growing extremism were breeding
terrorism. This included not just the tribal areas
but also parts of the Northwest Frontier Province
(NWFP),southern Punjab, northern Sindh and areas
of Karachi, and parts of Balochistan.

ISLAMABAD 00000718 002 OF 003




5. (C) Farzana Raja reported that the BISP was launching
a survey of the 16 poorest districts in Pakistan. The
survey, which is funded by the World Bank, will collect
information by the end of May to use in planning for health
and education spending by the GOP. BISP will initially
cover 3.5 million families, targeting female heads of
household, but the plan is to expand to cover seven million
families over the next two years. The coverage eventually
will include health insurance and vocational education
training.


6. (C) Shahnaz Wazir Ali agreed that vocational training
was critical, especially given low literacy rates across
Pakistan. However, she also noted the importance of
involving the private sector to ensure there are jobs for
the period after trainees graduate. She also lamented
budget cuts for higher education and the low (three percent)
level of Pakistanis who graduated from universities.
Wazir Ali recommend that all of Pakistan be targeted,
not just the tribal areas and NWFP and pressed for a
specific focus on youth.

Security


7. (C) Ambassador noted that the Mission recently had
completed a survey of police needs, especially in the
NWFP. We were introducing a program of expanded unit-based
police training, would continue efforts to provide
non-lethal equipment, and had offered to help harden police
stations in vulnerable districts like Swat. Our survey
indicated the police were most focused on the lack of
insurance and salary increases that would help their
families with expenses like weddings, and death benefits
for sole family income providers. Wazir Ali said that
social safety net programs, including health insurance,
were a priority everywhere, given the weakness of
state-provided programs. Tareen admitted that he did not
have money to adequately pay the police. He suggested the
need for a survey of areas like southern Punjab, where
extremism is growing, so that flexible local solutions
could be developed to best fit district-level conditions.
Others at the dinner concurred with his focus on the Punjab
and areas east of the NW Frontier. Tareen repeatedly
emphasized the government's lack of a sufficiently
strong analytical ability and said he was proposing a
think tank to study terrorist sources, motivations
and strategies to counter extremism.

Civil Service Reform


8. (C) Noting that the ability of the GOP to absorb
assistance depended on the ability to implement programs,
Tareen expressed concern about the bloated and often
ineffective civil service. He said that civil service
salary scales were completely skewed, particularly at the
higher levels. Chief of Army Staff General Kayani's base
monthly salary is less than $700, for example, although if
perks are included it might approach $12,000. In contrast,
when Tareen was at Citibank his monthly salary was $15,000
in cash. In order to afford higher salaries at higher
levels, the size of the bureaucracy must be reduced,
however. Tareen noted the success of some reform efforts,
citing how the motorway/traffic police were providing
efficient services and did not spare VIPs when they handed
out tickets. The force was able to pay more, attract
recruits with higher education levels and work as a
meritocracy. A similar reform effort was needed in other
parts of the government. He recalled that when he was head
of Habib Bank he successfully laid off a large portion of
the work force by providing generous severance packages
("golden handshakes") and believed he could do the same
with government ministries. He admitted that there were
political challenges to reducing the size of the
bureaucracy that supported over 50 ministries.

Planning Capabilities


9. (C) Tareen expressed concern about the lack of GOP
planning capability and said several times that he wanted
to improve the capacity of the Planning Commission, which
in the 1960's was good enough to have given South Korea
assistance. He also was revitalizing the Economic Advisory

ISLAMABAD 00000718 003 OF 003


Council, which he chairs, made up of 16 prominent
economists. One member, Farouk Ramatullah formerly of
Shell, had drafted an integrated energy plan. (Note:
members include: Sardar Asif Ahmad Ali, Deputy Chairman,
Planning Commission; Hina Rabbani Khar, Shahnaz Wazir Ali;
Mian Tariq Saigal, former DG of the Civil Aviation
Authority; Saleem Raza, Governor of the State Bank of
Pakistan; Jahangir Tareen, former Minister of Industries;
and Hafeez Pasha, former Minister of Planning and
Development. End Note)

Energy


10. (C) Bever followed up by asking about plans to
improve the energy sector. Tareen said he repeatedly
complained that it would be more efficient to develop
Pakistan's own resources -- he emphasized the potential of
the Sui gas and Thar coal deposits -- than to continue
being at the mercy of foreign supplies. He welcomed U.S.
assistance in focusing on development of the Thar reserves.

Tax Collection


11. (C) Tareen was also focused on improving the GOP's
tax collection capabilities. He said he visited the Federal
Bureau of Revenue (FBR) every morning to drink tea with the
tax collectors and discuss the day's agenda. He is trying
to change their mindset from one of targeting government
entities and large corporations to widening the tax net. "I
want to call it 'FBR, Inc.' and allow them to keep a
certain percentage of the taxes they collect." Although two
million tax returns are filed, only 560,000 actually pay
taxes. He repeated his public pledge to begin taxing the
agricultural sector. Unless Tareen can increase the
percentage of tax revenue to GDP beyond 9 percent, "I won't
ever be able to adequately pay the police."


12. (C) Comment: The good news is that the GOP does have
an economic development plan and is working, albeit slowly,
to map out how to implement it. Given Pakistan's vast
needs and limited resources, we will continue to press them
to prioritize their goals. We are extremely mindful of the
need to tailor proposed assistance programs so they do not
overwhelm the absorptive capacity of the government or of
USG ability to monitor that assistance. Septel, we will
provide an overview of how we propose to spend and monitor
pending increases in economic and military assistance.

PATTERSON