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Diplomacy in Action

Pakistan (11/03)


For the most current version of this Note, see Background Notes A-Z.


Islamic Republic of Pakistan

Area: 803,943 sq. km. (310,527 sq. mi.); almost twice the size of California.
Cities: Capital--The city of Islamabad (pop. 800,000) and adjacent Rawalpindi (1,406, 214) comprise the national capital area with a combined population of 3.7 million. Other cities--Karachi (9,269,265), Lahore (5,063,499), Faisalabad (1,977,246) and Hyderabad (1,151,274).

Nationality: Noun and adjective--Pakistan(i).
Population (2003 est.): 150, 694,740.
Annual growth rate (2003): 5%.
Ethnic groups: Punjabi, Sindhi, Pathan (Pushtun), Baloch, Muhajir (i.e., Urdu-speaking immigrants from India and their descendants), Saraiki, Hazara.
Religions: Muslim 97%; small minorities of Christians, Hindus, and others.
Languages: Urdu (national and official), English, Punjabi, Sindhi, Pushtu, Balochi, Hindko, Brahui, Saraiki (Punjabi variant).
Education: Literacy (2003)--45.7%; male 59.8%; female 30.6%. Unofficial estimates are as low as 35%.
Health: Infant mortality rate (2003)--76.53/1,000. Life expectancy (2003)--men 61.3 yrs., women 63.14 yrs.
Work force (2000): Agriculture--44%; services--39%; industry--17%.

Type: parliamentary democracy.
Independence: August 14, 1947.
Branches: Executive--chief of state: President Pervez Musharraf (since June 20, 2001); however, President Musharraf first took power in a bloodless coup Oct. 12, 1999. Head of government: Prime Minister Mir Zafarullah Khan Jamali (since Nov. 23, 2002). The president is elected by Parliament for a 5-year term; the prime minister is selected by the National Assembly for a 4-year term. Provinces are headed by a governor and provincial cabinet, who are civilians appointed by the chief executive. Legislative--Bicameral Parliament or Majlis-e-Shoora consists of the Senate, 100 seats; members are indirectly elected by provincial assemblies to serve 4-year terms and the National Assembly, 342 seats; 60 seats reserved for women, 10 seats reserved for minorities. Members elected by popular vote serve 4-year terms. Judicial--Supreme Court, provincial high courts, Federal Islamic (or Shari'a) Court.
Political parties: The Pakistan Muslim League (PML) and the Pakistan People's Party (PPP) are national political parties, while the Muttahid Majlis-e-Amal, an umbrella group of six religious parties, including the Jamaat-I-Islami, gained significant influence during the last election. Other parties with a strong regional, ethnic, or religious base include the Muttahida Qaumi Movement (MQM).
Suffrage: Universal at 18.
Following the October 12, 1999, ouster of the government of Prime Minister Nawaz Sharif, the military-led government stated its intention to restructure the political and electoral systems. General Pervez Musharraf suspended Pakistan's Constitution, assumed the additional title of Chief Executive, and appointed and eight-member National Security Council to function as Pakistan's supreme governing body. On May 12, 2000, Pakistan's Supreme Court validated the coup and granted Musharraf executive and legislative authority for 3 years from the coup date. On June 20, 2001, Musharraf named himself as president and was sworn in. On April 30, 2002, his presidency was extended for 5 more years.
Political subdivisions: Each of the four provinces--Punjab, Sindh, Northwest Frontier, and Balochistan--comes under the authority of the governor and provincial cabinet, appointed by the Chief Executive. The Northern Areas and Federally Administered Tribal Areas (FATA) are administered by the federal government but enjoy considerable autonomy.

GDP (2002 est.): PPP $311 billion.
Real annual growth rate(2001-02): 5%.
Per capita GDP (2001): PPP- $2,100.
Natural resources: Arable land, natural gas, limited petroleum, substantial hydropower potential, coal, iron ore.
Agriculture: Products--wheat, cotton, rice, sugarcane, tobacco.
Industry: Types--textiles, fertilizer, steel products, chemicals, food processing, oil and gas products, cement.
Trade (FY 2002-03): Exports--$9.8 billion: textiles (garments, cotton cloth, and yarn), rice, leather, sports goods, and carpets and rugs. Major partners--U.S. 27.0%, United Arab Emirates 8%, U.K. 7.2%, Germany 4.9% , Hong Kong 4.8%. Imports--$11.1 billion: petroleum, petroleum products, machinery, chemicals, transportation equipment, edible oils, pulses, iron and steel, tea. Major partners--United Arab Emirates 13.1%, Saudi Arabia 1.6%, Kuwait 7.1%, U.S. 6.7%, China 5.6%.

The majority of Pakistan's population lives along the Indus River valley and along an arc formed by the cities of Faisalabad, Lahore, Rawalpindi/Islamabad, and Peshawar. Although the official language of Pakistan is Urdu, it is spoken as a first language by only 8% of the population; 48% speak Punjabi, 12% Sindhi, 10% Saraiki, 8% Pashtu, and 14% other. Urdu, Punjabi, Pushtu, and Baloch are Indo-European languages. English is widely used within the government, the officer ranks of the military, and in many institutions of higher learning.

Pakistan, along with parts of western India, contain the archeological remains of an urban civilization dating back 4,500 years. Alexander the Great included the Indus Valley into his empire in 326 B.C., and his successors founded the Indo-Greek kingdom of Bactria based in what is today Afghanistan and extending to Peshawar.

In later centuries following the rise of the Central Asian Kushan Empire, the Buddhist culture of Afghanistan and Pakistan, centered on the city of Taxila just east of Peshawar, experienced a cultural renaissance known as the Gandhara period.

Pakistan's Islamic history began with the arrival of Muslim traders in the 8th century in Sindh. The collapse of the Mughal Empire in the 18th century provided an opportunity to the English East India Company to extend its control over much of the subcontinent. In the west in the territory of modern Pakistan, the Sikh adventurer Ranjit Singh carved out a dominion that extended from Kabul to Srinagar and Lahore. British rule replaced the Sikhs in the first half of the 19th century. In a decision that had far-reaching consequences, the British permitted the Hindu Maharaja of Kashmir, a Sikh appointee, to continue in power.

Pakistan emerged over an extended period of agitation by many Muslims in the subcontinent to express their national identity free from British colonial as well as domination by what they perceived as a Hindu-controlled Indian National Congress. Muslim anti-colonial leaders formed the All-India Muslim League in 1906. Initially, the League adopted the same objective as the Congress--self-government for India within the British Empire--but Congress and the League were unable to agree on a formula that would ensure the protection of Muslim religious, economic, and political rights.

Pakistan and Partition
The idea of a separate Muslim state emerged in the 1930s. On March 23, 1940, Muhammad Ali Jinnah, leader of the Muslim League, formally endorsed the "Lahore Resolution," calling for the creation of an independent state in regions where Muslims constituted a majority. At the end of World War II, the United Kingdom moved with increasing urgency to grant India independence. The Congress Party and the Muslim League, however, could not agree on the terms for a Constitution or establishing an interim government. In June 1947, the British Government declared that it would bestow full dominion status upon two successor states--India and Pakistan, formed from areas in the subcontinent in which Muslims were the majority population. Under this arrangement, the various princely states could freely join either India or Pakistan. Accordingly, on August 14, 1947 Pakistan, comprising West Pakistan with the provinces of Punjab, Sindh, Balochistan, and the Northwest Frontier Province (NWFP), and East Pakistan with the province of Bengal, became independent. East Pakistan later became the independent nation of Bangladesh.

The Maharaja of Kashmir was reluctant to make a decision on accession to either Pakistan or India. However, armed incursions into the state by tribesman from the NWFP led him to seek military assistance from India. The Maharaja signed accession papers in October 1947 and allowed Indian troops into much of the state. The Government of Pakistan, however, refused to recognize the accession and campaigned to reverse the decision. The status of Kashmir has remained in dispute.

After Independence
With the death in 1948 of its first head of state, Muhammad Ali Jinnah, and the assassination in 1951 of its first prime minister, Liaqat Ali Khan, political instability and economic difficulty became prominent features of post-independence Pakistan. On October 7, 1958, President Iskander Mirza, with the support of the army, suspended the 1956 Constitution, imposed martial law, and canceled the elections scheduled for January 1959. Twenty days later the military sent Mirza into exile in Britain and Gen. Mohammad Ayub Khan assumed control of a military dictatorship. After Pakistan's loss in the 1965 war against India, Ayub Khan's power declined. Subsequent political and economic grievances inspired agitation movements that compelled his resignation in March 1969. He handed over responsibility for governing to the commander in chief of the army, General Agha Mohammed Yahya Khan, who became President and Chief Martial Law Administrator.

General elections held in December 1970 polarized relations between the eastern and western sections of Pakistan. The Awami League, which advocated autonomy for the more populous East Pakistan, swept the East Pakistan seats to gain a majority in Pakistan as a whole. The Pakistan Peoples Party (PPP), founded and led by Ayub Khan's former Foreign Minister Zulfikar Ali Bhutto, won a majority of the seats in West Pakistan, but the country was completely split with neither major party having any support in the other area. Negotiations to form a coalition government broke down, and a civil war ensued. India attacked East Pakistan and captured Dhaka in December 1971, when the eastern section declared itself the independent nation of Bangladesh. Yahya Khan then resigned the presidency and handed over leadership of the western part of Pakistan to Bhutto, who became President and the first civilian Chief Martial Law Administrator.

Bhutto moved decisively to restore national confidence and pursued an active foreign policy, taking a leading role in Islamic and Third World forums. Although Pakistan did not formally join the Non-Aligned Movement until 1979, the position of the Bhutto government coincided largely with that of the non-aligned nations. Domestically, Bhutto pursued a populist agenda and nationalized major industries and the banking system. In 1973, he promulgated a new Constitution accepted by most political elements and relinquished the presidency to become prime minister. Although Bhutto continued his populist and socialist rhetoric, he increasingly relied on Pakistan's urban industrialists and rural landlords. Over time the economy stagnated, largely as a result of the dislocation and uncertainty produced by Bhutto's frequently changing economic policies. When Bhutto proclaimed his own victory in the March 1977 national elections, the opposition Pakistan National Alliance (PNA) denounced the results as fraudulent and demanded new elections. Bhutto resisted and later arrested the PNA leadership.

1977-1985 Martial Law
With increasing anti-government unrest, the army grew restive. On July 5, 1977, the military removed Bhutto from power and arrested him, declared martial law, and suspended portions of the 1973 Constitution. Chief of Army Staff Gen. Muhammad Zia ul-Haq became Chief Martial Law Administrator and promised to hold new elections within 3 months.

Zia released Bhutto and asserted that he could contest new elections scheduled for October 1977. However, after it became clear that Bhutto's popularity had survived his government, Zia postponed the elections and began criminal investigations of the senior PPP leadership. Subsequently, Bhutto was convicted and sentenced to death for alleged conspiracy to murder a political opponent. Despite international appeals on his behalf, Bhutto was hanged on April 6, 1979.

Zia assumed the presidency and called for elections in November. However, fearful of a PPP victory, Zia banned political activity in October 1979 and postponed national elections.

In 1980, most center and left parties, led by the PPP, formed the Movement for the Restoration of Democracy (MRD). The MRD demanded Zia's resignation, an end to martial law, new elections, and restoration of the Constitution as it existed before Zia's takeover. In early December 1984, President Zia proclaimed a national referendum for December 19 on his "Islamization" program. He implicitly linked approval of "Islamization" with a mandate for his continued presidency. Zia's opponents, led by the MRD, boycotted the elections. When the government claimed a 63% turnout, with more than 90% approving the referendum, many observers questioned these figures.

On August 17, a plane carrying President Zia, American Ambassador Arnold Raphel, U.S. Brig. General Herbert Wassom, and 28 Pakistani military officers crashed on a return flight from a military equipment trial near Bahawalpur, killing all of its occupants. In accordance with the Constitution, Chairman of the Senate Ghulam Ishaq Khan became Acting President and announced that elections scheduled for November 1988 would take place.

After winning 93 of the 205 National Assembly seats contested, the PPP, under the leadership of Benazir Bhutto, formed a coalition government with several smaller parties, including the Muhajir Qaumi Movement (MQM). The Islamic Democratic Alliance (IJI), a multi-party coalition led by the PML and including religious right parties such as the Jamaat-i-Islami (JI), won 55 National Assembly seats.

Differing interpretations of constitutional authority, debates over the powers of the central government relative to those of the provinces, and the antagonistic relationship between the Bhutto administration and opposition governments in Punjab and Balochistan seriously impeded social and economic reform programs. Ethnic conflict, primarily in Sindh province, exacerbated these problems. A fragmentation in the governing coalition and the military's reluctance to support an apparently ineffectual and corrupt government were accompanied by a significant deterioration in law and order.

In August 1990, President Khan, citing his powers under the eighth amendment to the Constitution, dismissed the Bhutto government and dissolved the national and provincial assemblies. New elections, held in October 1990, confirmed the political ascendancy of the IJI. In addition to a two-thirds majority in the National Assembly, the alliance acquired control of all four provincial parliaments and enjoyed the support of the military and of President Khan. Muhammad Nawaz Sharif, as leader of the PML, the most prominent Party in the IJI, was elected prime minister by the National Assembly.

Sharif emerged as the most secure and powerful Pakistani prime minister since the mid-1970s. Under his rule, the IJI achieved several important political victories. The implementation of Sharif's economic reform program, involving privatization, deregulation, and encouragement of private sector economic growth, greatly improved Pakistan's economic performance and business climate. The passage into law in May 1991 of a Shari'a bill, providing for widespread Islamization, legitimized the IJI government among much of Pakistani society.

However, Nawaz Sharif was not able to reconcile the different objectives of the IJI's constituent parties. The largest religious party, Jamaat-i-Islami (JI), abandoned the alliance because of its perception of PML hegemony. The regime was weakened further by the military's suppression of the MQM, which had entered into a coalition with the IJI to contain PPP influence and allegations of corruption directed at Nawaz Sharif. In April 1993, President Khan, citing "maladministration, corruption, and nepotism" and espousal of political violence, dismissed the Sharif government, but the following month the Pakistan Supreme Court reinstated the National Assembly and the Nawaz Sharif government. Continued tensions between Sharif and Khan resulted in governmental gridlock and the Chief of Army Staff brokered an arrangement under which both the President and the Prime Minister resigned their offices in July 1993.

An interim government, headed by Moeen Qureshi, a former World Bank Vice President, took office with a mandate to hold national and provincial parliamentary elections in October. Despite its brief term, the Qureshi government adopted political, economic, and social reforms that generated considerable domestic support and foreign admiration.

In the October 1993 elections, the PPP won a plurality of seats in the National Assembly, and Benazir Bhutto was asked to form a government. However, because it did not acquire a majority in the National Assembly, the PPP's control of the government depended upon the continued support of numerous independent parties, particularly the PML/J. The unfavorable circumstances surrounding PPP rule--the imperative of preserving a coalition government, the formidable opposition of Nawaz Sharif's PML/N movement, and the insecure provincial administrations-- presented significant difficulties for the government of Prime Minister Bhutto. However, the election of Prime Minister Bhutto's close associate, Farooq Leghari, as President in November 1993 gave her a stronger power base.

In November 1996, President Leghari dismissed the Bhutto government, charging it with corruption, mismanagement of the economy, and implication in extrajudicial killings in Karachi. Elections in February 1997 resulted in an overwhelming victory for the PML/Nawaz, and President Leghari called upon Nawaz Sharif to form a government. In March 1997, with the unanimous support of the National Assembly, Sharif amended the Constitution, stripping the President of the power to dismiss the government and making his power to appoint military service chiefs and provincial governors contingent on the "advice" of the Prime Minister. Another amendment prohibited elected members from "floor crossing" or voting against party lines. The Sharif government engaged in a protracted dispute with the judiciary, culminating in the storming of the Supreme Court by ruling party loyalists and the engineered dismissal of the Chief Justice and the resignation of President Leghari in December 1997.

The new President elected by Parliament, Rafiq Tarar, was a close associate of the Prime Minister. A one-sided anti-corruption campaign was used to target opposition politicians and critics of the regime. Similarly, the government moved to restrict press criticism and ordered the arrest and beating of prominent journalists. As domestic criticism of Sharif's administration intensified, Sharif attempted to replace Chief of Army Staff General Pervez Musharraf on October 12, 1999, with a family loyalist, Director General ISI Lt. Gen. Ziauddin. Although General Musharraf was out of the country at the time, the army moved quickly to depose Sharif.

On October 14, 1999, General Musharraf declared a state of emergency and issued the Provisional Constitutional Order (PCO), which suspended the federal and provincial Parliaments, held the Constitution in abeyance, and designated Musharraf as Chief Executive. Musharraf appointed a National Security Council, with mixed military/civilian appointees, a civilian Cabinet, and a National Reconstruction Bureau (think tank) to formulate structural reforms. On May 12, 2000, Pakistan's Supreme Court unanimously validated the October 1999 coup and granted Musharraf executive and legislative authority for 3 years from the coup date.

After the World Trade Center and the Pentagon were attacked on September 11, 2001, Musharraf pledged complete cooperation with the United States in its war on terror, which included locating and shutting down terrorist training camps within its borders and cracking down on extremist groups. This policy was highly unpopular with many Pakistani citizens, and the country was, for a while, plagued by popular demonstrations. However, in a referendum held on April 30, 2002, Musharraf's presidency was extended by 5 more years. After elections held at the end of 2002, the Pakistani political system remains highly fragmented, with no group winning a substantial majority of seats in the legislature and religious groups banding together in the MMA to earn a very significant portion of seats for the first time.

The Pakistan Constitution of 1973, amended substantially in 1985 under Zia, was suspended by the military government on October 12, 1999. It was then restored on December 31, 2002. Selected provisions of the Constitution pertaining to changes President Musharraf made while the Constitution was suspended remain contested by political opponents.

The Judiciary is proscribed from issuing any order contrary to the decisions of the Chief Executive, and the President, Cabinet, National Security Council, and governors serve at his discretion. The Supreme Court is Pakistan's highest court. The president, in consultation with the chief executive, appoints the chief justice and they together determine the other judicial appointments. Each province has a high court, the justices of which are appointed by the president after conferring with the chief justice of the Supreme Court and the provincial chief justice.

Pakistan has the world's eighth-largest armed forces, all of whom are well-trained and disciplined. However, budget constraints and nation-building duties have reduced Pakistan's normal robust training tempo, which if not reversed, will eventually impact on the operational readiness of the armed forces. Likewise, Pakistan has had an increasingly difficult time maintaining their aging fleet of U.S., Chinese, U.K., and French equipment. While the industrial base capabilities have expanded significantly, limited fiscal resources and various sanctions have significantly constrained the government's efforts to modernize the armed forces.

As they stand now, the manpower within each department is as follows:

  • The remainder of the aid program was devoted to economic assistance;
  • Sanctions put in place in 1990 denied Pakistan further military assistance due to the discovery of its program to develop nuclear weapons;
  • Sanctions were tightened following Pakistan's nuclear tests in response to India's May 1998 tests and the military coup of 1999;
  • The events of 9/11 and Pakistan's quick agreement to support the United States led to a waiving of the sanctions; and
  • Military assistance resumed to provide spare parts and equipment to enhance Pakistan's capacity to police its western border.

Principal Government Officials
President--President Pervez Musharraf
Head of Government--Prime Minister Mir Zafarullah Khan Jamali
Minister of Foreign Affairs--Kurshid Kasuri
Ambassador to the U.S.--Ashraf Jehangir Qazi
Ambassador to the UN--Munir Akram

Pakistan maintains an embassy in the United States at 3517 International Court NW, Washington, DC 20008 (tel. 202-243-6500). It has consulates in Los Angeles and New York.

Starting in 1999, President Musharraf and Finance Minister Aziz began instituting policies to stabilize Pakistan's macroeconomic situation. Following Pakistan's post-9/11 turnaround, U.S. assistance has played a key role in moving Pakistan's economy from the brink of collapse to setting record high levels of foreign reserves and exports, historic low inflation, solid 5% GDP growth, and dramatically lower levels of debt. Pakistan's search for additional foreign direct investment has been hampered by continuing concerns about the security situation, domestic and regional political uncertainties, and questions about judicial transparency. Pakistan's extreme poverty and underdevelopment are key concerns, but the Government of Pakistan has reined in the fiscal mismanagement that produced massive foreign debt, and officials have committed to using international assistance, including a major part of a proposed $3 billion 5-year U.S. assistance package, to address Pakistan's long-term problems of high illiteracy and inadequate healthcare.

The economy averaged an impressive growth rate of 6% per year during the 1980s and early 1990s, but this growth dwindled until 2002. In 2002, the United States led Paris Club efforts to reschedule Pakistan's debt on generous terms, and in April 2003 the United States reduced Pakistan's bilateral official debt by $1 billion. Pakistan has requested additional debt reduction, and it appears likely that about $500 million more in bilateral debt will be reduced in FY 2004. The economy is more structurally sound but remains vulnerable to Pakistan's external and internal shocks, such as in 1992-93, when devastating floods and political uncertainty combined to depress economic growth sharply and the financial crisis in Asia hit major markets for Pakistani textile exports. Average real GDP growth from 1992 to 1998 dipped to 4.1% annually.

In 2000, the government made significant inroads in macroeconomic reform, but more work needs to be done. Privatizing Pakistan's state-subsidized utilities, instituting a world-class anti-money laundering law, cracking down on piracy of intellectual property, and quickly resolving investor disputes would aid Pakistan's efforts to improve its investment climate. Pakistan's economic prospects began to increase significantly due to unprecedented inflows of foreign assistance in at the end of 2001, a trend which is expected to continue through 2009. Foreign exchange reserves and exports grew to record levels after a sharp decline. The International Monetary Fund (IMF) recently lauded Pakistan's commitment in meeting lender requirements for a $1.3 billion IMF poverty Reduction and Growth Facility, and the Government of Pakistan plans to issue a sovereign bond offering in the near future, putting Pakistan back on the investment map.

Since the early 1980s, the government has pursued market-based economic reform policies. Market-based reforms began to take hold in 1988, when the government launched an ambitious IMF-assisted structural adjustment program in response to chronic and unsustainable fiscal and external account deficits. Since that time the government has removed barriers to foreign trade and investment, begun to reform the financial system, eased foreign exchange controls, and privatized dozens of state-owned enterprises. Pakistan continues to struggle with these reforms, having mixed success, especially in reducing its budget and current account deficits. The budget deficit in FY 1996-97 was 6.4% of GDP. Initial data implied a reduction in 1997-98 to 5.4% and in 1998-99 to 4.3%, but revised data indicates that the deficit is probably still more than 5.0%, with an external debt of $32.3 billion in FY 2002. The Pakistani rupee has been continually depreciating against the dollar, and the current exchange rate is around 59 rupees per dollar.

Economic reform was further set back by Pakistan's nuclear tests in May 1998 and the subsequent economic sanctions imposed by the G-7. International default was narrowly averted by the partial waiver of sanctions and the subsequent reinstatement of Pakistan's IMF ESAF/EFF in early 1999, followed by Paris Club and London Club reschedulings. Then, after 9/11 and Pakistan's proclaimed commitment to fighting terror, many international sanctions, particularly those imposed by the United States, were lifted, and an unprecedented amount of foreign aid poured into the country. With a per capita GDP of about PPP $2,100, the World Bank considers Pakistan a low-income country. No more than 45.7% of adults are literate, and life expectancy is about 63 years or less. The population, currently about 150.7 million, is growing at over 2% annually, very close to the GDP growth rate. Relatively few resources have been devoted to socioeconomic development on infrastructure projects. Inadequate provision of social services and high population growth have contributed to a persistence of poverty and unequal income distribution.

Agriculture and Natural Resources
Pakistan's principal natural resources are arable land, water, and extensive natural gas reserves. About 28% of Pakistan's total land area is under cultivation and is watered by one of the largest irrigation systems in the world. Agriculture accounts for about 24% of GDP and employs about 44% of the labor force. The most important crops are cotton, wheat, rice, sugarcane, fruits and vegetables, which together account for more than 75% of the value of total crop output. Despite intensive farming practices, Pakistan remains a net food importer. Pakistan exports rice, cotton, fish, fruits, and vegetables and imports vegetable oil, wheat, cotton, pulses and consumer foods.

The economic importance of agriculture has declined since independence, when its share of GDP was around 53%. Following the poor harvest of 1993, the government introduced agriculture assistance policies, including increased support prices for many agricultural commodities and expanded availability of agricultural credit. From 1993 to 1997, real growth in the agricultural sector averaged 5.7% but has since declined to less than 4%. Agricultural reforms, including increased wheat and oilseed production, play a central role in the new government's economic reform package.

Pakistan has extensive energy resources, including fairly sizable natural gas reserves, some proven oil reserves, coal, and large hydropower potential. However, the exploitation of energy resources has been slow due to a shortage of capital and domestic and international political constraints. For instance, domestic petroleum production totals only about half the country's oil needs, and dependence on imported oil also contributes to Pakistan's persistent trade deficits and shortage of foreign exchange. Regional gas and oil pipeline proposals remain untenable until Indo-Pak tensions subside sufficiently to allow free flow to the region. Pakistan announced that privatization in the oil and gas sector is a priority, as is the substitution of indigenous gas for imported oil, especially in the production of power. Saudi Arabia also supplies free oil to Pakistan.

Pakistan's manufacturing sector accounts for about 25% of GDP. Cotton textile production and apparel manufacturing are Pakistan's largest industries, accounting for about 64% of total exports. Other major industries include food processing, beverages, construction materials, clothing, paper products, and shrimp. As technology and education improve in the industrial sector, it continues to grow, and in 2001 the industrial production growth rate was 7 %. Despite ongoing government efforts to privatize largescale parastatal units, the public sector continues to account for a significant proportion of industry. In the face of an increasing trade deficit, the government hopes to diversify the country's industrial base and bolster export industries. Currently, net foreign investment in Pakistani industries is only 0.5%.

Foreign Trade and Aid
Weak world demand for its exports and domestic political uncertainty have contributed to Pakistan's high trade deficit. In FY 1998-99, Pakistan recorded a current account deficit of $1.7 billion, only a slight improvement over the FY 1997-98 current account deficit of $1.9 billion. Pakistan's exports continue to be dominated by cotton textiles and apparel, despite government diversification efforts. Major imports include petroleum and petroleum products, edible oil, wheat, chemicals, fertilizer, capital goods, industrial raw materials, and consumer products. External imbalance has left Pakistan with a growing foreign debt burden. The fiscal imbalance is reflected in a high level of total net public debt, which reached an estimated 92.6% of GDP in 2000-01, more than half involving external liabilities. The fiscal deficit widened from 5.6% of GDP in 1994-95 to 7.7% in 1997-98 before declining to 5.3% in 2000-01, close to the target under the Revival Program of 5.2%. Support for loss-making, state-owned enterprises and a weak domestic tax base are critical elements in the recurring fiscal deficits. These, in turn, impair the government's capacity to undertake essential expenditures--including on poverty alleviation, health, education, and infrastructure--thus hampering economic growth and development. Despite its economic and political difficulties, Pakistan has taken steps since its previous review to liberalize its trade and investment regimes, either unilaterally or in the context of commitments made in the WTO, IMF, and the World Bank. Over the past 2 years, efforts in several crucial areas have seemingly intensified, with the result that Pakistan is becoming a more open and secure market for its trading partners.

Pakistan receives significant loan/grant assistance from international financial institutions (e.g., the IMF, the World Bank, and the Asian Development Bank) and bilateral donors, particularly after it began using its military/financial resources in the war against terror and the reconstruction of Afghanistan The United States recently pledged $3 billion over the next 5 years in economic and military aid to Pakistan. If approved, $600 million would be spent annually, half on social development programs and half on security assistance. In addition, the IMF and World Bank have pledged $1 billion in loans to Pakistan, and in 2002 alone gave then $200 million in economic aid and $50 million in military support.

After the 9/11, Pakistan's prominence within the international community has increased significantly, as it pledges its alliance with the US in the war against terror and has made a commitment to thwart terrorist camps within its own borders. Historically, Pakistan has had difficult and volatile relations with India, expresses a strong desire for a stable Afghanistan, long-standing close relations with China, extensive security and economic interests in the Persian Gulf, and wideranging bilateral relations with the United States and other Western countries.

Since partition, relations between Pakistan and India have been characterized by rivalry and suspicion. Although many issues divide the two countries, the most sensitive one since independence has been the status of Kashmir.

At the time of partition, the princely state of Kashmir, though ruled by a Hindu Maharajah, had an overwhelmingly Muslim population. When the Maharajah hesitated in acceding to either Pakistan or India in 1947, some of his Muslim subjects, aided by tribesmen from Pakistan, revolted in favor of joining Pakistan. In exchange for military assistance in containing the revolt, the Kashmiri ruler offered his allegiance to India. Indian troops occupied the eastern portion of Kashmir, including its capital, Srinagar, while the western part came under Pakistani control.

India addressed this dispute in the United Nations on January 1, 1948. One year later, the UN arranged a cease-fire along a line dividing Kashmir but leaving the northern end of the line undemarcated and the vale of Kashmir (with the majority of the population) under Indian control. India and Pakistan agreed with Indian resolutions which called for a UN-supervised plebiscite to determine the state's future.

Fullscale hostilities erupted in September 1965, when India alleged that insurgents trained and supplied by Pakistan were operating in India-controlled Kashmir. Hostilities ceased 3 weeks later, following mediation efforts by the UN and interested countries. In January 1966, Indian and Pakistani representatives met in Tashkent, U.S.S.R., and agreed to attempt a peaceful settlement of Kashmir and their other differences.

Following the 1971 Indo-Pakistan conflict, President Zulfiqar Ali Bhutto and Indian Prime Minister Indira Gandhi met in the mountain town of Shimla, India, in July 1972. They agreed to a line of control in Kashmir resulting from the December 17, 1971 cease-fire, and endorsed the principle of settlement of bilateral disputes through peaceful means. In 1974, Pakistan and India agreed to resume postal and telecommunications linkages and to enact measures to facilitate travel. Trade and diplomatic relations were restored in 1976 after a hiatus of 5 years.

India's nuclear test in 1974 generated great uncertainty in Pakistan and is generally acknowledged to have been the impetus for Pakistan's nuclear weapons development program. In 1983, the Pakistani and Indian Governments accused each other of aiding separatists in their respective countries, i.e., Sikhs in India's Punjab state and Sindhis in Pakistan's Sindh province. In April 1984, tensions erupted after troops were deployed to the Siachen Glacier, a high-altitude desolate area close to the China border left undemarcated by the cease-fire agreement (Karachi Agreement) signed by Pakistan and India in 1949.

Tensions diminished after Rajiv Gandhi became Prime Minister in November 1984 and after a group of Sikh hijackers was brought to trial by Pakistan in March 1985. In December 1985, President Zia and Prime Minister Gandhi pledged not to attack each other's nuclear facilities. (A formal "no attack" agreement was signed in January 1991.) In early 1986, the Indian and Pakistani Governments began high-level talks to resolve the Siachen Glacier border dispute and to improve trade.

Bilateral tensions increased in early 1990, when Kashmiri militants began a campaign of violence against Indian Government authority in Jammu and Kashmir. Subsequent high-level bilateral meetings relieved the tensions between India and Pakistan, but relations worsened again after the destruction of the Ayodhya Mosque by Hindu extremists in December 1992 and terrorist bombings in Bombay in March 1993. Talks between the Foreign Secretaries of both countries in January 1994 resulted in deadlock.

In the last several years, the Indo-Pakistani relationship has veered sharply between rapprochement and conflict. After taking office in February 1997, Prime Minister Nawaz Sharif moved to resume official dialog with India. A number of meetings at the foreign secretary and prime ministerial level took place, with positive atmospherics but little concrete progress. The relationship improved markedly when Indian Prime Minister Vajpayee traveled to Lahore for a summit with Sharif in February 1999. There was considerable hope that the meeting could lead to a breakthrough.

Unfortunately, in spring 1999 infiltrators from Pakistan occupied positions on the Indian side of the Line of Control in the remote, mountainous area of Kashmir near Kargil, threatening the ability of India to supply its forces on Siachen Glacier. By early summer, serious fighting flared in the Kargil sector. The infiltrators withdrew following a meeting between Prime Minister Sharif and President Clinton in July. Relations between India and Pakistan were particularly strained during the 1999 coup in Islamabad. Then, just weeks after the 9/11 attack on the United States, an attack on India's Parliament on December 13 by a suicide bomber further strained this relationship.

Following the 1979 Soviet invasion of Afghanistan, the Pakistani Government played a vital role in supporting the Afghan resistance movement and assisting Afghan refugees. After the Soviet withdrawal in February 1989, Pakistan, with cooperation from the world community, continued to provide extensive support for displaced Afghans. In 1999, more than 1.2 million registered Afghan refugees remained in Pakistan. Pakistan was one of three countries to recognize the Taliban government of Afghanistan. 9/11 caused Pakistan to reassess its relations with the Taliban regime and support the U.S. objectives in Operation Enduring Freedom to remove them from power. Pakistan has publicly expressed its support of Afghanistan's President Karzai and has pledged $100 million in support for Afghanistan's reconstruction.

People's Republic of China (P.R.C.)
In 1950, Pakistan was among the first countries to recognize the People's Republic of China (P.R.C.). Following the Sino-Indian hostilities of 1962, Pakistan's relations with China became stronger; since then, the two countries have regularly exchanged high-level visits resulting in a variety of agreements. China has provided economic, military, and technical assistance to Pakistan.

Favorable relations with China have been a pillar of Pakistan's foreign policy. The P.R.C. strongly supported Pakistan's opposition to Soviet involvement in Afghanistan and is perceived by Pakistan as a regional counterweight to India and Russia.

Iran and the Persian Gulf
Historically, Pakistan has had close geopolitical and cultural-religious linkages with Iran. However, strains in the relationship appeared in the last decade. Pakistan and Iran support opposing factions in the Afghan conflict. Also, some Pakistanis suspect Iranian support for the sectarian violence which has plagued Pakistan. However, relations between the two countries have improved since their opinions toward Afghanistan have converged with the fall of the Taliban, and the two have both agreed to play a collective role in the reconstruction process of that region. Both countries have contended that with the removal of the main differences which separated them, they are on the road to strong and last friendly relations.

Pakistan historically has provided military personnel to strengthen Gulf-state defenses and to reinforce its own security interests in the area.

The United States and Pakistan established diplomatic relations in 1947. The U.S. agreement to provide economic and military assistance to Pakistan and the latter's partnership in the Baghdad Pact/CENTO and SEATO strengthened relations between the two nations. However, the U.S. suspension of military assistance during the 1965 Indo-Pakistan war generated a widespread feeling in Pakistan that the United States was not a reliable ally. Even though the United States suspended military assistance to both countries involved in the conflict, the suspension of aid affected Pakistan much more severely. Gradually, relations improved, and arms sales were renewed in 1975. Then, in April 1979, the United States cut off economic assistance to Pakistan, except food assistance, as required under the Symington Amendment to the Foreign Assistance Act of 1961, due to concerns about Pakistan's nuclear program.

The Soviet invasion of Afghanistan in December 1979 highlighted the common interest of Pakistan and the United States in peace and stability in South Asia. In 1981, the United States and Pakistan agreed on a $3.2-billion military and economic assistance program aimed at helping Pakistan deal with the heightened threat to security in the region and its economic development needs.

Recognizing national security concerns and accepting Pakistan's assurances that it did not intend to construct a nuclear weapon, Congress waived restrictions (Symington Amendment) on military assistance to Pakistan. In March 1986, the two countries agreed on a second multi-year (FY 1988-93) $4-billion economic development and security assistance program. On October 1, 1990, however, the United States suspended all military assistance and new economic aid to Pakistan under the Pressler Amendment, which required that the President certify annually that Pakistan "does not possess a nuclear explosive device."

There have been several incidents of violence against American officials and U.S. mission employees in Pakistan. In November 1979, false rumors that the United States had participated in the seizure of the Grand Mosque in Mecca provoked a mob attack on the U.S. embassy in Islamabad. In 1989, there was an attack on the American Center in Islamabad, where six Pakistanis were killed in the crossfire with the police. In March 1995, two American employees of the consulate in Karachi were killed and one wounded in an attack on the home-to-office shuttle. In November 1997, four U.S. businessmen were brutally murdered while being driven to work in Karachi.

The decision by India to conduct nuclear tests in May 1998 and Pakistan's matching response set back U.S. relations in the region, which had seen renewed U.S. Government interest during the second Clinton Administration. A presidential visit scheduled for the first quarter of 1998 was postponed and, under the Glenn Amendment, sanctions restricted the provision of credits, military sales, economic assistance, and loans to the government. The October 1999 overthrow of the democratically elected Sharif government triggered an additional layer of sanctions under Section 508 of the Foreign Appropriations Act, which include restrictions on foreign military financing and economic assistance. U.S. Government assistance to Pakistan was limited mainly to refugee and counter-narcotics assistance.

The U.S.-Pakistan relationship changed significantly once Pakistan agreed to support the U.S. campaign to eliminate the Taliban in Afghanistan and to join with the United States in the Global War on Terror. Since 2001 Pakistan has provided extraordinary assistance in the War on Terror by capturing and turning over to the United States more than 500 al-Qaida members. The United States has stepped up its economic assistance to Pakistan, providing debt relief and support for a major effort at education reform. During President Musharraf's visit to the United States in 2003, President Bush announced that the United States intends to provide Pakistan $3 billion in economic and military aid over the next 5 years.

Principal U.S. Embassy Officials
Ambassador--Nancy Powell
Deputy Chief of Mission--William T. Monroe
Defense Attache--Col. Lloyd M. Somers
Counselor for Political Affairs--Lawrence K. Robinson
Counselor for Economic Affairs--Douglas P. Climan
Public Affairs Officer--Andrew W. Steinfeld
Consul General--Leigh G. Carter
Consul General, Karachi--Douglas Rohn
Principal Officer, Lahore--William Howe
Principal Officer, Peshawar--Arlene Ferrill

 The U.S. Embassy is located at the Diplomatic Enclave, Ramna 5, Islamabad [tel. (92)-(51)-2080-2000; telex 82-5-864].

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