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Country Commercial Guides for FY 2000: Pakistan Report prepared by U.S. Embassy Islamabad, released July 1999 Note*

CHAPTER III. POLITICAL ENVIRONMENT

A. Nature of Political Relationship with the United States

Pakistan and the United States have had bilateral diplomatic relations since Pakistan's independence in 1947. Pakistan is a member of the United Nations, the Organization of the Islamic Conference, the Economic Cooperation Organization, and the South Asian Association for Regional Cooperation, among other international organizations. Pakistan has worked effectively to promote and support peacekeeping operations in Somalia, Bosnia, Haiti and elsewhere. In 1990, U.S. economic and military assistance to Pakistan was suspended as required by U.S. legislation (the so-called Pressler Amendment to the Foreign Assistance Act) when the U.S. President could no longer certify to Congress that Pakistan did not possess a nuclear explosive device. The Brown Amendment enacted in 1996 provided some relief from the Pressler sanctions. However, Pakistan's nuclear tests in May 1998 have resulted in the imposition of U.S. economic sanctions which have recently been relaxed (primarily to enable multilateral support for basic human need applications). The United States has traditionally been Pakistan's leading trading partner and largest source of private foreign capital, but the treatment of independent power projects may affect inflows of further U.S. investment into Pakistan.

B. Major Political Issues Affecting Business Climate

Since 1988, Pakistan has moved toward a two-party system, dominated by the Pakistan Muslim League (PML) and the Pakistan People's Party (PPP). Both parties have favored a liberalizing, market-oriented economic policy. This consensus, together with the macro-economic discipline of structural economic adjustment programs adopted with the full support of the International Monetary Fund (IMF) and the World Bank, has had a positive impact on the business climate.

As in many developing countries, corruption is an unwelcome, but ubiquitous, part of the business climate in Pakistan. Recent anecdotal reports suggest that this problem may be having a sclerotic impact on the economy. Efforts to reduce opportunities for corruption by improving management systems in, for example, the customs and tax services are under way. Also, important business organizations, including the nation-wide Federation of Pakistan Chambers of Commerce (FPCCI), have made curbing corruption a principal plank of their policy agendas.

Regional stability is an additional concern for business interests in Pakistan. Political violence, a marked increase in crime, and a general deterioration in law and order in Sindh province (particularly Karachi) resulted in suspension of provincial legislature and a transfer of control to the central government in August 1998. Punjab has also experienced a substantial decline in overall security.

C. Political System

Pakistan is a developing democracy based on a parliamentary system. The parliament consists of two houses, a National Assembly elected directly through universal suffrage, and a Senate elected by the provincial legislatures. The Prime Minister is the head of government and is elected by and from the National Assembly. The Head of State is the President, who is chosen by an electoral college consisting of the National Assembly, the Senate, and the provincial assemblies. The Constitution requires that the President be a Muslim and provides for a five-year term. Pakistan is divided into four provinces; Punjab, Sindh, Baluchistan, and the Northwest Frontier Province (NWFP). Each province has its own directly elected provincial assembly, a government headed by a Chief Minister, and a Governor appointed by the President upon recommendation by the Prime Minister.

The 217-member National Assembly is elected for a five-year term and the 87-member Senate for six-year term. National Assembly seats are currently apportioned 8 to the Federally-Administered Tribal Areas (FATA) and one to the Federal Capital of Islamabad, with ten additional seats reserved for religious minorities. Each of the four provinces has 19 senators; there are eight senators from the FATA and three from the federal capital area. Indirect elections for half the members of the Senate are held at three-year intervals.

The Constitution guarantees an independent judiciary. The Supreme Court is the highest court in the country; High Courts in the provincial capitals of Lahore, Karachi, Peshawar, and Quetta stand at the head of the provincial judicial systems. Pakistan's press publishes freely for the most part. However, self-censorship is widely practiced by journalists and advertising and other tactics are used by the government to influence content. The electronic media is monopolized by the state and is notorious for one-sided propaganda.

Pakistan came into existence in August 1947 with the partition of British India. The creation of a separate Muslim nation was accomplished largely through the efforts of Mohammed Ali Jinnah, Pakistan's first Governor-General. In 1947-48, Pakitan and India fought the first of the three wars involving the Muslim-majority territory of Kashmir, claimed by both states. The conflict ended in stalemate and Kashmir remains disputed territory, divided by a heavily defended Line of Control where recurrent violations have occurred.

Pakistan initially consisted of two areas, East Pakistan and West Pakistan, separated by 1,000 miles of Indian territory. The 1970 general elections resulted in the Awami League sweeping the East Pakistan seats to gain a majority in Pakistan as a whole. The Pakistan People's Party (PPP) founded by Zulfiqar Ali Bhutto, won a majority of the seats in West Pakistan. The outcome was a country completely divided with neither major party having support in the other area. Negotiations to form a coalition government broke down and a civil war ensued. In 1971, the eastern section declared itself the independent nation of Bangladesh. Leadership of the western part of Pakistan was handed over to Bhutto, who became President and first civilian Chief Marshall Law Administrator.

A new constitution, Pakistan's third, came into effect in August 1973 and Bhutto became Prime Minister. His government implemented portions of the PPP's socialist manifesto, restructuring the economy, increasing the prominence of the public sector, and nationalizing many industries. Bhutto's centralizing policies and autocratic ways galvanized the opposition, which challenged his sweeping victory in the March 1977 national elections. In July 1977, Bhutto was deposed by his Chief of Army Staff, General Zia-ul-Haq, who became president in 1978. Bhutto was executed by hanging in April 1979. Under Zia, the Government of Pakistan became increasingly Islamicized and benefited from supporting mujahideen efforts to counter the Soviet invasion of Afghanistan. Non-party elections were held in February 1988 for the National Assembly and the four provincial assemblies. In August 1988, General Zia died in an air crash.

General elections were held in November 1988 and the PPP, headed by Benazir Bhutto, daughter of the late Prime Minister, won a plurality of seats and formed a coalition government. In August 1990, President Ghulam Ishaq Khan exercised his right under the constitution to dissolve the National Assembly, dismiss the Prime Minister, and call for new elections. In the general election held in October 1990, the Islamic Democratic Alliance won the largest number of seats and Mian Nawaz Sharif, leader of its largest component party, the Pakistan Muslim League (PML), became Prime Minister. Nawaz Sharif, the first industrialist to lead Pakistan, continued the trend toward liberalization of the economy and promotion of private sector growth.

In April 1993, President Ghulam Ishaq Khan again dissolved the national Assembly and dismissed the Prime Minister, but a month later the Pakistan Supreme Court reinstated the National Assembly and the Nawaz Sharif government. Continued tensions between the reinstated Prime Minister and the President resulted in governmental gridlock; the Chief of Army staff brokered an arrangement under which both the President and Prime Minister resigned their offices in July 1993. Elections in October 1993 resulted in a plurality for the PPP and Benazir Bhutto secured sufficient additional support to be elected Prime Minister by the National Assembly. Bhutto's hold on power received a further boost in November 1993, when her PPP ally, Farooq Ahmed Khan Leghari, was elected President.

In November 1996, President Leghari dismissed the Bhutto government, charging it with corruption, mismanagement of the economy, and implication in extra-judicial killings in Karachi. Elections in February 1997 resulted in an overwhelming victory for the PML/Nawaz and Nawaz Sharif was again called upon to form a government. In April 1997, Sharif proposed and parliament passed a constitutional amendment removing the president's power to dissolve the National Assembly and making his power to appoint military services chiefs and provincial governors contingent to the "advice" of the prime minister. A constitutional confrontation between Sharif and the Chief Justice of the Supreme Court resulted in the resignation of Leghari and the subsequent election of the Prime Minister's own presidential candidate. This was followed by the removal and replacement of the Chief Justice, an act which observers feared would damage the prestige and independence of the court system.

1. Schedule for Elections - The most recent elections for the national and provincial assemblies took place in February 1997. National elections are scheduled to be held again in February 2002 and indirect elections for half of the members of the Senate in March 2000. The indirect election of the President was held in December 1997 and the next Presidential election is scheduled for 2003.

2. Major Political Parties - The two largest political parties are the Nawaz Sharif group of the Pakistan Muslim League (PML/N), led by Prime Minister Nawaz Sharif, and the Pakistan Peoples Party (PPP), led by Benazir Bhutto. Both parties have a centrist orientation and support private enterprise and the free market. The PPP espouses a somewhat more activist view of government, especially in the social sector. The PML/N is slightly to the right of the PPP. With the current exile of Benazir Bhutto, however, the PPP has lost much of its power and ability to dictate policy.

There are several other smaller, but significant, parties. The Muttahidda Qaumi Mahaz (United National Movement - MQM) is a party that claims to represent the interests of Pakistan's mohajirs (Urdu-speaking descendents of Muslims who migrated from India following the partition). The Awami National Party (ANP) is a Pushtun nationalist party in the NWFP. Both parties were allied with the PML/N for brief intervals. The Jamaat-I-Islami (JI) is a conservative Islamic political party that has enjoyed electoral success only when allied with a larger party.