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PP RUEHBI RUEHLH RUEHPW
DE RUEHIL #0470/01 0320944
ZNY CCCCC ZZH
P 010944Z FEB 08
FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC 4790
INFO RHMFISS/CDR USCENTCOM MACDILL AFB FL PRIORITY
RUEKJCS/SECDEF WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEHNE/AMEMBASSY NEW DELHI 2732
RUEHDO/AMEMBASSY DOHA 1488
RUEHKP/AMCONSUL KARACHI 8808
RUEHLH/AMCONSUL LAHORE 4711
RUEHPW/AMCONSUL PESHAWAR 3398
RUEHBI/AMCONSUL MUMBAI 3749

C O N F I D E N T I A L SECTION 01 OF 02 ISLAMABAD 000470 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 01/28/2018 
TAGS: ECON EINV EFIN PREL PK
SUBJECT: TAKING THE KARACHI BUSINESS COMMUNITY'S PULSE 
 
REF:   (A) Islamabad 228, (B) Islamabad 288, (C) Islamabad 4400 
 
Classified By: DCM Peter Bodde, Reasons 1.4 (b), (d) 
 
¶1. (C) SUMMARY:  Econ Counselor and Econoff traveled to Karachi to 
meet with a broad section of Karachi's dynamic business community. 
The overall consensus was that 2007 had been a good year for business 
in spite of repeated political turmoil and violence.  Concern over 
lack of law and order and the February 18 elections are on everyone's 
mind.  The election results and the new government's economic policy 
will be crucial in determining whether Pakistan's economy will 
continue to grow.  Infrastructure, energy needs, export 
diversification and development of human capital were seen as key 
areas needing to be addressed by the government.  END SUMMARY. 
 
------------------------ 
"Not Bad for a Bad Year" 
------------------------ 
 
¶2. (C) Econ Counselor and Econoff traveled to Karachi, January 22-25 
and met with the Karachi Chamber of Commerce and Industry (KCCI), the 
American Business Council (ABC), the 21st Century Business and 
Economics Club, the Karachi Stock Exchange (Ref C), Standard 
Chartered Bank, and JPMorgan Chase. The Karachi business community 
took recent violence in their city in stride and is confident about 
its ability to bounce back.  Almost all our interlocutors referred to 
the "resilience" of the Karachi business community.  Most of these 
business owners and leaders have lived in Karachi either all their 
lives or for many years and are thoroughly acclimated to its volatile 
nature.  Many said they had seen worse violence during the years of 
aggravated sectarian strife during the 1990s.  Most had had a good 
year in terms of growth and revenue, and opined that the damage 
ensuing from the violent flash points of 2007 could be absorbed by 
the economy.  The KCCI concluded that 2007 had been "not bad for a 
bad year." 
 
-------------------------- 
Top Concern: Law and Order 
-------------------------- 
 
¶3. (C)  Regarding the violence following the December 27 
assassination of Benazir Bhutto, most of our interlocutors were very 
critical of the city, provincial and national governments for their 
lack of preparedness for violent demonstrations, vandalism and 
hooliganism.  The government's response was much too slow, as law 
enforcement had little to no presence during the first 48 to 72 hours 
of violence.  The ABC was particularly skeptical of the law 
enforcement response should violence break out after the February 18 
elections.  Badar Kazmi, President of Standard Chartered Bank, one of 
Pakistan's largest banks, told Econ Counselor and Econoff that he 
thought local businesses had gotten big enough to "weather the storm" 
and could bounce back from losses incurred during the rioting.  The 
business community's main concern is that violence not be repeated. 
Diamant Textiles magnate Zubair Motiwala opined that the violence was 
coordinated and preplanned (septel). 
 
¶4. (C) The ABC told Econ Counselor and Econoff that they had raised 
their law and order concerns during a set meeting with Caretaker 
Prime Minister Soomro, on January 17.  The Prime Minister promised 
that a law enforcement liaison to the business community at the 
Provincial Deputy Inspector General of Police level would be 
appointed to deal with future violence targeting businesses.  The ABC 
has a meeting scheduled with the governor of Sindh on January 31 
where they will also raise their law and order concerns.  The KCCI 
raised similar concerns with the GOP and was advocating for a law 
enforcement liaison and better policing for the industrial zones 
where much of the damage in December occurred. 
 
¶5. (C) Majyd Aziz, a prominent Karachi business leader, told Karachi 
CG that over the next few weeks, over 250 of the biggest 
industrialists in Sindh would begin openly supporting the Muttahida 
Quami Movement (MQM) party which rules Karachi by holding parties and 
rallies and raising money for them.  (COMMENT: Most of these 
industrialists were staunch supporters of Musharraf on the basis that 
the economy has flourished under his rule. MQM was a coalition 
partner with Musharraf's Pakistan Muslim League Party in the last 
government but appears to be keeping its options open as the February 
parliamentary elections approach.) 
 
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Outlook 
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ISLAMABAD 00000470  002 OF 002 
 
 
¶6. (C) Most Karachi businessmen agreed that it had been a good year 
"in spite of everything", but are concerned about the outcome of the 
February 18 elections.  If the elections are not conducted smoothly 
and a new government is not formed quickly, Pakistan's economy will 
be headed for trouble.  At a meeting with the 21st Century Business 
and Economics Club (a group of local business leaders), the members 
told Econ Counselor that in an election year the government would not 
be making any decisions.  They were also concerned that the 
newly-elected government would find it difficult to make difficult 
economic decisions, particularly raising commodity prices.  If the 
elections on February 18 go smoothly, then the economy could get by, 
but if the problems persist after the elections the market would see 
an increased loss of investments, both foreign and domestic. 
 
¶7. (C) At several meetings, our interlocutors commented that the 
government had no economic road map, and that its position was a 
defensive one.  ABC pointed to the problem of slow reimbursements for 
the oil marketing companies, including Chevron and AES.  Standard 
Chartered Bank's Badar Kazmi said that Pakistan's politicians need to 
understand the importance of the economy.  He thought that the 
government had done some positive reforms, and that the common people 
were aware of this in spite of the difficulties brought on by 
inflation, but he was concerned that a new government might not 
continue the reforms or pay enough attention to economic policy after 
the elections.  He also felt that investment in infrastructure and 
human resources -- particularly education -- were lacking.  Lack of 
export diversification and the continuing and worsening energy crunch 
were also major weaknesses noted by all.  Several of the KCCI 
Executive Board bemoaned the worsening export market for Pakistani 
textiles but did not offer any constructive solutions.  Rather, they 
criticized the U.S. and Europe for not extending their trade 
preference programs. 
 
¶8.  (C)  The KCCI Secretary Anjum Nisar and Arif Habib, Chairman of 
Arif Habib Securities, both expressed concern that a U.S. recession 
would affect Pakistan's growth as well, given that the U.S. is 
Pakistan's biggest single country export market.  However, Habib 
opined that the recent Federal Reserve rate cut would help out with 
Pakistan's domestic credit crunch caused by excessive government 
borrowing.  The Fed rate cut will make it cheaper for Pakistani 
businesses to obtain funding internationally than domestically. 
 
¶9.  (C) The increasing fiscal and current account deficits combined 
with increased international commodity prices were concerns voiced by 
many of our interlocutors.  While praising the independence and 
candor of the State Bank of Pakistan (SBP) Governor, they criticized 
the GOP for not anticipating this problem sooner.  Others voiced 
concerns over the narrow tax base, and the fact that agriculture and 
services - which together comprise almost 75 percent of Pakistan's 
GDP - are virtually untaxed, while some sectors bear the majority of 
the tax burden.  The combination of the increased deficits, higher 
commodity prices, and a narrow tax base will not leave the new 
government much room to be fiscally responsible and implement 
sweeping new programs. 
 
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Comment 
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¶10.  (C) Comment:  The Karachi business community was in surprisingly 
good spirits in spite of the turmoil of 2007, especially 
post-December 27.  They seem to take their own resilience for 
granted, despite increasing concerns about the government's ability 
to maintain law and order.  Their optimism falters on the subject of 
a new government post-February 18 and what its political stability 
and economic policies will be.  They have seen the economy 
progressing in the past several years and are apprehensive about 
whether it will continue.  Few of our interlocutors speculated about 
how the elections would go or what a new government would look like 
and the effects on their businesses.  End comment. 
 
 
PATTERSON