VZCZCXRO2730
PP RUEHLH RUEHPW
DE RUEHIL #1269/01 0841130
ZNY CCCCC ZZH
P 241130Z MAR 08
FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC PRIORITY 6057
INFO RUEHBUL/AMEMBASSY KABUL PRIORITY 8333
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 3012
RUEHKP/AMCONSUL KARACHI PRIORITY 9347
RUEHLH/AMCONSUL LAHORE PRIORITY 5144
RUEHPW/AMCONSUL PESHAWAR PRIORITY 3841
RHMFISS/CDR USCENTCOM MACDILL AFB FL PRIORITY
RHWSMRC/USCINCCENT MACDILL AFB FL PRIORITY
RHEHNSC/NSC WASHINGTON DC PRIORITY
RUEKJCS/JOINT STAFF WASHINGTON DC PRIORITY
RUEKJCS/SECDEF WASHINGTON DC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 ISLAMABAD 001269 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
E.O. 12958: DECL: 03/24/2028 
TAGS: PREL PGOV MASS MARR PK
SUBJECT: CSF AND THE POTENTIAL FOR CIVIL-MILITARY TENSION 
 
REF: A. ISLAMABAD 105 
 TAGS: PREL PGOV MASS MARR PK
SUBJECT: CSF AND THE POTENTIAL FOR CIVIL-MILITARY TENSION 
 
REF: A. ISLAMABAD 105 
     ¶B. ISLAMABAD 191 
     ¶C. ISLAMABAD 228 
     ¶D. ISLAMABAD 288 
     ¶E. ISLAMABAD 392 
     ¶F. ISLAMABAD 924 
     ¶G. 07 ISLAMABAD 2873 
     ¶H. 07 ISLAMABAD 3694 
     ¶I. 07 ISLAMABAD 4817 
     ¶J. 07 ISLAMABAD 5328 
 
¶1.   (C) Summary: Coalition Support Fund (CSF) reimbursements  are a major political and economic factor in our bilateral  relations with Pakistan. On the military side, the recent  publicity about CSF claims, largely resulting from  congressional hearings, has prompted concern that  reimbursements will be more closely reviewed and therefore  decline.  Meanwhile, an increase in operational tempo and the  military's belief that it should receive higher  reimbursements for what one officer called ""the cost to  Pakistan of doing business with the U.S."" is creating  record-level claims that threaten to exceed authorization  limits.  Indeed the monthly claim for January 2008 exceeds 
$200 million-a rate that if annualized would be more than  double CSF's authorization for FY 2008.  On the  political/economic side, a new civilian government we want to  succeed is taking over.  It is facing both the need to  deliver on campaign promises to increase social spending and  a cash crunch. The temptation for the new coalition  government to tap CSF for non-military purposes will be high;  if we are going to consider ways to improve the implementing  mechanisms of CSF, the time to act is now.  End Summary. 
  A STRUGGLING ECONOMY AND A NEW GOVERNMENT 
 
¶2.    (C) Over time, Pakistan's government has become  increasingly dependent on the nearly $1 billion per year in  CSF reimbursements. Greater scrutiny of CSF payments has  coincided with a GOP cash crunch.  This is largely a result  of the government's unwillingness to adequately raise fuel  prices and cut energy subsidies while increasing  infrastructure spending.  For the first quarter of Pakistan's  current fiscal year (July-September), Pakistan's fiscal  deficit was $2.53 billion, of which Pakistan funded $589  million through loans, grants and other financial sources  outside Pakistan.  CSF claims as submitted are equivalent to  48 percent of the externally-financed portion of the budget  shortfall and 11 percent of the total budget shortfall. 
 
¶3.    (C) Because of greater scrutiny, the delay in  reimbursing the March - June 2007 CSF claims, paid on  February 25, 2008, combined with the projectization of the 
$200 million budget support payment has exacerbated  Pakistan's fiscal straits.  As a result, the GOP is  increasingly concerned about its ability to meet its  budgetary obligations.  The GOP raised fuel and electricity  prices on March 1 for the first time in over a year in an  attempt to reduce the growing cost of energy subsidies. 
However, the GOP is increasing food subsidies and facing a $1  billion revenue shortfall. 
 
¶4.    (C) Pakistan is undergoing a transition from a  government controlled by the military - through  President/General Musharaff and his hand-picked Prime  Minister - to one where Musharraf is a civilian president,  the PPP controls the prime ministry, and the military has  promised to recede from politics.  The new coalition  government will be seeking new sources of revenue to pay for  social programs promised in the campaign; the large military  budget and the CSF payments will be a tempting target to mine. 
 
¶5.    (C) The Pakistan People's Party (PPP) finance expert,  Syed Naveed Qamar, has been briefed on CSF reimbursements and  asked Ambassador (Ref F) if the U.S. could ""give the  government the money by June 30 so that the new civilian  government would have the funds by the end of its current  fiscal year and thus avoid additional borrowing to balance  its books.""  Qamar expressed skepticism of the military's CSF  claims and asked the U.S. to increase oversight and ensure  that ""claims were not over-inflated or siphoned off into  private coffers."" The presumptive Pakistan Muslim League-N  (PML-N) Finance Minister also expressed his conviction that 
  ISLAMABAD 00001269  002 OF 002 
 
  the military budget should be more transparent and subject to  parliamentary scrutiny. 
  GROWING PRESSURE ON THE MILITARY 
 
¶6.    (C) At the same time the Pakistani military has become  increasingly anxious about the long-term viability of CSF.  They are aware of the scrutiny CSF faces in the U.S. Congress  and the possibility that civilian officials in the incoming  Pakistani government may want to divert CSF funds for  non-military purposes. 
 
¶7.    (C) During recent high level exchanges senior Pakistani  military officials expressed concern about the future of CSF,  arguing that it would not be possible to sustain the current  force levels and operational tempo in the FATA without it. 
Post received a record CSF claim for December of $155 million  which projects to an annual rate of $1.8 billion, a level  which would exceed the legislative authority.  The January  2008 claim exceeded $200 million. 
 
¶8.    (C) The Pakistanis argue that the increase in tempo  should be accompanied by corresponding increases in the value  of reimbursements. The risk of ""hollowing out"" the Pakistani  military by failing to ensure units conducting combat  operations are recapitalized is a growing concern. 
Additionally, the Pakistanis have continued to argue that CSF  should be used to pay a subsidy for basic soldier  compensation as well as for benefits for deaths and injuries. 
 They cite the recent assassination of the Army's Surgeon  General as further evidence of the increased costs associated  with partnering with the U.S. in the War on Terror. 
According to them, the loss of yet another senior officer has  resulted in a new requirement to purchase armored cars to  protect all of its general officers. 
 
¶9.    (C) Comment: If CSF is going to be reformed it must be  done soon. Delaying much longer threatens to create tension  between a civilian government we are eager to support and a  military that plays a vital role in the fight against  extremism.  It is time to manage expectations on both sides  and update implementing mechanisms for CSF.  Embassy has  already written the major political parties offering  briefings on our assistance programs, and will brief the new  government in detail on CSF as soon as it comes into office. 
End Comment. 
 
  BODDE  "