VZCZCXRO5233
RR RUEHLH RUEHPW
DE RUEHIL #3375/01 3010509
ZNR UUUUU ZZH
R 270509Z OCT 08
FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC 9466
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHML/AMEMBASSY MANILA 3046
RUEHBUL/AMEMBASSY KABUL 9299
RUEHNE/AMEMBASSY NEW DELHI 3935
RUEHLO/AMEMBASSY LONDON 8947
RUEHKP/AMCONSUL KARACHI 0510
RUEHLH/AMCONSUL LAHORE 6248
RUEHPW/AMCONSUL PESHAWAR 5084
RUMICEA/USCENTCOM INTEL CEN MACDILL AFB FL
RHMFISS/CDR USCENTCOM MACDILL AFB FL
RUEAIIA/CIA WASHDC
RUEKJCS/SECDEF WASHINGTON DC

UNCLAS SECTION 01 OF 03 ISLAMABAD 003375 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ECON EFIN ETRD PREL PGOV PK
SUBJECT: AMBASSADOR MEETS WITH FINANCE ADVISOR TAREEN 
 
¶1. (SBU) Summary. Ambassador met with newly appointed de facto 
Finance Minister Shaukat Tareen on October 23 to discuss economic 
affairs.  Tareen noted that he supports the IMF program and thinks 
the final plan will be concluded soon. He also noted that the 
Government of Pakistan (GOP) will be ready to discuss a menu of 
options for the Friends of Pakistan after the IMF deal is finalized. 
 He confirmed that the Karachi Stock Exchange floor will be removed 
on October 27 and noted that he expects foreign investors to 
withdraw significant funds from the markets.  The free flowing 
discussion covered Tareen's overall strategy for the governmental 
institutions which focus on Pakistan's economy. Other issues of 
bilateral importance such as Coalition Support Funds, Shared 
Objectives funds, development in the Federally Administered Tribal 
Areas (FATA) were also discussed. End Summary. 
 
-------------------------- 
OVERALL ECONOMIC STABILITY 
-------------------------- 
 
¶2. (SBU) Ambassador met with Shaukat Tareen, Advisor to the Prime 
Minister on Finance and de facto Finance Minister, to discuss the 
current state of the economy.  Tareen noted that he was working to 
develop a comprehensive plan with all segments of the society 
included and not just based on "elite thinking." Referencing his 
nine point plan which will emphasize macro economic stability, 
Tareen noted that he believes the most important aspect of this plan 
over the long term is to improve the competitiveness of 
manufacturing machinery and to develop human resources capabilities 
to allow Pakistan to remain competitive in the manufacturing 
sectors.  Tareen noted, however, that at present the most important 
aspect for Pakistan is to stabilize the macro economic indicators 
"which are hindering all other issues." 
 
¶3. (SBU) Noting that during his recent trip to the World Bank 
meetings, he had called President Zardari from Washington to discuss 
his talks with the International Monetary Fund (IMF) and "told 
Zardari that we must help ourselves first" and "if we are serious 
about our plan for the economy then we should not be scared of the 
IMF."    Responding to the Ambassador's question about Zardari's 
comfort with moving forward on the IMF program, Tareen indicated 
that Zardari is still a bit apprehensive. 
 
¶4. (SBU) Noting that the GOP team is in Dubai now for continuation 
of talks with the IMF, Tareen noted that he expected the IMF loan to 
be front loaded and to have incremental conditionality.  Referring 
to his recent talks with Treasury's Deputy Secretary Kimmitt, Tareen 
noted that he expects to get USD 5.5 to 6 billion despite the IMF's 
initial offer of only USD 4 billion for the loan.  Tareen noted "if 
we are meeting the conditionality on our own, why not explore" the 
option for getting more money "so that we can really turn around 
Pakistan's economy." 
 
¶5. (SBU) Tareen noted that the GOP would be able to discuss "the 
menu" for the Friends of Pakistan (FOP) and "plan for the next 
meeting after the IMF plan is finalized."  Noting that Pakistan 
needed to have a "market oriented menu available," he mentioned oil 
concessions, the securitization of remittances, investments such as 
in textile mills, bank shares as well as market access "in 
Reconstruction Opportunity Zones or whatever" as possible items for 
inclusion on the FOP menu. 
 
------------------------ 
REFORMING THE GOVERNMENT 
------------------------ 
 
¶6. (SBU) Stating that "Pakistan needs an institution to take the 
country's vision forward," Tareen emphasized that he wants to make a 
difference in industrial planning and proclaimed that Pakistan 
currently lacks an institution to take the vision forward.  Noting 
that he believes that the Planning Commission should become the 
fundamental planning organ for the government and serve as a think 
tank with linkages to the Ministries, Tareen further explained that 
he envisions the Planning Commission's role to be focused on 
implementation with regular follow up meetings to   measure progress 
every two months.  (Note: With the Prime Minister as the head of the 
Planning Commission, Salman Faruqui currently serves the Deputy 
Planning Commission at a Ministerial level. End Note.) 
 
¶7. (SBU) Tareen noted that civil servants have no motivation to work 
 
ISLAMABAD 00003375  002 OF 003 
 
 
given the low levels of their salary and no incentive mechanisms. 
He further explained that a Federal Secretary is currently paid 
55,000 (USD 680) rupees per month as a base salary which is expanded 
to 300,000 rupees (USD 3,700) per month with expenses such as 
housing and car.  Noting "if that is what you can expect after 30 
years of service," Tareen questioned "why should civil servants work 
hard?"  Ambassador agreed that civil servants are critical to the 
government's overall success and the future of the country. 
 
----------------------- 
COALITION SUPPORT FUNDS 
----------------------- 
 
¶8. (SBU) Turning to the Coalition Support Funds (CSF), Ambassador 
noted that we need to mutually stabilize the CSF payment process. 
Explaining that the CSF program contributes USD 1.2 billion in cash 
to the Pakistan economy for expenses incurred in the war on terror, 
Ambassador further noted that there are currently issues between the 
army and the government on what is covered as a reimbursable 
expense.  Ambassador further noted that the USG and the GOP need to 
look at the overall practice and work out problems in the billing 
process.  Noting that he wants to cooperate and solve any 
outstanding issues, Tareen suggested that GOP and USG officials meet 
to discuss the issues and ensure that there is transparency in the 
process so that genuine expenses are paid.  Further noting that he 
expects there will be an understandable lag in the payments while 
the US verifies the monies, Tareen emphasized that transparency in 
the system is critical.  Ambassador noted that the "process has 
improved but that the Army still doesn't think it is getting 
adequately reimbursed."   Tareen suggested that we find a point 
person and stated "I was a Citibanker- I get that you need to have 
transparency." 
 
--------------------------- 
SHARED OBJECTIVES and FATA 
--------------------------- 
 
¶9. (SBU) Ambassador noted that last fall the USG transferred the 
Shared Objectives money from direct budgetary support to specific 
projects.  Explaining that this shift in US policy occurred due to 
Pakistan's State of Emergency declaration, Ambassador noted that "we 
need to look at these projects to ensure that we are on the same 
page" since there have been several shifts in the Ministry.  Tareen 
agreed to cooperate in any efforts. 
 
¶10. (SBU) Turning to the FATA, Ambassador also noted that we are 
having some difficult issues with the implementation of our projects 
in the FATA and emphasized that we need to appoint a single point of 
contact who can bridge the divide between the federal and provincial 
authorities and navigate the bureaucratic maze.  Citing the recent 
work with the internally displaced persons, Ambassador noted that we 
experienced difficulties with internal competing authorities in the 
Pakistani system which has slowed the relief work considerably. 
Ambassador further noted that if the World Bank Trust Fund evolves 
then a leader such as General Nadeem who was instrumental in the 
success of the earthquake reconstruction will be essential for 
making success on projects in the FATA.  Tareen stated that he wants 
to be helpful and noted that he believes economic issues are fueling 
terrorism in Pakistan so he would do his part to assist in whatever 
was needed. 
 
---------------------------- 
KARACHI STOCK EXCHANGE (KSE) 
---------------------------- 
 
¶11. (SBU) Ambassador asked Tareen about what he expects to happen 
when the floor is removed from the KSE.  Tareen noted that the KSE 
floor will be removed on Monday, the 27th and stated that the GOP 
has stop intervening in the market in the future. He noted that the 
GOP announced a new measure which will be available only to foreign 
investors.  This measure will give foreign investors who were 
invested in the KSE on August 27 when the floor was imposed a put 
option for up to 30 billion rupees.  Tareen noted that he still 
anticipates that foreign investors will leave with significant 
levels of funding but that the GOP can only do so much to assist in 
these economic situations.   [Note: After a late night meeting on 
October 26, the KSE Managing Director Adnan Afridi announced that 
the floor will not/ not be removed "until a later date" but failed 
to gave any indication of the exact timeframe. End Note.] 
 
ISLAMABAD 00003375  003 OF 003 
 
 
 
--------------------------- 
INTERNATIONAL MONETARY FUND 
---------------------------- 
 
¶12. (SBU) Responding to the Ambassador's question about whether he 
plans to travel to Dubai for the IMF discussions, Tareen noted that 
there was no point in his travel since Finance Secretary Waqar 
Masood Khan and State Bank Governor Aktar were there.  He noted that 
the IMF negotiations were almost finalized while he was in DC but 
that the IMF now wanted "backup numbers."  He stated that he hopes 
to "stabilize the current macro situation with IMF help by December 
so that by January the real work on the economy can begin." 
 
-------------------------- 
PRIVITIZATION and the BIT 
-------------------------- 
 
¶13. (SBU) Tareen responded to the Ambassador's question about plans 
for privatization by noting that his personal opinion is that "the 
government has no business running business" and that privatization 
plans need to move forward.  He noted that he has discussed 
privatization issues with Zardari and that he envisions plans "where 
the government can maintain a percentage but allow complete 
management control and a controlling stake to the private sector." 
Ambassador also noted that concluding the bilateral investment 
treaty (BIT) would send a strong signal to foreign investors that 
Pakistan is open for business.  Econ Counselor noted that the USG 
has not received a response from the GOP on proposed dates for the 
BIT negotiations to be held in November in Washington.  Tareen noted 
that he "would follow up immediately and intended to get the BIT 
done quickly." 
 
------- 
COMMENT 
------- 
(SBU) Comment: During the Ambassador's meeting, Tareen mentioned 
with passing reference "his new nine point plan."  Post consistently 
scours the local press for any economic developments and was unaware 
of any such announcement by the newly appointed de facto Finance 
Minister.  Contacts at the Finance Ministry subsequently confirmed 
that Tareen has announced a new economic plan with the following 
"action items."  The nine point plan is as follows: Stabilize macro 
economic indicators such as inflation, budget deficit and exchange 
rate; Introduce social safety nets such as Benazir Income Support 
Program; Promote agricultural development; Encourage manufacturing 
sector competitiveness; Develop human resources; Launch an 
integrated energy development plan; Promote private public 
partnerships; Work on capital market reforms and Consolidate and 
upgrade administrative machinery through civil services reforms. 
None of these points have any implementation measures associated 
with them nor have them been explained in any detail publicly. 
 
(SBU) Comment continued. Tareen is the third Finance Minister to be 
appointed since the ruling government came to power in the February 
18 elections.  He is clearly engaged on macro economic issues and 
appears to be in more regular and closer consultation with Zardari 
than former Finance Minister Qamar.  Tareen stated that he is 
working for the GOP for only one rupee per year as a salary.  He 
noted that he also asked for housing and a car but felt that "he 
needed to take this job for the national good and to put the country 
back on track."  Publicly, Tareen continues to make statements to 
soften the population towards the inevitable IMF program by claiming 
that no GOP decisions will be necessary until mid-November; however, 
Tareen privately acknowledges that Pakistan needs the IMF and is 
working behind the scenes to secure the necessary support among the 
GOP leadership. End Comment. 
 
PATTERSON