2009-10-23 18:21:01 - Pakistan Defence and Security Report Q4 2008 - a new market research report on companiesandmarkets.com

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President Pervez Musharraf´s recently announced resignation should go some way towards easing the political impasse that has constrained the fledgling government since coming to power in March. The Pakistan People´s Party (PPP) secured a huge parliamentary majority which saw the election of Yousaf Raza Gilani as Pakistan´s new prime minister, who has demonstrated a firm intention to enact constitutional reform. However, the new government had already begun to show clear signs of being adrift, with noticeable fissures between the ruling coalition partners, all of which is drawing attention away from looming economic and security woes. The policymaking machinery has been hobbled by ongoing wrangling between the governing coalition partners, the PPP and the Pakistan Muslim League N (PML-N), most notably

 

 

with regard to the reinstatement of the Supreme Court judges sacked by President Musharraf last year – which was a precondition behind their coalescing. In the meantime, record high inflation, fiscal and external imbalances and brewing militancy in the country´s border regions are all likely to conspire against a smooth second half of the year. So while removing one overarching source of friction, we caution that Musharraf´s exit may not spell the end of ructions within the polity, and that the coming few weeks should provide important clues as to the durability of the government in a post- Musharraf era.

President Musharraf´s decision to resign did not come as a surprise; however, the fall-out from his resignation on Pakistan´s foreign relations remains somewhat hazy, but will most certainly be followed by apprehension in some corners. Neither Washington nor New Delhi is likely to want to see a power vacuum that could jeopardise the fight against the country´s increasingly assertive militants. Musharraf has been a loyal ally in the US´s war on terror and helped rebuild some trust in the fraught relationship with India, and any changes on these fronts could dent bilateral relations. Indeed, they in all likelihood fear that the civilian government may have little to no influence over the military or the Pakistani Inter- Services Intelligence agency, which India believes played a role in the recent bombing of the Indian embassy in Kabul, among other things.

The lead-up to the February 2008 elections, dominated by the assassination of Benazir Bhutto, led to considerable uncertainty about the path the country might take. In the wake of the election, Pakistan was re-admitted to the British Commonwealth and India’s Prime Minister Manmohan Singh said that he expected that the country’s bilateral ties with Pakistan would improve. Peace talks, which had been suspended for six months previously, resumed on 20 May and made some progress. But now the high spirits that followed the return to civilian rule in March seem a distant memory, and in their place a sense of unease is slowly seeping in as a confluence of economic and political woes serves to cloud the political outlook in Pakistan in the second half of 2008. Relations between India and Pakistan have now deteriorated again as a result of a bomb attack against India’s embassy in Afghanistan, bombings in Ahmedabad and Bangalore, and ceasefire violations along the Line of Control in Kashmir. Meanwhile, the Pakistani army is engaged in ongoing combat operations against pro-Taliban militants in the tribal areas adjacent to Afghanistan. The surging production of opium has contributed to the scale of Pakistan’s problems in this area, and it is assumed that if the situation in Afghanistan continues to deteriorate then there will be further security problems along the border.

Pakistan’s defence industry contains over 20 major public sector units (PSUs) and over 100 private-sector firms. The majority of major weapons systems production and assembly is undertaken by the state-owned PSUs, while the private-sector supplies parts, components, bladed weapons and field equipment. Major PSUs include the Pakistan Ordnance Factory (POF), Heavy Industries Taxila (HIT), Karachi Shipyard and Engineering Works (KSEW) and the Pakistan Machine Tool Factory. Multinational presence in Pakistan is limited, although joint production or engineering support in the development of certain armaments has recently occurred with companies such as DCN International and the Chengdu Aircraft Industry Group.