Ambassador Cameron Munter’s Remarks at the Karachi Stock Exchange

December 6, 2010

Managing Director Askari and distinguished members of the Karachi Stock Exchange Board of Directors, Friends, Pakistanis, Americans, and everyone here today, this will be my first major address since I've come 6 weeks ago to Pakistan and there is no place better to give this address than the Karachi Stock Exchange, because this is a place where people are looking seriously, pragmatically, and with a good sense of education toward the future of your country.  And the future of your country is what America is committed to helping with as long as we can and the best possible way to show the respect and the confidence that we feel our partnership should go ahead.

Good Afternoon.

Thank you for your warm welcome.  I'm delighted to be here at the Karachi Stock Exchange to discuss the state of our bilateral economic relationship and to explore opportunities to deepen the partnership between our two nations.

Our business communities maintain close ties with the U.S. Chamber of Commerce's U.S.-Pakistan Business Council in Washington, the American Business Council here in Karachi, and other business associations.  I would like to use this opportunity to reach out to Pakistan's business leaders, many of whom are in this room today, and tell you that the United States wants you to succeed, wants to help you succeed, to increase your sales, create more jobs, and expand your reach in regional markets, as well as the United States.  Similarly, in a global economy that is just recovering from the 2008 downturn, we welcome your support through the purchase of American products and the establishment of collaborative business partnerships.

Achieving sustained economic growth and prosperity for Pakistan's citizens depends on governmental economic policies providing the base for the private sector to succeed.

My team and I, led by Bill Martin, our Consul General here and his team at the Consulate, want to make sure that we keep hearing your ideas for improving business ties between our countries.   It is especially important that you actively engage political leaders in Islamabad because you are the ones who they need to hear from about what steps are necessary to take and the same is true for your provincial leaders here in Sindh.  We are counting on you to be our partners and with the national leaders to give them the advice they need to make the decisions to make business flourish.  If you are having trouble getting your message heard, and you think the United States would support it, please let us know.  If we agree, we will work to amplify the message to everyone's common good.

As you know, Pakistan enjoys a trade surplus with the United States.  In 2009, the United States purchased $3.2 billion of Pakistan's exports and Pakistan bought $1.6 billion of U.S. products.  Fully half of the U.S. imports from Pakistan are textiles, so we recognize the importance of that sector to Pakistan's economy.  But we believe that that trade can grow but we believe it must be and we believe it must not be limited specific to that sector.  There is much too much talent and potential here to be limited in that way.

I know that our Reconstruction Opportunity Zone proposal, which would allow President Obama to designate zones to produce goods that could be exported duty-free to the United States, has been the source of some frustration.  We in the administration remain committed to the ROZs and are hopeful that the new Congress will pass the legislation in the coming year, 2011.  In any case, the U.S. Embassy and Consulates in Pakistan remain committed to working with Congress to provide market access benefits to help boost Pakistan's export sector.  We are quite aware that the potential for our relationship is much greater through improving market access than any assistance program we could have.

Longer term, we know that Pakistan must diversify its exports.  We welcome your ideas on how the United States and Pakistan might work together to promote promising growth industries, whether through market outreach, technical assistance, regulatory changes, or other ways that you might suggest.

We know that Pakistan's industrial sector has been particularly hard hit by continuing electricity and gas shortages.  Another reason that Pakistan must fix the energy sector is because it must eliminate government subsidies that drain the government budget.  This difficult situation nevertheless provides two key opportunities which our governments and private sectors should seize.

On the government side, Pakistan has recognized the gravity of the problem by helping to draft the Energy Sector Recovery Plan.  We were heartened to see that plan endorsed by the Government at the October 14 Friends of Democratic Pakistan meeting in Brussels, and when it dissolved PEPCO in November.  We will continue to support your Government in this effort, as both governments recognize that a reliable power is a necessary prerequisite for any modern economy to remain globally competitive.  We're not just going to let this economic sector recovery plan sit on shelf.  This is going to be a focus of the next Friends of Democratic Pakistan forum in 2011.

To that end, Pakistan must fix this key sector and the United States stands ready to assist.  We have already funded USAID funding audits of the generation and distribution companies.  Our technical experts are working closely with Pakistani officials on practical steps forward and together they are figuring out how to solve tough problems such as technical inefficiencies, unsustainable tariff structures, and power theft all of which have been draining Pakistan's budget.

For the private sector, the power situation should offer excellent business opportunities..  We will continue to press the Government to foster a business climate that welcomes private investment in the sector.  If you have ideas on how government policies in this area could be improved, we would love to hear them, and we will be happy to raise good ideas with our Pakistani counterparts.

For our part, the Foreign Commercial Service, the Overseas Private Investment Corporation, and the U.S. Trade and Development Agency remain active in promoting Pakistani business supported by U.S. investment, particularly in the energy sector.  American and Pakistani partner companies have proposals pending with the Government of Pakistan to build plants to import liquefied natural gas, electricity generation plants -- including an agreement signed last month to build a $150 million wind power plant in Sindh's Gharo corridor -- and a full range of other investments.  I am sure there are many more opportunities for our citizens to work together, including in the agricultural and agro-processing sector, which we know remains a significant employer in Pakistan.

Another key area that the Government of Pakistan is addressing is the unsustainable revenue situation.  Simply, as you all well know, the government spends more than it collects.

I want to commend the Government of Pakistan -- particularly Finance Minister Shaikh, State Bank of Pakistan Governor Kardar, Prime Minister Gilani, and President Zardari -- as well as opposition politicians -- for their commitments to work cooperatively on the tax, budget, and economic reform legislation.  Let us not kid ourselves, this is not easy.  Hopefully with our encouragement they will gain momentum and move forward.  This legislation is critical to enabling the private sector to grow, and create the jobs and profits Pakistan needs to succeed over the long term.  Even as the Government of Pakistan embarks on these urgently needed reforms, it remains crucial that any reforms be built on a solid foundation.  Key to building that platform is ensuring that the central government and the provinces demonstrate budget discipline.

As Finance Minister Shaikh said during the Pakistan Development Forum, such discipline has been lacking, resulting in excessive borrowing from the State Bank and private sector banks.  This borrowing feeds inflation, which affects the poor particularly hard, and crowds out loans available to the private sector, limiting the prospects for growth of businesses and costing jobs.  Given the natural tendency for all governments to focus on the politically expedient short term, we believe an autonomous State Bank of Pakistan that makes policy decisions that are in the interest of Pakistan's long-term economic interests is crucial.

Progress, however, cannot be achieved without first adopting necessary economic reforms.  With a fiscal deficit of 6.3 percent of GDP in 2010, the Government of Pakistan has been unable to meet its commitments to the IMF under the October 2008 Stand-by Agreement, that provided more than $10.7 billion in loans over two years.  As some of the top taxpayers, here in the room, you are well aware that Pakistan's "tax-to-GDP ratio," the global standard measure of whether a country is paying its way, is less than 9 percent, one of the lowest in the world.  By comparison, U.S. citizens pay about 18 percent, and many other developed nations pay upwards of 30 percent.  Pakistan's tax-to-GDP ratio is, as I mentioned, is among the lowest in the world is a problem here because there are many prosperous people in Pakistan who can afford to pay taxes but who refuse to do so or are not required to do so by law.

We remain hopeful that the Reformed General Sales Tax Bill that is being debated in Parliament will pass and will be effectively implemented at both the federal and the provincial level.  We have no illusions, that this legislation will not resolve Pakistan's fiscal situation, but it is an important first step as the Government of Pakistan aligns its capacity to raise revenue with its need to boost security and development spending.  This will ensure that Pakistan progresses towards achieving the U.N Millennium Development Goals to combat disease, improve child and maternal health, provide education, and reduce poverty by 2015, while keeping up a robust national defense.

While I think it makes sense to include agriculture, a sector that constitutes one-fifth of Pakistan's GDP, as part of Pakistan's effort to expand the narrow tax base.  This is also a political question that is not easy, let's look at this straight on, let's make sure we address who are the people in the country who can help. I also understand the difficulties of passing any tax legislation, so I defer to Pakistan's lawmakers on how best to collect sufficient revenues to fund critical government services over the long run, but we welcome the open debate, the honest debate, the difficult debate about tax revenues.

Ambassador Holbrooke recently noted that "The Government of Pakistan's plans to move forward on macroeconomic reforms mark a significant step toward self-sufficiency."  The United States is committed to assisting Pakistan in overcoming its difficult economic situation by providing long-term technical and economic assistance, which will help develop sustainable improvements in its capacity to provide basic social services.

As I noted before, the United States shares the concerns of many Pakistanis about the chronic and severe energy shortages, which if left unaddressed, has the potential to fuel a crisis that could threaten the country's political and economic stability.  Pakistan is blessed with abundant rivers, coalfields, untapped oil and gas resources, and the prevailing winds that could support many wind farms.

However, previous governments' failure to implement energy development plans in a timely manner, state regulatory interventions in the sector, insufficient focus on private-sector solutions, and continued questions about the security and political situation have dampened investor interest in Pakistan.  Energy investors need a stable and predictable long-term investment framework, and assurances that they will be able to recover their costs and to feel comfortable investing in Pakistan.

Frankly, it makes little sense for the Government of Pakistan to continue to drain the government budget by paying huge subsidies to support the power sector.  The United States recognizes the importance of helping Pakistan overcome its energy deficit and we will continue to make comprehensive cooperation on the energy sector a key component of our assistance.

As part of this commitment, the United States and Pakistan, together with American power company AES Corporation, have agreed to pursue a public-private partnership to develop a 150-megawatt, $375 million wind power generation in the Gharo Corridor.  This is in addition to more than $185 million pledged under the Signature Energy Program announced by Secretary Clinton to improve the efficiency of Pakistan's energy sector, which will help alleviate the loadshedding that cripples commerce and economic growth.  These programs and others were made possible by the Kerry-Lugar-Berman Act, which tripled our non-military aid to Pakistan to $7.5 billion over five years.  There are pending other projects supported by U.S. investors, which include several proposals to build facilities to import liquefied natural gas, that we hope that the Government of Pakistan will quickly approve them.

We also look for Pakistan to take the lead in driving the movement of reliable and affordable energy from Central Asia for its own domestic consumption and that of its neighbors.

However, these measures will only provide partial solutions to Pakistan's energy crisis.  To meet the everyday energy needs of its people and to compete effectively in the global economy, Pakistani leaders must make policy changes that improve the country's investment climate and support sustainable investments in the energy sector.

In the broader scheme of economic reforms, other necessary component is the reform and privatization of State-Owned Enterprises.  In fiscal year 2010, these enterprises cost the Government of Pakistan almost $3 billion in state subsidies - twice the amount of Kerry-Lugar-Berman assistance.  These inefficient enterprises are a major drain on Pakistan's budget, and consume resources that could be more productively used by the private sector.  International experience has shown that privatization, when conducted in a transparent and open manner, is often an effective way to unlock the productive potential of a nation's resources and add significant value to those very assets.

While the Government of Pakistan has pursued a significant privatization program over the last two decades, it has stalled, with no new privatizations since 2008.  This represents another untapped resource that, if employed effectively, could increase Pakistan's capacity to fund additional development spending.

As the nation's business leaders, you have a unique perspective into the Pakistan's investment climate, and I welcome your suggestions and ideas on how we can make Pakistan more attractive to investors and increase domestic and foreign investment.  The United States is engaged with government officials on all levels to improve the business climate in Pakistan, by reducing corruption, improving transparency, and strengthening effective dispute mechanisms.

As many of you know, foreign direct investment flows have shrunk by 60 percent from the levels seen in 2007 and 2008.  Some of this is due to the difficult security environment, but Pakistan can also attract investment if its leaders work to combat the corruption and red tape that hamper economic growth and private sector development.  Such improvements will encourage long-term investments in Pakistan, which will, in turn, create jobs and lay the foundation for sustained economic expansion.

You know, the last time I visited Karachi, it was shortly after I arrived in Pakistan.  The trip provided an opportunity to see first-hand the devastation that summer's floods here in Sindh.  Starting immediately after the flooding began last July, the United States has worked closely with the Government of Pakistan and our international partners to provide relief to the more than 20 million victims.  The scale of this monsoon flooding was as appalling and it was unprecedented, with millions made homeless and billions in total damage to Pakistani homes, farmlands, schools, bridges, and highways.

With U.S. military helicopters bringing emergency rations and tents, we were proud to be Pakistan's first international partner on the scene and remain the largest donor, as we enter the recovery and reconstruction phases.  Our response to that is consistent with our deep and long-term commitment to Pakistan.  We want to be here with you when you need us, but we won't only be here at times of crisis.  We are going to be here as you succeed not only to meet the needs of people in crisis.

So to date, the U.S. Government has provided over $655 million to assist with relief and recovery efforts -- and almost $600 million of that is above and beyond the Kerry-Lugar-Berman funds.  This includes civilian and military in-kind assistance in the form of halal meals, infrastructure support, and air transport or goods and rescued flood victims.  U.S. aircraft have evacuated more than 40,000 people and delivered over 25 million pounds of relief supplies.

Our U.S. mission team and senior leadership in Washington have worked to bring resources to bear in the reconstruction effort.  Secretary of State Hillary Clinton traveled to the U.N. General Assembly on August 19 to make a formal appeal on Pakistan's behalf for the international community to support Pakistan in its time of need.  At the Strategic Dialogue in October, she said, "I want to send a special message to the people of Pakistan:  We have stood with you, and we will keep standing with you to help you not just cope with the floods, but to get back on the path to prosperity."

The recently concluded Pakistan Development Forum in Islamabad is just the latest example of the substantial commitment that the United States and the international community have made in supporting the Government of Pakistan. The money we have pledged had that is meant to help cultural initiatives, agricultural initiatives, small-scale infrastructure projects, the reconstruction of schools, and other projects to be determined in conjunction with the Government of Pakistan.

We also have at Strategic Dialogue working groups that I have attended in October in Washington. We have more to review progress on an action plan that addresses Pakistan's toughest challenges.  We have closer diplomatic relation and more frequent diplomatic ties with Pakistan than any other country in the world. Our top leaders meet with your top leaders and while done that for youngsters we are opening discussions in all areas we can.  As the U.S. Ambassador to Pakistan, I pledge to stay close to hear your advice on the question of budgets, economic growth and all our governments' economic cooperation.

We are aware that there is a great deal of skepticism, especially among the people of Pakistan, about our commitment to the region.  Our governments have worked hard to build a renewed, strategic partnership based on mutual respect, mutual interests, and mutual trust.  We must all continue working to bridge what some call the trust deficit between the United States and Pakistan, and I hope the visit of your President to the United States and President Obama to Pakistan in 2011 will serve to deepen this relationship. We want to create conditions that allow Pakistanis to be healthy and productive.

We coordinate with your government to invest in areas that we believe will distribute economic and social benefits to those most in need and build the infrastructure critical to sustained economic growth. But, but we have no illusion, no amount of economic assistance can match what you can, the private sector offer for Pakistan. This is a must, must make sure that you are the drivers of the new Pakistan and we are your partners.

Thank you again for hosting me.  I hope this gathering is just the first step in a process of greater engagement and cooperation with the Karachi Stock Exchange.  I'd like to conclude once again by expressing my appreciation to the Director Haroon Askari, the Board of the Karachi Stock Exchange, and to everyone present, for your firm support for expanding bilateral investment and improving economic relations between Pakistan and the United States.  I look forward to hearing your ideas about how the Government of Pakistan can make it easier for you to do business, and how my government can help facilitate those efforts.

Thank you very much. It has been a pleasure to be with you this morning and I appreciate you allowed me to outline my ideas in most complete fashion since I have been here in Pakistan.