163593    7/25/2008 13:26    08ISLAMABAD2524    Embassy Islamabad    SECRET//NOFORN        "O 251326Z JUL 08 FM AMEMBASSY ISLAMABAD TO SECSTATE WASHDC IMMEDIATE 8040 INFO AMEMBASSY KABUL PRIORITY AMEMBASSY NEW DELHI PRIORITY AMCONSUL KARACHI PRIORITY AMCONSUL LAHORE PRIORITY AMCONSUL PESHAWAR PRIORITY NSC WASHINGTON DC PRIORITY SECDEF WASHINGTON DC PRIORITY THE WHITE HOUSE WASHINGTON DC PRIORITY USCENTCOM INTEL CEN MACDILL AFB FL PRIORITY USCINCCENT MACDILL AFB FL PRIORITY CIA WASHDC PRIORITY"    "S E C R E T ISLAMABAD 002524

NOFORN

E.O. 12958: DECL: 07/25/2018 TAGS: PREL, PTER, PGOV, PK

SUBJECT: SCENESETTER FOR PM GILANI'S VISIT TO WASHINGTON

Classified By: Anne W. Patterson, for reasons 1.4 (b)(d)

1.  (S/NF)  Summary.  Prime Minister Syed Yousuf Raza Gilani will be anxious to prove that he is committed to fighting ""Pakistan's war"" on terrorism and will outline the GOP's partial response to the July demands presented by CJCSMullen/DDCIA Kappes.  Gilani will publicly support the coaliton's ""negotiations first"" counter-terrorism strategy and defend Pakistani sovereignty in the face of reported plans for unilateral U.S. action.  Privately, he will agree that force is sometimes necessary and assert he is prepared to use it.  However, coalition strains and governance gridlock are limiting Gilani's ability to coordinate either security or economic policy.  He likely will repeat requests for ""actionable intelligence"" and suggest the need for increased U.S./ISAF operations on the Afghan side of the border.  We should maintain pressure for specific counter-terrorism (CT) action and condition future Foreign Military Financing (FMF) assistance on Pakistani agreement to training that will increase its counter-insurgency capabilities.

2.  (C/NF)  Summary continued. Pakistan Muslim League-Nawaz (PML-N) leader Nawaz Sharif has used his ""go Musharraf go"" campaign to become Pakistan's most popular leader today.  To bolster his sagging Pakistan People's Party (PPP) popularity, PM Gilani may ask for quiet support of a dignified exit (resignation) for President Musharraf; in contrast, Musharraf has asked that we reaffirm U.S. support for him as President. Musharraf continues to debate dissolving the National Assembly, a step we believe will lead to widespread unrest and increase calls for his departure.

3.  (C/NF)  Summary continued. Gilani likely will ask for faster delivery of Coalition Support Fund (CSF) reimbursements, endorse the Biden/Lugar bill to double economic aid to Pakistan, and support passage of Reconstruction Opportunity Zone (ROZ) legislation.  He will welcome offers of food security and energy assistance to help overcome rising food and fuel inflation and rolling power blackouts.  He may ask for support to convince Riyadh to agree to Pakistan's request to defer $5.9 billion in oil payments.  Gilani fully supports efforts to repair strained relations with Afghanistan and India.  End Summary.

Filling a Leadership Vacuum ---------------------------

4.  (C/NF)  Prime Minister Yousuf Gilani is well-meaning,pro-American and anxious to convince us that he is committed to fighting ""Pakistan's war"" against terrorism.  The challenge is turning good intentions into sustainable action. Gilani presides over a fragile coalition mired in governance gridlock over the issue of President Musharraf's future.  The real centers of power -- PPP Co-Chair Asif Zardari and PML-N leader Nawaz Sharif -- sit outside government fighting for political supremacy.  Gilani supports what has been improving Ministry of Interior CT cooperation, but he has limited power to force the Army and the intelligence services (Inter-Services Intelligence (ISI)) to battle a growing militant insurgency.  His visit to the White House may well empower him to do more.  With the withdrawal of Nawaz Sharif's economic ministers, the coalition lacks the expertise to tackle spiraling debt, food and fuel inflation, capital flight, and rolling blackouts.

5.  (C/NF)  Gilani will be seeking public assurances that the U.S. supports Pakistan's new civilian government, but the uneasy Zardari-Nawaz marriage of convenience may not last much longer.  When the coalition breaks apart, Zardari will need to bolster his slim parliamentary majority with other partners.  President Musharraf believes his party can be one of those partners, and we agree.  But his ""go Musharraf go"" campaign has made Nawaz Sharif the most popular leader in Pakistan today.  Zardari and Gilani fear they cannot politically afford to continue working with Musharraf and may raise this in Washington. In contrast, Musharraf has asked that the USG make it clear to Gilani that the U.S. continues to support him as President.  Chief of Army Staff General Kayani prefers to remain out of politics, if for no other reason than a reluctance to take on twin security and economic crises.  We believe he will support Musharraf's resignation with dignity, if the prospect of impeachment becomes real.

6.  (C/NF)   Musharraf continues to debate the possibility of dissolving the National Assembly and imposing a technocratic government; we believe this scenario will provoke unrest and increase calls for Musharraf's departure.  We should support Gilani now and through a coalition breakup.  Nawaz currently does not have the votes to bring down the coalition.

Fulfilling Promises -------------------

7.  (S/NF)  We have learned since 9/11 that Pakistan responds, periodically, to U.S. pressure on counter-terrorism; we should continue to press for action on specific agenda items.  The GOP has responded to the CJCS Mullen/DDCIA Kappes visit in July by arresting several Taliban shura members in Quetta, signed an agreement to install cellphone towers in the tribal areas (FATA), is initiating an Army operation in North Waziristan, and we expect they will allow another B-300 surveillance aircraft to operate.  These steps will help disrupt cross-border attacks and improve our intelligence capabilities.

8.  (S/NF)  However, the GOP has not targeted Siraj Haqqani or his network; nor have they arrested Commander Nazir or Gulbaddin Hekmatyar.  These militants are responsible for much of the 40 percent increase in cross-border attacks on our troops in Afghanistan this year.  The Army/ISI can do the job, but they cling to ""old think"" -- the belief that it is better to manipulate militants through infiltration, payoffs and ""divide and conquer"" strategy than fight extremists on the battlefield.  They fear military action would provoke a tribal war they cannot control, but the GOP strategy has failed and the government is losing territory to extremists every day.  While acknowledging that elements of ISI may be out of control, Musharraf and Kayani remain reluctant to replace ISI Director Nadeem Taj.

Bolstering CT Strategy ----------------------

9.  (C/NF)  Gilani will proudly explain the GOP's three-pronged CT strategy:  political engagement; economic development; and force when needed.  He likely will claim recent (minimal) Frontier Corps action in the tribal areas (Hangu and Bara) and (weak) coalition concensus as evidence of GOP resolve to execute that strategy.  We should acknowledge Pakistani sacrifices in the war on terror. Gilani believes the coalition must build popular support for military action, and General Kayani agrees.  But we should stress that militants are exploiting the coalition's ""negotiations first"" policy to plan and launch attacks against Pakistani and U.S. targets.

10.  (S/NF)  Gilani will repeat GOP requests for ""actionable intelligence"" and may suggest that the U.S. and ISAF beef up border patrols and stop the drug trade in Afghanistan that finances arms and militant operations.  We should respond that the GOP knows better than we do the location of Haqqani, Nazir and Hekmatyar; most al Qaeda and Taliban sanctuaries are in Pakistan, not Afghanistan.  If Gilani suggests improved regional (especially Gulf) intelligence sharing, we should welcome that initiative.  Zardari has just proposed to us a September conference hosted by the UAE with Pakistan, India, Afghanistan, the U.K., the U.S., and NATO observers to discuss the situation in the tribal areas and along the border.  This idea has merit, too.

11.  (C/NF)  Gilani will thank the U.S. for its five-year $750 million FATA development program and may ask for more. Despite security challenges, USAID is implementing small projects in five of the seven FATA agencies that will eventually create 120,000 short-term jobs for young Pashtuns who otherwise would be tempted to join the Taliban.   USAID is developing a program to preposition relief packages to deliver (in the GOP's name) to villages after military action; we should encourage the GOP to increase its own civil-military programs to provide relief as part of its counter-insurgency (COIN) strategy.

12.  (C/NF)  Largely because of pride, the Pakistani Army remains reluctant to accept COIN training for itself or the badly trained and under-equipped Frontier Corps.  We should tell Gilani that future FMF support will be conditioned on the GOP's willingness to accept COIN and close air support training.  We should assure Gilani that we will continue current efforts to train and equip para-military forces like the Levies and push him to accept pending training for the Frontier Corps.  Pakistan now has six military officers working in the tripartite Torkham Border Coordination Center (BCC); we should press for Gilani's concurrence to identify two BCC sites in Pakistan.  Gilani may raise the Pakistani request to use FMF for F-16 mid-life upgrades; we currently are seeking Congressional support for this request.

Fixing the Economy ------------------

13.  (C/NF)  Economic growth for the current fiscal year is expected to be 5.8 percent, well below the target of 7.2 percent.  The fiscal deficit is projected to be 7 percent of GDP versus a target of 4 percent; GOP borrowing from the State Bank of Pakistan (SBP) has reached an all-time high of USD 8 billion.  Pakistan's trade deficit rose to USD 17 billion, up from USD 11 billion last year, as lackluster export growth fell far short of increasing imports.  Savings and foreign investment both declined.  Pakistan's rupee has lost 16.8 percent of its value since January and is at record lows.  We support approval of a pending USD 500 million World Bank loan for Pakistan, conditioned on a coherent plan for reducing food and energy subisidies.  Gilani may ask for speedier delivery of Coalition Support Fund reimbursements (approximately USD 1 billion per year) and endorse the recently introduced Biden/Lugar bill to double economic aid to Pakistan.

14.  (SBU) Not a single megawatt of electricity has been added to the national grid since 2000, despite population growth and economic expansion.  Industrial production is threatened by blackouts and unemployment is rising. Petroleum and electricity subsidies account for the bulk of the fiscal deficit and have continued to rise with skyrocketing international oil prices.  The GOP is paying USD 554 million per month for subsidies on petroleum and will attempt to reduce these subsidies despite the intense popularity of such measures.  Energy accounts for 29.3 percent of Pakistan's imports, and growth in exports cannot cover the increases in international commodity prices.  Saudi Arabia is considering a Pakistani request to defer $5.9 billion in oil payments; Gilani may request help in convincing Riyadh to agree.  USAID will launch a three year program to assist with energy policy issues and energy efficiency and we are offering to fund a USGS mapping survey to identify commercial mineral deposits and potential energy sources.  Gilani will attend in Washington a World Bank investment roundtable focused on developing Pakistan's Thar coal field reserves.

15.  (U)  Gilani will welcome the USG offer of food assistance; he estimates that Pakistan needs help obtaining 3.5 million metric tons of wheat to stave off shortages this year.  Pakistanis have suffered monthly double digit food price inflation since September 2007.  Over 100 million Pakistanis live on less than 2 dollars per day, including 25 million living on less than one dollar per day.  The World Food Program recently identified Pakistan as one of 40 countries at risk of food insecurity and recently raised its estimate of at-risk individuals from 60 to 77 million, or 48 percent of Pakistan's population.

Repairing Regional Security ---------------------------

16.  (C/NF)  Zardari strongly supports improved ties with India, irrespective of progress on Kashmir.  Gilani called Indian PM Singh this week and has agreed to meet with both Singh and President Karzai in Sri Lanka following the Washington trip.  Gilani has approved the list of Pakistani participants to the mini-jirga with Afghanistan.  India and Pakistan initiated the fifth round of their Composite Dialogue in July and agreed to expand confidence building measures in Kashmir.  Gilani may ask for more pressure on Congress for passage of Reconstruction Opportunity Zone legislation which would benefit both Afghanistan and Pakistan.

17.  (C/NF) However, increased allegations of ISI involvement in the July 7 bombing of the Indian Embassy in Kabul have undermined regional relations.  India and Pakistan are investigating the incident; we are working with Kabul to restart Pak-Afghan economic and military meetings cancelled in the wake of the bombing.  If asked, Gilani will state that Pakistan will not impede approval of the India-IAEA Safeguards Agreement.  But Pakistan clearly would like similar USG assistance to develop its own civilian nuclear capability to meet growing energy demand.  Negotiations continue on the proposed Iran-Pakistan-India gas pipeline.

18.  (C/NF)  We were disappointed that the Islamabad High Court increased personal freedoms for Pakistani nuclear scientist AQ Khan; if asked, Gilani will say that the GOP continues to closely monitor Khan's activities.

PATTERSON

NNNN

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