Pakistan sees prosperity after peace in Kashmir

By Jack Redden

ISLAMABAD (Reuters): Little more than a year ago Pakistan's military ruler Gen. Pervez Musharraf stated that every Muslim was talking of a jihad to end Indian control in Kashmir.

Now, instead of holy war, the ex-commando leader emphasizes the need to end the 54-year-old conflict if the subcontinent is to emulate the economic success elsewhere in Asia and banish the grinding poverty afflicting tens of millions of their citizens.

"In the interests of the region, in the interests of the poverty-stricken one-fifth of the world's population, in the interest of economic growth in this region we need to resolve the Kashmir issue," Musharraf said three weeks before he is to meet Indian Prime Minister Atal Behari Vajpajee.

Perhaps the lifelong soldier did not realize the extent of the rot before he seized power in October 1999, jailing and eventually exiling prime minister Nawaz Sharif. His initial target was corruption and a disintegration in state institutions, but his 20 months in office have been dominated by an effort to drag Pakistan back from the economic abyss.

"The economy was bankrupted to the extent that we would have certainly defaulted on our loans. Another one or two years and we would have defaulted," he said on a recent evening at the mansion reserved for the head of the military. "And I don't know then what would have happened in Pakistan economically."

Servicing a public debt equal to the annual gross domestic product -- with foreign debt of $37 billion -- was eating up half the budget. The government had not had a fiscal deficit under six percent of gross domestic product in nearly two decades.

The civilian economic team he appointed has prescribed tough medicine, winning international backing and a resumption of the foreign funding essential to avoid default.

They project steadily rising growth but acknowledge that by fiscal year 2003/2004 (July/June) the economy would still only grow 5.2 percent, below the six percent a year often cited as a minimum to reduce poverty in a population growing at 2.5 percent a year.

And there is no sign of foreign investment. The International Monetary Fund warns that investors will only reappear when they are confident of a permanent reduction in risks, including of course the conflict in Kashmir.

That bleak economic outlook -- years of austerity ahead -- is not popular. But the lack of an alternative plan to restore economic health strengthens Musharraf's hand in dealing with the militants, the jihadis, who single-mindedly focus on driving India from Kashmir.

"We can improve the law and order situation by just holding our tongue," Musharraf said a month ago in a blunt speech to Pakistani religious leaders at the forefront of the jihadi movement. "If we become a tolerant society, where people with different outlooks can live peacefully, investors will come."

The bloody struggle inside Kashmir may not be directly linked to violence in Pakistan, but glorification of the jihad as contributed to a proliferation of arms that have fed both armed crime and sectarian clashes.

"When you kill each other, who will consider Pakistan a safe place for investment?" Musharraf asked the religious leaders.

While most Pakistanis firmly reject the scenario voiced abroad that their country could end up in the grip of violent, xenophobic religious groups -- "Talibanisation" inspired by the movement imposing an austere life in neighboring Afghanistan -- Musharraf has taken precautions.

Policing has been tightened and the government is attempting now to collect some of the vast array of weapons that has placed Pakistan among the most heavily armed places on Earth. However it is hard to insulate the country against arms when guerrilla camps for the Kashmir conflict operate inside Pakistan's part of the disputed region.

Musharraf, who India blamed for the Kargil incursion into Kashmir that almost triggered full war two years ago, appears to have traveled a long way since then. If India wants to extricate itself from the Kashmir dispute, Musharraf's avowed flexibility -- and directness -- may present the best chance they have ever had.

"I think a lot of people still don't understand me," Musharraf said last week. "I am not an intriguer. I don't believe in doing things and meaning something else ... there is no hidden game plan."

But if he is ready for a dramatic proposal, he is not ready to reveal what it is before sitting down with Vajpayee in Agra. He has tried to shore up his position in advance of the summit, meeting Pakistanis from across the political spectrum.

Despite the demand since the first days of the state that Kashmiris be allowed to decide which country they should join -- Pakistan assumed it would be the winner -- the depth of popular feeling on Kashmir is hard to judge.

Among Pakistanis struggling in a country where the percentage mired in poverty has been rising for a decade, there may be more enthusiasm for economic progress than a struggle that few believe will ever force India from Kashmir.

But the general knows compromise on Kashmir after decades of rigid positions will have to be sold to many who may not agree, including militants, politicians and intellectuals. More importantly, it is unclear if other military commanders share Musharraf's overriding concern to fix the economy.

"Sitting with Mr Vajpayee and trying to work a formula is not difficult," Mirza Aslam Beg, head of the armed forces a decade ago, told Reuters. "The difficult part will be when he comes back here to talk, to negotiate and to seek consensus."

"If he tried to control by force, by use of arms, by a decree he cannot," Musharraf's 73-year-old former boss said. "But he can control if he comes with a solution, with an answer that will be acceptable."