Sunday Observer Online


Sunday, 15 January 2012





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Pakistan PM Gilani seeks Parliament’s support in crisis

One of the major political developments in the Asian region during the past week is the growing tension between the Pakistani civil administration and the powerful military which has staged three quos since Pakistani’s independence.

According to latest BBC reports, Pakistani Prime Minister Yousuf Raza Gilani in a statement to the Parliament stated “parliament must choose between “democracy and dictatorship”.

“ Pakistan’s PM Yousuf Raza Gilani has said parliament must choose between “democracy and dictatorship”, in a critical vote of confidence.

Parliament is to vote on a resolution of confidence in its political leadership and democracy on Monday.

The vote comes amid a deepening crisis between the government, the military and the judiciary.

It will be held as a Supreme Court deadline expires for the government to reopen political corruption cases.

The deadline was set after the court quashed a government amnesty for politicians, including Pakistan’s President Asif Ali Zardari, and is seen as a direct challenge to the government.

The announcement of the confidence vote comes after several public disputes have brought relations between the government and the military to an all-time low, correspondents say.

In a defiant speech, Gilani urged MPs to protect the country’s democracy and said he “will not be support from anyone”.

He said that anyone who had a hand in removing his government would be setting back democracy in Pakistan.

“Now we have to decide whether we should have democracy or dictatorship in this country. If we have committed any mistakes, it does not mean that democracy or parliament should be punished,” the prime minister told parliamentarians.

The BBC’s Aleem Maqbool in Islamabad says some will see this as a clever move by Gilani; others will read it as a sign of desperation.

His calculation is that he can save himself by portraying anyone who tries to bring his government down as the enemy of democracy, our correspondent says.

Analysts believe Gilani is likely to win the vote of confidence, and that parliament’s seal of approval is likely to strengthen his hand.

Pakistani crisis developed following US said on Bin Laden’s Abbottabad home in May 2 and memogate affair which was first revealed in an article in financial times. In the article , it was revealed that an anonymous memo was written to US asking for US’s help in curbing the Pakistani army which led to the resignation of Pakistani US envoy Husain Haqqani following claims he and President Zardari wrote the memo which they denied. On December 23, Pakistani Army chief dismissed coup rumours after PM Yousuf Raza Gilani speaks out against an alleged coup plot. On December 30, Pakistani Supreme Court opens an inquiry into the ‘memogate” affair and the army publicly rebukes Gilani after he criticised army leaders in an interview. Prime Minister responded by sacking Pakistan’s defence secretary.

France loses AAA rating as EU governments downgraded

France has lost its top AAA credit rating from Standard & Poor’s and eight other eurozone governments have also been downgraded by the ratings agency.

Italy, Spain, Cyprus and Portugal were cut two notches, with the latter two given “junk” ratings. Germany kept its AAA rating, and with a stable outlook. Rumours of S&P’s move prompted stock markets to fall earlier in the day.

Austria, like France has lost its top AAA rating, and been downgraded to AA+. Its economy exports a lot to recession-struck Italy, while its banks are facing losses on subsidiaries they own in financially troubled Hungary.

S&P’s rating of Italy - currently at the epicentre of the crisis - has been cut two notches from A to BBB+.

Spain was also cut two notches from AA- to A, as was Portugal, whose rating fell from BBB- to a “junk” rating of BB - indicating a very high level of risk for lenders.

Apart from Germany and lower-rated Slovakia, all the other countries being reviewed were given a “negative outlook”, meaning there is a 30% chance of a further downgrade.

“Today’s rating actions are primarily driven by our assessment that the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone,” said S&P in its statement.

The agency said the plan currently being discussed by eurozone leaders - to limit governments’ future borrowing - was based on a misdiagnosis of the cause of the financial crisis.

It said the crisis was more to do with trade deficits and a loss of competitiveness by “periphery” eurozone economies such as Italy and Spain, than excess borrowing by governments.

The agency also praised the ECB for taking action to stop a total collapse in market confidence in the eurozone late last year.

French Finance Minister Francois Baroin confirmed the news about his own country ahead of S&P’s announcement on Friday night.

“It’s not good news, but it’s not a catastrophe,” Baroin said following emergency talks called by President Nicolas Sarkozy with the prime minister and other key ministers.

He said the French government was not planning any additional spending cuts or tax rises as a result of the downgrade: “It’s not ratings agencies that decide French policy.”

Meanwhile, European economic affairs commissioner, Olli Rehn, said that he regretted “the inconsistent decision [by S&P]... at a time when the euro area is taking decisive action in all fronts of its crisis response.”

France is being downgraded just one notch by S&P, to AA+.

The country still has a top AAA rating from the other two main ratings agencies, Moody’s and Fitch.

Earlier, the euro hit a new 16-month low against the dollar of $1.263 on rumours of the multiple downgrades, before rebounding.

It also dropped against the pound, hovering at about 82.9 pence.

Markets were also spooked by news that talks between Greece and its private sector lenders over a restructuring of its debts - including a 50% forgiveness - had broken down.

An agreement is a precondition for Greece receiving its next round of bailout money from the European Union and International Monetary Fund, without which it faces the risk of running out of money to repay its debts, and a possible exit from the eurozone, in the coming months.

London’s FTSE 100 ended the day down 0.5% and Frankfurt’s Dax 0.6%, while the Dow Jones in New York fell 0.4%, although it was widely expected that the ratings cuts were coming. Credit ratings are used by banks and investors to decide how much money to lend to particular borrowers.

The cut in the so-called sovereign ratings of governments is likely to lead to most other borrowers domiciled in the same countries - including banks and companies - being downgraded.

Although the move has been widely expected, it is still likely to make it somewhat more difficult and expensive for borrowers from those countries to raise money, including for the governments themselves.

Italy’s 10-year implied cost of borrowing in bond markets jumped by a third of a percentage point after the rumours emerged, but ended the day largely unchanged at just over 6.6%. France’s borrowing cost rose slightly, from 3.03% to 3.07%. Germany - considered the safest borrower in the eurozone - saw its borrowing cost fall from 1.83% to 1.76%.

The downgrades may also have an impact on the eurozone’s rescue fund. The European Financial Stability Facility (EFSF) - which has already been used to rescue Portugal and the Irish Republic - is guaranteed by the eurozone governments.


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