Order Code RL33498
CRS Report for Congress
Received through the CRS Web
Pakistan-U.S. Relations
Updated October 26, 2006
K. Alan Kronstadt
Specialist in Asian Affairs
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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Pakistan-U.S. Relations
Summary
A stable, democratic, economically thriving Pakistan is considered vital to U.S.
interests. U.S. concerns regarding Pakistan include regional terrorism; Pakistan-
Afghanistan relations; weapons proliferation; the ongoing Kashmir problem and
Pakistan-India tensions; human rights protection; and economic development. A
U.S.-Pakistan relationship marked by periods of both cooperation and discord was
transformed by the September 2001 terrorist attacks on the United States and the
ensuing enlistment of Pakistan as a key ally in U.S.-led counterterrorism efforts. Top
U.S. officials regularly praise Islamabad for its ongoing cooperation, although doubts
exist about Islamabad’s commitment to some core U.S. interests. Pakistan is
identified as a base for terrorist groups and their supporters operating in Kashmir,
India, and Afghanistan. Since late 2003, Pakistan’s army has been conducting
unprecedented counterterrorism operations in the country’s western tribal areas.

Separatist violence in India’s Muslim-majority Jammu and Kashmir state has
continued unabated since 1989, with some notable relative decline in recent years.
India has blamed Pakistan for the infiltration of Islamic militants into Indian
Kashmir, a charge Islamabad denies. The United States reportedly has received
pledges from Islamabad that all “cross-border terrorism” would cease and that any
terrorist facilities in Pakistani-controlled areas would be closed. Similar pledges
have been made to India. The United States strongly encourages maintenance of a
cease-fire along the Kashmiri Line of Control and continued substantive dialogue
between Islamabad and New Delhi. Pakistan and India have fought three wars since
1947. A potential Pakistan-India nuclear arms race has been the focus of U.S.
nonproliferation efforts in South Asia. Attention to this issue intensified following
nuclear tests by both countries in May 1998. The tests triggered restrictions on U.S.
aid to both countries (remaining nuclear-related sanctions on Pakistan were waived
in October 2001). Recently, the United States has been troubled by evidence of
“onward” proliferation of Pakistani nuclear technology to third parties, including
North Korea, Iran, and Libya. Such evidence became stark in February 2004.
Pakistan’s macroeconomic indicators have turned positive since 2001, but
widespread poverty persists. President Bush seeks to expand U.S.-Pakistan trade and
investment relations. Democracy has fared poorly in Pakistan; the country has
endured direct military rule for more than half of its existence. In 1999, the elected
government was ousted in a coup led by Army Chief General Pervez Musharraf, who
later assumed the title of president. Supreme Court-ordered elections in 2002 seated
a new civilian government (Musharraf ally Shaukat Aziz serves as prime minister),
but it remains weak, and Musharraf has retained his position as army chief. The
United States urges restoration of democracy and expects Pakistan’s planned 2007
general elections to be free and fair. Congress has granted presidential authority to
waive coup-related aid sanctions through FY2006. Pakistan is among the world’s
leading recipients of U.S. aid, obtaining more than $3.5 billion in direct U.S.
assistance for FY2002-FY2006, including $1.5 billion in security-related aid.
Pakistan also has received billions of dollars in reimbursement for its support of
U.S.-led counterterrorism operations. This report replaces CRS Issue Brief IB94041,
Pakistan-U.S. Relations.

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Contents
Most Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Setting and Regional Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Historical Setting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Current U.S.-Pakistan Engagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Political Setting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Regional Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Pakistan-India Rivalry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Afghanistan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The China Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Pakistan-U.S. Relations and Key Country Issues . . . . . . . . . . . . . . . . . . . . . . . . . 9
Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
International Terrorism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Domestic Terrorism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Pakistan-U.S. Security Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Nuclear Weapons and Missile Proliferation . . . . . . . . . . . . . . . . . . . . 15
U.S. Nonproliferation Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Pakistan-India Tensions and the Kashmir Issue . . . . . . . . . . . . . . . . . . 17
Baluchistan Unrest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Narcotics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Islamization and Anti-American Sentiment . . . . . . . . . . . . . . . . . . . . . . . . . 20
Democratization and Human Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Democracy and Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Human Rights Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Economic Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Trade and Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
U.S. Aid and Congressional Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
U.S. Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Proliferation-Related Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Coup-Related Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Other Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9/11 Commission Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . 28
List of Figures
Figure 1. Map of Pakistan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
List of Tables
Table 1. U.S. Assistance to Pakistan, FY2001-FY2007 . . . . . . . . . . . . . . . . . . . 29

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Pakistan-U.S. Relations
Most Recent Developments
! On October 25, India’s prime minister claimed in that India had
“credible evidence” of Pakistani government complicity in the
July terrorist bombings on commuter trains in Bombay. Weeks
earlier, Bombay’s top police official claimed the bombings were
“planned by” Pakistan’s Inter-Services Intelligence agency (ISI).
Islamabad swiftly rejected the allegation as “propaganda” designed
“to externalize an internal [Indian] malaise.”
! On October 24, the chief of the Pakistan’s Strategic Plans Division,
Lt. Gen. Khalid Kidwai, visited Washington, where he attempted to
make more transparent Pakistan’s nuclear command and control
structure, and acknowledged that Pakistan’s past proliferation
record had been “poor and indefensible.” The general reiterated
Islamabad’s request for U.S.-Pakistan civil nuclear cooperation,
saying that such cooperation should be based on an objective set of
criteria rather than on a “discriminatory,” country-specific approach.
! On October 21, a new espionage row erupted between Pakistan
and India after police in New Delhi arrested an Indian army
employee as he allegedly passed classified documents to a Pakistani
diplomat. Islamabad formally protested the “manhandling” of their
citizen and called his detention “illegal.”
! October 17, Afghan President Karzai expressed certainty that
Taliban leader Mullah Omar was in Quetta, Pakistan. A Pakistani
official rejected the allegation, saying “the entire world knows
[Omar] is in Afghanistan.” The exchange further dampened hopes
of greater Pakistan-Afghanistan cooperation following President
Bush’s September 27 White House dinner with the two countries’
leaders. Days before that dinner, the Commander of the U.S.
European Command, Gen. Jones, told a Senate panel it is “generally
accepted” that the Taliban headquarters is somewhere in the vicinity
of Quetta, Pakistan. President Musharraf himself told an American
television interviewer that some “retired” former top officials of the
ISI may be providing assistance to the Taliban. Two former ISI
chiefs later rejected Musharraf’s claim as “baseless.” In August, at
the 18th meeting of the U.S.-Pakistan-Afghanistan Tripartite
Commission, the Pakistani and Afghan armies agreed to conduct
joint patrolling of their shared border.

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! Also on September 30, the United States and Pakistan signed a letter
of acceptance for a deal to provide Pakistan with new and used
F-16 combat aircraft, along with related equipment. The sale,
which could be worth as much as $5.1 billion, stirred controversy as
some in Congress worried the jets could be used against India and
that U.S. technology might be transferred to third parties such as
China. Secretary of State Rice has assured Congress that Pakistan
will be required to provide written security assurances as part of the
deal and that no equipment will be transferred until anti-diversion
protections are in place. (See also CRS Report RL33515, Combat
Aircraft Sales to South Asia: Potential Implications.)
! On September 25, President Musharraf’s autobiography was
released. The book faced heavy criticism in Pakistan as divulging
“state secrets” and being inappropriate for a sitting president.
! On September 22, President Bush met with President Musharraf
at the White House to discuss a variety of bilateral issues. Two days
before, President Bush said he would order U.S. forces to enter
Pakistan if he received good intelligence on Osama bin Laden’s
location. As part of its ongoing assistance program, the United
States has since July signed agreements to provide some $129
million in aid to support small business loans, health care, law
enforcement agencies, and democracy and governance programs in
Pakistan. In October, U.S. Ambassador to Pakistan Crocker said the
United States will train 30,000 teachers and build 50 new schools in
earthquake-affected areas of Pakistan.
! On September 16, meeting on the sidelines of a Nonaligned
Movement summit in Cuba, President Musharraf and Indian
Prime Minister Singh announced a resumption of formal peace
negotiations that had been suspended following the 7/11 Bombay
bombings and also decided to implement a joint anti-terrorism
mechanism. The meeting came only four days after Singh expressed
concern that Islamabad “has not done enough to control” terrorist
elements on its soil.
! On September 15, The U.S. Department of State’s International
Religious Freedom Report 2006 again found that in practice the
Islamabad government imposes limits on the freedom of religion in
Pakistan. The report noted “some steps to improve the treatment of
religious minorities,” but indicated that “serious problems
remained,” including discriminatory laws and violence against
religious minorities.
! On September 5, following months of negotiations, the Islamabad
government and pro-Taliban militants in North Waziristan
signed a truce to ensure “permanent peace” in the region. Under
the deal, the Taliban vowed to distance themselves from foreign
militants and to end the cross-border movement of militants into

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Afghanistan, while government forces agreed to refrain from further
military operations in the area and to withdraw from numerous
checkposts. Since August, suspected Taliban militants in Waziristan
have beheaded at least four men they accused of being “U.S. spies.”
! On August 21, the Women’s Protection Bill to amend the
controversial Islamist “Hudood” laws was introduced in Parliament
by the ruling Muslim League party with the support of President
Musharraf and the opposition People’s Party. Resistance by Islamist
parties, however, subsequently caused parliamentary debate to be
postponed indefinitely.
! On August 11, a reported terrorist plot to destroy American
passenger jets flying out of London led to the arrest of numerous
British citizens with family ties to Pakistan, as well as at least seven
arrests in Pakistan, including Rashid Rauf, described as a British
citizen from Pakistan, and several Pakistani citizens. Pakistani
officials claimed Rauf had close ties to Al Qaeda and had received
weapons training at a camp near the Afghan border.
See also CRS Report RS21584, Pakistan: Chronology of Recent Events.
Setting and Regional Relations
Historical Setting
The long and checkered Pakistan-U.S. relationship has its roots in the Cold War
and South Asia regional politics of the 1950s. U.S. concerns about Soviet
expansionism and Pakistan’s desire for security assistance against a perceived threat
from India prompted the two countries to negotiate a mutual defense assistance
agreement in 1954. By 1955, Pakistan had further aligned itself with the West by
joining two regional defense pacts, the South East Asia Treaty Organization and the
Central Treaty Organization (or “Baghdad Pact”). As a result of these alliances,
Islamabad received nearly $2 billion in U.S. assistance from 1953 to 1961, one-
quarter of this in military aid, thus making Pakistan one of America’s most important
security assistance partners of the period. Differing expectations of the security
relationship have long bedeviled bilateral ties, however. During and immediately
after the Indo-Pakistani wars of 1965 and 1971, the United States suspended military
assistance to both sides, resulting in a cooling of the Pakistan-U.S. relationship and
a perception among many in Pakistan that the United States was not a reliable ally.

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In the mid-1970s, new strains arose
over Pakistan’s efforts to respond to
PAKISTAN IN BRIEF
Population: 166 million; growth rate: 2.1%
India’s 1974 underground nuclear
(2006 est.)
test by seeking its own nuclear
Area: 803,940 sq. km. (slightly less than twice
weapons capability. U.S. aid was
the size of California)
suspended by President Carter in
Capital: Islamabad
1979 in response to Pakistan’s
Ethnic Groups: Punjabi, Sindhi, Pashtun,
Baloch, Muhajir (immigrants from India at
covert construction of a uranium
the time of partition and their descendants)
enrichment facility. However,
Languages: Punjabi 58%, Sindhi 12%, Pashtu
following the Soviet invasion of
8%, Urdu 8%; English widely used
Afghanistan later that year, Pakistan
Religions: Muslim 96% (Sunni 81%, Shia
again was viewed as a frontline ally
15%), Christian, Hindu, and other 4%
Life Expectancy at Birth: female 64.4 years;
in the effort to block Soviet
male 62.4 years (2006 est.)
expansionism. In 1981, the Reagan
Literacy: female 35%; male 62% (2004 est.)
Administration offered Islamabad a
Gross Domestic Product (at PPP): $378
five-year, $3.2 billion aid package.
billion; per capita: $2,420; growth rate
Pakistan became a key transit
7.8% (2005)
Inflation: 9.1% (2005)
country for arms supplies to the
Military Expenditures: $4.26 billion (3.9% of
Afghan resistance, as well as home
GDP; 2005 est.)
for some three million Afghan
U.S. Trade: exports to U.S. $3.25 billion;
refugees, most of whom have yet to
imports from U.S. $1.25 billion (2005)
Sources: CIA World Factbook; U.S.
return.
Departments of Commerce and State;
Government of Pakistan; Economist
Despite this renewal of U.S.
Intelligence Unit; Global Insight
aid and close security ties, many in
Congress remained troubled by
Pakistan’s nuclear weapons
program. In 1985, Section 620E(e) (the Pressler amendment) was added to the
Foreign Assistance Act, requiring the President to certify to Congress that Pakistan
does not possess a nuclear explosive device during the fiscal year for which aid is to
be provided. With the Soviet withdrawal from Afghanistan, Pakistan’s nuclear
activities again came under intensive U.S. scrutiny and, in 1990, President Bush
again suspended aid to Pakistan. Under the provisions of the Pressler amendment,
most bilateral economic and all military aid ended, and deliveries of major military
equipment ceased. In 1992, Congress partially relaxed the scope of the aid cutoff to
allow for food assistance and continuing support for nongovernmental organizations.
Among the notable results of the aid cutoff was the nondelivery of F-16 fighter
aircraft purchased by Pakistan in 1989. Nine years later, the United States agreed to
compensate Pakistan with $325 million in cash payment and $140 million in goods,
including surplus wheat.
During the 1990s, with U.S. attention shifted away from the region, Islamabad
further consolidated its nuclear weapons capability, fanned the flames of a growing
separatist insurgency in neighboring India-controlled Kashmir, and nurtured the
Taliban movement in Afghanistan, where the radical Islamist group took control of
Kabul in 1996. After more than a decade of alienation, U.S. relations with Pakistan
were once again transformed in dramatic fashion, this time by the September 2001
terrorist attacks on the United States and the ensuing enlistment of Pakistan as a
pivotal ally in U.S.-led counterterrorism efforts. In a sign of this renewed U.S.

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CRS-5
recognition of Pakistan’s importance, a Congressional Pakistan Caucus was formed
in July 2004 and has since been joined by 71 House Members.
Current U.S.-Pakistan Engagement
U.S. engagement with Pakistan continues to be deep and multifaceted.
President Bush traveled to Pakistan in March 2006 for the first such presidential visit
in six years, and numerous high-level governmental meetings have ensued. On
March 4, President Bush and President Musharraf issued a Joint Statement on the
U.S.-Pakistan “strategic partnership” that calls for a “strategic dialogue” and
“significant expansion” of bilateral economic ties, including mutual trade and
investment, as well as initiatives in the areas of energy, peace and security, social
sector development, science and technology, democracy, and nonproliferation.1
Since that meeting, diplomatic engagements have continued apace:
! In April 2006, Under Secretary of State Nicholas Burns and Foreign
Secretary Riaz Khan formally launched the strategic dialogue, with
counterterrorism cooperation and increased trade as leading topics.
! In early May, Under Secretary of Defense Eric Edelman hosted a
Pakistani delegation in Washington for a meeting of the U.S.-
Pakistan Defense Consultative Group, the first since February 2005.
! The Commander of the U.S. Central Command, General John
Abizaid, and State Department Counterterrorism Coordinator Henry
Crumpton paid separate May visits to Islamabad for meetings with
top Pakistani officials.
! Later in May, Under Secretary of State for Economic Affairs Josette
Shiner completed a visit to Islamabad, where she sought to advance
the U.S.-Pakistan Economic dialogue.
! In early June, a meeting of the U.S.-Pakistan-Afghanistan Tripartite
Commission in Rawalpindi included discussions on intelligence
sharing and border security.
! Later in June, a meeting of the U.S.-Pakistan Energy Dialogue was
held in Washington.
! In late June, Secretary of State Rice visited Islamabad, where she
reiterated U.S. commitment to Pakistan, urged Pakistan and
Afghanistan to cooperate more closely in efforts to battle Islamic
militants, and discussed with President Musharraf the importance of
Pakistan holding free and fair elections in 2007.
! Foreign Minister Kasuri met with Secretary Rice in Washington in
July for further discussions on bilateral relations.
1 See [http://usembassy.state.gov/pakistan/h06030404.html].

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! The inaugural meeting of the U.S.-Pakistan Joint Committee on
Science and Technology was held in Washington in July.
! Later in July, the Chairman of the U.S. Joint Chiefs of Staff, Gen.
Peter Pace, met with President Musharraf in Rawalpindi to discuss
issues of mutual interest and to urge Islamabad’s further cooperation
with Kabul in fighting the Taliban.
! In August, the Commander of the U.S. Central Command, Gen. John
Abizaid, returned to Pakistan to consult with top Pakistani leaders.
! In September, President Bush met with President Musharraf at the
White House to discuss a variety of bilateral issues, and he later
hosted a dinner for both Musharraf and Afghan President Karzai.
President Bush praised the leadership and courage of the Pakistani
leader.
Political Setting
The history of democracy in Pakistan is a troubled one, marked by tripartite
power struggles among presidents, prime ministers, and army chiefs. Military
regimes have ruled Pakistan for more than half of its 59 years of existence,
interspersed with periods of generally weak civilian governance. From 1988 to 1999,
Islamabad had democratically elected governments, and the army appeared to have
moved from its traditional role of “kingmaker” to one of power broker. Benazir
Bhutto (leader of the Pakistan People’s Party) and Nawaz Sharif (leader of the
Pakistan Muslim League) each served twice as prime minister during this period.
The Bhutto government was dismissed on charges of corruption and nepotism in
1996 and Nawaz Sharif won a landslide victory in ensuing elections, which were
judged generally free and fair by international observers. Sharif moved quickly to
bolster his powers by curtailing those of the president and judiciary, and he emerged
as one of Pakistan’s strongest-ever elected leaders. Critics accused him of
intimidating the opposition and the press.
In October 1999, in immediate response to Sharif’s attempt to remove him,
Army Chief General Pervez Musharraf overthrew the government, dismissed the
National Assembly, and appointed himself “chief executive.” In the wake of the
military overthrow of the elected government, Islamabad faced considerable
international opprobrium and was subjected to automatic coup-related U.S. sanctions
under section 508 of the annual foreign assistance appropriations act (Pakistan was
already under nuclear-related U.S. sanctions). Musharraf later assumed the title of
president following a controversial April 2002 referendum. National elections were
held in October of that year, as ordered by the Supreme Court. A new civilian
government was seated — Musharraf ally Shaukat Aziz became prime minister in
August 2005 — but it remains weak. In apparent contravention of democratic norms,
Musharraf continues to hold the dual offices of president and army chief. While
many figures across the spectrum of Pakistani society welcomed Musharraf — or at
least were willing to give him the benefit of the doubt — as a potential reformer who
would curtail both corruption and the influence of religious extremists, his domestic

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popularity has suffered following indications that expanding his own power and that
of the military would be his central goal.
Pakistan’s next national elections are slated for late 2007. President Bush has
said that electoral process will be “an important test of Pakistan’s commitment to
democratic reform” and, during his March 2006 visit to Islamabad, said President
Musharraf understands the elections “need to be open and honest.” Secretary of State
Rice repeated the admonition during her June 2006 visit to Islamabad. In that same
month, the House Appropriations Committee (H.Rept. 109-486) expressed concern
about the Pakistani government’s “lack of progress on improving democratic
governance and rule of law.” (See “Democracy and Governance” section below. See
also CRS Report RL32615, Pakistan’s Domestic Political Developments.)
Regional Relations
Pakistan-India Rivalry. Three full-scale wars — in 1947-1948, 1965, and
1971 — and a constant state of military preparedness on both sides of their mutual
border have marked six decades of bitter rivalry between Pakistan and India. The
acrimonious partition of British India into two successor states in 1947 and the
unresolved issue of Kashmiri sovereignty have been major sources of tension. Both
countries have built large defense establishments at significant cost to economic and
social development. The Kashmir problem is rooted in claims by both countries to
the former princely state, divided since 1948 by a military Line of Control (LOC) into
the Indian state of Jammu and Kashmir and Pakistan-held Azad [Free] Kashmir.
India blames Pakistan for supporting a violent separatist rebellion in the
Muslim-dominated Kashmir Valley that has taken perhaps 66,000 lives since 1989.
Pakistan admits only to lending moral and political support to the rebels, and it
criticizes India for human rights abuses in “Indian-held Kashmir.”
India held Pakistan responsible for late 2001 terrorist attacks in Kashmir and on
the Indian Parliament complex in New Delhi. The Indian response, a massive
military mobilization, was mirrored by Pakistan and within months some one million
heavily-armed soldiers were deployed at the international frontier. During an
extremely tense 2002 another full-scale war seemed a very real possibility and may
have been averted only through international diplomatic efforts, including multiple
visits to the region by top U.S. officials. An April 2003 peace initiative brought
major improvement in the bilateral relationship, allowing for an October cease-fire
agreement initiated by Pakistan. The process led to a January 2004 summit meeting
in Islamabad and a joint agreement to re-engage a “Composite Dialogue” to bring
about “peaceful settlement of all bilateral issues, including Jammu and Kashmir, to
the satisfaction of both sides.”
During 2004, numerous mid-level meetings, normalized diplomatic relations,
and increased people-to-people contacts brought modest, but still meaningful
progress toward normalized relations. Regular dialogue continued in 2005 and a
third round of Composite Dialogue talks was held in 2006. Numerous confidence-
building measures have been put in place, most notably travel and commerce across
the Kashmiri LOC for the first time in decades, and bilateral trade has increased. Yet
militarized territorial disputes over Kashmir, the Siachen Glacier, and the Sir Creek
remain unresolved, and Pakistani officials regularly express unhappiness that more

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substantive progress, especially on the “core issue” of Kashmir, is not occurring.
Following July 2006 terrorist bombings in Bombay, India, New Delhi postponed
planned foreign secretary-level talks, bringing into question the continued viability
of the already slow-moving process. However, after meeting on the sidelines of a
Nonaligned Movement summit in Cuba in September, President Musharraf and
Indian Prime Minister Singh announced a resumption of formal peace negotiations
and also decided to implement a joint anti-terrorism mechanism. The countries’
foreign secretaries are slated to meet in mid-November. Islamabad continues to
complain of Indian intransigence and inflexibility, especially on the “core issue” of
Kashmir.
Afghanistan. Pakistani leaders have long sought access to Central Asia and
“strategic depth” with regard to India though friendly relations with neighboring
Afghanistan. Such policy contributed to President General Zia ul-Haq’s support for
Afghan mujahideen “freedom fighters” who were battling Soviet invaders during the
1980s and to Islamabad’s later support for the Afghan Taliban regime from 1996 to
2001. British colonialists had purposely divided the ethnic Pashtun tribes inhabiting
the mountainous northwestern reaches of their South Asian empire with the 1893
“Durand Line.” This porous, 1,600-mile border is not accepted by Afghan leaders,
who have at times fanned Pashtun nationalism to the dismay of Pakistanis.
Following Islamabad’s major September 2001 policy shift, President Musharraf
consistently has vowed full Pakistani support for the government of Afghan President
Karzai and he insists that Pakistan is playing a “totally neutral role” in Afghanistan.
Nevertheless, the two leaders continuously exchange public accusations and
recriminations about the ongoing movement of Islamic militants in the border region.
Moreover, Pakistan is wary of signs that India is pursuing a policy of “strategic
encirclement,” taking note of New Delhi’s past support for Tajik and Uzbek militias
which comprised the Afghan Northern Alliance, and the post-2001 opening of
numerous Indian consulates in Afghanistan. Both Pakistan and Afghanistan play
central roles as U.S. allies in global efforts to combat Islamic militancy. Continuing
acrimony between Islamabad and Kabul is thus deleterious to U.S. interests (see also
“Infiltration into Afghanistan” section below).
The China Factor. Pakistan and China have enjoyed a generally close and
mutually beneficial relationship over several decades. Pakistan served as a link
between Beijing and Washington in 1971, as well as a bridge to the Muslim world
for China during the 1980s. China’s continuing role as a major arms supplier for
Pakistan began in the 1960s and included helping to build a number of arms factories
in Pakistan, as well as supplying complete weapons systems. After the 1990
imposition of U.S. sanctions on Pakistan, the Islamabad-Beijing arms relationship
was further strengthened (see CRS Report RL31555, China and Proliferation of
Weapons of Mass Destruction and Missiles). Indian officials have called the
Islamabad-Beijing nuclear and missile “proliferation nexus” a cause of serious
concern in New Delhi, and U.S. officials continue to remain seized of this potentially
destabilizing dynamic.
In April 2005, the Chinese prime minister visited Islamabad, where Pakistan and
China signed 22 accords meant to boost bilateral cooperation. President Musharraf’s
five-day visit to Beijing in February 2006 saw bilateral discussions on

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counterterrorism, trade, and technical assistance. Islamabad may seek future civil
nuclear assistance from Beijing, including potential provision of complete power
reactors, especially in light of Washington’s categorical refusal of Pakistan’s request
for a civil nuclear cooperation similar to that being proposed between the United
States and India. The Chinese government has assisted Pakistan in constructing a
major new port at Gwadar, near the border with Iran; Islamabad and Beijing aspire
to make this port a major commercial outlet for Central Asian states. Some analysts
are concerned that the port may be used for military purposes and could bolster
China’s naval presence in the Indian Ocean region. Pakistan continues to view China
as an “all-weather friend” and perhaps its most important strategic ally.
Pakistan-U.S. Relations and Key Country Issues
U.S. policy interests in Pakistan encompass a wide range of issues, including
counterterrorism, nuclear weapons and missile proliferation, South Asian and Afghan
stability, democratization and human rights, trade and economic reform, and efforts
to counter narcotics trafficking. Relations have been affected by several key
developments, including proliferation- and democracy-related sanctions; a continuing
Pakistan-India nuclear standoff and conflict over Kashmir; and the September 2001
terrorist attacks against the United States. In the wake of those attacks, President
Musharraf — under strong U.S. diplomatic pressure — offered President Bush
Pakistan’s “unstinted cooperation in the fight against terrorism.” Pakistan became
a vital ally in the U.S.-led anti-terrorism coalition. U.S. sanctions relating to
Pakistan’s 1998 nuclear tests and 1999 military coup quickly were waived and, in
October 2001, large tranches of U.S. aid began flowing into Pakistan. Direct
assistance programs include training and equipment for Pakistani security forces,
along with aid for health, education, food, democracy promotion, human rights
improvement, counternarcotics, border security and law enforcement, as well as trade
preference benefits. The United States also supports grant, loan, and debt
rescheduling programs for Pakistan by the various major international financial
institutions. In June 2004, President Bush designated Pakistan as a major non-NATO
ally of the United States under Section 517 of the Foreign Assistance Act of 1961.
Revelations that Pakistan has been a source of nuclear proliferation to North Korea,
Iran, and Libya may complicate future Pakistan-U.S. relations.
Security
International Terrorism. After the September 2001 terrorist attacks on the
United States, Pakistan pledged and has provided major support for the U.S.-led anti-
terrorism coalition. According to the U.S. Departments of State and Defense,
Pakistan has afforded the United States unprecedented levels of cooperation by
allowing the U.S. military to use bases within the country, helping to identify and
detain extremists, and tightening the border between Pakistan and Afghanistan. Top
U.S. officials regularly praise Pakistani anti-terrorism efforts. In a landmark January
2002 speech, President Musharraf vowed to end Pakistan’s use as a base for terrorism
of any kind, and he banned numerous militant groups, including Lashkar-e-Taiba and
Jaish-e-Muhammad, both blamed for terrorist violence in Kashmir and India and
designated as terrorist organizations under U.S. law. In the wake of the speech,

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thousands of Muslim extremists were detained, though most of these were later
released. In the spring of 2002, U.S. military and law enforcement personnel began
engaging in direct, low-profile efforts to assist Pakistani security forces in tracking
and apprehending fugitive Al Qaeda and Taliban fighters on Pakistani territory.
Pakistani authorities have remanded to U.S. custody approximately 500 such
fugitives to date.
Important Al Qaeda-related arrests in Pakistan have included Abu Zubaydah
(March 2002), Ramzi bin al-Shibh (September 2002), Khalid Sheik Mohammed
(March 2003), several key captures in the summer of 2004, and Abu Faraj al-Libbi
(May 2005). Other allegedly senior Al Qaeda figures were killed in gunbattles and
missile attacks, including several apparent U.S.-directed attacks on Pakistani territory
from aerial drones. Yet Al Qaeda fugitives and their Taliban allies remain active in
Pakistan, especially in the mountainous tribal regions along the Afghan border. Al
Qaeda founder Osama bin Laden and his lieutenant, Egyptian Islamic radical Ayman
al-Zawahiri, are widely believed to be in Pakistan. Meanwhile, numerous banned
indigenous groups continue to operate under new names: Lashkar-e-Taiba became
Jamaat al-Dawat; Jaish-e-Mohammed was re-dubbed Khudam-ul Islam (the former
was banned under U.S. law in April 2006).
President Musharraf repeatedly has vowed to end the activities of religious
extremists in Pakistan and to permanently prevent banned groups from resurfacing
there. His policies likely spurred two lethal but failed attempts to assassinate him in
December 2003. Nonetheless, some analysts call Musharraf’s efforts cosmetic,
ineffective, and the result of international pressure rather than a genuine recognition
of the threat posed. In recent years, some Pakistani nationals and religious
seminaries have been linked to Islamist terrorism plots in numerous countries. In a
February 2006 review of global threats, U.S. Director of Intelligence John
Negroponte told a Senate panel that Pakistan “remains a major source of extremism
that poses a threat to Musharraf, to the United States, and to neighboring India and
Afghanistan.” This sentiment was later echoed by the State Department’s Country
Reports on Terrorism 2005.2 (See also CRS Report RL32259, Terrorism in South
Asia.)
Infiltration into Afghanistan. U.S. military commanders overseeing
Operation Enduring Freedom have since 2003 complained that renegade Al Qaeda
and Taliban fighters remain able to attack coalition troops in Afghanistan, then
escape across the Pakistani frontier. They have expressed dismay at the slow pace
of progress in capturing wanted fugitives in Pakistan and urge Islamabad to do more
to secure its rugged western border area. U.S. government officials have voiced
similar worries, even expressing concern that elements of Pakistan’s intelligence
agency might be assisting members of the Taliban. In 2003, a U.S.-Pakistan-
Afghanistan Tripartite Commission was established to regularly bring together
military commanders for discussions on issues related to Afghan stability and border
security. The 18th session was held in Rawalpindi in June 2006. That same month,
State Department Counterterrorism Coordinator Henry Crumpton told a Senate panel
that elements of Pakistan’s “local, tribal governments” are believed to be in collusion
2 See [http://www.state.gov/s/ct/rls/crt/2005/64345.htm].

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with the Taliban and Al Qaeda, but that the United States has no “compelling
evidence” that Pakistan’s intelligence agency is assisting militants. In September, the
Commander of the U.S. European Command, Gen. James Jones, told the same
Senate panel it was “generally accepted” that the Taliban headquarters is somewhere
in the vicinity of Quetta, in Pakistan’s southwestern Baluchistan province.
Tensions between the Kabul and Islamabad governments — which stretch back
many decades — have at times reached alarming levels in recent years, with top
Afghan officials accusing Pakistan of manipulating Islamic militancy in the region
to destabilize Afghanistan. During the autumn of 2003, in an unprecedented show
of force, President Musharraf moved 25,000 Pakistani troops into the traditionally
autonomous Federally Administered Tribal Areas (FATA) on the Afghan frontier.
The first half of 2004 saw an escalation of Pakistani Army operations, many in
coordination with U.S. and Afghan forces just across the international frontier (U.S.
forces have no official authorization to cross the border into Pakistan). Combat
between Pakistani troops and militants in the two Waziristan agencies has killed
more than 1,000 Islamic extremists (many of them foreigners), Pakistani soldiers, and
civilians. The battles, which continue sporadically to date and again became fierce
in the spring of 2006, exacerbate volatile anti-Musharraf and anti-American
sentiments held by many Pakistani Pashtuns.
Kabul’s October 2004 elections were held without major disturbances,
apparently in part due to Musharraf’s commitment to reducing infiltrations. Yet
concerns sharpened in the spring of 2005, with U.S. military officials in Afghanistan
again indicating that insurgents opposed to the Kabul government were making hit-
and-run attacks before returning to Pakistan. By mid-2005, Afghan leaders were
openly accusing Islamabad of actively supporting insurgents and providing their
leadership with safe haven. Islamabad adamantly denied the charges and sought to
reassure Kabul by dispatching additional troops to border areas, bringing the total to
80,000. Still, with 90 fatalities, 2005 was the deadliest year ever for U.S. troops in
Afghanistan and, by year’s end, there were growing indications that Islamabad’s
efforts to control the tribal areas were meeting with little success.
President Musharraf’s “carrot and stick” approach of offering amnesty to those
militant tribals who “surrender,” and using force against those who resist, clearly has
not rid the region of indigenous Islamic militants or Al Qaeda operatives, even as
Islamabad’s ability to collect actionable intelligence there have increased. Late 2005
and early 2006 missile attacks on suspected Al Qaeda targets — apparently launched
by U.S. aerial drones flying over Pakistani territory — hinted at more aggressive U.S.
tactics that could entail use of U.S. military assets in areas where the Pakistanis are
either unable or unwilling to strike. Yet the attacks, in particular a January 13, 2006,
strike on Damadola in the Bajaur tribal agency that apparently killed numerous
women and children along with several Al Qaeda suspects, spurred widespread
Pakistani resentment and a perception that the country’s sovereignty was under
threat. No further such attacks are known to have taken place since.
A series of deadly encounters between government forces and militants left
scores dead in the spring of 2006, among them many civilians. Pakistani troops
reportedly are hampered by limited communications and other counterinsurgency
capabilities, meaning their response to provocations can be overly reliant on

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imprecise, mass firepower. Simultaneously, tribal leaders who cooperated with the
federal government faced dire threats from the extremists — perhaps 150 were the
victims of targeted killings in 2005 and 2006 — and the militants have sought to
deter such cooperation by periodically beheading accused “U.S. spies.”
In the face of such setbacks, the Pakistani leadership subsequently elected to
make a change in strategy. Officials in Islamabad recognized that the social fabric
of the FATA had changed following its role as a staging and recruiting area for the
war against the Soviet Army in Afghanistan during the 1980s: the traditional power
base was eroded as the influence of religious elements had greatly increased.
President Musharraf lambasted the creeping “Talibanization” of the tribal areas and
began implementing a new scheme, shifting from an almost wholly militarized
approach to one emphasizing negotiation and economic development in the FATA,
as well as (re-)elevating the role of tribal “maliks,” or elders, who would work in
closer conjunction with federal political agents. The present aim is to restore a kind
of enhanced status quo ante with a limited state writ (maliks will enjoy more pay and
larger levies), and the reduction and ultimately full withdrawal of army troops.3
In late June 2006, militants in North Waziristan announced a unilateral 30-day
cease-fire to allow for creation of a tribal council seeking resolution with government
forces. The Islamabad government began releasing detained Waziri tribesmen and
withdrawing troops from selected checkposts in a show of goodwill. In July,
hundreds of Pashtun tribesmen and clerics held a tribal council with government
officials, and the cease-fire was extended for another month. Throughout July and
August, Pakistan reported arresting scores of Taliban fighters and remanding many
of these to Afghanistan. Then, on September 5, the Islamabad government and pro-
Taliban militants in North Waziristan signed a truce to ensure “permanent peace” in
the region. Under the deal, the tribal leadership vowed to distance itself from foreign
militants and to end the cross-border movement of militants into Afghanistan, while
government forces agreed to refrain from further military operations in the area and
to withdraw from many checkposts, to be replaced by local paramilitaries such as the
Frontier Constabulary. There has been subsequent talk of extending the scheme to
other FATA agencies and perhaps even to Afghanistan.
While numerous independent analysts fear the September 2006 arrangement in
North Waziristan represents a Pakistani “surrender” and will in effect create a
sanctuary for extremists, Islamabad insists that the deal will marginalize militant
forces while not diminishing Pakistani efforts to pursue Al Qaeda members. News
of the deal received lukewarm reception in Washington, where officials have taken
a “wait-and-see” approach to the development. Seven weeks after the deal was
struck, the rate of Taliban activities in neighboring Afghanistan appears much
increased, and some reports have the militants failing to uphold their commitments,
fueling fears that the problem remains unresolved. It is possible the “Pakistani
Taliban” in North Waziristan is seeking to establish a local administrative
3 “President General Pervez Musharraf’s Address to the Nation,” July 20, 2006, at
[http://www.presidentofpakistan.gov.pk/SpeechAddressList.aspx]; author interview with
Pakistan government official, Islamabad, Sep. 18, 2006.

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infrastructure much as was done in South Waziristan following a similar truce there
in April 2004.4
Infiltration into Kashmir and India. Islamabad has been under continuous
U.S. and international pressure to terminate the infiltration of separatist militants
across the Kashmiri Line of Control (LOC). Such pressure reportedly elicited a
January 2002 promise from President Musharraf to then-U.S. Deputy Secretary of
State Richard Armitage that all such movements would cease. During a June 2002
visit to Islamabad, Deputy Secretary Armitage reportedly received another pledge
from the Pakistani president, this time an assurance that any existing terrorist camps
in Pakistani Kashmir would be closed. Musharraf has pledged to India that he will
not permit any territory under Pakistan’s control to be used to support terrorism, and
he insists that his government is doing everything possible to stop infiltration and
shut down militant base camps in Pakistani-controlled territory. Critics contend,
however, that Islamabad continues to actively support separatist insurgents as a
means both to maintain strategically the domestic backing of Islamists who view the
Kashmir issue as fundamental to the Pakistani national idea, and to disrupt tactically
the state government in Indian Kashmir in seeking to erode New Delhi’s legitimacy
there.
Positive indications growing from the latest Pakistan-India peace initiative
include a cease-fire at the LOC that has held since November 2003 and statements
from Indian officials indicating that rates of militant infiltration were down
significantly. However, in 2005 and 2006, Indian leaders renewed their complaints
that Islamabad has taken insufficient action to eradicate the remaining “infrastructure
of terrorism” on Pakistani-controlled territory. With indications that terrorism on
Indian soil beyond the Jammu and Kashmir state may have been linked to Pakistan-
based terrorist groups, Indian leaders reiterated their demands that Pakistan uphold
its promises to curtail the operations of Islamic militants and violent Kashmiri
separatists originating on Pakistani-controlled territory.
Following conflicting reports from Indian government officials about the
criminal investigation into July 2006 Bombay terrorist bombings that left nearly 200
people dead, India’s prime minister claimed in October that India had “credible
evidence” of Pakistani government complicity in the plot. Islamabad has rejected
such allegations as “propaganda” designed “to externalize an internal [Indian]
malaise.”5 Several other terrorist attacks against Indian targets outside of Kashmir
have been linked to Pakistan-based groups, including lethal assaults on civilians in
Delhi and Bangalore in 2005, and in Varanasi in 2006. Indian security officials
routinely blame Pakistan’s intelligence service for assisting the infiltration of Islamist
militants into India from Nepal, Bangladesh, and Bhutan, as well as across the
Kashmiri LOC.
4 See, for example, “Pakistani Truce Already Falling Apart,” ABC News (online), Oct. 24,
2006; “Pro-Taliban Militants in Tax Move,” BBC News, Oct 23, 2006.
5 “We Have Credible Evidence: Manmohan,” Hindu (Madras), Oct. 25, 2006; Anand
Giridharadas, “India’s Police Say Pakistan Helped Plot July Train Bombings,” New York
Times, Oct. 1, 2006; Pakistan Ministry of Foreign Affairs Media Briefing, Oct. 2, 2006.

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Domestic Terrorism. Pakistan is known to be a base for numerous
indigenous terrorist organizations, and the country continues to suffer from terrorism
at home, especially that targeting the country’s Shia minority. Until a March 2006
car bombing at the U.S. consulate in Karachi that left one American diplomat dead,
recent attacks on Western targets had been rare, but 2002 saw several acts of lethal
anti-Western terrorism, including the kidnaping and murder of reporter Daniel Pearl,
a grenade attack on a Protestant church in Islamabad that killed a U.S. Embassy
employee, and two car bomb attacks, including one on the same U.S. consulate,
which killed a total of 29 people. These attacks, widely viewed as expressions of
militants’ anger with the Musharraf regime for its cooperation with the United States,
were linked to Al Qaeda, as well as to indigenous militant groups.
From 2003 to the present, Pakistan’s worst domestic terrorism has been directed
against the country’s Shia minority and included suicide bomb attacks that killed
scores of people in May 2005 and February 2006 (moreover, some 57 Sunnis were
killed in an April 2006 suicide bombing in Karachi). Indications are that the
indigenous Lashkar-e-Jhangvi (LJ) Sunni terrorist group is responsible for the most
deadly anti-Shia violence. Two attempts to kill Musharraf in December 2003 and
failed efforts to assassinate other top Pakistani officials in mid-2004 were linked to
the LJ and other Al Qaeda-allied groups, and illuminated the grave and continuing
danger presented by religious extremists. Following a July 2006 suicide bombing in
Karachi that killed a prominent Shiite cleric, Musharraf renewed his pledge to crack
down on religious extremists; hundreds of Sunni clerics and activists were
subsequently arrested for inciting violence against Shiites through sermons and
printed materials.
Pakistan-U.S. Security Cooperation. In June 2004, President Bush
designated Pakistan as a major non-NATO ally of the United States. The close U.S.-
Pakistan security ties of the cold war era — which came to a near halt after the 1990
aid cutoff — have been in the process of restoration as a result of Pakistan’s role in
U.S.-led anti-terrorism campaign. In 2002, the United States began allowing
commercial sales that enabled Pakistan to refurbish at least part of its fleet of
American-made F-16 fighter aircraft. In March 2005, the United States announced
that it would resume sales of F-16 fighters to Pakistan after a 16-year hiatus. Major
government-to-government arms sales and grants in recent years have included 6 C-
130 military transport aircraft; 6 Aerostat and 6 AN/TPS-77 surveillance radars; air
traffic control systems; military radio systems; and 60 Harpoon anti-ship missiles (in
May 2006, Congress was notified of the possible sale of another 130 Harpoons).
Sales underway include 6 Phalanx guns (with upgrades on another 6) and 2,014
TOW anti-armor missiles. In 2004, 8 excess P-3C Orion maritime patrol aircraft
were granted to Pakistan and plans for their major refurbishment and service could
be worth nearly $1 billion in coming years. Other pending sales include 300
Sidewinder air-to-air missiles and 115 self-propelled howitzers. Major Excess
Defense Article grants have included 40 AH-1F Cobra attack helicopters in 2004 and
2 F-16A fighters in 2005. The Pentagon reports Foreign Military Sales agreements
with Pakistan worth $344 million in FY2003-FY2004, growing to $492 million in
FY2005 alone.
In June 2006, the Pentagon notified Congress of a possible Foreign Military Sale
to Pakistan worth up to $5.1 billion. The deal involves up to 36 F-16 combat aircraft,

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along with related refurbishments, munitions, and equipment, and would represent
the largest-ever weapons sale to Pakistan. Congressional concerns about the sale and
displeasure at the Bush Administration’s apparently improper notification procedures
spurred a July 20 hearing of the House International Relations Committee. During
that hearing, many Members worried that F-16s were better suited to fighting India
than to combating terrorists; some warned that U.S. military technology could be
passed from Pakistan to China. The State Department’s lead official on political-
military relations sought to assure the committee that the sale would serve U.S.
interests by strengthening the defense capabilities of a key ally without disturbing the
regional balance of power and that all possible measures would be taken to prevent
the onward transfer of U.S. technologies. H.J.Res. 93, disapproving the proposed
sale, was introduced in the House, but was not voted upon.
Secretary of State Rice later sent a letter to Congress indicating that no F-16
combat aircraft or related equipment would be delivered to Pakistan until Islamabad
provided written security assurances that no U.S. technology will be accessible by
third parties. Islamabad has, however, denied that any “extraordinary” security
requirements were requested. After further negotiations on specifics, including a
payment process that will require a major outlay from the Pakistani treasury, the
United States and Pakistan in September signed a letter of acceptance for the multi-
billion dollar F-16 deal. (See also CRS Report RL33515, Combat Aircraft Sales to
South Asia: Potential Implications.)
The United States has undertaken to train and equip new Pakistan Army Air
Assault units that can move quickly to find and target terrorist elements. There has
also been a direct U.S. role in training the security detail of the Pakistani president,
help to fund a 650-officer Diplomatic Security Unit, and assistance with numerous
programs designed to improve the quality of Pakistan’s internal police forces through
the provision of equipment and training. A revived high-level U.S.-Pakistan Defense
Consultative Group (DCG) — moribund since 1997 — sits for high-level discussions
on military cooperation, security assistance, and anti-terrorism; its most recent
session came in May 2006. (See also CRS Report RL32259, Terrorism in South
Asia.)
Nuclear Weapons and Missile Proliferation. Many policy analysts
consider an apparent arms race between India and Pakistan to be among the most
likely potential causes of the future use of nuclear weapons by states. In May 1998,
India conducted unannounced nuclear tests, breaking a 24-year, self-imposed
moratorium on such testing. Despite U.S. and world efforts to dissuade it, Pakistan
quickly followed. The tests created a global storm of criticism and represented a
serious setback to two decades of U.S. nuclear nonproliferation efforts in South Asia.
Pakistan currently is believed to have enough fissile material, mainly enriched
uranium, for 55-90 nuclear weapons; India, with a program focused on plutonium,
may be capable of building a similar number. Both countries have aircraft capable
of delivering nuclear bombs (U.S.-supplied F-16s are combat aircraft in Pakistan’s
air force that reportedly have been refitted to carry nuclear bombs). Pakistan’s
military has inducted short- and medium-range ballistic missiles (allegedly acquired
from China and North Korea), while India possesses short- and intermediate-range
missiles. All are assumed to be capable of delivering nuclear warheads over

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significant distances. In 2000, Pakistan placed its nuclear forces under the control
of a National Command Authority led by the president.
Press reports in late 2002 suggested that Pakistan assisted Pyongyang’s covert
nuclear weapons program by providing North Korea with uranium enrichment
materials and technologies beginning in the mid-1990s and as recently as July 2002.
Islamabad rejected such reports as “baseless,” and Secretary of State Powell was
assured that no such transfers were occurring. If such assistance is confirmed by
President Bush, all non-humanitarian U.S. aid to Pakistan may be suspended,
although the President has the authority to waive any sanctions that he determines
would jeopardize U.S. national security. In early 2003, the Administration
determined that the relevant facts “do not warrant imposition of sanctions under
applicable U.S. laws.” Press reports during 2003 suggested that both Iran and Libya
benefitted from Pakistani nuclear assistance. Islamabad denied any nuclear
cooperation with Tehran or Tripoli, although it conceded in December 2003 that
certain senior scientists were under investigation for possible independent
proliferation activities.
The investigation led to the February 2004 “public humiliation” of metallurgist
Abdul Qadeer Khan, known as the founder of Pakistan’s nuclear weapons program
and a national hero, when he confessed to involvement in an illicit nuclear smuggling
network. Khan and at least seven associates are said to have sold crucial nuclear
weapons technology and uranium-enrichment materials to North Korea, Iran, and
Libya. President Musharraf, citing Khan’s contributions to his nation, issued a
pardon that was later called conditional. The United States has been assured that the
Islamabad government had no knowledge of such activities and indicated that the
decision to pardon is an internal Pakistani matter. While Musharraf has promised
President Bush that he will share all information learned about Khan’s proliferation
network, Pakistan refuses to allow any direct access to Khan by U.S. or international
investigators. In May 2006, the Islamabad government declared the investigation “is
closed,” but some in Congress remain skeptical, and a House panel subsequently held
a hearing to further discuss the issue.
Revelations in July 2006 that Pakistan is in the midst of constructing a major
heavy water nuclear reactor at the Khushab complex brought a flurry of concern from
analysts who foresee a regional competition in fissile material production, perhaps
including China. Upon completion, which could be several years away, a reactor
with 1,000-megawatt capacity might boost Pakistan’s weapons-grade plutonium
production capabilities to more than 200 kilograms per year, or enough for up to 50
nuclear weapons. While Islamabad has not commented directly on the construction,
government officials there insist that Pakistan will continue to update and consolidate
its nuclear program for the purpose of minimum credible deterrence. The Bush
Administration responded to the public revelations by claiming it had been aware of
Pakistani plans and that it discourages the use of the facility for military purposes.
Some in Congress, who were not briefed about the new Pakistani reactor, have

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sought to link the development to U.S. plans for major new arms sales to Pakistan,
along with pending legislation to enable U.S. civil nuclear cooperation with India.6
During October 2006, Islamabad appeared to launch a public relations effort
aimed at overcoming the stigma caused by Khan’s proliferation activities. The effort
included dispatching to Washington the chief of the country’s Strategic Plans
Division, Lt. Gen. Khalid Kidwai, who attempted to make more transparent
Pakistan’s nuclear command and control structure, and who acknowledged that
Pakistan’s past proliferation record had been “poor and indefensible.” The general
reiterated Islamabad’s request for U.S.-Pakistan civil nuclear cooperation, saying that
such cooperation should be based on an objective set of criteria rather than on a
“discriminatory,” country-specific approach that benefits only India.7
U.S. Nonproliferation Efforts. In May 1998, following the South Asian
nuclear tests, President Clinton imposed full restrictions on all non-humanitarian aid
to both Pakistan and India as mandated under Section 102 of the Arms Export
Control Act. However, Congress and the President acted almost immediately to lift
certain aid restrictions and, after October 2001, all remaining nuclear-related
sanctions on Pakistan (and India) were removed. Officially, the United States
continues to urge Pakistan and India to join the Nuclear Nonproliferation Treaty
(NPT) as non-nuclear weapon states and it offers no official recognition of their
nuclear weapons capabilities. During the latter years of the Clinton administration,
the United States set forth nonproliferation “benchmarks” for Pakistan and India,
including halting further nuclear testing and signing and ratifying the Comprehensive
Test Ban Treaty (CTBT); halting fissile material production and pursuing Fissile
Material Control Treaty negotiations; refraining from deploying nuclear weapons and
testing ballistic missiles; and restricting any and all exportation of nuclear materials
or technologies. The results of U.S. efforts were mixed, at best, and neither Pakistan
nor India are signatories to the CTBT or NPT. The Bush Administration set aside the
benchmark framework. Concerns about onward proliferation, fears that Pakistan
could become destabilized by the U.S.-led counterterrorism efforts in Afghanistan,
and confusion over the issue of political succession in Islamabad have heightened
U.S. attention to weapons proliferation in the region. Section 1601 of P.L. 107-228
outlined U.S. nonproliferation objectives for South Asia. Some Members of
Congress identify “contradictions” in U.S. nonproliferation policy toward South
Asia, particularly as related to the Senate’s rejection of the CTBT and indications that
the United States seeks to build new nuclear weapons.
Pakistan-India Tensions and the Kashmir Issue. Relations between
Pakistan and India remain deadlocked on the issue of Kashmiri sovereignty, and a
separatist rebellion has been underway in the region since 1989. Tensions were
6 “U.S. Critical of Pakistan’s New Nuclear Reactor,” Associated Press, July 24, 2006; Joby
Warrick, “U.S. Says It Knew of Pakistani Reactor Plan,” Washington Post, July 25, 2006.
7 Speech at the Carnegie Endowment for International Peace, Washington, D.C., Oct. 24,
2006. See also CRS Report RL32115, Missile Proliferation and the Strategic Balance in
South Asia; CRS Report RL32745, Pakistan’s Nuclear Proliferation Activities and the
Recommendations of the 9/11 Commission; and CRS Report RS21237, India and Pakistan
Nuclear Weapons.

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extremely high in the wake of the Kargil conflict of 1999, when an incursion by
Pakistani soldiers led to a bloody six-week-long battle. Throughout 2000 and 2001,
cross-border firing and shelling caused scores of both military and civilian deaths.
A July 2001 Pakistan-India summit meeting failed to produce a joint statement,
reportedly due to pressure from hardliners on both sides. Major stumbling blocks
were India’s refusal to acknowledge the “centrality of Kashmir” to future talks and
Pakistan’s objection to references to “cross-border terrorism.” Secretary of State
Powell visited South Asia in an effort to ease escalating tensions over Kashmir, but
an October 2001 bombing at the Jammu and Kashmir state assembly building was
followed by a December assault on the Indian Parliament in New Delhi (both
incidents were blamed on Pakistan-based terrorist groups). The Indian government
mobilized some 700,000 troops along the Pakistan-India frontier and threatened war
unless Islamabad ended all “cross-border infiltration” of Islamic militants. This
action triggered a corresponding Pakistani military mobilization. Under significant
international diplomatic pressure and the threat of India’s use of force, President
Musharraf in January 2002 vowed to end the presence of terrorist entities on
Pakistani soil, and he outlawed five militant groups, including those most often
named in attacks in India: Lashkar-e-Taiba and Jaish-e-Mohammed.
Despite the Pakistani pledge, infiltrations into Indian-held Kashmir continued,
and a May 2002 terrorist attack on an Indian army base at Kaluchak killed 34, most
of them women and children. This event again brought Pakistan and India to the
brink of full-scale war, and caused Islamabad to recall army troops from patrol
operations along the Pakistan-Afghanistan border. Intensive international diplomatic
missions to South Asia reduced tensions during the summer of 2002 and appear to
have prevented the outbreak of war. Numerous top U.S. officials were involved in
this effort and continued to strenuously urge the two countries to renew bilateral
dialogue. A “hand of friendship” offer to Pakistan by the Indian prime minister in
April 2003 led to the restoration of full diplomatic relations, but surging separatist
violence that summer contributed to an exchange of sharp rhetoric between Pakistani
and Indian leaders at the United Nations, casting doubt on the peace effort. However,
a new confidence-building initiative got Pakistan and India back on a positive track,
and a November 2003 cease-fire was initiated after a proposal by then-Pakistani
Prime Minister Zafarullah Khan Jamali. President Musharraf also suggested that
Pakistan might be willing to “set aside” its long-standing demand for a plebiscite in
Kashmir, a proposal welcomed by the United States, but called a “disastrous shift”
in policy by Pakistani opposition parties.
Although militant infiltration did not end, New Delhi acknowledged that it was
significantly decreased and, combined with other confidence-building measures,
relations were sufficiently improved that the Indian prime minister attended a January
2004 summit meeting of the South Asian Association for Regional Cooperation in
Islamabad. There Pakistan and India issued a joint “Islamabad Declaration” calling
for a renewed “Composite Dialogue” to bring about “peaceful settlement of all
bilateral issues, including Jammu and Kashmir, to the satisfaction of both sides.” A
major confidence-building development came in April 2005, when a new bus service
was launched linking Muzaffarabad in Pakistani Kashmir and Srinagar in Indian
Kashmir, and a summit meeting produced an agreement to address the Kashmir issue
“in a forward looking manner for a final settlement.” Still, many Kashmiris reject
any settlement process that excludes them. Pakistan-based and Kashmiri militant

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CRS-19
groups express determination to continue fighting in Kashmir despite the Pakistan-
India dialogue. Deadly attacks by separatist militants are ongoing and demonstrate
that the issue remains dangerous and unresolved.
Baluchistan Unrest. Pakistan’s vast southwestern Baluchistan province is
about the size of California and accounts for 44% of the country’s land area, but only
5% of its population. The U.S. military made use of bases in the region to support
its operations in neighboring Afghanistan. Over the decades of Pakistani
independence, many of the ethnic Baloch and some of the Pashtun tribes who inhabit
this relatively poor and underdeveloped province have engaged in violent conflict
with federal government forces, variously seeking more equitable returns on the
region’s rich natural resources, greater autonomy under the country’s federal system,
or even outright independence and formation of a Baloch state that might include
ethnic brethren and some territories in both Afghanistan and Iran. Non-Baloch
(mostly Punjabis) have been seen to benefit disproportionately from mineral and
energy extraction projects, and indigenous Baloch have been given only a small role
in the construction of a major new port in Gwadar. Many Baloch complain of being
a marginalized group in their own homeland. Long-standing resentments led to
armed conflicts in 1948, 1958, and 1973. The latter insurrection, which lasted four
years, involved tens of thousands of armed guerillas and brought much destruction
to the province; it was put down only after a major effort by the Pakistan Army,
which made use of combat helicopters provided by Iran. Some 8,000 rebels and
Pakistani soldiers were killed.
Mid-2004 saw an increase in hit-and-run attacks on army outposts and in the
sabotage of oil and gas pipelines. The alleged rape of a Baloch doctor by Pakistani
soldiers in January 2005 spurred provincial anger and a major spike in such incidents
over the course of the year. In December, rockets were fired at a Baluchistan army
camp during a visit to the site by President Musharraf. A Baloch separatist group
claimed responsibility and the Pakistani military began major offensive operations
to destroy the militants’ camps. In the midst of increasingly heavy fighting in
January 2006, Musharraf openly accused India of arming and financing militants
fighting in Baluchistan. New Delhi categorically rejected the allegations. U.N. and
other international aid groups soon suspended their operations in Baluchistan due to
security concerns. Shortly after, Baloch militants shot and killed three Chinese
engineers and their Pakistani driver, causing disruption in Islamabad-Beijing
relations. Musharraf calls Baloch rebels “miscreants” and “terrorists”; the Islamabad
government officially banned the separatist Baluchistan Liberation Army as a
terrorist organization in April 2006 and at times suggests that Baloch militants are
religious extremists. Yet most rebel attacks are taken against military and
infrastructure targets, and Islam appears to play little or no role as a motive.
Islamabad has employed helicopter gunships and fixed-wing aircraft in its effort to
defeat the rebel forces.
Fighting waned in the middle of 2006, with hundreds of rebels surrendering in
return for amnesty. The main rebel tribal leader and onetime Baluchistan governor,
79-year-old Nawab Akbar Bugti, had gone into hiding and was believed cut off from
his own forces. In June, President Musharraf declared that all “terrorists” had been
eliminated from Baluchistan, yet combat flared again in July, reportedly leaving
dozens dead, and periodic bombings in the capital city of Quetta continued. Then,

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CRS-20
in late August, Bugti was located in a cave hideout and was killed by Pakistan army
troops in a battle that left dozens of soldiers and rebels dead. Recognizing Bugti’s
popularity among wide segments of the Baloch populace and of the potential for his
killing to provide martyr status, government officials denied the tribal leader had
been targeted, calling his death an inadvertent result of a cave collapse. Nevertheless,
news of his death spurred major unrest across the province and beyond, with
hundreds of people being arrested in the midst of large-scale street demonstrations.
Bugti’s killing was criticized across the spectrum of Pakistani politicians and
analysts, with some commentators calling it a Pakistani Army miscue of historic
proportions.8 Days of rioting included numerous deaths and injuries, but the more
dire predictions of spreading unrest and perhaps even the disintegration of Pakistan’s
federal system have not come to pass. By October, Pakistan’s interior minister was
identifying a “normalization” and decrease in violence in Baluchistan, although
sporadic violence continues and the overarching problem remains unresolved.
Narcotics. Pakistan is a major transit country for opiates that are grown and
processed in Afghanistan then distributed worldwide by Pakistan-based traffickers.
The State Department indicates that U.S.-Pakistan’s cooperation on drug control
“remains strong,” and the Islamabad government has made impressive strides in
eradicating indigenous opium poppy cultivation. However, opium production spiked
in post-Taliban Afghanistan, which is now said to supply up to 90% of the world’s
heroin. Elements of Pakistan’s intelligence agency are suspected of past involvement
in drug trafficking; in March 2003, a former U.S. Ambassador to Pakistan told a
House panel that their role in the heroin trade from 1997-2003 was “substantial.”
Some reports indicate that profits from drug sales are financing the activities of
Islamic extremists in Pakistan, Afghanistan, and Kashmir.
U.S. counternarcotics programs aim to reduce the flow of opiates though
Pakistan, eliminate Pakistan as a source of such opiates, and reduce the demand for
illegal drugs within Pakistan. Islamabad’s own counternarcotics efforts are hampered
by lack of full government commitment, scarcity of funds, poor infrastructure, and
likely corruption. Since 2002, the State Department’s Bureau of International
Narcotics and Law Enforcement Affairs has supported Pakistan’s Border Security
Project by training border forces, providing vehicles and surveillance and
communications equipment, transferring helicopters and fixed-wing aircraft to the
Interior Ministry’s Air Wing, and road-building in western tribal areas. Congress
funded such programs with more than $54 million for FY2006. (See also CRS
Report RL32686, Afghanistan: Narcotics and U.S. Policy.)
Islamization and Anti-American Sentiment
An unexpected outcome of Pakistan’s 2002 elections saw the Muttahida Majlis-
e-Amal (MMA or United Action Front), a coalition of six Islamic parties, win 68
seats in the National Assembly — about 20% of the total. It also controls the
provincial assembly in the North West Frontier Province (NWFP) and leads a
coalition in the Baluchistan assembly. These Pashtun-majority western provinces
8 “Bugti’s Killing Widely Condemned,” Dawn (Karachi), Aug 28, 2006; “Bugti’s Killing
is the Biggest Blunder Since Bhutto’s Execution,” Daily Times (Lahore), Aug. 28, 2006.

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CRS-21
border Afghanistan, where U.S.-led counterterrorism operations are ongoing. In June
2003, the NWFP assembly passed a Shariat (Islamic law) bill in the provincial
assembly. Two years later, the same assembly passed a Hasba (accountability) bill
that many fear could create a parallel Islamic legal body. Such developments alarm
Pakistan’s moderates and President Musharraf has decried any attempts to
“Talibanize” regions of Pakistan (Pakistan’s Supreme Court found the Hasba bill
unconstitutional). Islamists are notable for expressions of anti-American sentiment,
at times calling for “jihad” against the existential threat to Pakistani sovereignty they
believe alliance with Washington entails. Most analysts contend that two December
2003 attempts to assassinate President Musharraf were carried out by Islamic
militants angered by Pakistan’s post-September 2001 policy shift. Some observers
identify a causal link between the poor state of Pakistan’s primary education system
and the persistence of xenophobia and religious extremism in that country (see CRS
Report RS22009, Education Reform in Pakistan).
Anti-American sentiment is not limited to Islamist groups, however. Many
across the spectrum of Pakistani society express anger at U.S. global foreign policy,
in particular when such policy is perceived to be unfriendly or hostile to the Muslim
world (e.g. in Palestine and Iraq).9 In January 2004 testimony before a Senate panel,
a senior U.S. expert opined: “Pakistan is probably the most anti-American country
in the world right now, ranging from the radical Islamists on one side to the liberals
and Westernized elites on the other side.” A July 2005 Pew Center opinion poll
found 51% of Pakistanis expressing confidence in Al Qaeda founder Osama bin
Laden to “do the right thing in world affairs” and, in an October 2005 Time magazine
interview, President Musharraf conceded that “the man on the street [in Pakistan]
does not have a good opinion of the United States.” A Pew poll taken months before
the catastrophic October 2005 earthquake found only 23% of Pakistanis expressing
a favorable view of the United States, the lowest percentage for any country
surveyed. That percentage doubled to 46% in an ACNielson poll taken after major
U.S. disaster relief efforts in earthquake-affected areas, with the great majority of
Pakistanis indicating that their perceptions had been influenced by witnessing such
efforts. However, a January 2006 missile attack on Pakistani homes near the Afghan
border killed numerous civilians and was blamed on U.S. forces, renewing animosity
toward the United States among some segments of the Pakistani populace.
Also in early 2006, Pakistani cities saw major public demonstrations against the
publication in European newspapers of cartoons deemed offensive to Muslims.
These protests, which were violent at times, included strong anti-U.S. and anti-
Musharraf components, suggesting that Islamist organizers used the issue to forward
their own political ends. Subsequently, a June 2006 Pew Center poll found only 27%
of Pakistanis holding a favorable opinion of the United States, suggesting that gains
following the 2005 earthquake may have receded.
Democratization and Human Rights
Democracy and Governance. There had been hopes that the October 2002
national elections would reverse Pakistan’s historic trend toward unstable governance
9 Author interviews in Islamabad, Sep. 18-19, 2006.

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CRS-22
and military interference in democratic institutions. Such hopes were eroded by
ensuing developments, including President Musharraf’s imposition of major
constitutional changes and his retention of the position of army chief. International
and Pakistani human rights groups continue to issue reports critical of Islamabad’s
military-dominated government. In 2006, and for the seventh straight year, the often-
cited Freedom House rated Pakistan as “not free” in the areas of political rights and
civil liberties. While praising Pakistan’s electoral exercises as moves in the right
direction, the United States expresses concern that seemingly nondemocratic
developments may make the realization of true democracy in Pakistan more elusive,
and U.S. officials continue to press Pakistani leaders on this issue.
General Musharraf’s assumption of the presidency ostensibly was legitimized
by a controversial April 2002 referendum marked by evidence of fraud. In August
2002, Musharraf announced sweeping constitutional changes to bolster the
president’s powers, including provisions for presidential dissolution of the National
Assembly. The United States expressed concerns that the changes could make it
more difficult to build democratic institutions in Pakistan. The 2002 elections
nominally fulfilled Musharraf’s promise to restore the National Assembly that was
dissolved in the wake of his extra-constitutional seizure of power. The pro-military
Pakistan Muslim League-Quaid-e-Azam (PML-Q) won a plurality of seats, while a
coalition of Islamist parties made a surprisingly strong showing. The civilian
government was hamstrung for more than a year by fractious debate over the
legitimacy of constitutional changes and by Musharraf’s continued status as army
chief and president. A surprise December 2003 agreement between Musharraf and
the Islamist opposition ended the deadlock by bringing the constitutional changes
before Parliament and by eliciting a promise from Musharraf to resign his military
commission before 2005. Non-Islamist opposition parties unified under the Alliance
for the Restoration of Democracy (ARD) accused the MMA of betrayal and insisted
that the new arrangement merely institutionalized military rule in Pakistan.
Other apparent reversals for Pakistani democratization came in 2004, including
the sentencing of ARD leader Javed Hashmi to 23 years in prison for sedition,
mutiny, and forgery, and the “forced” resignation of Prime Minister Jamali for what
numerous analysts called his insufficient deference to President Musharraf.
Musharraf “shuffled” prime ministers to seat his close ally, Finance Minister Shaukat
Aziz. Aziz is seen to be an able financial manager and technocrat favored by the
military, but he has no political base in Pakistan. Moreover, in the final month of
2004 Musharraf chose to continue his role as army chief beyond the stated deadline.
The United States indicates that it expects Pakistan’s scheduled 2007 general
elections to be free and fair throughout the entire process. In July 2005, the Senate
Appropriations Committee expressed concern with “the slow pace of the democratic
development of Pakistan” (S.Rept. 109-96). Pakistan’s nominally non-party August-
October 2005 municipal elections saw major gains for candidates favored by the
PML-Q and notable reversals for Islamists, but were also marked by widespread
accusations of rigging. The Bush Administration made no comment on reported
irregularities. In June 2006, the House Appropriations Committee (H.Rept. 109-486)
expressed concern about “the lack of progress on improving democratic governance
and rule of law.” (See also CRS Report RL32615, Pakistan’s Domestic Political
Developments.)

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CRS-23
Human Rights Problems. The U.S. State Department’s Country Report on
Human Rights Practices 2005 determined that the Pakistan government’s record on
human rights again “was poor and serious problems remained.” Along with concerns
about anti-democratic practices, the report lists extrajudicial killings, torture, and
rape; “rampant” police corruption; lack of judicial independence; political violence;
terrorism; and “extremely poor” prison conditions among the serious problems.
Improvement was noted, however, with government efforts to crack down on human
trafficking. The Human Rights Commission of Pakistan and international human
rights groups have issued reports critical of Pakistan’s lack of political freedoms,
lawlessness in many areas (especially the western tribal agencies), and of the
country’s perceived abuses of the rights of minorities. Controversial statutory
restrictions include the “Hudood” laws and harsh penalties for blasphemy. In
H.Rept. 109-486 (June 2006), the House Appropriations Committee expressed
concern about “what appears to be the Government of Pakistan’s increasing lack of
respect for human rights ....” In S.Rept. 109-277 (July 2006), the Senate
Appropriations Committee expressed being “gravely concerned with violations of
human rights” in Pakistan.
Discrimination against women is widespread and traditional constraints —
cultural, legal, and spousal — keep women in a subordinate position in society. In
2005, Pakistani gang rape victim Mukhtaran Mai — and Islamabad’s (mis)handling
of her case — became emblematic of gender discrimination problems in Pakistan.
The Hudood Ordinance was promulgated during the rule of President Gen. Zia ul-
Haq and is widely criticized for imposing stringent punishments and restrictions
under the guise of Islamic law. Among its provisions, the ordinance criminalizes all
extramarital sex and makes it extremely difficult for women to prove allegations of
rape (those women who make such charges without the required evidence often are
jailed as adulterers). In August 2006, legislation to amend the Hudood Ordinance —
the Women’s Protection Bill — was introduced in Parliament by the ruling PML
party and with the support of President Musharraf. The opposition People’s Party
vowed to cooperate in pushing the reforms. Resistance by Islamist parties, however,
caused the PML to back off certain provisions and, in September, parliamentary
debate was postponed indefinitely. Critics claimed the development belied
Musharraf’s claims to be pursuing a policy of “enlightened moderation.”
The most recent State Department report on trafficking in persons again said,
“Pakistan does not fully comply with the minimum standards for the elimination of
trafficking; however, it is making significant efforts to do so.” The State
Department’s International Religious Freedom Report 2006 again found that in
practice the Islamabad government imposes limits on the freedom of religion in
Pakistan. The report noted “some steps to improve the treatment of religious
minorities,” but indicated that “serious problems remained,” including discriminatory
laws and violence against religious minorities.10 The State Department has rejected
repeated U.S. Commission on International Religious Freedom recommendations that
Pakistan be designated a “country of particular concern.” The 2006 annual report
from that Commission claims that, “Sectarian and religiously motivated violence
10 See [http://www.state.gov/g/drl/rls/irf/2006/71443.htm].

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CRS-24
persists in Pakistan, and the government’s response to this problem, though
improved, continues to be insufficient and not fully effective.”11
Press freedom and the safety of journalists recently has become a major concern
in Pakistan, spurred especially by the June 2006 discovery of the handcuffed body of
Pakistani journalist Hayatullah Khan in a rural area of North Waziristan. Khan, who
had been missing for more than six months, was abducted by unknown gunmen after
he reported on an apparent U.S.-launched missile attack in Pakistan’s tribal region.
Khan’s family is among those who suspect the involvement of Pakistani security
forces; an official inquiry into the death was launched. Other journalists have been
detained and possibly tortured, including a pair reportedly held incommunicado
without charges for three months after they shot footage of the Jacobabad airbase that
was used by U.S. forces. Pakistani journalists have taken to the streets to protest
perceived abuses and they complain that the government seeks to intimidate those
who would report the facts of Pakistani counterterrorism operations.
Economic Issues
Overview. Pakistan is a poor country, but the national economy has gathered
significant positive momentum in recent years, helped in large part by the
government’s pro-growth policies and by post-2001 infusions of foreign aid.
According to the World Bank, nominal GDP per capita in 2005 was only $644, but
poverty rates have dropped from 34% to 24% over the past five years. Severe human
losses and property damage from an October 2005 earthquake in northern Pakistan
have had limited economic impact, given a large influx of foreign aid and the
stimulus provided by reconstruction efforts. The long-term economic outlook for
Pakistan is much improved since 2001, even as it remains clouded in a country still
dependent on foreign lending and the importation of basic commodities. Substantial
fiscal deficits and continued dependency on external aid counterbalance a major
overhaul of the tax collection system and what have been major gains in the Karachi
Stock Exchange, which nearly doubled in value as the world’s best performer in 2002
and was up 56% in 2005. Along with absolute development gains in recent years,
Pakistan’s relative standing is also improving: The U.N. Development Program
ranked Pakistan 135th out of 177 countries on its 2005 human development index, up
from 142nd in 2004 and 144th in 2003.12
Output from both the industrial and service sectors has grown substantially since
2002, but the agricultural sector has lagged (in part due to droughts), slowing overall
growth. Agricultural labor accounts for nearly half of the country’s work force, but
only about one-fifth of national income. Pakistan’s real GDP for the fiscal year
ending June 2006 grew by 6.6%, driven by a booming manufacturing sector and
greater than expected agricultural expansion. However, overall growth was down
from 8.4% the previous year and fell well short of Islamabad’s target of 7%.
Expanding textile production and the government’s pro-growth measures have most
11 See [http://www.uscirf.gov/countries/publications/currentreport/index.html].
12 See [http://hdr.undp.org/reports/global/2005/pdf/HDR05_HDI.pdf].

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CRS-25
analysts foreseeing solid growth ahead, with predictions near 6% for the next two
years.
Pakistan stabilized its external debt at about $33 billion by mid-2003, but this
rose to nearly $38 billion in 2005. Still, such debt is less than one-third of GDP
today, down from more than one-half in 2000. The country’s total liquid reserves
reached a record $13 billion by mid-2005, an all-time high and a four-fold increase
since 1999. Foreign remittances have exceeded $4 billion annually since 2003, up
from slightly more than $1 billion in 2001. High oil prices have driven inflationary
pressures, resulting in a year-on-year wholesale rate of 8.9% in August 2006. While
inflation is expected to ease in 2007, many analysts call it the single most important
obstacle to future growth. Defense spending and interest on public debt together
consume two-thirds of total revenues, thus squeezing out development expenditure.
Pakistan’s resources and comparatively well-developed entrepreneurial skills may
hold promise for more rapid economic growth and development in coming years.
This is particularly true for Pakistan’s textile industry, which accounts for 60% of
Pakistan’s exports. Analysts point to the pressing need to further broaden the
country’s tax base in order to provide increased revenue for investment in improved
infrastructure, health, and education, all prerequisites for economic development.
Attempts at economic reform historically have floundered due to political
instability. The Musharraf government has had notable successes in effecting
macroeconomic reform, although efforts to reduce poverty have made little headway.
Rewards for participation in the post-September 2001 anti-terror coalition eased
somewhat Pakistan’s severe national debt situation, with many countries, including
the United States, boosting bilateral assistance efforts and large amounts of external
aid flowing into the country. An April 2005 Asian Development Bank report noted
improvement in the Pakistani economy, but identified rising inflation, a large trade
deficit, and a balance of payments deficit as majors areas of concern. In October
2005, the World Bank’s country director for Pakistan said there are plenty of risks
for pessimists to worry about with regard to Pakistani growth and poverty reduction,
but claimed “today the optimists have the upper-hand.” According to the Asian
Development Bank’s Outlook 2006,
Over the medium term, the outlook is favorable for growth in the range of 6-8%,
though this requires the [Pakistani] Government to maintain its robust
performance in economic management, greater investment to ease infrastructure
bottlenecks, and continued security and political stability.13
Trade and Investment. The United States is by far Pakistan’s leading export
market, accounting for about one-fifth of the total. Pakistan’s primary exports are
cotton, textiles and apparel, rice, and leather products. During 2005, total U.S.
imports from Pakistan were worth $3.25 billion (up 13% over 2004). About two-
thirds of this value came from the purchase of cotton apparel and textiles. U.S.
exports to Pakistan during 2005 were worth $1.25 billion (down 31% from 2004), led
by fertilizers and cotton fiber (the decline was a result of completed delivery of
13 See [http://www.adb.org/Documents/Books/ADO/2006/default.asp].

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CRS-26
civilian aircraft).14 According to the 2006 report of the U.S. Trade Representative
(USTR), Pakistan has made substantial progress in reducing import tariff schedules,
though a number of trade barriers remain. Progress also has come in the area of
intellectual property rights protection: estimated trade losses due to copyright piracy
in Pakistan were notably lower in 2005. Book piracy accounted for about half of the
2005 losses, however, and remains a serious concern. Pakistan also has been a world
leader in the pirating of music CDs and has appeared on the USTR’s “Special 301”
Watch List for 16 consecutive years (in 2004, continuing violations caused the USTR
to move Pakistan to the Priority Watch List).15
According to Pakistan’s Ministry of Finance, total foreign direct investment in
Pakistan exceeded $3 billion for the year ending June 2006 — an unprecedented
amount that more than doubled over the previous year — but investors remain wary
of the country’s uncertain security circumstances. Islamabad is eager to finalize a
pending Bilateral Investment Treaty and reach a Free Trade Agreement with the
United States, believing that its vital textile sector will be bolstered by duty-free
access to the U.S. market. The Heritage Foundation’s 2006 Index of Economic
Freedom — which may overemphasize the value of absolute growth and downplay
broader quality-of-life measurements — noted significant improvements, but again
rated Pakistan’s economy as being “mostly unfree,” identifying restrictive trade
policies, a heavy fiscal burden, weak property ownership protections, and a high level
of “black market” activity.16 Corruption is another serious problem: in 2005, Berlin-
based Transparency International placed Pakistan 144th out of 158 countries in its
annual ranking of world corruption levels.
U.S. Aid and Congressional Action
U.S. Assistance. A total of more than $15 billion in U.S. economic and
military assistance went to Pakistan from 1947 through 2005. In June 2003,
President Bush hosted President Musharraf at Camp David, Maryland, where he
vowed to work with Congress on establishing a five-year, $3 billion aid package for
Pakistan. Annual installments of $600 million each, split evenly between military
and economic aid, began in FY2005. The Foreign Operations FY2005
Appropriations bill (P.L. 108-447) established a new base program of $300 million
for military assistance for Pakistan. When additional funds for development
assistance, law enforcement, and other programs are included, the non-food aid
allocation for FY2005 was about $688 million (see Table 1). Significant increases
in economic support, along with earthquake relief funding, may bring the FY2006
total to around $874 million. The Bush Administration’s FY2007 request calls for
another $739 million in aid to Pakistan although the House Appropriations
Committee (H.Rept. 109-486) recommended reducing that amount by $150 million
(ostensibly for domestic budgetary reasons unrelated to Pakistan-U.S. relations). In
S.Rept. 109-277, the Senate Appropriations Committee called for redirecting some
14 See [http://www.census.gov/foreign-trade/statistics/country/index.html].
15 See [http://www.ustr.gov/Document_Library/Reports_Publications/Section_Index.html].
16 See [http://www.heritage.org/research/features/index/country.cfm?id=Pakistan].

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CRS-27
of the requested FY2007 U.S. economic aid to Pakistan toward development and
democracy promotion programs.
Congress also has appropriated billions of dollars to reimburse Pakistan for its
support of U.S.-led counterterrorism operations. As of September 2006, a total of
$6.64 billion had been appropriated for FY2002-FY2007 Defense Department
spending for coalition support payments to Pakistan and other cooperating nations.
Pentagon documents indicate that disbursements to Islamabad account for the great
majority of these funds: about $3.6 billion for operations from January 2002 through
August 2005, an amount roughly equal to one-quarter of Pakistan’s total military
expenditures during that period. The Defense Department Appropriations Act, 2007
(P.L. 109-289) would allow that up to $900 million in Pentagon funds be used for
FY2007 reimbursements.
Proliferation-Related Legislation. Through a series of legislative
measures, Congress incrementally lifted sanctions on Pakistan resulting from its
nuclear weapons proliferation activities.17 After the September 2001 terrorist attacks
on the United States, policymakers searched for new means of providing assistance
to Pakistan. President Bush’s issuance of a final determination that month removed
remaining sanctions on Pakistan (and India) resulting from the 1998 nuclear tests,
finding that restrictions were not in U.S. national security interests. Some Members
of the 108th Congress urged reinstatement of proliferation-related sanctions in
response to evidence of Pakistani assistance to third-party nuclear weapons programs.
However, the Nuclear Black-Market Elimination Act (H.R. 4965) did not see floor
action. Pending legislation in the 109th Congress includes H.R. 1553, which would
prohibit the provision of military equipment to Pakistan unless the President can
certify that Pakistan has verifiably halted all proliferation activities and is fully
sharing with the United States all information relevant to the A.Q. Khan proliferation
network.
Coup-Related Legislation. Pakistan’s October 1999 military coup triggered
U.S. aid restrictions under Section 508 of the annual Foreign Assistance
appropriations act. Post-September 2001 circumstances saw Congress take action
on such restrictions. P.L. 107-57 (October 2001) waived coup-related sanctions on
Pakistan through FY2002 and granted presidential authority to waive them through
FY2003. A November 2003 emergency supplemental appropriations act (P.L. 108-
106) extended the President’s waiver authority through FY2004. The foreign
operations FY2006 appropriations bill (P.L. 109-102) extended it through FY2006.
The House-passed foreign operations appropriations bill for FY2007 (H.R. 5522)
would provide another one-year extension. President Bush has exercised this waiver
authority annually.
17 The Agricultural Export Relief Act of 1998 (P.L. 105-194) allowed U.S. wheat sales to
Pakistan after July 1998. The India-Pakistan Relief Act of 1998 (in P.L. 105-277)
authorized a one-year sanctions waiver exercised by President Clinton in November 1998.
The Department of Defense Appropriations Act, 2000 (P.L. 106-79) gave the President
permanent authority to waive nuclear-test-related sanctions applied against Pakistan and
India after October 1999, when President Clinton waived economic sanctions on India
(Pakistan remained under sanctions as a result of the October 1999 coup). (See CRS Report
RS20995, India and Pakistan: Current U.S. Economic Sanctions.)

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CRS-28
Other Legislation. In the 108th Congress, conference managers making
foreign operations appropriations directed the Secretary of State to report to Congress
on Pakistan’s education reform strategy and the U.S. strategy to provide relevant
assistance (H.Rept. 108-792; see CRS Report RS22009, Education Reform in
Pakistan). Also in the 108th Congress, the House-passed Foreign Relations
Authorization Act, FY2004-2005 would have required the President to report to
Congress on Pakistani actions related to terrorism and WMD proliferation. The
Senate did not take action on this bill. The House-passed version of the Intelligence
Authorization Act, FY2005 contained similar reporting requirements; this section
was removed in the Senate. In the 109th Congress, the pending Targeting Terrorists
More Effectively Act of 2005 (S. 12) and the Real Security Act of 2006 (S. 3875)
contain Pakistan-specific language.
9/11 Commission Recommendations. The 9/11 Commission Report,
released in July 2004, identified the government of President Musharraf as the best
hope for stability in Pakistan and Afghanistan, and it recommended that the United
States make a long-term commitment to provide comprehensive support for
Islamabad so long as Pakistan itself is committed to combating extremism and to a
policy of “enlightened moderation.” In the Intelligence Reform and Terrorism
Prevention Act of 2004 (P.L. 108-458), Congress broadly endorsed this
recommendation by calling for U.S. aid to Pakistan to be sustained at a minimum of
FY2005 levels and requiring the President to report to Congress a description of
long-term U.S. strategy to engage with and support Pakistan. A November 2005
follow-on report by Commissioners gave a “C” grade to U.S. efforts to support
Pakistan’s anti-extremism policies and warned that the country “remains a sanctuary
and training ground for terrorists.” In March 2006, H.R. 5017, to insure the
implementation of the recommendations of the 9/11 Commission, was introduced in
the House. A Senate version (S. 3456) was introduced three months later. The bills
contain Pakistan-related provisions.

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Table 1. U.S. Assistance to Pakistan, FY2001-FY2007
(in millions of dollars)
Program
FY2001
FY2002
FY2003
FY2004
FY2005 FY2006
FY2007
or
Actual
Actual
Actual
Actual
Actual
Estimate Request
Account
CSH
—
5.0
15.6
25.6
21.0
32.2
21.7
DA
—
10.0
34.5
49.4
29.0
40.6
29.0
ERMA
—
25.0
—
—
—
—
—
ESF
—
624.5
188.0c
200.0c
297.6
377.6
350.0
FMF
—
75.0
224.5
74.6
298.8
297.0
300.0
IDFA
—
—
—
—
—
70.0e
—
IMET
—
0.9
1.0
1.4
1.9
2.0
2.1
INCLE
3.5
90.5b
31.0
31.5
32.1
56.3
25.5
NADR
—
10.1
—
4.9
8.0
7.8
10.3
PKO
—
220.0
—
—
—
—
—
Subtotal
$3.5
$1,061.0
$494.6
$387.4
$688.4d
$873.5f
$738.6
Food Aida
87.5
90.8
18.7
24.0
18.0
26.7
—
Total
$91.0
$1,151.8
$513.3
$411.4
$706.4d
$900.2f
$738.6
Sources: U.S. Departments of State and Agriculture; U.S. Agency for International Development.
Abbreviations:
CSH:
Child Survival and Health
IMET:
International Military Education and
DA:
Development Assistance
Training
ERMA:
Emergency Refugee and Migration
INCLE:
International Narcotics Control and
Assistance
Law Enforcement (includes border
ESF:
Economic Support Fund
security)
FMF:
Foreign Military Financing
NADR:
Nonproliferation, Anti-Terrorism,
IDFA:
International Disaster and Famine
Demining, and Relatedg
Assistance
PKO:
Peacekeeping Operations
Notes:
a. P.L.480 Title I (loans), P.L.480 Title II (grants), and Section 416(b) of the Agricultural Act of
1949, as amended (surplus agricultural commodity donations). Food aid totals do not include
freight costs.
b. Included $73 million for border security projects that continued in FY2003.
c. Congress authorized Pakistan to use the FY2003 ESF allocation to cancel $988 million and the
FY2004 allocation to cancel $495 million in concessional debt to the U.S. government.
d. Included Emergency Supplemental Appropriations Act, 2005 (P.L. 109-13) funding of $150
million in FMF and $4 million in counterdrug funding for Pakistan.
e. The Emergency Supplemental Appropriations Act, 2006 (P.L. 109-234) did not earmark IDFA
funds for Pakistani earthquake relief but allocated sufficient funds to meet the Administration
request.
f. The FY2006 estimate includes Emergency Supplemental Appropriations Act, 2006 (P.L. 109-234)
funding of $40.5 million in ESF and $18.7 million in counterdrug funding for Pakistan.
g. The great majority of NADR funds allocated for Pakistan are for anti-terrorism assistance.

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CRS-30
Figure 1. Map of Pakistan
TURKMENISTAN
Dushanbe
UZBEKISTAN
TAJIKISTAN
CHINA
Pakistan
International Boundary
Province-level Boundary
NORTHERN AREAS
National Capital
Indi an
Gilgit
cl ai m
Province-level Capital
Azad Kashmir and the Northern
NORTH-WEST
Areas are administered by Pakistan
C hi nese
FRONTIER
Kargil
but do not have provincial status.
l i ne of
Kabul
cease
Muzaffarabad
fire line
control
0
50 100
200 Kilometers
Peshawar
AZAD
Srinagar
50
100
KASHMIR
0
200 Miles
Parachinar
Islamabad Rawalpindi
ISLAMABAD
CAPITAL
TERRITORY
AFGHANISTAN
Sialkot
Sargodha
Wana
Lahore
Zhob
Faisalabad
s
Quetta
u d
Khost
n
Multan
I
Bahawalpur
Nok Kundi
H amun-i -Mashkel
PUNJAB
New Delhi
BALOCHISTAN
IRAN
SINDH
I N D I A
Nawabshah
Pasni
Hyderabad
Gwadar
Karachi
Rann of Kutch
seasonal l y
i nundated
Li ttl e
R ann
A
r
a
b
i
a
n
S
e
a
Source: Map Resources. Adapted by CRS. (K.Yancey 2/28/06)

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