Transition Continues as Planned
Effectively having dealt with former Chief Justice Iftikhar Chaudhry, Musharraf’s transition appears to be continuing as planned. The newly revamped Supreme Court has paved the way for Musharraf’s second term as president and now that Nawaz Sharif has returned to Pakistan, the stage is set for the January parliamentary elections. The only remaining unresolved issue is the present state of emergency that is in effect which will likely go soon. Many IB readers will recall that our sources had stated back on November 3rd that Musharraf would remove his uniform, elections would be held, and that the emergency would be short lived.

Taking stock of the present situation — isn’t this what everyone wanted? A civilian Musharraf as president with elections being held in which all major parties are participating? Not to sound like a military regime apologist, the question begs to be asked: was Iftikhar Chaudhry acting in the greater good of the country by sparking a confrontation with President Musharraf? In attempting to push Musharraf out of the public realm entirely, instead of seeking a phased transition, can it be argued that Chaudhry can be blamed for the current state of emergency and curbs on the media?

We’ll leave that for our readers to answer.

A Paradigm in Twilight?
When Musharraf retires from the army this Wednesday, many will begin to question if this is the beginning of the end for the military’s involvement in government. The answer: not by a long shot. We had stated in a prior post that the army is at the center of the Pakistani state and that it will be involved in the country’s governance for decades to come if not in perpetuity. Whether this is right or wrong is not the question — it’s a ground reality.

Heard ad nauseam, the military is Pakistan’s single most organized, popular and powerful institution. It is the only grouping of Pakistan’s major stakeholders that can universally impose its will on the country and bring everyone else into line. As long as Pakistan’s ruling elites — the military, political parties, feudal lords, and business barons — remain at loggerheads with one another over the direction of the nation, the military will remain in the driver’s seat.

US-Pakistani Relations
Many out there are declaring their own emergency for the state of US-Pakistani relations. The fact of the matter is that despite the increasing criticism emerging from the White House, relations between the two countries remain strong. President Bush may have touted his recent phone call to Musharraf demanding that he step down as army chief and hold elections, but the reality is that Musharraf had already committed to both, as my sources had stated. That’s why Bush was able to make the demands he did, he knew that Musharraf already intended on doing what he’s asking.

The bigger news may be that despite repeated denials, the Bush administration knew that emergency rule was coming in Pakistan. High-level sources have reported that the Bush administration, specifically Deputy Secretary of State John Negroponte, had been informed days in advance of the decision.

Though Musharraf’s relationship with the Bush administration is strong, sources are also indicating that the establishment fears fall-out from the US Congress, the American media and think tanks. This was already evidenced by Musharraf’s recent calls to members of Congress, attempting to allay concerns and prevent a halt in the flow of financial aid to Pakistan.

Emergency Rule’s Financial Impact
When markets opened the Monday after the declaration of emergency, the Karachi Stock Exchange (KSE) plummeted 5 percent, experiencing its worst single-day decline in the exchange’s history. Though the news of emergency rule and the resultant stock market plunge may be worrying for investors and Pakistanis alike, they should rest assured that the current volatility is only a short term phenomenon.

(courtesy of the Wall Street Journal Online)

The primary concern of both foreign and Pakistani investors is whether the fiscal and monetary policies of the current government will continue down the road. We witnessed this when the Supreme Court declared Musharraf’s presidential candidacy valid (the first time around) and as a result, the KSE skyrocketed the following day. After all, it’s been Musharraf’s policies over the course of the past 8 years that have generated Pakistan’s immense economic growth; last year alone Pakistan attracted nearly $8 billion in foreign investment, no small accomplishment.

What investors must further realize is that even if Musharraf is forced to step down, his economic policies won’t go with him.

The army is at the center of the Pakistani state and will be involved in the country’s governance for decades to come if not in perpetuity. Its role as the guarantor of the Pakistani state has now expanded to include the economy and for good reason. It became painfully aware to the Pakistani military that a strong economy was needed to fund its war machine, as sanctions and economic weakness set the country’s defense acquisition programs back years if not decades. But most importantly, the Pakistani military, and in particular the army, has massive business concerns across the country. To keep Army Inc. profitable, the health of the economy must remain strong.

That is why investors shouldn’t fret when it comes to Pakistan and current economic policies – they’re not going anywhere.

The Army’s Cohesion and Pakistan’s Wild West
Several times now, rumors have arisen suggesting Musharraf has been placed under house arrest. Likely spread by the opposition, the rumors fly in the face of what can be expected of the Pakistan Army.

With the exception of the Rawalpindi Conspiracy in 1951, there have never been any incidents of open insubordination within the Pakistan Army. If the situation becomes untenable for Musharraf and the army’s popularity diminishes as a result, the army as an institution will quietly ask Musharraf to step down. We’ve also stated in the past that the current Vice Chief of Army Staff (VCOAS) and successor to Musharraf, Gen. Ashfaq Kayani, is a thoroughly professional soldier who not only respects the chain of command but is also a Musharraf loyalist.

What does the army think about the emergency though? Sources have indicated to us that the army remains unified and the response to the emergency has been relatively positive. On the other hand, sources have also stated that there is resentment within the army regarding operations in Pakistan’s northwest, particularly Swat, with many in the army stating that they do not want to fight fellow Pakistanis. This may be why despite the declaration of emergency, we haven’t seen immediate action in Swat as the army internally debates a course of action. The situation is worsening though. Dawn has reported that a third major town in Swat recently fell to Islamist forces loyal to Maulana Fazlullah.

Humorous Anecdote: Many are aware that former ISI chief, Gen. Hameed Gul had been arrested when the emergency was first declared. Many of you however, may not know what he was up to when he was arrested. Much to my amusement, very close relatives of his informed me that the wily 71 year-old was on his way with flowers and cake for the now-deposed Supreme Court justices, who had just struck down the PCO. He is currently in jail, detained for 30-days.

• The constitution is suspended.
• Justice Abdul Hameed Dogar replaced Chief Justice Iftikhar Chaudhry.
• Provincial and federal assemblies in tact.
• Shaukat Aziz: General Elections may be delayed (for up to one year).
• Judges across the country have been sworn in under the PCO.
• Opp. leaders arrested (e.g. Atizaz Ahsin, Javed Hashmi, Imran Khan, and Asma Jehangir).
• Benazir Bhutto has stated that she is willing to work with Musharraf.
• Private news outlets are now under strict operating guidelines.
• The country remains relatively calm.

Intel Forecasts Validated
Last week, we had reported that a major decision would be made on November 1st relating to the Musharraf government. Both our sources and Dawn are now reporting that the decision to declare a state of emergency was made on November 1st. Back in September, we had also stated that there moves were afoot by the government to force then-Chief Justice Iftikhar Chaudhry’s resignation and that he would be out of office in a month; a month and a half later, Chaudhry finds himself out of a job.

What’s next?
As of yesterday, sources are reporting that the state of emergency will be short lived and that Musharraf will remove his uniform. If this is going to be Musharraf’s strategy, it’s a wise one. Keeping emergency rule short and removing his uniform shortly thereafter, will dampen opposition to him and preempt the organization of a large-scale protest movement that he will not be able to contain. He will also have accomplished his goal of removing one of the biggest thorns in his side: f0rmer Chief Justice Iftikhar Chaudhry.

As of now, the opposition is in disarray with much of its leadership and nearly 500 activitsts already detained. Though talk of emergency rule had reached a fever pitch the day before, no one believed Musharraf would follow through thinking that move would be political suicide. Interestingly, the public for the most part has been quiet. But even if Musharraf is able to ride this out and successfully transition back to democracy as a civilian president, we do not foresee him completing his second 5-year term.

In the coming days, there may be full-on military activity in Pakistan’s northwest, specifically Swat and North Waziristan. Militants in the area may already be expecting this and are likely looking to come to an accord with the government. This was exhibited with the release today of the remaining 250 Pakistan Army troops that had been captured in late August. According to our sources, Pakistan currently has over 100,000 troops in the northwest. In addition to two heavy infantry divisions, two more infantry divisions have been moved in to the region with the intention of retaking each tribal agency/provincial district one at a time.

International Reaction
International reaction has almost universally been one of “disappointment” and “concern.” In reality however, these public statements are just lip service. For countries whose opinion actually matters for Pakistan — namely the United States and China — the primary concern was and still is the war on terror.

The United States. The White House termed Musharraf’s move as “disappointing” calling for him to remove his uniform and hold elections in January. Secretary of State Condoleeza Rice echoed similar sentiments calling for calm and a swift return to constitutional order. She also said that financial assistance to Pakistan would be reviewed. To retierate, these are all face saving statements for consumption by the domestic US audience and international community. The Bush administration cannot be seen as supporting anti-democratic moves. It should also be remembered that the Vice President’s office runs all Pakistan-related foreign policy, not the State Department.

However, the most noteworthy and underreported statement came from the Pentagon stating that emergency rule would not effect US military support for Pakistan. Behind closed doors, all that matters for the Bush administration and other Western governments is that the war on terror continue full force and the Pentagon statement highlighted that.

China. China is Pakistan’s closest ally and largest benefactor, bar none. China has been mum over the last few months when its come to the state of affairs in Pakistan in line with their policy of domestic non-interference. After yesterday’s imposition of emergency rule, the Chinese came out and stated that they were “concerned,” but that the Pakistani government and people were capable of solving their own problems. So long as the government in Islamabad enacts policies that will not destabilize the region or specifically China’s own troubled Xinjiang province, the Chinese will continue to support Pakistan and in this case, Musharraf.

Musharraf’s Address: “Pakistan First”
IB readers can view Musharraf’s nearly hour long address to the nation last night below as well as in our newly added media section. Most of the address is in Urdu but beginning at 36:30, he speaks briefly in English for his “friends in the West.” To quickly summarize, Musharraf criticized the Supreme Court’s “judicial activisim” saying that it impeded on the government’s ability to prosecute the war on terror and manage the economy. He also went on to say that terrorists had become too emboldened and that the government needed to be able to take swift action against them; thus he had taken this action for emergency rule.

Resources

• Text of the Proclamation of Emergency
• Text of the Provisional Constitutional Order (PCO)
• Text of Musharraf’s first PCO in October 1999
• Text of the former Supreme Court Order Voiding the PCO

President Musharraf is currently addressing the country on national television in English. Stating that the country is at a dangerous juncture. Speaking in English so the world can hear. More to come. (Updated via Blackberry, 3:52pm US EST/1:52am PST)

Dawn reports that Benazir Bhutto has returned to Karachi and was escorted home by police. The White House has termed the state of emergency as “disappointing.” (Updated via Blackberry, 2:58pm US EST/12:58am PST)

Confirmed: Musharraf is not under house arrest, is still definitely in the driver’s seat. Pakistan is being described as in a state of “emergency plus,” somewhere between martial law and a state of emergency. (Updated via Blackberry, 2:22pm US EST/12:22am PST)

[Editor's Note: I will be stepping away from my computer, will attempt to keep IB readers continually updated via my Blackberry. 12:35pm US EST/10:53pm PST]

Benazir Bhutto has reportedly stepped off the plane in Dubai and will not be returning to Pakistan so soon. Perhaps fearing arrest? Justice Abdul Hameed Dogar (pictured right) has now been sworn in as Chief Justice of the Supreme Court of Pakistan, under the PCO. (Updated 12:00pm US EST/10:00pm PST)

Benazir Bhutto is supposedly at Dubai Int’l Airport or already en route to Karachi. (Updated 11:53am US EST/8:53pm PST)

Thoughts. This is essentially martial law. The issue was ordered from the COAS to avoid the needed approval from parliament. There is also this rumor that Musharraf is under house arrest, and even if it’s not true, I don’t see Musharraf surviving this. I don’t forsee a large scale protest campaign against Musharraf until the confusion is settled and there is an accurate picture of the ground reality. Though speculation reached its peak yesterday over the declaration of a state of emergency, no one really expected Musharraf to follow through; that’s why I believe we’re going to see an opposition that is potentially in disarray. I also find it incredibly convenient that Benazir was out of the country while this all happened. It’s a little peculiar that she would leave the country so soon after staging such a large come back. (Updated 11:41am US EST/8:41pm PST)

UNCONFIRMED RUMOR: Some sources are now reporting the that Pres. Musharraf is under house arrest and that Vice Chief of Army Staff (VCOAS) General Ashfaq Kayani has taken control of the Army and thereby the country. This would explain why all announcements re: the state of emergency have simply stated that they were by order of the “Chief of Army Staff,” with Pres. Musharraf’s name ommitted. I repeat, this just a rumor. I have other sources who claim to have just spoken with Musharraf refuting the rumor. (Updated 11:15am US EST/8:15pm PST)

Justices from the Lahore High Court have been summoned to the Governor House to supposedly take oath under the PCO. Earlier, the Karachi High Court justices had been summoned to Sindh’s Governor House. (Updated 11:09am US EST/8:09pm PST)

The Supreme Court’s decision against the PCO orders the COAS, all Corps Commanders and civil/military officials from carrying out the PCO. It states that any future change in the composition of the Supreme Court bench will be illegal and that no judges may take oath under the PCO. (Updated 10:16am US EST/7:16pm PST)

A 7-member bench of the Supreme Court, headed by the Chief Justice, has declared the PCO void. This has set the stage for a full on confrontation between Musharraf and Iftikhar Chaudhry. According to legal experts, the government cannot pass a PCO during a state of emergency under Article 232 of the constitution. President of the Supreme Court Bar Association, Aitzaz Ahsan, has been arrested from his home. He was a lawyer for Chief Justice Iftikhar Mohammed Chaudhry. (Updated 9:53am US EST/6:53pm PST)

Multiple justices have now arrived at the Supreme Court; they include Justices Rana Bhagwandas, Javed Iqbal, Abdul Hameed Dogar, Faqir Khokar, Muhammad Abbasi, Shakirullah Jan, and Ghulam Rabbani. A heavy paramilitary presence including Pakistan Rangers is reported in Islamabad. Heavy security exists in front of facilities belonging to Radio Pakistan, PTV, and the Prime Minister. (Updated 9:36am US EST/6:36pm PST)

Cable transmissions of all news outlets, with the exception of the official Pakistan Television (PTV), have been shut down. Musharraf is expected to address the nation tonight. (Updated 9:36am US EST/6:36pm PST)

The Chief Justice of Pakistan is reportedly now in his chambers with two other senior judges — Justice Abdul Hameed Dogar and another unnamed judge. News outlets are speculating that Justice Dogar will be the new CJP. Mobile phones in Islamabad are being jammed. (Updated 9:18am US EST/6:18pm PST)

Following the Musharraf government’s re-deportation of Nawaz Sharif, sources informed me that the Supreme Court was no longer willing to confront Musharraf and that its justices had accepted that Musharraf had a specific game plan laid out for his transition to a civilian presidency and civil-military power-sharing agreement.

That understanding came to light today with the Supreme Court ruling that Musharraf was an eligible candidate for presidential elections, despite being in uniform. Whether that consensus is a result of the government’s threats to out Chief Justice Iftikhar Chaudhry’s links to Nawaz Sharif remains unclear.

Maj. Gen. Taj is a trustworthy ally of Pres. Gen. Musharraf’s and has been considered by many to be up for a promotion in the coming reshuffle. Taj, once Musharraf’s Military Secretary (MS), has accompanied Musharraf through some of the regime’s most significant events. He was flying with Musharraf on that fateful flight from Sri Lanka on October 12, 1999 when the coup was launched and was also in Musharraf’s car during the assassination attempts of 2003. From MS, he was appointed Director General of Military Intelligence (DGMI) and then moved on to become General Officer Commanding (GOC) Lahore before landing his current role at Kakul.

The question then becomes, what of Gen. Kayani? The media has been rife with speculation about Kayani’s next post, oscillating between Vice Chief of Army Staff (VCOAS) and the largely ceremonial post, Chairman of the Joint Chiefs of Staff (CJCS). Sources have also confirmed that though due to retire in October, Kiyani will most definitely be occupying one of the two aforementioned posts. With Musharraf already having announced through spokespeople that he will be stepping down as Chief of Army Staff (COAS) after being elected President, VCOAS may essentially translate into a direct transition to COAS.

Musharraf’s plans to step out of uniform also indicate that the reshuffle of top Army posts is bound to increase in pace. Word that a new DG ISI is being appointed soon reflects that.

AN EXPOSED JUSTICE
Many are expectantly awaiting another showdown between Pres. Musharraf and the Pakistani Supreme Court, particularly Chief Justice Iftikhar Chaudhry, after Musharraf essentially flipped the top judge the finger and deported Nawaz Sharif. Those waiting for a confrontation won’t have to wait for long – but not because there’s going to be a confrontation.

The same sources privy to government plans have indicated that Chief Justice Chaudhry will likely be leaving office soon (”within a month”) as the government intends on bringing to light Chaudhry’s collaboration with Nawaz Sharif and his role in mitigating Sharif’s return. If presented to the public or courts with even a modicum of credibility, such charges can be damning for Chaudhry, who during and since his campaign to be reinstated, championed the independence of the judiciary.

We’re in for a very interesting ride.