From Banking to the Thorny World of Politics

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TIME: 18:00-19:00, Thursday 7th July 2016

VENUE: Committee Room 2A, House of Lords, London, SW1A 0PW

SPEAKERS: Co-authors, From Banking to the Thorny World of Politics, Shaukat Aziz, former Prime Minister of Pakistan (2004-2007) and Anna Mikhailova, Journalist and Interviewer for The Sunday Times

CHAIR: Lord Arbuthnot

Lord Arbuthnot: Ladies and Gentlemen. It’s not often we have a prime minister to talk to us. And today we have the honor of having Shaukat Aziz who has a career of such distinction that I shan’t read it all out, but he did 30 years at Citi Bank, I think, and then he joined the military regime in Pakistan in 1999. Then from 2004-2007, I think, you were the prime minister, this followed five years as Pakistan’s finance minister. One of the biggest economic turnarounds, in history. And he was named finance minister of the year by Euro Money, the banker magazine. And he has written this book…

Shaukat Aziz: Everyone makes mistakes [laughter].

Lord Arbuthnot: He has written this book with Anna Mikhailova and Anna Mikhailova herself is a journalist of great distinction. She works, amongst other places, for The Sunday Times and I can say that is a place of great distinction because my daughter works at The Sunday Times. She is an award winning journalist and she’s written for Spectator Life and has appeared on ITV as a presenter. So we are very lucky to have both of these today to speak to us. Prime Minister, will you speak completely on the, you’ve written a book, you’ve both written a book so I presume everything is on the record.

Shaukat Aziz: Everything is on the record.

Lord Arbuthnot: Ok, well if I could…

Shaukat Aziz: Unless I say otherwise.

Lord Arbuthnot: Unless you say otherwise. Thank you very much.

Shaukat Aziz: Thank you, your lordship, ladies and gentlemen. This is, the last few weeks have been very interesting for me because Anna and I, we’ve been traveling the world to present our book. And the last one was in New York, I think, yeah. And from here I head to Hong Kong and then there are several other countries, I don’t want to bore you with my itinerary. But really want to cover some key issues on the book and where Pakistan is and where I think the world should understand us better. The reason I got on to this project of writing the book was not because I had nothing else to do. But when I left office I always felt in office, and afterwards that Pakistan is not well understood by the world at large. For various reasons. And I should give an insiders account of what I felt was some of the challenges and opportunities in Pakistan. Not being a professional politician I was brought into the government, as you may know, as a technocrat. I was working for a small bank called Citi Bank, headquartered in New York, worked for them for 30 years, and was in their senior management, or what we call the management board of the company. Citi Bank is clearly a truly global institution, most people talk about companies being international. Because out of the 15 people who were the senior management of the company, eight were non-US citizens. So total 15, largest US bank and so we had a real mix of cultures and nationalities and what have you. So that’s the background I came with. I got a phone call one afternoon, after General Pervez Musharraf, whom I had never met of seen before, but I had actually seen him on television after he took over. He gave a speech and my [inaudible] turn on you TV there is something about Pakistan on the news. And there he was telling people, “I’ve taken over,” etc, etc. I heard it and then closed the TV and then back to work. Two or three days later, she interrupted me in a meeting, slipped a little paper, “the same gentleman who was on the TV is on the line.” I said, “Whatever her name was, did you have a late night again yesterday?” She said, “No. That was not the reason, his PA is on the line.” Anyway I took the call. He said, “I’m so and so.” I said, “well that, it’s a pleasure talking to you sir. How can I help you?” And he said, “We are quasi bankrupt.” I said, “I know.” “We need help and we need some professionals to come in and take a look at what needs to be done etc. We have been part of IMF and World Bank programs for years, but it doesn’t seem that we get out of this trap we are in. And we want a fresh person to come and look at it.” No indication of what he want me to do or anything. Just pretty clear it’s about the economy. So I said, “General, what would you like me to do?” He said, “Come over. Have a discussion with me and my colleagues.”  So first of all, “and keep it quiet,” so I said, “ok.” We had two chairmen at the time Sandy Weill and John Reed, two very eminent world class bankers, who are well known around the world, in financial circles. I told them, “This is it. So I should go because he’s called me himself and if I don’t he might get a bit upset.” So I went there and met his colleagues first and then him. And to make a long story short, he said, “We are talking to other candidates but we will get back to you. If you were asked to come, would you come?” I said, “I will have to talk to our two chair persons,” because we had two heads at the time because there was a merger, “and then I will give you an answer, I don’t want to commit now. But anyway, you talk to all your candidates and if you are still interested we will take that step at the time.”

Two or three days later he called back, or a week late, or his deputy called me actually, and said, “We’ve decided to make you, or offer you the position of finance minister. And Congress also, but I won’t go into that.” I said, “Ok. When do you want me to start if I do accept?” He said, “Yesterday.” I said, “I have 4,000 people working for me all over the world.”  At that point I was sent in by our chairman John Reed to clean up the wealth management business of Citi Group, which was one of the largest in the world, because I had always made this plea to people that bad money doesn’t deserve a home. So if it’s bad money you must not allow it to pollute the banking system. And as you know, even today, that’s a major challenge for the financial system. The system has moved ahead but there are still a lot of loopholes etc. In fact, about four weeks after this I was supposed to testify to the US Senate Finance Committee on how this issue should be tackled because this has been a cause celebre for me for year. And that is why I was put as head of the wealth management business before that I was head of Asia, before that I was Central and Eastern Europe, etc. etc. I won’t bore you with details, but this was my real passion. So the Senate Committee wanted me to come as an expert and come and testify. As events moved, President Musharraf said, “We are slipping by the day, so you should come yesterday.” And I agreed. So I did not testify and John Reed, our chairman, had to testify and if you see his testimony, which is a public. He said, “I was not supposed to be here. The person who was running our business who really knows this subject and believes in it very passionately is now the finance minister of Pakistan.

I went there and we did some very basic things of structural reforms and I then came up with a philosophy on how we change the economy and economic management of the country, which is described in three words, this is simplifying it a bit but I think it gets the point across: number one I said we believe in liberalization, second de-regulation, and third privatization. It is not the business of government to be in business. The private sector should be allowed to run whatever they can, only things, which cannot be run by them should be taken by the government. And even then there should be a plan to give it back. Governments should make policy and then people said, “Oh de-regulation. So you want to give, you know, abdicate everything.” After these three words I would normally say, “This does not mean abdication by the government. In fact it increases the responsibility and role of the government in the sense that the laws and environment, enabling environment, they provide for business should have the checks and balances so that if somebody is not doing what they should do, the red light should go on.” So it does not mean abdication, on the contrary, in a de-regulated environment, the policy makers and the regulator, because they do exist, like in banking, would be the FSA, or the Bank of England etc. They have to be on their toes. But the tools to manage are not by issuing circulars and saying don’t do this, don’t do that. But actually knowing what’s going on and being, sort of part, of the whole process. So we did that and we had a turn around, as expected, growth, from low growth we turned into medium to high growth. IMF, World Bank, everyone was knocking on our doors, take more money. But I realized while I was dealing with them that if you, not so concerned with the World Bank here, but the IMF, if you take a program from the IMF you’re losing your economic sovereignty. And as a patriotic Pakistani I felt that that is unacceptable and we must find a way to regain our economic sovereignty because, on the other hand, you can’t blame the IMF, because if you have mismanaged your economy, you are to blame yourself. So, therein lies the… So anyway, so you did that, but I used to deflect on our meetings with them. And they were good bureaucrats who used to come in mission of four to six or eight sometimes and have a cookie-cutter approach and when I say, “This is not acceptable, or we can do it better.” They would say, “Sir, management has approved this list, we cannot change it. Either you take it or we go back.” And so that was the type of discussion although people don’t know this from the outside. So anyway we, my desire to get out of that program was even more pronounced and eventually we did. And by this time I had become Prime Minister, we reformed, we did all the good things. Pakistan was model for reforms of economy, of the economy, for the developing world. And this had been written up many times. And this, all these reforms, allowed us to have enough money to say goodbye to the IMF. People say what was one of your happiest days in government, I said, “The day i stood up in Parliament,” I was Prime Minister by this time, and I’ll go back to an event before I was Prime Minister in a second, but I don’t want to disturb the flow, I’ve disturbed it already. I stood in Parliament, I signaled to the speaker and as leader of the House, you know when you signal you get the floor.

Lord Arbuthnot: It’s not like that here.

Shaukat Aziz: Well in our country you say, “Excuse me ladies and gentlemen, the Prime Minister has something to say.” So I stood up, the Prime Minister always gets the floor. I said, “Ladies and gentlemen, this is just a short thing I would like to share with all the members and the people of Pakistan. That today, Pakistan has regained economic sovereignty. Before coming to Parliament this morning, I instructed the central bank and the ministry of finance to remit so many billion dollars to the IMF to completely re-pay all outstanding to Pakistan and end the program effective immediately. Today ladies and gentlemen, you and your coming generations have achieved economic sovereignty.” The first time the occupation ever clapped. You know, they are very shy in clapping on anything good the government does, which is their prerogative of course. But we did that. As things were going well, President Musharraf who was chief executive, president, army chief, everything, he reflected, I guess, with his other friends and said we need to have a proper prime minister now, who will drive this country forward. So it was decided that the prime minister who was there, who was an elected MP, elected by the party, was inadequate and he asked me would I be agreeable to be a candidate for the ruling party. And we, the Prime Minister has agreed to resign if you agree, you will be nominated as the party candidate. I said, “This is a tall order, let me, you know.” “Can you tell me now?” I said, “Let me think about it and come back to you.” I reflected on it, and clearly I felt that if I can translate some of the stuff, and I won’t bore you with details, which we have done through the reforms and the economic side. But there’s a big country and lots of it, huge social issues, geopolitical issues, foreign policy issues, etc., security issues, terrorism, etc. If we can adapt some of this fire power to the other functions, we will be a better country. At least that was my thinking. And so, I lead, and I had to be an MP, I was a senator before, which is like the upper house. So in our constitution the prime minister has to be a member of the lower house. So I, many people in the ruling party, two of them, we accept four people [inaudible] resign for him, if he’s coming I think it’s worth it, let him contest our seat. So I contested in two constituencies that was considered enough. And I won both, so I kept one and during my election campaign the last event that I had, the last event they cut off all campaigning and then there is two-three days of gap and you have the election that seems to be our regulations for some reason. Good reason perhaps. I finished a very fiery, very emotional, what we call public rally, which was in a large circus-type tent. About 5,000 people I think. Huge tent, and everybody is checked indoors. Before this, the two heads, the head of ISI and the head of the intelligence bureau came to my residence and said, Mr. Finance Minister, I was candidate to be Prime Minister, we would like to meet you and your wife together. This is a strange request. Anyway, my wife was upstairs in the No. 11 Downing Street equivalent. Not as fancy as this house was. So, she came down, she said, “Why should I meet these people?” And the intelligence people said, could you please convince your husband, every time we give him tips on security and not to do this, wear his bullet proof vest, do this. He ignores everything. And the chatter we are picking up is not good. So very impressive, they had picked up stuff that something might happen. So she just said ok. And when they left I got the third degree. I said, “no no, I agree, I should listen to them.” so I went to this last rally, a lot of euphoria. You know, you can see, a high security presence. I mean everybody was checked and double checked and triple checked. So the meeting went well, when it finished I was brought to my car. The car was a B7 Mercedes S class. Well you will say, “We know a Mercedes S class, what is B7.” There are seven levels of armoring in a car. The best, highest, available today is level 7. Which can take a bomb, a small rocket, it can take all those things. Bullets are obviously. [laughter] minor stuff. So anyway, so I was brought in and when I came out there were police barricades on both sides. And you know how the public is, they want to shake hands, so I told my chief person, who shadows you, on both sides, two people. I said, “I want to shake hands with a few people. He opened the door, caught my arm pushed me in and closed the door and said, “No, sir. I cannot allow you. Right decision.”  We got in the car, the car had moved maybe from here to here, one feet and boom! There is an explosion. Which was a mind boggling thing, I don’t know how to describe it. Very powerful explosive, and I noticed that the driver collapsed immediately, and died in my arms, I picked him up. And there was blood all over the wind screen because people outside, there body parts, I don’t want to describe everything, because I don’t want to spoil your day. And not a scratch on me, or the gentleman sitting next to me. And so, the car stopped, because the driver, it was hardly moving very slowly. Long story short we evacuated etc. There were actually two suicide bombers, as we later found out. The second person chickened out. When we arrested the gang, one of the right one on the left, and the plan was in the first bomb explosion if he escapes, which I did, I’ll evacuate from the other side. And there’s an evacuation procedure. They have cars posted before so if you have to get out, you can. The second would go and that would be the end of the story, but as luck would have it that person chickened out and ran away. We did follow the procedure but he [inaudible]. Now in the mine he was wearing a very powerful anti-tank mine.  Because they wanted to ensure victory in this attempt, they knew it was an armored care, but that could pierce anything. And secondly, like a necklace they used armor piercing pellets and sewed it on the mine, additionally. So it would break through and as you know when an explosion takes place, and then I’ll stop this and we’ll do something else, you die from the shock -wave, not actually the pellets. But in the movies we show things coming, and everything, but actually the shock wave kills you because your ear drums go and your brain is pulp in one nano-second. And you technically gone, physically you might still be there.

So anyway, we went through all for this. Tremendous when you go back at night and reflect on it its quite strange feeling and I don’t wish it on anybody. But at that time, people asked me how did you feel. And it was a strange feeling. The bombers had thought that after this, even if he doesn’t die, hopefully he will die, if he doesn’t die, at least he will run away, take the first plane back to New York, back to his beautiful Park Avenue apartment or whatever it was. Actually it’s my Park Avenue office, not my apartment. He would say I don’t want all of this. You know this is too much of a price to pay. What came to me at that time is energy, I felt so energized, and so strong and powerful, words cannot describe it. And I said, God has given me another life to serve my country. And I will do that to the best of my ability. And all this was going through and y wife who was with me during that other briefing, the area we were in was a black zone for cell phones, you know you sometimes have certain parts where the signal isn’t there. And TV was saying he was in [inaudible] so she was feeling hysterical of course. Every, the neighbors came, other people came. So this strengthened me and this prepared me for the task ahead and although a lot of people died, it was, it strengthened my resolve to really fight extremism and terrorism, number one. And number two, to serve my country to the best of my ability. And in the eight years I was in government, four years as finance minister of chancellor as you would call it, and four years as prime minister, I think people accused me of being a workaholic. Nobody knew the names of my children, nobody, we were happy because they left, my daughter was living in London, my son was in the US, and my youngest daughter was studying at Brown University, not Brown, at that time she as at another university. So anyway, the kids weren’t there and we started our journey to move ahead. So this was just a preamble to how my life started in office and how various challenges we faced.

Now, after that, in the interest of time, because I have to end in, how many more minutes? We have some time.

Lord Arbuthnot: Should we give, shall we shall 10 minutes?

Anna Mikhailova: To link with that, I was going to suggest. Why don’t you recall the conversation you had in Malta with Tony Blair, considering we are meeting on the anniversary of 7/7.

Shaukat Aziz:Yes, fast-forward I’m into the Common Wealth Summit.

Anna Mikhailova: Months after 7/7.

Shaukat Aziz: And I had a one on one with him. First time I met him, actually I had met him as finance minister several times. After 9/11 he was a regular visitor to Islamabad because Britain and US were hand in glove, and he was better known to us, and he was closer than people from the US. The US also, people used to come all the time. George Bush came eventually, and other people were coming all the time. So, what I mentioned to Mister Blair, is my feeling, obviously having lived in London with Citi Bank, I was working for them, for quite awhile, not too long, but visiting the whole world, that, “I think that you, mister Prime Minister need, after what has happened,” this was after it happened. I talk with people, I sit with people, when I was at the UK, and I think the government needs to do much more to engage with the communities, which are present. They are all peaceful people, good people, but they have to be engaged. And I talked about the Muslim community too, because if you don’t do that, the problem frankly, the frustration level is much deeper than you probably realize. And I’ve said this in the book so I won’t repeat it, just giving you the highlights and then I’ll move on. And I believe that you must engage them more, you must be more inclusive with these communities, and even go for some affirmative action if necessary to bring them into the tent. And that doesn’t apply to just one faith, it could be other reasons why people are marginalized, etc. And that doesn’t also mean in the main bulk of the community there is no marginalized sector, of course there are. But certainly for the people in the, in your country, I feel as a friend of Britain and as an observer, that more needs to be done. And he actually, later on, acknowledged it when he met me later on. He said, “What you told me is, was very good advice, and we kept on doing whatever we could and are trying to do even more.” And because in many countries we tend not to look at marginalized sections of the society, as much as we should. We say we do, but generally we tend to cling to our own activities and our own priorities. So this was just, I said, “This was unsolicited advice, don’t get upset. I’m not here to tell you what to do. But I do strongly feel that.” And when I met him again, I think, a year or two later, here in his lovely Grosvenor Square office, he reminded me that I recalled what you told me and you were right on the button. So that’s just a minor thing.

Now, allow me to quickly go through, and of course by the way, all through this 9/11 happened. And in 9/11, when 9/11 happened, the military coup, the military government in Pakistan, everything became kosher. Meaning, I love you, you are the best. Keep going, but help us fight in Afghanistan. We were strategical the best located country, we gave US the air corridor, we gave them bases, we gave them access. And that really was a game changer in terms of Afghanistan. We paid a huge price because that tension which was in Afghanistan or the conflict came into Northern Pakistan and then down to Karachi, refugees were coming by the millions and they really disrupted the security, etc. But our people are very warm and openhearted and we created a situation where we wanted to help our brethren from Afghanistan, there is a lot of affinity for them. Ethnically, you know, the North of Pakistan and the major part of Afghanistan are very similar so there a lot, there’s a lot of affinity, love and feeling for these people. But 9/11 also helped us on the economy. As our leverage and position improved and increased dramatically, we used that to settle some issues, we needed money to reform. You know, reforms don’t come just by making speeches. There is a cost to reform. And you need that money to plug into the system so that you get the best results. We got all that from the United States and other allies, written to, the FID [sic] actually. I must mention Claire Short who was then the Secretary for Overseas Development, and I was finance minister, this is before I became prime minister and I must say it was a pleasure dealing with her. She understood the problems. She took risks with me, going to areas which normally other people would not go and talk to the people and I must say, as an aid giving agency I would rank the FID [sic] as the best in the world, at least at what I dealt with. And this I think we have mentioned in the book, also, they were really professional they knew how to help, I don’t know if anyone here is associated with them. I think it’s still called DFI. So there we are, and Mr. Hilary Benn was also part of it one time long ago. But my dealing was with Claire Short who was superb in pushing this.

Ok, now.

Lord Arbuthnot: I’m just wondering, Prime Minister, whether we should have perhaps five minutes more.

Shaukat Aziz: Ok. I’ll give one liners on a few topics. USA: if you look at the book, I talk about transactional relationship. The USA, our relations burns very strongly when there is need for Pakistan. But once that need goes away, we are forgotten. Calls are not returned. So that really tells you about the relationship, but that’s why I call it a transactional relationship. It’s a whole chapter in the book, and you will enjoy reading it. The war on terror was a game changer for us, but as the war on terror decreased we had to make several calls to be heard, let alone. So this is the honest truth, and I have been very honest in the book to highlight this. When you build relationships, they should not be just driven by one event. They should have more meat in them.

Then we go to China. China’s relationship, I’ll give you just one liners, very holistic, now. Very broad, very deep. Never with our relationship, in our relationship with China have we ever talked about a third country, you know, a threat from a third country. It is all bilateral. It’s win-win for both. And the One Belt One Road initiative launch by President Xi, will be a game changer, not just for Pakistan but for that whole region. Several billion dollars of infrastructure has been committed to us, to build roads, to build connectivity, to be an enabler for growth,. And once you have these ports, and you have other things going on, this makes a lot of people nervous. Sometimes this is not well understood, but basically it’s a massive infrastructure program across the country to connect the country better, connect it to China, connect it to other countries, Iran could benefit from it, India could benefit from it, we may have pipelines going from Iran to Pakistan to India. In fact this weekend I am in Italy, there is a whole conference on One Belt One Road, which tells you, a lot of countries are coming, because this could be a real game changer.

Then, we talk about the nuclear side, because that’s, Pakistan’s nuclear program, I’m putting China. Pakistan’s nuclear program is a peaceful program. It is not an aggressive program, we live in a world and a neighborhood, where we felt if we didn’t have the program we would be kicked around and bullied and marginalized. So it is entirely home grown, and one morning we got up, many many years ago when India exploded their first nuclear, sort of test, and we had nothing at that time: zero. And that’s when our program started. The day after the explosion. We then started moving very fast, indigenous, we had great scientists. And we developed devices which were capable of protecting ourselves and making sure nobody messes around with us. In that process, we did have a situation with Dr. Qadeer Khan where it was said that he shared some of the information with other countries. We clearly as a government policy are very very clear that we, when we saw the evidence, provided to us, obviously he had been removed from the program and he was put under house arrest for a long time, etc. etc., it was embarrassing what happened, but we then learned from our mistakes. Today, the program is highly developed, it is much more advanced. Pakistan is the fifth largest nuclear power in the world, I think. Maybe fourth of fifth. We have excellent storage facilities. They are secure. And that, make sure it never falls into wrong hands.

With India, our relationship is complex, to put it mildly. The relationship in the recent past, drew the most towards a peaceful settlement or environment, under Mr. Vajpayee , Mr.  Vajpayee was prime minister of India, and was the head of the ultra-right BJP Party. In Congress, we did not, we were not able, the Congress party was there to make progress. But if the ultra-right had the appetite for peace, things would move very fast. He was a man of peace, and that’s when we started a back channel process.  Where Britain played a major part. We took the Norther Ireland formula and tried to apply it to Kashmir, and Mark Malloch Brown who is High Commissioner of Pakistan and then your representative at the UN, and other, and now he’s in No. 10 Downing Street with the Prime Minister I guess, as national security adviser. Excellent diplomat, he drove the thing, in terms of helping us, bring the India-Pakistan situation together. Mr. [??] who is a true leader in every since of the word, agreed to the formula, which was based on opening the borders between the two parts of Kashmir, no visas no restrictions. Open trade, open relationships and that would create and environment, which would allow people, and travel, free travel, from both sides, allow, create the atmospherics for a further settlement. And Kashmir, as you know, has been the major cause of the dispute between the two countries. The United Nations, resolutions of the past, but were ignored by India, and we just insisted these resolutions, we respected. And all it says is the will of the Kashmiri people should decide what they want to do, do they want to go right or left, or stay where they are. But this has never happened since then. But I must say the British diplomacy, there really played a major part Mr. Vajpayee said, “I agree with all of this, but I cannot do it today. Elections are coming. After elections I will commit to you that we will execute this plan.” Unfortunately, he lost in the election, and that plan has never been implemented. So there we are.  I think I covered my five minutes, there’s been bin Laden, Afghanistan, Russia, Pakistan, etc., etc. I can save that for questions, or comments or whatever. Back to you, sir.

Lord Arbuthnot: thank you very much, we will have plenty to ask questions about. There is no doubt about, about that. But we’re, we’re extremely lucky to have had you. Anna Mikhailova, what would you like, would you like to add, what has he left out?

Anna Mikhailova: Well, you would be surprised the book does cover a lot. We, to keep it very brief because we are looking forward to your questions, I think drawing on what the Prime Minister just said, one thing that came out researching the book, and as part of it we not only wrote it as his memoir, we also interviewed all of the key officials he worked with, throughout his time in power, so both in the US…

Shaukat Aziz: Throughout the world.

Anna Mikhailova: In the US, in the UK, in the UN, and Pakistan, and try to get a more holistic view of events. Partly because the Prime Minister did not keep diaries [laughter].

Shaukat Aziz: No notes, no copies of anything.

Anna Mikhailova: But one thing that really came out of it, that I was surprised at, and I think it is quite a relevant point today, is how many times the role of Britain, and the positive impact of it in South [inaudible] and Pakistan, came up. And I think in today’s climate where increasingly we see people saying perhaps Britain should scale back its role, actually there are parts of the world where it is very welcome and can play a very positive…

Shaukat Aziz: Certainly in Pakistan.

Anna Mikhailova: …mediator for things like trying to solve Kashmir…

Shaukat Aziz: Absolutely.

Anna Mikhailova:  …the Kashmir infliction. So I think that is one interesting insight. And another was going back to the US approach to Pakistan, Prime Minister was in power during a very interesting point, a shift in US foreign policy where traditionally the US had been very close to Pakistan and the Soviet Union had been very close to India. So that was the sort of Cold War, mapping out of the region and then the Bush administration made a specific shift towards India, and decided to de-hyphenate the policy. So before it was an India-Pakistan policy, now they wanted relationships India separately and Pakistan separately. And in theory this was great, but in practice, as I think, General Jones who we interviewed….

Shaukat Aziz: National Security Adviser.

Anna Mikhailova: …that Pakistan sadly became subsumed in the trauma of Afghanistan. So instead of having a foreign policy develop that focused and developed relations with Pakistan for the long term, it became something that was just within the remit of the Afghan War and sadly since then, especially under the Obama administration, it has sort of fallen on the back burner, very little is said, and it is something as a nuclear, very strategic power, you know, should be addressed and reassessed. So, that was my two cents, but I think now….

Lord Arbuthnot: Thank you very much indeed, you wanted to comment on what Anna Mikhailova said.

Shaukat Aziz: Yes, no, she’s absolutely right. I would add one of two things. That the relationship between Pakistan and the United States is reflected by the situation we were in when 9/11 happened. We were the most allied ally of the United States. And the most sanctioned ally of the United States at the same time. So we would meet member of CENTO and then a non-NATO ally, you name any agreement that we had signed. But on the ground it had very little impact, but then on sanctions we got everything in the book at the same time. So it was really like walking a mine field, and I think that the fact is that both the US and Pakistan need a reset in their relationship today. On terrorism and extremism we cooperated very well. However, as time passed, our terrorists and the US terrorists were different, and that created other challenges. They were very much on bin Laden and Al Qaeda, we didn’t have that problem in Pakistan, we had our own group of terrorist which were affiliated with all these organizations but were very local. That’s why we were both fighting terrorism, we were sometimes at cross purposes. And that added fuel to the fire in terms of the relationship, so maybe now we can ask people to ask us whatever they want.

Lord Arbuthnot: Ok, now I’ve got any number of questions. So if you run out, I shall not. But I have no doubt that you won’t run out. Who would like to ask the first question? If you do ask the first question, please would you identify yourselves before you ask the question? Yes.

Alan Mendoza: I’m going to show no restraint, James. No restraint at all. Alan Mendoza, The Henry Jackson Society, now we could take several days to talk about this amazing career and insight. But we don’t have days we have got 17 minutes. So I will go to the heart of the matter of what is you’ve allude to the security relationship and the conflict sometimes between America, Pakistan, what was going on in Afghanistan beyond. At lot of this centers around the role Pakistan intelligence service, does it not, the ISI, which gets a pretty interesting press, I think, internationally, given its alleged role in all kinds of domestic and international intrigues of various kinds. I wonder if you could give your impression of the ISI and whether indeed, as some people alleged it is a state within a state as such. What are the controls on it? How does it actually operate? And are there times when it has or elements within it have pushed the boundaries of that?

Shaukat Aziz: I think the ISI, as you know, reports to the Prime Minister, and in my time, there were two ISI chiefs and had a very close relationship with them. I also controlled their purse. Maybe because I was coming from the finance ministry, I kept all allocations to them with me, personally, nobody else could do that, because it gives you an ability. Having said that no intelligence agency can be micromanaged by anybody, whether it’s this country or any other country, of course priorities are laid and direction is given. What happens is, sometimes, so we were, and remember that we were part of the military, sort of, we came in through the military route, let’s be, we were, we had our origins after the coup, at least I did. You know, I was not a professional politician. So the relationship was closer much closer than you would find and may could be a bit more adversarial if we came from totally different outside the sort of spectrum of the ISI. I think ISI is misunderstood and the image given is that they sort of run everything. The fact is whenever Pakistan has good governments you don’t hear about this. In our time, and this may sound as self, sort of promoting or protecting our own government we never found them saying don’t do this, do that, etc. In fact, the joke was that they said when we sent you the report, because say it’s a report about some foreign country or some, many, someone like me had lived in 10 and visited 106 countries by the time I became prime minister. This was quite a challenge for them. To, I say, “Ok, you’re saying this. What do you mean about this”? So that was a part of it, having said that, when they find a vacuum at the top, or not effective, in any society whether it’s ISI, whether it’s some other entity, the vacuum gets filled somehow. Every country is different and there may be players sometimes the parliament gets more aggressive, sometimes, in our case the agencies get more aggressive because there is a void. And sometimes they prompt very good policy incentives because of information they collect. And that’s not just local information its foreign information. They are very effective outside, in every country, developing and developed. They give us very good feedback, which we, so if you’re not a world person and you sort of are coming from somewhere and are just plumped into the office, you’ll read reports and you’ll say ok [inaudible]. But that depends on the individual on the other side, having said that, when you give space to any entity to do more or don’t have a view on more than half of the things that sit on your desk, you will see other players coming in. We also have, and ISI is demonized, we also have say the army itself. The army is a very powerful, sort of entity, within Pakistan. And I think, I never felt, maybe because we were, president runs the army, all that, maybe I’m a biased witness in this sense, but we never felt them saying you can’t do this, you won’t do this. I will tell you on the record that President Musharraf was a very good delegator. He was not interested in minute details, he was focusing on three or four big things, and that’s it. And the ISI, of course, was providing us very good information, to, and that’s one source, obviously in today’s world there are many other sources. But in Pakistan on a bigger issue than ISI, the role of the various, sort of, elements of the state, sometimes you find that when, one particular state, part of the state is not functioning, or is not at the level it should be, other people may tend to come in and try to influence, but I think the agenda is positive, it’s not taking over, or this or that. We’ve had a few military governments, several actually, but I think as time passes we will see the democratic has to show results, has to show good governance, has to show all these things. The probability will reduce. So I believe that work needs to be done, we’re still not there, but I think as the governments improves you will find less and less probability of… I say on the other hand, it has a very important role in internal security, they are much more professional than the police or any other civilian intelligence, which is good, But the ISI has resources, has people and a strong commitment. So I always found them on the ball. And I have been a supporter of ISI.

Question One: Thank you. Colin Jay. Suppose you say the relationship with India is somewhat tense from time to time, and it can blow up very quickly. Is there, in your opinion, and opportunity for a more peaceful relationship with your neighbor.

Shaukat Aziz: Yes. As I alluded to earlier, in Prime Minister Vajpayee, who was by the way from the ultra-right, he ultra-right parties of India are not friends of Pakistan, they are publicly opposed to us. But he saw the light and he was ready to tackle Kashmir through the back channel, the British, I mean [inaudible] and you will find that India/Pakistan, when there are strong leaders on both sides, we had our president who was very keen for peace and coming from a military person that had, you know, that was the ideal scenario, but the boat was missed because the election went to it. And the Kashmir solution on the Norther Ireland formula, or the Irish formula as we call it, was suggested by the British, actually. They took our people to Ireland, Northern Ireland, and they met first time in Bangkok, everything was done very sort of, because if they had met in Dubai or London the whole world would know. So they orchestrated the whole thing, the British embassy in Bangkok organized all the logistics. Our embassy didn’t even know that some of our people were coming. So the point is, India-Pakistan, the requirement for peace, there are two or three critical, number one: strong leadership on both sides; number two: cultural of give and take, meaning understand each other’s position and try to find a common ground. Now what is happening, what incidents derail this process? For example, a few months ago, a senior member of Indian intelligence, a commander of the Indian Navy retired, and a serving official of RAW, the intelligence agency it’s called the Research and Analysis Wing, was arrested in Pakistan, with two or three people, recruiting in Balochistan, people to create trouble and secede and trying to start a movement like that. This is in the press, I’m not giving you any secrets, but those type of things, the same goes in Afghanistan, there are elements in Afghanistan, in the northern alliance who are not sympathetic to Pakistan. The Taliban and [inaudible] are not sympathetic. They also have issues, and they’re is a very active program, from our neighbor to try to, now, I guess what is needed here is a sense that, an understanding on both leaderships that look, this will not get us anywhere, this will not a game changer this will just create, muddy the waters and no allow the normal diplomatic process to work. So I think we also, Pakistan and India both have to realize this. So the prime need today is leadership, now in Prime Minister Modi, he comes from the same party as Prime Minister Vajpayee, of course Vajpayee’s stature was, unfortunately, he’s no longer, I mean he’s a live, but very sick. Prime Minister Modi has an opportunity to show that, and it will be I think, sustainable peace will come when we have somebody from that party, as the leader who gets the light, sees the light. Congress will dillydally, but in our case too we need a strong government who has full authority with the backing of the army.  I will be the first to admit that, because they are a big stake holder in the Indian equation. Other countries, less important, these two. So how will this happen. I think there has to be, first at the top, the two prime ministers have to have some chemistry, and a conviction that we need to resolve this issue, because both will gain. There is no winner or loser here, either both win, in my view or both lose. Secondly, once you get these two to agree they have to sell and convince their voters that this is the right thing to do, so that maybe in the next election they don’t get knocked out. Many people say [inaudible] party lost and the congress came in because he was doing a deal with Pakistan. I’m not sure that’s true. There may have been other reasons, but the camp that doesn’t want this happen uses this as an excuse, on both sides. So I believe the number one requirement is leadership, number two a few honest brokers will help, and here I will think of the United States and clearly, as a key country, and Britain. These two countries can play a major role. Russia, China, they can be nice about this issue, but they are really not on this issue, they are are not involved. There is a whole nuclear issue, chapter on Pakistan which you can read here. I think, the title I forget. So, our relationship, if I may just use this to spend a minute on China-Pakistan relationship, really is one of the strongest we have with any country. It is holistic, it is deep and it, never in our relationship with China, I still am quite active in going to China and inter, inter, I’m sort of linking with their leaders, and I get access to them. Never once in all our discussions as I remember, eight years in government and then a couple years after that, have we ever talked about anything against the third country. Although the perception may be different, I can look anybody in the eye and say this never happened. Always we talk about how we can help each other, etc. And it is a fantastic relationship, and growing very rapidly. So India, i think also India-Pakistan, we came nearest to peace in Mr. Vajpayee’s time. He was ready, Agra failed because there were elements in his party who didn’t want the deal to go through. But he didn’t give up, he said let the election happen we will sign this deal. It is still there and it can be updated etc. So I remain cautiously optimistic that India-Pakistan will see the light. Because there are enough challenges in each country of poverty, of hunger, or education, no matter what we hear about both countries, there’s a lot to be done. Just in the area of human development, which is frankly the best asset you can have. And once they grow and develop, and their machine guns and submarines and nuclear weapons will be useful for protecting your security and sovereignty, but without economic growth and well-being of the people, you can’t really win any war.

Lord Arbuthnot: Thank you. Next question. If you don’t watch out I’ll ask one myself.

Question Two: I’m [inaudible] from the Romanian Embassy. I would like to ask you to comment a little bit about the relationship with Russia.

Shaukat Aziz: Yes. I was asked the same question in New York last week. That was different actually, they said how was your dealing with Mr. Putin. So I tried to explain to them because there is something in the book about him. Well Russian relationship is growing and improving, Russia and India were joined at the hip for a long time. India was the traditional, Russia was the traditional arms supplier for India, and Pakistan was in the US camp. So that’s how things were. Then as events moved on, now we have reached the other extreme. Where even to get spare parts for our F-16s, which we use for anti-terrorist activities in the tribal area. The F-16 aircraft, is the backbone of the Pakistan air force and we use it bombing terrorist hideouts every day, I challenge somebody on TV some weeks ago, and they said, “You are buying more F-16s.” We are buying used F-16s from the US, reconditioned, and I said, “I’ll bring the log books of these planes next time.” We are not at war with anybody. So what are these planes doing? They are doing [inaudible] every day in the northern, in the tribal area in that belt between Pakistan and Afghanistan, mostly in our territory, where there are known hideouts. Because F-16 has the avionics and the accuracy to target bomb these sites. But that doesn’t allow us to, they don’t allow us to do it, so with this government, with the Obama government we have had very little success. With the Republican government we had a much better relationship. So now depending on the election, and who the next president will be, is, we will try again. Having said that those five second-hand F-16 aircraft, finally it was approved. But it is embarrassing. You are looking for used planes to fight terrorism, and you can’t get it. So that is really, in terms of, Russia. We are now expanding our relationship. On the defense side, it has improved, a bit. They are willing to talk to us. We’ve got some things going on. And diplomatically too, we are sort of, have a closer relationship with the US, with the USSR, or Russia in this case. I see that growing. I think the anchor relationships are US and China. And I see Russia moving up to that stage in the next 3-5 years if things go as they are. So, and that’s an ideal relationship, a triangle, for any country today. I should say Europe also, but that comes after these three.

Lord Arbuthnot: it’s one minute to seven and we have to finish at seven. And I want to use that final minute to say that there haven’t been that many questions, but that I suspect is because you have covered such an incredibly broad field in your description of such a important life. Your book sounds absolutely fascinating, so I think we would like to say to both of you- thank you very much indeed. It has been well worth it and thank you to the Henry Jackson Society as well.

Shaukat Aziz: Let me just say, first of all on the book, you’ll be pleased to know we’ve sold out the entire first print. We’ve gone to second printing. We are short of copies as we speak, we need another 1,000 books this evening and we don’t know where to get them from, so the presses are working. We will, I am very pleased with the response and both of us worked very hard to put this together. It is designed for the global audience, number one. Number two it is an easy read. We purposefully wrote it that way, but a broad audience can look at it, even enjoy it and we have also put two sections of color photographs, which has nothing to do with Hello Magazine or anything, even Anna doesn’t read Hello Magazine. But the idea is to, through each picture has a story to it, you’ll notice the fine print here. The pictures have become, apart from the text, the pictures have also become a [inaudible] to a lot of people, because they like to see the visuals. They are all in color and good resolution. Minor detail. So we are very pleased with the outcome and we are still marketing the book and we’ve just done New York and the United States and Washington actually. And now there is LA, San Francisco, Utah, Boston, blah blah blah. And in Europe we have Berlin still to tap and several other locations. I am doing Edinburgh later in a month’s time in Scotland, so we don’t forget Scotland. It’s all by invitation we basically are invited by various people and I will forward to you the New York event, which I think like this exactly. A Q&A on stage for one hour. It was more than an hour, maybe one hour. So on every issue you can think of, and audience questions like today. And it was in the auditorium of the Asia Society. So I would say we are, we are pleased with this and we hope to start working on a second book once we get over all the road shows here, and I would say if you read it you will not be disappointed. Let me take this opportunity to thank you sir for allowing us this opportunity to be here and to the Henry Jackson Society for making this event possible, and all of you for spending the time today. Thank you very much.

HJS



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