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Pakistan Plunges Into Political Turmoil After Prime Minister Ousted For Corruption

Pakistan plunged into political turmoil when its Prime Minister Nawaz Sharif resigned shortly after the Supreme Court ousted him from office on Friday following an investigation into allegations of corruption centering on undeclared offshore assets.  As Reuters notes, The court disqualified Sharif for not being “honest”, a requirement for lawmakers under Pakistan’s constitution, something the US sorely needs to amend as well. The court also ordered a corruption trial against Mr. Sharif, whose family is accused of amassing wealth through corrupt means and purchasing expensive overseas properties with that money.

The case against Mr. Sharif centers on four upscale apartments in London, which the opposition party alleges were bought with money made from corruption. Details of the property, held in the name of Mr. Sharif’s children, were disclosed in the huge leak of documents from the Panamanian law firm Mosack Fonseca last year, known as the "Panama Papers", detailing the undisclosed offshore holdings of people around the world. The Prime Minister said the apartments belonged to his children, not him, and were acquired as part of a settlement of an old family business deal with a Qatari prince.

Nawaz becomes the second casualty of the "Panama Papers" after the Iceland prime minister resigned in April of 2016 under similar circumstances.

A statement from Sharif’s Pakistan Muslim League-N party said he had stepped down as prime minister immediately following the verdict but added that “constitutional and legal requirements for a fair trial were trampled over.” His party is now expected to name a new prime minister. As the WSJ adds, "aides to Mr. Sharif, who has denied the accusations and said he has done nothing improper, warned that stability and democracy in the nuclear-armed nation are threatened by political turmoil. Pakistan has been ruled for nearly half its existence by the military, while civilian governments have usually not completed their terms. Elections are due next year."

“This is a time when creating any kind of destabilization in Pakistan would be inviting trouble for ourselves. History will judge us over how we handled this phase,” said Ahsan Iqbal, minister for planning, on the eve of the court decision.

The ouster of Sharif, 67, who has now served as premier on three separate occasions, raises questions about Pakistan's fragile democracy. An interesting fact is that no prime minister has completed a full term in power since independence from British colonial rule in 1947. 

According to Reuters, the court verdict marks a major political victory for opposition leader Imran Khan, a former cricket star who last year threatened mass street protests unless Sharif's wealth was investigated. Khan had pounced on the leaking of the Panama Papers, which revealed Sharif's family had bought posh London apartments through offshore companies.

"Today the people of Pakistan got real justice, a new chapter has begun," Jehangir Khan Tareen, a member of Khan's opposition PTI party, said outside the court.

Ironically, Khan himself is also under Supreme Court investigation on allegations he failed to declare sources of income, a charge he denies.

Pakistan is crucial to US strategic interests in the region, and to ending the war in neighboring Afghanistan. The Trump administration’s review of Afghanistan policy is expected to see a role for Pakistan in bringing peace there, but Islamabad’s attention looks set to be sapped instead by a prolonged political crisis, the WSJ adds. The government of Mr. Sharif’s party, which has a majority in Parliament, can continue despite the court verdict.

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The Supreme Court verdict was under close watch: hundreds of police and paramilitary troops were deployed to guard the Supreme Court complex Friday before the highly anticipated verdict in the case, which has been the top political issue in Pakistan since last year.

Pakistan’s constitution says its lawmakers have to be “honest” and “trustworthy.” That test was a central issue before the Supreme Court.

 

According to the opposition party led by Imran Khan, which brought the case against Mr. Sharif, holding politicians accountable, including for their personal wealth, would strengthen democracy in Pakistan and end its slimy traditional politics. Earlier this month, an investigation ordered by the court found that Mr. Sharif and his children weren’t “able to justify assets and the means of income.” The probe also alleged that the family had provided fraudulent documents to the court.

 

Last week, Mr. Sharif had denounced the findings of that investigation as slander. “This isn’t accountability, this is exploitation. I can guarantee no one in Pakistan is going to accept such accountability,” Mr. Sharif said in a speech.

Sharif claims that under his government Pakistan had stabilized, with a pickup in economic growth, the building of infrastructure and a reduction in terrorism. However, Pakistan hasn’t been able to break out of its perennial cycle of tension between civilian administrations and the military, experts quoted by the WSJ. Over the past decade, the Supreme Court has at times taken an activist role, a stance revived by the current case against the prime minister.

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Finally, here are some analyst reactions to Pakistan's political overhaul:

Aberdeen Asset Managment (Edwin Gutierrez, London-based head of EM sovereign debt)

  • “Today’s development breeds political uncertainty and only adds to the reasons we haven’t liked the Pakistan story”
  • “The deteriorating BOP is one of our bigger concerns. There’s already been fiscal slippage because of the lack of IMF extension”
  • Gutierrez doesn’t own any bonds in Pakistan

Asia Frontier Capital (Ruchir Desai, senior investment analyst in Hong Kong)

  • This is a near term negative
  • Stock market sentiment will remain subdued in the short term and the currency could come under pressure
  • The longer term impact would depend on how strongly PML-N goes into next elections in 2018 as well as the outcome of elections
  • This is more or less in the price - the stock market is down ~15% from peak and is trading at a discount to most regional markets

Ashmore Group (Jan Dehn, London-based head of research)

  • “Well-informed investors will look upon this as a buying opportunity”
  • “Impact on the bond and currency markets will be lower than for stocks”

Exotix Capital (Hasnain Malik, global head of equities research in Dubai)

  • “Despite all of the negative reactions to this case, we see this as, on balance, a positive”
  • “We do not view the Prime Minister and his family as central to the improvements in security nor to the implementation of key initiatives such as the China-Pakistan Economic Corridor”
  • “Likelihood of a hung Parliament and coalition government after next year’s election now increases”