RICHARD N. HAASS: Good afternoon and welcome to a special meeting of the Council on Foreign Relations. It's special because it's August -- (laughter) -- and we try not to do too many meetings in August. It's also special because of the subject and our speaker here today, the former prime minister of Pakistan.

Our timing is good. This week marks the 60th anniversary of Pakistan. And our timing is good for another reason, which is, Pakistan has been, is and, I would predict, will be much in the news for days, weeks, months and longer to come.

It's hard to imagine someone better placed to speak about the current situation in Pakistan than Benazir Bhutto. She was born into one of Pakistan's leading political families. She was educated at both Harvard and Oxford. And -- full confession -- let me say that she and I met some -- at the risk of being less than gallant -- 30 years ago or so at Oxford. We would have met even earlier than that, at Harvard, except she got accepted and I did not. (Laughter.) And of such things history is made. (Laughter.) I'm almost over it, by the way. (Laughter.)

And Benazir Bhutto has twice been prime minister of her country, from 1988 to 1990, as well as from 1993 to 1996. And now and before, her fans and her critics alike, I believe, would agree that she has been an important -- indeed, critical -- voice in that country's trajectory, regardless of her physical location. It's been a number of years -- a year or so? -- since she has --

BENAZIR BHUTTO: Eight years.

HAASS: -- eight years since she's been able to be in her country. And I expect one of the things we will talk about is when that situation is likely to change.

The way we are going to do it today is, Ms. Bhutto will speak for about 10 minutes. You will hear her voice. Then you will hear for a few minutes our voices, and then we will reserve the bulk of the time this afternoon to hear your voice, any comments or, more likely, questions you have.

We've also already begun collecting questions from our national members who are wired into this event by the wonders of modern technology.

As you no doubt notice, because you are here, we started approximately 30 minutes earlier than we normally start. And in the political or institutional equivalent of the theory of the conservation of time, we will end 30 minutes earlier than usual, so those of you catching the Jitney to the Hamptons will not be delayed. (Laughter.)

It is, for me, a personal pleasure to welcome back to the Council on Foreign Relations an old friend of mine and someone who is familiar to many of you in this room and knows well this organization, the former prime minister of Pakistan, Benazir Bhutto. (Applause.)

BHUTTO: Thank you.

Ladies and gentlemen, it's a privilege for me to be here this afternoon as the guest of the Council on Foreign Relations. Thank you for inviting me.

And as I come here to have a conversation with you, I find that my country, Pakistan, is once again in a crisis, and it's a crisis that threatens not only my nation and region, but possible could have repercussions on the entire world.

It's a crisis that has its roots almost half a century ago, when the military in my country first seized power, in 1958. Four military dictatorships -- and most recently those of General Zia ul-Haq in the '80s and now General Musharraf -- have ruled my nation for the last 30 years, except for a few years of civilian government. And so I believe that democracy has never really been given a chance to grow or nurture in my homeland.

As an example, I was only allowed to govern for five of the 10 years that my people elected me to govern. And now Pakistan has changed dramatically from the days when I left office, in 1996, for now, from areas previously controlled by my government, pro-Taliban forces linked to al Qaeda launch regular attacks on NATO troops across the border in Afghanistan.

In the view of my party, military dictatorship, first in the '80s and now again, under General Musharraf, has fueled the forces of extremism, and military dictatorship puts into place a government that is unaccountable, that is unrepresentative, undemocratic, and disconnected from the ordinary people in the country, disconnected from the aspirations of the people who make up Pakistan. Moreover, military dictatorship is born from the power of the gun, and so it undermines the concept of the rule of law and gives birth to a culture of might, a culture of weapons, violence and intolerance.

The suppression of democracy in my homeland has had profound institutional consequences. The major infrastructure building blocks of democracy have been weakened, political parties have been marginalized, NGOs are dismantled, judges sacked and civil society undermined. And by undermining the infrastructure of democracy, the regime that is in place to date was a regime put into place by the intelligence agencies after the flawed elections of 2002. This regime has not allowed the freedom of association, the freedom of movement, the freedom of speech for moderate political forces, and so by default, the mosques and the madrassas have become the only outlet of permitted political expression in the country.

And so just as the -- we've seen the emergence of the religious parties, we've seen the emergence of the extremist groups, and just as the military dictatorship of the '80s used the so-called Islamic card to promote a military dictatorship while demonizing political parties, so too the present military establishment of this century has used the so-called Islamist card to pressurize the international community into supporting military dictatorship once again.

But I am here this afternoon to tell you that as far as we, the Pakistan People's Party, is concerned, the choice in Pakistan is not really between military dictatorship and religious parties; the choice for Pakistan is indeed between dictatorship and democracy. And I feel that the real choice that the world also faces today is the choice between dictatorship and democracy, and in the choice that we make between dictatorship and democracy lies the outcome of the battle between extremism and moderation in Pakistan.

The U.S. intelligence recent threat assessment stated that, and I quote, "Al Qaeda and the Taliban seem to be fairly well-settled into the safe haven spaces of Pakistan. We see more training, we see more money, we see more communications, we see that activity rising." That's the most recent U.S. national intelligence threat assessment. And so it's often surprising to those of us in Pakistan who see the international community back the present regime. But this backing continues, despite the regime's failure to stop the Taliban and al Qaeda reorganizing after they were defeated, demoralized and dispersed following the events of 9/11.

This is a regime under which the religious parties have risen, for the first time, to power, and they run two of Pakistan's four federating units -- two most critical states of Pakistan, those that border Afghanistan. And even while the military dictatorship has allowed the religious parties to govern two of Pakistan's most critical four provinces, it has exiled the moderate leadership of the country, it has weakened internal law enforcement and allowed for a very bloody suppression of people's human rights.

The military operation in Baluchistan is an example of the brutality of the suppression. The killings that took place in Karachi on May 12th, where 48 peaceful political activists were gunned down in the streets of Karachi, and not one person has been arrested for those murders that were actually televised, shows the level to which the regime permits the suppression of the political opposition. And most recently, 17 members of my party were killed in Islamabad on July 17 at the hands of a suicide bomber.

The weakness of law enforcement has led to a series of suicide bombings, roadside bombings. To give you an example, since last July, 300 people have fallen victim to suicide bombers within Pakistan. Disappearances, too, which were unheard of in our country's history, have become the order of the day. And even as I speak to you, a Pak-origin American, Dr. Sarki, has disappeared, not because he supports extremists, but because he's a nationalist, and the level of intolerance for differing views is so high that people can disappear simply for supporting nationalism.

The West's close association with a military dictatorship, in my humble view, is alienating Pakistan's people and is playing into the hands of those hardliners who blame the West for the ills of the region. And it need not be this way. A people inspired by democracy, human rights and economic opportunity will turn their back decisively against extremism.

There is a silver lining on the clouds. The recent restoration of the chief justice of Pakistan to the Supreme Court has given hope to people of Pakistan that the unchecked power of the military will now finally come under a degree of scrutiny by the highest judicial institutions in the country. We in the PPP have kept the doors of dialogue open with the military regime to facilitate the transfer of democracy. This hasn't been a popular move, but we've done it because we think the stability of Pakistan is important to our own security as well as to regional security.

However, without progress on the issue of fair elections, this dialogue could founder. And now, as we approach the autumn, time is running out.

Ladies and gentlemen, I plan to return later this year to Pakistan to lead a democratic movement for the restoration of democracy. I seek to lead a democratic Pakistan which is free from the yoke of military dictatorship and that will cease to be a haven, the very petri dish of international terrorism. A democratic Pakistan that would help stabilize Afghanistan, relieving pressure on NATO troops. A democratic Pakistan that would pursue the drug barons and bust up the drug cartel that today is funding terrorism. A Pakistan where the rule of law is established so that no one has the permission to establish, recruit, train and run private armies and private militias. A democratic Pakistan that puts the welfare of its people as the centerpiece of its national policy.

And as I plan to return to Pakistan, I put my faith in the people of my country who have stood by my party and by myself through this long decade -- more than a decade, 11 years since the PPP government was ousted -- because they believe that the PPP can eliminate terrorism and give them security, and security will bring in the economic investment that can help us reverse the tide of rising poverty in the country, and by so doing, it will certainly undermine the forces of militancy and extremism.

I thank you all for listening to me so patiently. (Applause.)

HAASS: Well, thank you.

And before I ask a few questions, just to remind people, if they haven't shut off their cell phones or their BlackBerrys, please do. And this is obviously on the record. And as I said, there are people listening in around the country and around the world who are our national members.

Let me begin with a -- in some ways it's a question that to me was implicit in everything you said. You talk about the history of your country over the last 60 years. What is it about Pakistan or Pakistanis that accounts for the fact that, probably a majority of its history, democracy has not prevailed. What's wrong?

BHUTTO: Well, we feel that the founder of Pakistan, Quaid-e-Azam Mohammed Ali Jinnah, died very quickly, a year after Pakistan was founded, and so we didn't have a national leader with the authority, the respect to help us develop our democratic political institutions, whereas Nehru, in nearby India, provided the leadership that could help a new nation strengthen its democratic institutions.

Secondly, we also feel that Pakistan's geostrategic position as a country -- you know, we -- Afghanistan was the buffer state during the Cold War, and Pakistan was one side of the buffer state -- so our geostrategic position as the bastion for the free world also led to the international community dealing with whoever was in power. So in a sense, the military dictatorships were able to milk international support for suppressing democratic rights for short-term strategic goals. But I am concerned that that policy is now backfiring.

HAASS: Do you therefore actually wish that the United States and others were putting more pressure on your government to reinstall democracy?

BHUTTO: Yes, I would very much like to see the United States link its support, its financial and military assistance to Pakistan, to the restoration of democracy, to the holding of elections that are free, fair and impartial and open to all political parties. But for me, the restoration of democracy is only the first step. I would like to see the international community make a long-term commitment to a country as critical as Pakistan and indeed our nearby neighbor, Afghanistan, in helping us to build our institutions.

In 1988, when democracy was restored, the military establishment was still very powerful. The extremist groups were still there. And when the aid and assistance to Pakistan was cut, we had to adopt harsh economic policies. So in a way, it showed that democracy doesn't pay, and the military was able to reassert itself.

So I'd like to see a much longer-term commitment. Europe made a long-term commitment. When Europe was driven by war, the international community put NATO troops in Europe, and it made a long-term commitment through the Marshall Plan to develop the institutions. So I know it's unpopular, but I don't see quick fixes. I think what's needed is the restoration of democracy but also a commitment to help the institutions of a nation be built to sustain that democracy.

HAASS: If this is going to happen, two, if you will, constituencies in Pakistan are going to have to agree. One is the army. Do you think there is a consensus in the army to essentially return to the barracks?

BHUTTO: I doubt that there's a consensus. I don't get that sense. But I do get the sense that the army right now is itself uncomfortable with its role. The public has turned against the uniform -- General Musharraf as the uniform -- and there are reports that the military personnel have been told not to wear their uniforms when they go into the streets. So in that sense, the rank and file does not like being unpopular. It's used to being respected by the people at large. And so to make the army noncontroversial, it's important to get them out of the politics.

But there are a group within the armed forces who are the top leadership who have a vested interest in dictatorship, because dictatorship brings power not only to them, but it brings power to their relatives, who then start doing well in parliamentary elections which are rigged, or then start doing well economically because business contracts go that way. So that I feel that as far as the rank and file of the Pakistani army is concerned, they'd like to get out and they'd like to let the civilians do the job, but I'm not sure that's what the leadership feels.

HAASS: The other key constituency, if you will, is a rather fundamental one, which is the Pakistani people. And I suppose the question that comes to mind is whether you now have in Pakistan a significant chunk of the population -- how would I put it? -- that is more committed to its ideology than it is to institutions and democracy, that the process of radicalization and the rise of extremism in your country has now created a significant obstacle or hurdle to the restoration of democracy.

BHUTTO: I know that that's an argument that some of the supporters of the military regime say, that elections in Pakistan could give up a Hamas-type solution, but that's not what the polls show, that's not what the elections have shown. Since the inception of Pakistan, all the elections have shown that the religious parties never do well when it comes to elections.

And secondly, the most recent poll by the IRI, the International Republican Institute, also showed that the religious parties would not do well. So they cannot gain through a fair, free and impartial election. However, if the military establishment decides rig the elections, that's another issue, which is why we in the PPP have asked General Musharraf to implement certain reforms to ensure that the elections will be fair, and we have also requested the international community to fund a robust monitoring team to ensure that those elections are fair.

HAASS: When you talk about your commitment to going back later this year, are there any preconditions that either you have set or have been set for you that you are at liberty to discuss?

BHUTTO: Well, General Musharraf would not like me to come. He has publicly stated that he would not like me and Mr. Nawaz Sharif to return before the end of the year. He says it will be destabilizing if Mr. Nawaz Sharif and I return to lead our parties in the election campaign. Both of us don't agree because we feel our return will be destabilizing to the ruling party known as the Muslim League-Q, but it won't be destabilizing to the nation, it won't be destabilizing necessarily to the presidency. And we feel that elections cannot be free and fair unless the leaders of all parties are allowed to contest and contest freely.

I mean what sort of an election would we have, for example, in America if, for example, in a presidential contest Rudy Giuliani was allowed to campaign and Hillary Clinton wasn't? It would give an unfair advantage to one side. (Laughter.)

HAASS: But implicit in the -- we won't go there. (Laughter.)

Implicit in what I hear you saying is General or President Musharraf's desire to essentially get this round of elections out of the way before you and Mr. Sharif or both of you were to return, and I don't know whether implicit in that is that he's essentially saying, okay, next time to participate, but not this time.

BHUTTO: That's what he said the last time -- (laughter) -- but the issue is that what are the choices before General Musharraf? Last time he had a choice to keep the two of us out, and he had the choice to put together a political party that he said would address the social needs of the people and contain terrorism. Neither happened.

Secondly, the choice before him today is not between allowing us back afterwards, the choice is either facilitating a transfer to democracy to keep Pakistan stable and to try and broker an arrangement where he will also be continuing; or alternatively, to have all the political parties gang up against him where he could risk a movement in the streets that is stronger than the recent one which the lawyers waged.

So I don't think the options he has before him are the same as the last one, and I would rather seek to persuade him to permit an election, which will enhance his own reputation, that people could respect him for holding fair elections. But if there's a perception that the elections have been stolen, it could be like Ukraine and the Orange Revolution, where the civil groups and the political parties get together and force him out.

HAASS: Could you imagine yourself -- to use the French concept -- entering into cohabitacion with somebody such as President Musharraf?

BHUTTO: Well, it would depend on how the event unfolded. At the moment, the situation is this, but we have been having a negotiation for almost a year. And while there's been agreement on several issues and where General Musharraf has committed to taking certain confidence-building measures, those haven't been taken. So my party's asking that -- you know, is it just the talk or is it going to turn into a walk? So that would very much depend on what happens up front and whether we have an understanding.

We have tried to have it, and it's not easy because, you know, the IRI polls showed that two-thirds of Pakistanis feel he's very unpopular and should go. But we are risking our popularity by even having this dialogue, but we understand Pakistan is a critical country. We understand that instability in Pakistan could threaten our own security as well as that of the region, so we've taken the risk, but we really need General Musharraf also to come up with the measures that he has already promised, to implement the measures that he has already promised by the end of this month, preferably.

HAASS: Let me turn to -- we'll obviously have more questions on that, but let me turn, if I may, for a moment to some questions about Pakistan's relationship with its neighbors and with others.

It's almost a year now since the so-called Miranshah -- am I pronouncing it right? -- agreement, which essentially was a special arrangement, we'll call it, between the central government and North Waziristan.

And quite honestly in this country and elsewhere, it's been widely criticized as constituting a form of appeasement, where the central government essentially allowed people far too much discretion, autonomy -- what have you -- to do what they would, including getting involved in ways, across the border with Afghanistan, including conceivably ways of supporting al Qaeda. What is your stance about what should be done in terms of dealing with North Waziristan and more generally with that part of the country?

BHUTTO: Well, People's Party and I rejected that ceasefire of September 2006 -- the peace treaty -- and we rejected the ceasefires before that. In fact, we were appalled that the tribal region of our country was handed over to foreigners, because Afghan Taliban, Afghans and al Qaeda are added to the Chechens and the Uzbeks. And this is Pakistani territory, and Pakistan has to protect its own territory.

So we've been absolutely appalled by that. And we think the first thing the government of Pakistan has to do is to take the territory back. We've ceded authority of our own territory, and it's not enough to satisfy the agenda of the Afghan Taliban or the Arab al Qaeda or the Central Asian Uzbek-Chechen. They're now knocking on the doors of our frontier province.

There's been an attempt to take over the city of Darra Adam Khel. They've tried to take over Tank; they've tried to take over Malakand. The more you give them; the more they want.

HAASS: What about the argument the other way? When people make your point often in Washington, one hears the argument that if one pushed General Musharraf or President Musharraf to do just that, his own security forces -- be it elements of the army or elements of the ISI, the Intelligence Directorate -- would not prove loyal, that essentially if he pushed things that far, he himself would be challenged. What do you say when you hear that kind of an argument?

BHUTTO: When I hear that argument, I hear two kinds of arguments. One of the arguments that I hear is that he's not going to push them too far, because then he'll be deposed. But the issue is that when you are the chief of army staff and you control basically all the bombs in Pakistan, then you've got to put together a team that will support you and give you the base that will corner the people who are the extremists so that you'll not topple. You've got to take them on. Because if you don't take them on, then they win the battle anyway. Whereas if you take them on, well, either you win and if you don't win, well, you've tried, and somebody is going to come in and try harder.

The second argument that I hear is that you've got to placate the hardliners. You've got to bring them into the mainstream and envigor the religious parties. You know, people tell me that People's Party is so moderate that the people who are the militants and the extremists will get against it, and they won't let you work. But the issue is we won't let them work either.

Now what's happening is that we brought them into -- we've said, let's bring them into the mainstream. We've given them two provinces; we've given them the leader of opposition. And has it quenched their thirst? No, they want more and more. They want to take over the whole state of Pakistan, not on the basis of having the popular support but on the basis of having the support of the militants and the militias.

So this is a battle to save Pakistan. We have to save Pakistan from within. And by saving Pakistan from within, I think that it will be having a profound effect on our region. It will have an effect on Afghanistan, on India and also the larger world community.

Let's not forget that the Tube bomber in London happened to have visited my country, or that Abu Zubaydah or the CEO of al Qaeda -- they were arrested from Pakistani cities. So the terrorists must know that Pakistan's not going to provide them an environment that they can visit safely. And I just need to understand why we have such a large intelligence if the intelligence is not able to intercept them. So my goal would be to put together a team that would give the support to the government to go after them relentlessly.

QUESTIONER: You may have covered that, what I was going to ask you next, but let me try it anyhow.

We had quite an interesting, and indeed still are, mini-debate here politically between two -- initially two of the Democratic aspirants for presidents, and it spread now across party lines. And Barack Obama kicked it off by saying, "If we have actionable intelligence about high-value terrorist targets and President Musharraf won't act, we will." That's a direct quote from a recent speech of his. What is your reaction to that?

BHUTTO: Well, I wouldn't like the United States to violate Pakistan's sovereignty with unauthorized military operations. But the issue that I would like to stress is that Barack Obama also said, if Pakistan won't act. And that's the critical issue, that the government has to act. And the government has to act to protect Pakistan's own serenity and integrity, its own respect, and to understand that if it creates a vacuum, then others aren't going to just twiddle their thumbs while militants freely move across the border.

I think General Musharraf did the right thing recently in admitting that militants are using our soil, but he said the army has nothing to do with it. But nonetheless, the issue for me is that we cannot cede parts of Pakistani territory to anybody; not just the Taliban, to anybody. That in Pakistan we have one army, one police, one constitution, one government. We cannot allow parallel armies, parallel militias, parallel laws and parallel command structures. Today it's not just the intelligence services, who were previously called a state within a state. Today it's the militants who are becoming yet another little state within the state, and this is leading some people to say that Pakistan is on the slippery slope of being called a failed state. But this is a crisis for Pakistan, that unless we deal with the extremists and the terrorists, our entire state could founder.

HAASS: A sobering moment on which to open things up. So let me open it up to you all, our members. Wait for a microphone. Please state your name and your affiliation. And please limit yourself to one question so we can conceivably get lots of people in there.

Minky?

QUESTIONER: Minky Worden from Human Rights Watch. Welcome to New York.

Back to Richard's point about the possibility of an alliance with General Musharraf. In view of how he took power, wouldn't an alliance with him send the negative message to future coup plotters that elected politicians could legitimize them in the end?

BHUTTO: Yes, at one level it would send a negative message. But Pakistan isn't an ordinary country and it's not facing an ordinary situation now. We have two different fault lines. We have one fault line between dictatorship and democracy, and we have a second fault line between the forces of moderation and the forces of extremism. We have problems with General Musharraf because he's a coup leader, and dealing with him we have severe problems at that level.

But on the other hand, General Musharraf says and has committed himself to Pakistan following a moderate path. So to that extent, if he could get the moderate forces to work together for a transition to democracy, I think in the present circumstances it would be helpful. At least that's the decision my party took, and that's why we have been involved in these negotiations.

Whether it will work, frankly, I can't say. Time, as I said, is running out. General Musharraf made certain commitments to us and we would need to see the fulfillment of those commitments in the next two to three weeks before my party meets to take a final decision on where we stand.

HAASS: Rabbi Schneier? You have to wait for a microphone. That's how we do it in our synagogue here. (Laughter.)

QUESTIONER: You attributed the rise of the fundamentalism and radical extremism to the dictatorship and lack of democracy. The question: What would you do, and your party, to deal with the network of madrassas -- schools -- that are infiltrated with Wahhabi ideology? And we're not only talking about today. You're training an entire generation of children who do not believe in democracy. What will you do with it?

BHUTTO: Well, I agree with you that this is another very big challenge, because nowadays we have three kinds of madrassas in Pakistan. One is the traditional madrassa which teaches people their religious duties and obligations. The second is a madrassa which basically brainwashes our children into intolerance. So the battle that we -- and the third madrassa is the one which is acting as the headquarters of the militant groups, as we saw in the issue of the Red Mosque.

I thank you for drawing my attention to the middle madrassa, which is the value system, because this is a battle for values, that are we going to move in the direction of a pluralistic society or not. And I feel that nobody in my country should have the right to teach people hate, to teach them violence and to brainwash them from the very beginning in extremist thought to prepare them, which is why we would like to reform those madrassas. And if anybody does not each the approved curriculum -- or we don't even care about approved curriculums; what we care about is that you cannot teach people hate and you cannot teach them violence. You cannot say you have to kill people of a different faith or you have to kill people of a different ethnicity. So as long as madrassas abide by those rules, they will be allowed to function, and if they don't, they will be shut down.

HAASS: You don't feel, though, they should also have the responsibility to teach, say, the basics of science, math, whatever, so people can essentially function in a modern society and world?

BHUTTO: You know, Richard, it was in -- we did that, I did that. I know we talked about Musharraf now, but my government -- actually, everybody thinks the war on terrorism began now; for me, it began much earlier with the first attack on the World Trade Towers. And in 1993, Pakistan was on the brink of being declared a terrorist state. My government arrested Ramzi Yousef, the man who was behind the first attack on the World Trade Towers. My security people didn't want to give him up, because he had not only attacked the World Trade Towers, he had tried to kill me to stop me from becoming prime minister of Pakistan.

But I handed him over, and we began an investigation, and that's when we discovered these madrassas, political madrassas that had been set up secretly by (funds ?) during the Afghan jihad, and we found that there were students from 126 different countries who had come to be recruited and enrolled in these madrassas. And that's when my Ministry of Interior and my Ministry of Education worked together to introduce math and science into the madrassas. But we also said that you cannot teach hate, because it's not enough to teach them computers and science if they're still taught to discriminate on the basis of ethnicity and discriminate on the basis of religion. So we did all that.

What we found is as soon as our government went, they diverted to their own ways. So obviously we've got to stop them from teaching hate, and we've got to make them teach science and math and so on, but at the same time, a government in Pakistan has to commit to building schools -- not only building schools which people can go to, but building them on the (mantra ?) of madrassas, because the madrassas don't only give education; they give free food and clothing. So parents who are poor bring their children to the madrassas to be fed and looked after during the week. So my government had come up with a concept called Apna Ghar -- Your House -- where the government would set up boarding schools for people who are poor, and they could bring their children for free education and food and clothing.

Unless we provide an alternative to the madrassa -- it's not enough just trying to shut one down or reform the curriculum, so I think a multifaceted approach needs to be adopted.

HAASS: One of our members, Ricardo Tavares (sp), from Rancho Santa Fe, California, writes in and notes that the Pakistani economy has grown an average of 7 percent a year over the last five years, and he talks about the important role that foreign direct investment has played. And the question I have is, based on his question, really, is if you were back in power, how much would your economic policies look like Shaukat Aziz's, the current prime minister? And how much would you be introducing changes from what we now see in Pakistan?

BHUTTO: Well, I want to put this in a different frame.

HAASS: Okay.

BHUTTO: And I want to say that I find the 7 percent growth rate very disappointing, given the fact that all our loans have been rescheduled and given the fact that we are receiving $10 billion in overt and covert assistance. Because when I was prime minister of Pakistan, I left office while I had to pay off the debts and without all this money, with a 6 percent growth rate, which started to go up in the year '96-'97 to 8 percent. So I think Pakistan has a huge potential and that the present regime has got a 7 percent growth rate more because of the debts being rescheduled and external flows coming in and not because of direct foreign investment.

There has been privatization. There have been a couple of groups from the Gulf that have come in, but name me one major international company, for example, like from America or from England -- I could name you General Electric, AES, National Power, who were all coming in when I was prime minister of Pakistan. But when you have terrorism and extremism and you have suicide bombers who are going and blowing up marketplaces and blowing up diplomatic missions and churches and (mosques ?) and places of worship, you don't get foreign investment. So we have a jobless recovery in Pakistan.

On paper, the statistics look good because you've got the external flows coming in. But in fact, poverty and unemployment in Pakistan has risen, and it's ticking like a time bomb. Because the people are unemployed and unemployment has risen, these militias and militants go to our people and say, we will give you a salary, we will pay you $150 or $200 a month; come and join our army.

So it's not just people who are ideologues who are joining the militants; it's jobless people who are being recruited in private armies. So, yes, I'm happy that flows are coming in and the debts are rescheduled and we've got 7 percent. At one level I'm happy, but on another level I'm not, because I think that we need an economy which invites the investment, that produces the jobs and a government that addresses the social and economic needs of the people so they cannot be exploited by those who are criminals and terrorists.

HAASS: Yes, sir. I don't have my glasses on, so I can't see that far.

QUESTIONER: (Name and affiliation inaudible.) Madame Prime Minister, if you were elected and if you had been the authority to work with the world community on issues of terrorism, would it be easier or more difficult for you than it has been for Musharraf? I understand that it was a difficult decision for Musharraf to come in support of the United States and the alliance, the coalition of the willing.