Following is the text of President’s letter to Mian Nawaz Sharif

ISLAMABAD: I would like to thank you, once again, for your letter of 10th November 2010.In my interim letter of 16th November 2010, I had assured you of a detailed reply to the issues raised in your letter.Let me share with you my response. Pakistan is passing through one of the most critical periods of its history. As heads of the major political parties we share a great burden of responsibility.Our people expect us to put national interests above partisan ones. They want us to act as statesmen and work together. They want us to fulfill their aspirations. We are answerable to our citizens.  Indeed, as I said in my annual address to Parliament, we are all answerable to history.“Divide and rule, the politician cries; unite and lead is watchword of the wise.”  Johann Wolfgang von Goethe Our parties share a history of common struggle for democracy, especially in the recent past. In line with her philosophy of reconciliation, Mohtarma Benazir Bhutto Shaheed invited Begum Kulsum Nawaz Sahiba to join the Alliance for the Restoration of Democracy.

The positive response from your side and our collaboration helped the struggle for political freedom in Pakistan. Honoring BB Shaheed’s legacy, the PPP has continued the politics of reconciliation and inclusion. It was as part of this policy that we invited your party to join a coalition Cabinet. I am pleased to note that senior members of the Pakistan Muslim League (N) were part of the Cabinet when the Pakistan Peoples Party (PPP) formed the government in 2008.Even now we remain partners in government in the Punjab and continue to work together within and outside the parliament on national issues.
Allow me now to share with you some of the serious challenges facing our country and our attempts to deal with them. Militancy and extremism pose the greatest threat to our national security. Our citizens have been targeted. Our troops attacked. Our resources diverted. Our economy hurt. We continue to pay a price in terms of lives, image, and money. However, it is important that our resolve is not weakened. We must remain determined to rid our society of this menace. We must fight to the finish. We will follow a policy of dialogue, deterrence and development. Make peace with those who abandon violence. But use force against those who challenge the writ of the State. In this struggle, let me acknowledge the courage, and resilience displayed by our brave soldiers and police, and above all, the people of our country.

Forging a national consensus on the war against militancy has been a significant achievement of our government. This consensus contributed to the restoration of the government’s writ – and subsequent peace – in the Malakand region. We successfully provided relief to 2.5 million IDPs who were re-settled in their homes in just four months.As you know, our country has been struck by the worst floods of our history. 20 million people have been affected. An area the size of UK has been inundated. Millions of acres of standing crops have been destroyed; 1.6 million homes damaged. The losses have been estimated at over ten billion dollars. This human and economic catastrophe has disrupted our government’s efforts to stabilize the economy and slowed our plans to bring prosperity to our people. In the face of this unprecedented challenge the government has tried to marshal all resources.All federal agencies, including the armed forces, the NDMA, the related ministries were mobilized. An international campaign was launched through the UN system and bilateral governments to secure support. Coordination with the Provincial governments was undertaken through the NDMC, the CCI, and other fora. The combined efforts led to the minimization of casualties, prevented the outbreak of disease and helped with successful rescue and relief on an unprecedented scale.

The federal government has taken the lead – and with cooperation of the provincial governments—in providing support of up to Rs 100,000 per affected family. This citizens’ damage compensation program has been launched through a transparent Watan card mechanism.  This has been widely hailed as a model, combining the use of modern technology with local commitment, for transfer of cash to the affectees.About Rs 25 billion have already been distributed in the first phase. The government has also adopted a program for providing free seed and fertilizer and subsidized credit to the affected farmers to help them in rebuilding their livelihoods and ensuring high levels of production in the coming crop season.Let me now highlight two landmark achievements of our government, in which the collaboration of our two parties is most manifest. These two achievements are: the restoration of the Constitution to its original purity and the empowerment of the provinces.The 1973 Constitution remains the symbol of national unity. It was Shaheed Zulfiqar Ali Bhutto’s legacy and reflects the will of the entire nation for the rule of law and democracy. It now stands restored through the passage of the eighteenth amendment.
We have also taken historic steps to transfer greater power and resources to the provinces. Functions and Ministries have been devolved from the center to the provinces. The share of the provinces in the divisible pool has been increased from 50 percent to 57.5 percent. In this fiscal year alone three hundred billion extra rupees are likely to be received by the provinces.

The foundations of a new Pakistan – more just, more equitable, more harmonious—have been laid. We have moved concretely to resolve some outstanding issues related to smaller provinces and regions and to give them a full sense of inclusion in national affairs. We have publicly apologized to the people of Balochistan for their grievances. Our Government has followed up with tangible constitutional, political, administrative and economic reforms under the package, Aghaz-e-Haqooq-e-Balochistan.Our party’s policy of extending political rights and inclusiveness is reflected in the grant of political representation for the first time to the people of Gilgit-Baltistan. The same spirit led us to promulgate the Political Parties Order into FATA, thus giving the tribal areas greater flexibility in self determination.The empowerment and emancipation of women was central to BB Shaheed’s philosophy. Our Government’s programs reflect this thinking. The Benazir Income Support Program and Behan Benazir Basti Program are platforms for poverty alleviation focused entirely on women in a way, manner and to an extent that was never seen before.We have also taken steps to improve the welfare of our workers and given them a stake in the state enterprises. Thus, the worker who toils day and night to ensure that profits are earned is no longer forgotten.The Benazir Employees Stock Option Scheme gives the labourer a 12.5 share in the state enterprise where he is employed. To increase the purchasing power of the workers the Government has raised the minimum wage to Rs.7000 and adopted other welfare enhancing measures.

I now turn to the biggest challenges facing us — that of a burgeoning young population, economic stabilization and turnaround.Let me share with you our efforts, the results achieved, and the collective response required to fully succeed in meeting the economic challenges.As you well know the economic situation in March 2008, was precarious: the country was faced with a soaring fiscal deficit; GDP growth had slowed down; foreign exchange reserves were under pressure; the current account deficit was out of control; government borrowing from the State Bank was aggravating inflation. The bleak economic scenario then prevailing was effectively articulated by the first Finance Minister of the coalition government, Senator Ishaq Dar. In his analysis of the situation, Senator Dar had also, correctly, pointed out that policy lapses, including the non-adjustment of prices of imported oil by the previous government were largely responsible for this inherited situation.The seeds of our economic difficulties can be traced to financial year 2005 when inflationary pressures began to surface.  The high growth during the middle years of the present decade was based on external flows, a loose monetary policy and an artificially depressed exchange rate. After the oil price shocks the prices of energy were not rationalized, the fiscal extravagance continued and no serious structural reforms were undertaken.  In short, we inherited a dismal economic situation. We had hoped to jointly find a way out of this situation.

However, after your leaving the government in the Center, we and our other coalition partners have been left to address the economic challenges facing the country.
Given the worsening crisis, our government exercised the timely option of approaching the IMF and negotiated a Standby Arrangement in November, 2008. This move arrested the imminent slide and moved the tangible economy towards stability.  Clear signs of recovery became noticeable when growth recovered to 4.1% in 2009 – 10.Foreign exchange reserves which stood at $4 billion when we assumed office today have crossed the $17 billion mark. Remittances have increased to $9 billion from $5.5 billion in 2007. We were targeting a growth rate of 4.5% in 2010 -11.  However, the untimely floods have slowed our country’s economic recovery.Inflation, as you mentioned in your letter, is of equal concern to our Government. Inflation affects the well being of our citizens, specially the most vulnerable groups. The main reason for inflation, as you surely know, is the gap between our revenues and our expenditures. This financing gap is met through borrowing from the domestic markets which raise the rate of interest- the cost of borrowing-thus causing inflation.In one sense, therefore, an unsustainable fiscal deficit is the main reason for our inflation. There are only two possible ways of reducing the fiscal deficit – App