Economic Crisis: Uncertainty ahead as Pakistan drifts towards bankruptcy

As the White House prepares for a change of guard, think-tanks and bipartisan working groups are working feverishly in the US on how the new US President should deal with the “single greatest challenge the world faces” — dealing with Pakistan, as it confronts “its greatest crisis since partition in 1947”.
The major bipartisan Report, which was reviewed and endorsed by Democratic Party Congressman, Lee Hamilton, and the Bush Administration’s former Deputy Secretary of State, Richard Armitage, has been prepared by a “Pakistan Policy Working Group” comprising experts from both sides of the political divide. The Report notes: “The US cannot afford to see Pakistan fail, nor can it ignore the extremists operating in Pakistan’s tribal areas” as its efforts in Afghanistan “cannot succeed without success in Pakistan and vice-versa”.
The Working Group Report defines US objectives and interests as requiring a stable and responsive Government in Pakistan enjoying public support. It advocates the need to transform Pakistan into a “State that lives at peace with its neighbours — most notably India and Afghanistan”.
Groping for a strategy The report is critical of the ISI for being “engaged with groups that support the Taliban and are killing American, NATO and Afghan Government troops in Afghanistan”. It also alludes to “well sourced reports” on the ISI’s role in the bombing of the Indian Embassy in Kabul, while asserting that Taliban leader, Mullah Omar, is believed to be living in Quetta. It realistically asserts: “Pakistan’s ambiguous policy on support for militancy is unlikely to change as long as the military — currently the only national institution — remains beyond the scrutiny of elected representatives”. But, amidst such belated realism on the ISI-Jihadi nexus, the international community, including Pakistan’s “all weather friends”, China and Saudi Arabia, is still groping for a strategy to prevent Pakistan from melting down economically. With its foreign exchange reserves rapidly declining to a level which would enable it to meet its needs for six weeks of imports, Pakistan could well face a situation of defaulting on a sovereign debt, when a $500 million Euro Bond matures in February 2009. The Prime Minister Gilani’s Finance Adviser, Shaukat Tareen, acknowledged on October 22 that his country needs $4.5 billion merely to stay afloat economically.
Bailout plan by ‘Friends of Pakistan’ While the US has put together a new Consortium, including China and Saudi Arabia, named “Friends of Pakistan” to bail out Pakistan, Washington is not going to acquiesce in pouring money into Pakistan if the country remains a bottomless pit economically. So, aid is largely going to be withheld till Pakistan agrees to major and painful economic restructuring.Unable to pay for its oil imports, Pakistan had approached Saudi Arabia for a $5.9 billion bailout for supply of oil on deferred payment terms. The Saudis have yet to decide on how to respond. President Zardari went to China hoping that Pakistan’s most-trusted friend and ally with $1.9 trillion of foreign exchange reserves would immediately open out its wallet. When Pakistan sought a relatively small bailout of $500 million from China in 1996, the then caretaker Foreign Minister, Shahid Javed Burki, received a sermon from the Prime Minister, Zhu Rongji, on why Pakistan cannot recover economically unless it raises its abysmally low rate of savings. After much hesitation, the Chinese chipped in months later with an assistance of $500 million. China, it appears, will not encourage Pakistani economic profligacy and will possibly join other “Friends of Pakistan” when aid is coupled with strict economic restructuring. But even IMF restructuring programmes could not end Pakistan’s economic bankruptcy in the 1990s, because its programmes were soon jettisoned by Prime Ministers Benazir Bhutto and Nawaz Sharif.
End support to terrorist In these circumstances, the “Friends of Pakistan” will quite naturally use their economic leverage to see that Pakistan moves in the direction of ending support for terrorist groups and dealing with pro-Taliban groups operating across the Pakistan-Afghanistan border. It is in this background that one has to assess the rather shady role being played by America’s British allies, who are preaching virtual defeatism and surrender in Afghanistan, through both their military commander and Ambassador. The British quite evidently have no stomach for further casualties. Over the past two years they have played a duplicitous role in establishing secret contacts with the Taliban, behind the back of President Karzai, who has reacted with rage, expelling a British national who was involved in transferring money to the Taliban, and by pre-empting a British ploy to get Lord Paddy Ashdown, who had earned notoriety in Bosnia and is said to have had MI 6 links in his short career as a diplomat, as a UN Representative to Afghanistan.
There can obviously be no military solution to the conflict in Afghanistan. But this does not mean that the Taliban and its ISI mentors should be led to believe that the Taliban can return to power. President Karzai does have members of the Hizb-e-Islami led by the ISI-backed Gulbuddin Hekmatyar holding high positions in the Afghan Government. But they have to function within the framework of Afghanistan’s democratic Constitution.
Return of Taliban? A return of the exclusively Pashtun Taliban would be a recipe for not only an ethnic division of a country where 56 per cent of the population is not Pashtun, but also to an era where the terrorist groups across the world found haven in Afghanistan. The talks that President Karzai has initiated with Taliban representatives, with Saudi Arabian facilitation, are evidently an effort to set out the terms under which the Taliban could be accommodated in the political mainstream of Afghanistan. The Afghan Foreign Minister clarified in Islamabad on October 21 that: “Talks will be held with only those who are willing to lay down arms and those willing to work within the constitution” — terms akin to those Pakistan’s Parliament has set down for talks with people and organisations, which have taken to arms, within Pakistan.
Pakistan is evidently seeking to link progress on Afghanistan with the international community “facilitating” dialogue on Kashmir with India and a reduction in Indian influence and profile in Afghanistan. The Pakistanis, using noted scholars such as Ahmed Rashid, are also attempting to peddle the view that Taliban sincerity should be accepted if the Taliban merely “disavows” ties with the al Qaeda.
There is also an effort to tell the Americans that “Islamist Movements with local or national objectives” (read Lashkar-e-Taiba and Jaish-e-Mohammed) are quite different from an international terrorist group like the al Qaeda and should be dealt with differently. India will have to evolve a clear diplomatic strategy including consultations with Russia and Iran and the incoming US Administration to counter moves which can only facilitate terrorist violence from Pakistan and from Afghan soil.
A major factor inhibiting more successful diplomacy in Afghanistan has been American reluctance to work closely with Iran, Russia and Central Asian Republics such as Tajikistan and Uzbekistan to meet the challenge posed by the Taliban.
This approach, which makes the Americans excessively dependent on Pakistan for supplying their forces in Afghanistan, will hopefully be reviewed after the Presidential elections