IT was indeed ironic that as the world grappled with the devastating impact of the attack on the World Trade Centre and the Pentagon, we in Pakistan lost no time in gauging the probability of a favourable economic fallout for us. Our good luck or bad, the seat of trouble once again happened to be in our neighbouring country on the Western border.

Must it always be unfortunate turns of events in Afghanistan that should be lubricating our financial flows pipeline from the developed countries? Our glee over anti-terrorism dependent economic relief and revivals is, therefore, even more naive and/or ironic than what appears to be at the outset.

It might be argued that it is perfectly legitimate for us to seek compensation for the costs involved as well as a return for our services rendered in the anti-terrorism campaign. If this be the line of amoral reasoning, then it should be considered perfectly legitimate for the Americans as well to withdraw their economic cooperation simultaneously with their military and political pull outs from certain fronts on which they may have collaborated with us. Their subsequent economic tactics would then be in line with their strategic interests. They may not consider it necessary for themselves to keep their economic inducements or weapons deployed on fronts that they may have closed or may have withdrawn from. Our economic strategy should, therefore, be independent of American strategic interests at all times. If at all there is a temporary positive economic fallout, it ought to be first seen in a realistic perspective. Second, for as long as it is available and if possible, it should be used to build domestic economic capability for the long term rather than using it merely as a short-term measure to stay afloat during the government’s tenure as was the case in the 1980s.

So, first, a realistic view of th financial dole should be taken. Even though Pakistan government’s support to the Taliban government is no secret, it was in the interest of global peace that Pakistan had to be insulated from their active support to the Afghan government. The policy used was a stick and carrot approach in that order. As Pakistan decided rationally not to be at the receiving end, the carrots have followed. The brains in Pakistan decided not to lie where the hearts have been for over half a decade. Carrots might be piled up to ensure a continued rational response. A rational response on the surface might, however, still not mean that Pakistan government’s view of a government in Afghanistan will be in line with what the world would like to see.

Pakistan’s very vocal opposition to Northern Alliance in Afghanistan displayed the divergence. How smoothly will a meeting of minds on this critical issue will be arrived at is yet to be seen. However, it may determine the extent of carrots that the West will be supplying us as inducement in the future. As the definition of terrorism evolves over time, Pakistan will be trying to juggle its own tribal interests with that of the world community. Its eventual tilt, after the definition of terrorism is firmed up, will largely determine the quantum and intervals of carrots’ inflow in the future. That is, whether the support in lieu of Pakistan’s cooperation will be lukewarm or strong or somewhere in between will be a function of the character of Pakistan’s own anti-terrorist stance. For, Pakistan will have to either go along with the world definition of terrorism whole-hog or risk being in the grey area that the world might just allow in the interest of pragmatism but might not quite approve of fully. If the latter be the case, then those gung-ho over the waiver of economic sanctions will soon be moderating their positions.

Also, the initial spurt of support may not necessarily mean a continuation of the same in the second phase, comprising the determination of the composition of Afghan government, especially if there is a difference of opinion at that time. For, the more crucial first phase involves hunting down the target where a high level of cooperation is sought. So, economic disposition of the donors is in consideration of the high level of cooperation required from us at this stage. This spirit of cooperation may start vitiating in the second phase of government formation when the economic disposition of the donor countries may change accordingly.

Towards the end, if the government in Afghanistan falls in line with the requirements of the civilized world, then financial assistance might just be diverted there and towards other hotbeds of “terrorism” thus far. Pakistan might then be left high and dry just like it was towards the end of the Afghan crisis in the 1980s when sanctions were soon clamped upon us and the financial flows diverted towards opening up the Russian economy. It will not be logical to then blame the Americans as we are not less self-centred in our politico-economic dealings with them and with the world than they are towards us. To say that we have been fighting their battles is also not correct entirely as we had a stake in the 1980s to stall the Soviets beyond our Afghan border just as much as we have a stake now to address the symptoms of terrorism and to come out unscathed in the campaign against it.

Pakistan’s Afghan policy will, therefore, be driven more by political reasons. Economic outcomes will remain dependent upon the various scenarios that are likely to build up over time as briefly reviewed above. To believe, therefore, that it will be in the interest of the international community to ensure that Pakistan remains economically sound at all times is rather naive. At no time has the internationally community worried about our economic soundness. Not even during the 1980s Afghan war with the Soviets or when Pakistan went nuclear. At best, they have been concerned about our economy staying afloat which is not the same as economic soundness. They kept the economy propped up for reasons of international economic stability. When we went nuclear, our economic instability could have been destabilizing for the world even politically. Despite a whole regime of sanctions and a military government, Pakistan kept qualifying for IMF’s various tranches under the Standby Agreement (SBA) in the last two years. Not only was the SBA approved for Pakistan but a Poverty Reduction and Growth Facility (PRGF) of the IMF also remained in the offing. This was despite the fact that, due to the sanctions, the USA abstained from voting at the donor agencies. So, as for the IMF’s assistance, the only difference now will be that the USA will be casting a favourable vote.

As for even debt rescheduling, an understanding had been reached with the Paris Club in January 2001. Notable after the terrorist crisis is the waiving of nuclear sanctions with the democracy sections likely to be waived too. While all of these require Congressional procedure, what does it take to clamp the sanctions back on if scenario does not build up as favourable as the US Executive or Congress would like to see or after we have once again outlived our utility for the Americans? Also, market access provided exclusively as an inducement or quotas lifted specifically for this purpose can all be restored as above unless removed as a part of the WTO Agreements.

As for the WTO, the developed countries especially the EU are still hell bent on starting a comprehensive trade round to cover the rules of competition, environment, and investment. Those of the developed countries that consider themselves less vulnerable to terrorism are being driven first by economic interests as was the case with the USA too prior to the attack. The world economic downturn in the aftermath of the crisis will create further pressure for more trade liberalization and on terms that would suit the major contributors to world GDP. As the IMF and the World Bank have all revised the projected world economic growth rate target downwards, there will be greater pressure on LDCs to fulfil the economic requirements of liberalizing international trade.

So, concessions in the form of sanctions’ waiver or trade liberalization could both have a temporary nature depending upon the evolving posture of Islamabad towards their old friends in Afghanistan as well as the evolving shape of the world economy. For as long as the sanctions remain waived though, the pressure on Pakistan’s debt-servicing will remain eased to the tune of $1.5/2 billion. Unfortunately, at the same time, the export loss might amount to $1-1.5 billion as per the federal commerce minister. Not only consumer spending declined in importing countries, the buyers are also cancelling the orders due to greater uncertainty in the region. A number of airlines and shipping lines have stopped their Pakistan operations making cargo delivery that much more difficult. As purchase orders are being shifted to other countries in the region, it could amount to a longer-term loss of export orders if the buyers are more satisfied with the new sources of supply. If the markets view our’s to be a war zone, then investment prospects will remain grim, OPIC cover or not. And, some of the expatriates’ dominated sectors such as oil & gas will remain depressed as the expatriates field the country for obvious reasons. It is, therefore, both political and economic naively that makes the policy makers believe that we have become an attractive area of investment just because the sanctions have been waived and/or OPIC cover might be available again for US investors. If the anti-terrorism campaign turns out to be long drawn out as alluded to by President Bush, it will cast a shadow over Pakistan’s economic prospects.

In the meanwhile, Pakistan will try to negotiate a US debt write-off to the tune of $3 billion. This proposal will, in turn, be carefully weighed against Pakistan’s actual contribution in combating terrorism. Juggling various political interests that Pakistan might attempt on the front of terrorism might not make it easy to close the above deal. However, even if Pakistan is able to get some of the economic benefits expected as above including more market access and reduced quota restrictions even temporarily, Pakistan should use the time to build domestic economic capability. Sitting pretty on foreign financial inflows will only be repeating the history of the 1980s. This would reflect very adversely on the quality of economic management we have had since, at least, the 1980s when despite liberal war-related funding from the West, the country ended up becoming a hostage of World Bank’s and IMF’s structural adjustment. It is freedom from such dependence that will serve as a key criterion for gauging Pakistan’s economic performance rather than the financial inflows that are being driven more by political exigencies of the world than our true economic merit.