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CPEC questions

January 03, 2016

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IF there was one achievement of Prime Minister Nawaz Sharif’s government this year, it was the China-Pakistan Economic Corridor. Counter-insurgency, relative macroeconomic stability, and the survival of the democratic set-up alongside a buoyant military establishment pale in comparison to CPEC. Upwards of $45 billion are going to be pumped into the economy, much of it in the underdeveloped regions of Balochistan and KP. Gwadar is set to become a port worthy of its geopolitical location. And over time, the Pakistani economy will forge a tighter bond with a possible successor to the global hegemon, the US. This is the strategy to propel Pakistan’s economy forward. Or so we are told.

The problem with the CPEC agreement is that much of it is secret and undisclosed. The State Bank governor recently bemoaned this fact, arguing that it is important for the bank to know the structure of CPEC deals. That the man responsible for ensuring the long-term macroeconomic stability of the country is unaware of the details, and is forced to argue his case in the press, is evidence of how secret this deal is. This matters, not only because transparency of government deals is fundamental to a democratic republic, but also because the ultimate structure of the deal determines its short- and long-term benefits to Pakistani citizens.

In recent years, Pakistan’s external debt has ballooned to over $65bn. Successive governments have been unable to increase revenue collection, and failed to deal with inefficiencies and corruption. Burgeoning deficits and lack of foreign exchange reserves have forced governments to plead for preferential trade status, soft loans, and IMF bailouts. The result has been high levels of inflation, stagnant real wages, and an overall decline in purchasing power for the working class. But well-heeled political and economic elites have witnessed an unprecedented increase in their income and wealth.


Much of the CPEC agreement is undisclosed.


While sufficient details about CPEC are not available, the experience of African and Latin American countries can inform policymakers of the advantages and pitfalls of increased Chinese investment in the economy. In both regions, China has increased investment in large-scale infrastructure projects. The focus of trade, however, has been on extractives. This has exposed the economies in both regions to the slowdown in China, causing dramatic declines in investment and currency levels. The Brazilian real has declined almost 30pc this year, as the slowdown in China coupled with domestic political upheaval has caused economic stagnation.

As part of increased Chinese investment, governments have also agreed to give preferential treatment to Chinese corporations and labour. This has limited growth opportunities for local companies and employment, thereby reducing the positive impact of the investment on the masses. Lax oversight has led to poor quality of work in some cases: in 2011, a 130-kilometre highway, constructed by a Chinese corporation in Zambia, was swept away by rainfall.

To ensure that Pakistan does not suffer, the government must not only develop contingency plans, it must also be more transparent about the deal itself. Questions have already been raised about the proposed CPEC routes. Both Balochistan’s and KP’s political leadership have concerns about the proposed routes and their impact on their local economies. To ensure macroeconomic stability, economic policymakers, both at the State Bank and outside, should be provided details about the expected inflows and outflows of foreign currency, and the debt and equity components of the deal.

The last time a secret deal was signed with a superpower, Pakistan was supporting another hegemon in its ultimate victory against the Soviet Union. The ideology and weapons brought chaos that continues to haunt Pakistan. As the country received billions of dollars to keep the economic wheels turning, a toxic ideology permeated society, dividing the nation and killing thousands of innocent people.

The argument this time is that the deals being signed are purely economic in nature and will bring jobs, foreign capital, and economic growth to the country. That may be true, and if it is, why the secrecy? Why is it that a top policymaker, the man in charge of keeping the economic system in order, is not aware of the dynamics of this deal? Why is the equity and debt component of the corridor a secret? Why are details around potential preferential treatment for Chinese construction companies and employees not being made public?

These are questions that Pakistanis must ask themselves and those running this country. Last time around, the country was ruled by a zealot who wanted to alter the course of Pakistani society at all costs. Today, Pakistan is a democracy, at least an imperfect one. Demanding an answer is not only a right, but a moral and ethical responsibility.

The writer is a graduate of the Fletcher School of Law and Diplomacy, and works as a consultant in the US.

Published in Dawn, January 3rd, 2016