IN the late 1970s, China’s leader, Deng Xiaoping, remarked that “development is the only truth. If we do not develop, we will be bullied”. Today, China cannot be bullied.
Not so, Pakistan.
The popular mandate received by the PTI on July 25 reflects, above all, the desire of the majority of the Pakistani people for national self-respect and an end to the corruption and crony capitalism which has stunted the country’s growth, bankrupted its treasury and enlarged inequality and poverty. The new government’s primary obligation is to deliver on development.
The development challenge is all the more formidable because, apart from the anticipated obstruction from the ‘ancien regime’, the incoming PTI government confronts a hostile external environment.
There is an emerging consensus that to halt the haemorrhage of its foreign exchange reserves and stabilise the economy, Pakistan will be obliged to approach the IMF for another bailout. Unfortunately, this may not be easy to achieve.
Pakistan-China ties must be developed on the basis of convergent strategic objectives.
In a blog, Mark Sobel, a former US representative to the IMF, has advocated tough conditions for a staggered IMF programme for Pakistan: further rupee depreciation, higher interest rates, larger tax revenues and structural reforms (higher energy prices, agricultural taxation, privatisation of state-owned corporations, and reduced defence spending). Notably, the PTI’s platform incorporates several of these belt-tightening measures.
Read: IMF and CPEC debts
However, Sobel added that the Fund “should ensure that its resources are not used to bail out unsustainable Chinese CPEC lending. The Fund needs to have at its fingertips comprehensive data on all CPEC lending — its terms, maturities and parties involved”.
US Secretary of State Mike Pompeo has jumped on this demand. In a NBC interview, Pompeo said: “There is no rationale for IMF tax dollars — and American dollars — to bail out Chinese bond holders and China itself”.
The malice reflected in this assertion was thrown into bold relief by the clarification from Pakistan’s last finance minister that the average interest on CPEC loans is three per cent; most loans have five-year grace periods and that repayment of loans and profits to China in the next five years will be less than a billion dollars (a small fraction of the scheduled debt service to the West).
A demand that Pakistan restructure (only) the Chinese loans, or that the IMF monitor and control the terms and progress of CPEC projects, will be obviously unacceptable to both Pakistan and China. Pakistan may have to do without an IMF package.
The purpose of US ‘bullying’ is no longer simply to secure Pakistan’s cooperation on Afghanistan.
The Trump administration has now basically accepted the position, long advocated by Pakistan (and Imran Khan), that the conflict in Afghanistan can be ended only through direct negotiations between the US and the Afghan Taliban. Pakistani officials have claimed that they facilitated the reported direct US-Taliban talks in Doha recently. The US has so far refused to officially acknowledge these talks, much less Pakistan’s facilitation. On the contrary, US statements continue to blame Pakistan for the Taliban’s ascendant insurgency.
The US may continue to demand Pakistan’s help if its talks with the Taliban run into difficulties. But now that it has opened a direct channel with them, the US may well seek to circumvent Pakistan. According to US reports, the US and the Taliban are both flexible on a power-sharing formula and the Taliban are willing to consider the continued presence of some US troops in Afghanistan.
The US objectives in this region now are: the strategic containment of China and Russia, an India-dominated South Asia and the reversal of Iranian power.
Pompeo’s position on the IMF package reflects a US attempt to exploit Pakistan’s financial vulnerability to retard the execution of CPEC and damage China’s broader Belt and Road Initiative objectives.
Editorial: US arrogance
Pakistan may have no option but to rely on China’s financial support to stabilise the economy. China has been generous so far in extending balance-of-payments support to Pakistan and it is likely to be helpful in future also. China can also be a major source of foreign investment in Pakistan.
To counter US and Indian machinations, CPEC’s execution should be accelerated and its scope further expanded to reflect the PTI’s priorities of job creation, social and human development, and agricultural and industrial growth. As part of the envisaged Special Economic Zones, a well-considered plan can be developed to relocate non-competitive manufacturing from China to Pakistan (instead of other Asian countries). The original vision of Gwadar as a major petrochemical processing and trans-shipment centre should be realised.
The strategic dimension of the Pakistan-China relationship has gained greater salience in view of the American decision to compete with and contain China globally and comprehensively. The US clearly regards Pakistan as China’s partner and is now treating it as an adversary. The US is arming India to contain China, knowing full well the adverse impact on Pakistan’s security. It seeks to neutralise Pakistan’s nuclear capabilities. It endorses India’s brutal oppression in India-held Kashmir.
India’s threats and pressure against Pakistan, especially allegations of ‘terrorism’ in IHK, are likely to intensify as Modi’s BJP mobilises its Hindu constituency to secure re-election in 2019. If Pakistan capitulates to Indian domination, New Delhi’s US-supplied military capabilities will be fully deployed against China rather than Pakistan.
The Pakistan-China relationship must be developed, therefore, on the basis of its convergent strategic objectives, not become enmeshed in ‘market principles’. Apart from assuring that Pakistan remains solvent and possesses the means for credible defence, China’s vocal opposition to Indian threats and US pressure against Pakistan would go a long way towards ensuring peace, stability and development in South Asia.
It would be appropriate for the new prime minister to visit China immediately after assuming office to lay the foundation of a new and stronger strategic partnership.
Of course, China’s support must be accompanied by a national campaign to mobilise the resources required to promote the promised ‘Islamic welfare state’.
It is only once Pakistan is less vulnerable, economically and militarily that it will be able to resist US bullying and build a relationship of mutual respect and mutual benefit with America.
The writer is a former Pakistan ambassador to the UN.
Published in Dawn, August 5th, 2018