TEN years later, after two major regional wars, trillions of dollars in military and security expenditures and thousands of deaths, there is still no closure.

The wounds inflicted by the 9/11 aerial attacks radically changed the contours and dynamics of global politics and economy. The world is still struggling to obtain answers to many questions about the real motives behind the events that occurred 10 years ago.

Although Al Qaeda, which owned responsibility, did not clearly state the purpose of the attacks, one of the goals that Osama bin Laden did articulate in a 2004 video address was “to force America into bankruptcy”.

It is obvious that what occurred on 9/11 inflicted a high cost on the world economy. Just how much is a bit unclear. At best, it may result in a lost decade for the world economy. The worst affected are likely to be the US and Pakistan. Although Bin Laden was not as adept at destroying the US economy as he was at engineering the destruction of steel-framed buildings, he did set in motion a self-destructing process for the erosion of the US and Nato and non-Nato allies.

The immediate financial loss caused by the 9/11 attacks in the US amounted to some $100bn. However, these costs pale into insignificance when compared to the cost of the unwarranted military intervention in Iraq and Afghanistan. As a result, during the past decade the Pentagon’s budget grew from 16 per cent of federal spending to 20 per cent.

Yale economist William Nordhaus warned as early as 2002 that the cost of the Iraq war alone — then estimated at $600bn — could reach $1.96tr in the worst case. Estimates by researchers at Brown University have shown that the expenditure on wars in Iraq, Afghanistan and Pakistan have already cost between $3.2tr and $4tr. This figure does not include interest on war-related debt.

The financing of the war required massive borrowing, both internal and external. During the Bush administration, the two per cent surplus to GDP ratio turned into a five per cent deficit to GDP ratio as US debt soared from $6.4tr in March 2003 to more than $14tr in 2011. It was the debt bomb that ultimately could be held to have been the unravelling of America’s financial might.

Besides these direct losses, a significant aspect of the 9/11 attacks for the US in its pursuit of revenge against Al Qaeda was that, as ably pointed out by Prof Paul Kennedy, Washington got distracted in two important ways.

“In the first place, it was distracted from many other things that are going on in the world. Secondly, it’s been distracted from the erosion of its financial strength and international competitiveness,” he pointed out. In other words, the US lost the global leadership position it had acquired by default after the dissolution of the Soviet Union.

As for Pakistan, 9/11 proved to be the miracle for which Gen Musharraf had been waiting. The midnight call from Gen Powell could possibly have cured the insomnia being suffered by the Pakistani leader on account of the domestic economy.

The US had been unhappy with his coup and had virtually ostracised him from the comity of nations, throwing Pakistan’s foreign aid-dependent economy in dire straits. Gen Powell’s telephone call opened all the doors that had been shut since sanctions had been imposed in the wake of Pakistan’s nuclear tests.

The US agreed to bail out the teetering Pakistani economy as quid pro quo for allowing it to conduct the Afghan invasion from its territory. The resumption of foreign aid kick-started the economy. Estimates vary, but around $10-20bn flowed in to compensate Pakistan for its ‘logistic’ support — no one knows exactly when and how the funds were used. Pakistanis claim that the cost of their participation in the war on terror was some $60bn.

The country also received debt relief and some trade concessions, as well as increased bilateral and multilateral assistance for combating terrorism, poverty alleviation and promoting democratic institutions and women’s development. There was also a considerable increase in foreign direct and portfolio investment, which buoyed up the stock market and created a credit-generated boom in durable consumer goods.

The indirect costs to the economy included the political impact through the weakening of the federation and erosion of state power as a result of prolonged militancy and the non-availability of basic and essential services in sensitive areas. Despite — or because of — the massive inflow of external resources, poverty increased to intolerably high levels during this period.

The levers of macroeconomic management of the Pakistani economy have, since 9/11, been effectively in the hands of its principal donors and dispensers of foreign aid, with Pakistani economic managers providing a façade of legitimacy and giving a ‘homegrown’ flavour to standard economic recipes. The latter are caught between the rock of the demand of donors, who command the purse strings and the hard place of avaricious politicians.

The Kerry-Lugar aid package introduced yet another level of donor oversight to the dispensation of foreign aid, in which domestic priorities can be trumped by foreign imperatives. The unplanned infusion of external capital into the economy also proved disadvantageous to the growth of productive sectors of the economy.

Overall, the losses — incurred largely by the poor and weaker sections of the economy — greatly outweighed the gains which accrued largely to the more affluent sections of the population, especially the military and its civilian allies.

Much of the investment during the period was in the real estate sector and growth was confined to the services sector, with investments in infrastructure, especially power generation declining and growth of agriculture and manufacturing stagnating.

Thus, overall, Pakistan has been a net loser in the raw deal it was handed through a besieged military dictator. The succeeding political dispensation found it convenient to acquiesce in this situation notwithstanding the recent spat since the Abbottabad raid.

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