Down the corridor

It should be noted that CPEC inflows have not allowed the economy to take off. The ideal would be to have some rich country with bottomless pockets give Pakistan as much foreign exchange as it wanted in the shape of outright grants, but it doesn’t happen that way.

2018-08-10T02:54:07+05:00 M.A.Niazi

Though one of the planks on which he has been elected is national independence, it seems to be taken as a given that Pakistan Tehrik-e-Insaf chief Imran Khan will have to go to the IMF for another package. Imran may find that another plank of his platform, that of dealing with the USA in a less subservient fashion, may be in conflict with this, because the US Secretary of State, Mike Pompeo, has said that he hoped that any IMF loan would not be used by Pakistan to pay off Chinese creditors. One of Pakistan’s pressing foreign exchange commitments is the servicing of debts taken for the China-Pakistan Economic Corridor (CPEC).

This should make it clear that approaching the IMF is not purely an economic decision. The IMF has got a bad press, especially after the protests that followed its 1980s intervention in South America, and its packages for Pakistan have generally accompanied harsh austerity measures. Those harsh austerity measures have been taken out of the realm of economics, and been seen as a challenge to national sovereignty. The underlying assumption has been that telling us what to do about our economy was an act of interference in our sovereignty.

The position might be clearer when it is remembered that the IMF is, along with the World Bank, one of the Washington Consensus financial institutions. This consensus was born out of World War II, and one purpose was to prevent the kind of financial difficulty that characterised the pre-War period, and of which the Great Depression was a symbol.

It is not necessary to be a US ally and indebted to the IMF or World Bank, but Third World allies in particular were given loans generously, and their leaderships and bureaucrats left to embezzle those funds. This ties in with another issue that the PTI has emphasised, that of corruption. Going to the IMF will merely generate funds that would provide a temptation to the new administration.

Another aspect of going to the IMF is that it means falling in with the USA’s political wishes. The World Bank’s President is nominated by the US President. The IMF has an apparently more independent nomination process, but the European who heads it is assumed to have US approval. It is certainly true that IMF packages generally go to countries willing to follow the USA’s political agenda.

At the moment, one of the major issues in the Pak-USA relationship seems to be revealing itself: CPEC. The Trump Administration has kicked up a host of issues, but its suspicion of China is the one that has the greatest impact on Pakistan. It is also the Chinese relationship that seems to cause Imran the most problems. There is the CPEC for a start, which Imran suspects of being the source of corruption for the PML(N). It is true that when the Chinese President visited Pakistan in 2015, much was made of the vast sum that was to be invested in Pakistan under the CPEC, and it is also true that most of that money was in the shape of loans, to be repaid at stiff rates of interest.

The Pakistani malaise is not caused by CPEC debt, however, as much as a balance of payments crisis, in turn caused by an adverse balance of trade. That has led to devaluations of the rupee, and increases in customs duties, in a bid to encourage exports and discourage imports. This is a problem which has resisted three Finance Ministers, and caused headaches for both the PML(N) government and the caretakers.

One thing should be clear, that the last IMF package did not work. When Mian Nawaz Sharif came to office for the third time in 2013, one of the first things he had to do is obtain an IMF package to sustain Pakistan’s balance of payments. That balance, it may be remembered, had been rendered untenable by heavy debt repayments which had become due on the last IMF loan, which had been contracted under a previous government. Through the protection given by that package, the government managed to present the picture of an economy making progress, which was on an upward growth path. It was this growth that enabled the PML(N) to do as well as it did in the 2018 elections. It was defeated, but it did not suffer the complete rout that was the usual fate of incumbents from 1988 down the line.

However, that high growth also created an economy hungry for imports. Part of the problem is that Pakistan’s exports depend on imports. The situation is that the incoming PTI government, it is being assumed before it takes oath, will have to do a deal with the IMF. And one of the widely anticipated IMF demands will be for greater transparency in the CPEC projects. The IMF will take the Trump Administration’s view of the CPEC; a very poor one indeed.

It should be noted that CPEC inflows have not allowed the economy to take off. The ideal would be to have some rich country with bottomless pockets give Pakistan as much foreign exchange as it wanted in the shape of outright grants, but it doesn’t happen that way. While China might have become rich, it is not rich enough to give Pakistan a free ride. However, while it has many reasons to keep Pakistan on its side, it will need to spend to make Pakistan depend on it, rather than on the USA.

Another problem that faces China is that the USA would like to see Pakistan accept India’s prime position in the region. Pakistan aligned itself with China because China too faced difficulties with India, over their common frontier as well as over Tibet and the Dalai Lama. Pakistan has not only got a problem with India over Kashmir, but it has so far refused to accept its hegemony in the region.

Imran’s history with the CPEC has been problematic. One needs to go back to the 2014 PTI dharna, which was considered big enough a deal by the Nawaz government to make it withdraw its security guarantees to Chinese President Xi Jinping, making him cancel his visit, which was part of a visit to South Asia, and included India, Sri Lanka and Maldives. However, Xi felt Pakistan important enough to come in April 2015.

Imran has also backed the KP government’s calls for a larger share in the $62 billion projects. Now as PM, he will probably have to be even handed. It should also be remembered that the military, which may or may not own the PTI, but which he backs, sees China as the counterweight to the USA which it wants now that relations with it are facing problems. Imran looks to the opposition’s win in Malaysia not only as an example of how corruption is to be rejected, but how projects sponsored by China are to be revised. It is worth noting that one of the first visits Imran received was from the Chinese Ambassador.

Imran has got to tread another bit of thin ground with China, one that is related to the grand scheme of which the CPEC is only a part, the One Belt One Road initiative. OBOR in to be centred on Xinjiang, but that area is resisting Sinification, the policy doggedly pursued by Beijing. One tool of resistance by the East Turkestanis is Islamic fundamentalism, operating through Afghanistan. This is another area where China needs Pakistani cooperation. However, The Uighur movement in Pakistan has connections, via Afghanistan, to the Kashmir movement, and because of the Army, Imran may not be ready to help China.

There are problems with Imran’s nationalist stance. The problem is that this can only achieve its fruition if all other international players play ball. But they won’t, because they have their own national objectives in mind. The Financial Action Task Force provides an example. China refused to prevent Pakistan being placed on its ‘greylist’, prior to its being placed on its ‘black list.’ Because of the Uighurs, China does not want Pakistan to keep funding militants. But it keeps Jaish-e-Muhammad chief Maulana Masood Azhar off the UN lists of terrorists, because it suits it.

 

n          The writer is a veteran journalist and

founding member as well as executive

editor of The Nation.

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