The political and economic outcomes in Pakistan over the last 64 years have been a mixture of paradoxes. It is a fact that economic growth can take place only in the presence of political stability; but in Pakistan, it has been observed as being directly related to the Pak-US relationship. In order to address the impact of this relationship on Pakistani politics and economy, it is necessary to revisit the essential dimensions of the country’s history, which can be divided into six distinct periods

Period I: The Fifties (1947 to 1958), Pakistan aligned with the US: Pakistan started to depend on US aid since its establishment due to many reasons; the primarily being its weak economic structure and security concerns because of its eastern neighbour, India. Right from the early days of the relationship between the USA and Pakistan, the former has defined rules of engagement for the latter in favour of its own interests with foreign assistance serving as bait. It was Pakistan’s geostrategic significance that attracted the American policymakers’ attention during the cold war; they realised that it could play an important role in the containment of Communist Russia. In 1954, large-scale interaction between the US and Pakistani military was initiated that resulted in Pakistan joining Seato and Cento. This, however, affected its diplomatic ties with other countries and did not serve the basic purpose of defence against Indian aggression.

Period II: The Sixties (1958 to 1969), An opportune coup and more aid: The first military coup in Pakistan took place under the command of General Ayub Khan (1958-69). It was widely assumed that it was endorsed by the US to win the support of pro-West Pakistani military in the cold war. During this decade, Pakistan received huge amounts of economic aid from the United States, besides sufficient military assistance. But that aid was only concentrated in West Pakistan not East Pakistan. The 1960s era was, perhaps, the most fond relationships were enjoyed both by the US and Pakistan. GDP growth, in this decade, jumped to an average annual rate of 6.8 percent from 3 percent in the 1950s. The manufacturing sector expanded by 9 percent annually and various new industries were set up. By 1969, Pakistan’s manufactured exports were higher than the exports of Thailand, Malaysia and Indonesia combined. Karachi was seen as an economic role model around the world; South Korea copied the city's second "Five-Year Plan" and the World Financial Centre, in Seoul, is designed and modelled after Karachi. But this economically booming period was short lived. The war with India in 1965 cost Pakistan in the form of cut down of US aid. Ayub could not suffer the aftermath of 1965 war and resigned from office after surrendering the presidential power to General Yahya Khan in 1969.

Period III: The Seventies (1971 to 1977), Democracy, Pakistan’s nuclear ambitions and sanctions; As a result of the 1970 election, Zulfikar Ali Bhutto became President (1971-1974) and later Prime Minister in 1974. This period is seen as a "quiet cold war" between the US and Pakistan. Under Bhutto, Pakistan focused on the Movement of Non-Aligned Countries,  and building closer ties with the Soviet Bloc. American aid to Pakistan had already started declining due to Bhutto’s secret pursuit of nuclear technology during the concluding year of his regime. The Carter Administration imposed the Symington Amendment on Pakistan in April 1979, thereby cutting off most of the economic and military aid.

The economic growth rate in the 1970s fell to 4.8 percent per annum from 6.8 percent recorded in the 1960s. Income inequalities rose compared to the previous period, while inflation accelerated, averaging 16 percent from 1971 to 1977, thereby hurting the poor miserably. The large-scale manufacturing sector performed very sluggishly, netting a growth rate of only 3 percent.

Period IV: The Eighties (1977 to 1988), The Islamic fundamentalism: The overthrow of the Bhutto government by a military coup in July 1977 by General Ziaul Haq halted the socialist experiment and Pakistan's ties with the US improved. Zia used religion to legitimise his takeover and subsequent rule. The roots of present Islamic fundamentalism in Pakistan can be traced to this period. In December 1979, Soviet invasion of Afghanistan converted both the US and Pakistan into natural allies. The restrictions under the Symington Amendment on military assistance to Pakistan were waived off by the Congress in 1986 and the two countries further agreed on a multi-year (1988-93) $4 billion economic development and security assistance programme. It is notable that the US aid basically swelled from $60 million in economic and development assistance in 1979 to more than $600 million a year in the mid-1980s, and the military aid was in addition to the $3.1 billion economic assistance for Islamabad. Economic conditions improved due to the inflow of US aid; GDP grew at 6.6 percent annually with agriculture at 4 percent and the manufacturing sector at 9 percent. Fiscal deficits, however, widened to 8 percent of GDP, despite a decline in development expenditure. As a consequence, Pakistan had to approach the International Monetary Fund (IMF) for assistance in 1988.

Period V: The Nineties (1988 to 1999), Democracy and post-cold war coldness: After the Soviet troop withdrawal from Afghanistan in 1989 and the restoration of democracy in Pakistan, the Pak-US relations quickly deteriorated. Once again Washington started to target Pakistan’s nuclear programme and thus changed its bilateral aid policy towards its former close ally by passing the Pressler Amendment; presenting the civilian regime with a serious economic crisis; and significantly improving relations with India. Pakistan found itself in a state of extremely high insecurity, as tensions mounted with India and Afghanistan’s infighting continued. Within a brief period, all channels of bilateral aid to Pakistan were shutdown. During this period, the US provided negligible economic aid to Pakistan and almost no military assistance. In 1998, Nawaz Sharif ordering the nuclear tests was met with great hostility by the US and President Bill Clinton placed economic embargo on Pakistan. The relations were also strained after the Kargil war with India. A year after the nuclear tests, a military coup was staged against Nawaz Sharif.                                

The GDP growth rate decelerated to 4 percent. The investment ratio fell to 13.9 percent during 1998-1999 as foreign savings, which formerly bridged the gap between national savings and investment dried up in May 1998. The persistence of above 7 percent of GDP fiscal deficit led to the accumulation of large levels of domestic and external debt throughout the decade. Development expenditures took a major hit and GDP dropped to 3 percent from 8 percent in the first half of the 1980s. Social sector expenditures were squeezed to accommodate higher debt service and defence expenditures. Total external debt levels became unsustainable, rising from $20 billion in 1990 to $43 billion (47.6 percent of GDP) in 1998. Exports stagnated and Pakistan lost its market share in a buoyant world trade environment. The incidence of poverty nearly doubled from 18 percent to 34 percent, and the unemployment rate rose as well.

Period VI: The Twenties (1999 to 2007), 9/11: The Military-led Pakistan at America’s Frontline Again: However, September 11, 2001, once again changed the geostrategic landscape in favour of Pakistan. The US needed Pakistan’s support to invade Afghanistan and dismantle the Taliban regime that was alleged to be hosting Al-Qaeda, the so-called perpetrator of the 9/11 attacks. The Chief of Army Staff and President, General Pervez Musharraf, assured Washington of support from Pakistani government and army. Thus, Pakistan joined the war on terror. The US ignored the lack of democracy and human rights issues in Pakistan, all sanctions were lifted and official aid to Pakistan was not only restored, but also increased.

Pakistan's economic prospects began to increase significantly, due to the unprecedented inflows of foreign assistance at the end of 2001. In 2002, the US-led Paris Club rescheduled Pakistan's debt on generous terms, and in April 2003, the Americans reduced Pakistan's bilateral official debt by $1 billion. Foreign exchange reserves and exports grew to record levels after a sharp decline in the previous decade. The economic growth rate averaged 7 percent in 2002 up from 3.1 percent in 2001. The re-profiling of the stock of debt brought down the debt-to-GDP ratio to 55 percent. The fiscal deficit remained below or slightly above 4 percent of GDP. The investment rate grew to 23 percent of GDP and an estimated $14 billion of foreign private capital inflows financed many sectors of the economy.

With Barack Obama elected as President, the US promised to triple non-military aid to Pakistan with an objective to ensure smooth transition of its troops out of Afghanistan by 2014 with the help of Pak Army. Pakistan’s economy and its military have suffered huge losses in fighting a US war on terror for almost a decade. As compensation, in early 2010, US passed a non-military aid package of $1.5 billion annually for five years, out of which only $300 million was released and remaining has been suspended on the non-fulfilment of their unacceptable terms by Pakistan.

Pak-US relations reinforce the view that every time Washington requires Islamabad’s support to achieve its geopolitical goals in the region; it does not hesitate to embrace military dictators. While the aid has been provided merely to achieve US foreign policy objectives that resulted in higher economic growth, rather than sound economic policies. Therefore, economic accomplishments devoid of political legitimacy, however impressive, prove to be short-lived.

n    The writer is a senior banker.