India must exploit Pakistan’s economic crisis, not give in to Prithviraj Chauhan syndrome
On July 2, 1999, about two months after the outbreak of the limited war between India and Pakistan on the icy heights of Kargil Sector, a meeting of the Cabinet Defense Committee (DCC) was called in Islamabad. By this time, the tide of the war had turned in India’s favor. The Pakistani army was losing ground, losing men and losing face. Face had to be an exit because the war was proving economically ruinous for Pakistan’s faltering economy. Senior Pakistani officials informed the DCC that they had to withdraw from the conflict because the Pakistani armed forces could not even sustain a limited conflict beyond two weeks. A day after the DCC meeting, Nawaz Sharif left for Washington where, after meeting with US President Bill Clinton, he announced the withdrawal of Pakistani forces from Kargil.
At the time of the Kargil conflict, Pakistan was still struggling to recover from the near-economic collapse that followed the 1998 nuclear tests. Its foreign exchange reserves (almost entirely made up of borrowed money) stood at one. just over a billion dollars. Pakistan was negotiating G-8 debt relief and was already in an IMF program. There was a real danger that these two economic lifelines would be jeopardized by the adventurism of the Pakistani army in Kargil. The G-8 had already issued a strong statement against Pakistani actions in Kargil. None of Pakistan’s traditional benefactors and supporters – the United States, China, and Saudi Arabia – were prepared to tolerate, let alone fund Pakistan’s adventurism. Since wars are terribly expensive business, they cannot be fought with an empty treasure, and certainly not with a bowl of begging. Even proxy wars have serious economic consequences. They may seem like low cost options, but they are not. For proof, look no further than Pakistan, which has lost enormously because of its use of terrorism as an instrument of state policy.
Pakistan’s economic mess
In India, one of the favorite topics for brainstorming in seminars and conferences is “Pakistan fault lines”. But one of the least discussed loopholes is Pakistan’s economic vulnerability. The problem is not so much the perpetual economic crisis in Pakistan leading to the collapse of the state; it is about how a weak and vulnerable economy limits Pakistan’s potential to create problems for India and the rest of the world. There are a number of countries — Venezuela and Zimbabwe to name just two — that have economies that are collapsing. But the state and the country continue to exist. Pakistan too. But an economically weak Pakistan with an exploding population (no pun intended) and a financially unsustainable state structure will be so mired in a myriad of crises that it will be forced to put out the fires inside rather than focus on the ignition of fires outside its borders.
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Many analysts, both in the West and in India, tend to take a rather conventional view that a collapse of the Pakistani economy will make Pakistan a more dangerous state. The logic of “too dangerous to fail” – a nuclear weapon country with lopsided Islamists running around – works well enough for Pakistan because it facilitates perpetual bailouts. There is also a fair amount of skepticism that the economic crisis is actually leading to a change in the behavior of the people and the state. It is often pointed out that the viability of the Pakistani state has been in question for decades, yet the prognosis of collapse has always been exaggerated. But the fact that Pakistan has managed to recover from a dire situation on several occasions is only half the story. The other half is that each successive crisis is more severe than the last because Pakistan has never really addressed the deep-rooted structural issues that hamper the economy and have made it unsustainable and unsustainable.
While showing that Pakistan is emerging from past economic crises, what is often overlooked is the fact that the past is always a different country. Today, Pakistan is simply no longer enjoying the kind of support it did in the past. The first piece is the recent $ 3 billion loan from the Saudis to Islamabad to help restore its balance sheet. Never before have the Saudis imposed the kind of conditions they have this time around. In fact, past loans were invariably written off and converted to grants. But last year, when the Saudis first asked for their money, it shocked Pakistan.
The second play shows how parsimonious Americans and most Westerners are when it comes to Pakistan. The EU is tightening the screw on the Generalized Scheme of Preferences (GSP +) facility. The Americans are believed to be putting pressure on Pakistan through the IMF which has imposed extremely harsh conditions. Either way, free Western lunches are no longer offered. If aid ever returns, the requested counterpart will be difficult for Pakistan to give. Meanwhile, the Chinese are also becoming fearful. Their investments in CPEC are lagging behind. Worse, payments for projects already completed add up and Pakistan is in default, which has led the Chinese to curb their investments.
An ideal location for India
Pakistanis are now facing a perfect storm. The country is drowning in debt, which is doubling almost every five years. Debt service absorbs almost 80 percent of total federal government revenues. In the next fiscal year, it is feared that almost all of the revenue will go to debt service. Even defense spending will be financed from borrowed funds, along with all other government spending. To overcome the problem, Pakistan will take on more debt – a classic debt trap situation. The currency is weakening day by day and has lost almost 40 percent of its value in the past three years, about 20 percent in the past three months. The budget and current balances are all negative. The current account deficit could reach an unsustainable level of 5% this year.
Growth remains anemic and dependent on imports. Cut imports to control the current account deficit and growth will collapse. Meanwhile, the money supply is growing at an alarming rate and is fueling inflation. Daily essentials have an inflation rate of 18 percent and could go as high as 25 percent according to calculations by some economists. Pakistan is now importing food. Prices on fuel, electricity and gas are set to rise and could become unaffordable. In the midst of it all, the handsome Pakistani prime minister handpicked (by the Pakistani military) is busy preaching Islamic morals to the people, trying to make them more Muslim than he already is.
For India, this is an ideal situation. India must use all its weight and all the levers it can exercise to tighten the screws on Pakistan in the economic field. This India should not do it episodically, but strategically. In other words, an in-depth study of Pakistan’s economic vulnerabilities and how they can be exploited to repair the enemy and also gain the upper hand is something India’s policymakers and strategic thinkers must start on. to work.
At the very least, India must take the opportunity presented by Pakistan’s economic woes – this opportunity presents itself every 3-4 years due to the boom-bust cycle of the Pakistani economy – to deepen the ‘gap of all kinds of abilities with his nemesis. Alternatively, India may continue to repeat the mistake of missing out on these opportunities, or worse give in to Prithviraj Chauhan Syndrome – the millennial disease of being chivalrous to a treacherous enemy.
Sushant Sareen is Senior Fellow, Observer Research Foundation. The opinions expressed in this article are those of the author and do not represent the position of this publication.
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