Gloomy Outlook for South Asia

Gulf News, March 29, 2003

The global economy is facing a slowdown and economists forecast that growth in the major industrialised countries over the next two to five years will fall to a mere 0.8 per cent from the current average of 2.8 per cent per annum. South Asia, as a region, might have to bear serious political and social consequences as a result of this low growth scenario. If the global economy does not improve and the unease resulting from the U.S.-led war in Iraq aggravates, the situation would be even worse.

Pakistan’s economic growth, averaging 3.2 per cent per annum since 1999, is insufficient in view of its 2.1 per cent population growth rate. The country’s macro-economic indicators have started looking up mainly because of external factors–compensation for supporting the U.S. in the war against terrorism, debt relief provided by international financial institutions, and remittances from expatriate workers.

Lower global growth could start having an adverse impact on all the factors that have enabled Pakistan to complete an IMF programme successfully.

Although Pakistan’s economy has been growing at a rate far less than India – or for that matter Bangladesh – several macro-economic indicators have recently been seen as improving. But these improvements are illusory. The government of General Pervez Musharraf has enjoyed a windfall in foreign inputs after 9/11. International sanctions resulting from the country’s 1998 nuclear tests have ended. Foreign exchange reserves are at an all-time high of $9 billion.

The Karachi Stock Exchange (relatively small by international standards) has boomed as a result of public sector institutional investment and speculation driven by expectation of more international concessional inflows. Prospect of sale of construction materials, including cement, for the rebuilding of war-torn Afghanistan is enabling some businesses to prosper.

The government’s budgetary pressures have eased and the rupee has gained almost 10 per cent in value against the dollar over the last year. These numbers have made the government complacent about economic reform and oblivious to income disparity issues. There is no guarantee that the windfall resulting from political strategic factors will last the next two, or five, years.

Indians, on the other hand, have become accustomed to an economic growth rate of a little over five per cent over the past several years. In 2002-2003, predictions of growth falling to around four per cent were proven wrong and Finance Minister Jaswant Singh recently insisted that India would retain growth at 5 to 5.5 per cent.

But Singh has been warning of “imponderables” such as the impact of higher oil prices resulting from a war in Iraq and sluggish global trade. Indian planners seem concerned about issues such as monsoon deficiency as much as the low growth projections for the global economy.

Middle Class

India’s limited connection to the global economy enables it to maintain relatively higher growth rates even in the time of global sluggishness. Agriculture (25 per cent of GDP) and industry (30 per cent of GDP) can continue to grow without being dragged down by international factors.

In these sectors, India produces and India consumes its own production. But in recent years, the prosperity of India’s burgeoning middle class has been provided by the services sector. The technology boom, of which the software and data services industries are a highly visible part, is largely tied to demand in the rich industrialised nations that now face an economic slow-down. Reduced demand in the U.S. and western Europe will almost certainly affect both the employment and incomes of India’s middle class.

Pakistan’s coming socio-economic crisis is potentially even more serious. According to economist Omar Noman, investment has been declining, falling from 14.5 per cent of GDP in 2000-2001 to 12.2 per cent in 2002-2003 largely because of the conflict situations Pakistan finds itself in, namely Kashmir and domestic strife. Poverty is consistently increasing.

The number of poor households in Pakistan has risen from 18 per cent of the total in 1987 to 34 per cent in 2000. There are no authentic figures for unemployment but in the absence of investment, it is safe to assume that new jobs are not being created. Instead, ever-larger numbers of young people are joining the ranks of the unemployed or underemployed.

The scenario for lower global growth will clearly hurt Pakistan even if all the concessional financial flows continue, something that is unlikely in any case. Pakistan’s exports are dependent on one agricultural crop – cotton – that also serves as raw material for the low technology export – textiles.

The global low growth scenario is likely to cause a decline in global demand for Pakistani goods. Prices are also unlikely to hold. Pakistan’s expatriate workers are likely to return home in large numbers from western countries as a result of crackdowns on illegal immigration, and from the Middle East because of depressed economies as well as the war in Iraq. This in turn will create a dual problem: decline in worker remittances that currently provide a foreign exchange earnings cushion and further enlargement of the ranks of the unemployed.

Pakistan’s Islamic political parties are likely to take advantage of the disaffection that growing poverty and shrinking opportunities are already generating. Over the past few years, the military leadership has pressured secular political parties with charges of corruption, leaving the Islamists as the only voice of the poor.

The Islamists won large numbers of seats in parliamentary elections last year in an election marked by a low turnout and the military’s strategy of keeping the mainstream parties out. The depressive economic scenario will continue to help militant groups in finding recruits for Jihad, both in Kashmir and globally.

Disenchantment with established order might even help groups such as Al Qaida to find sanctuary among an increasingly religious under-class. Pakistan’s poor turn to religion in hard times and distorted versions of religion are no exception.

Calculated policy

India’s relative economic health could encourage anti-Pakistan hardliners in New Delhi to try and “spend Pakistan into the ground” – a calculated policy of increasing the cost of military competition to the point where Pakistan’s economy collapses completely.

India is already turning increasingly towards Hindu nationalism, which is further aggravating ties with Pakistan. Inadequately performing economies in South Asia also create the risk of India and Pakistan externalising the resentments of their people.

Instead of allowing such frightening prospects manifest themselves as reality, both need to start looking at ways to minimise the unsettling effects of the global economic turndown on South Asia’s precarious political and social balance.

No Winners in this Match

Indian Express, March 5, 2003

In an age of unipolarity, Non-Aligned summits are hardly significant. Even with international attention focused on Iraq, the recent NAM summit in Kuala Lumpur would have been less newsworthy without the spat between Indian Prime Minister Atal Behari Vajpayee and Pakistani President General Pervez Musharraf. The verbal sparring gained nothing for either side. General Musharraf scored points against domestic critics who accuse him of compromising Pakistan’s stand on Jammu and Kashmir under US pressure. Vajpayee knocked the General with allegations of supporting terrorism, albeit with greater passion and considerable anger. Rancour is not considered a quality in international diplomacy. By reacting to General Musharraf’s reference to Kashmir and Palestine issues in one sentence the way he did, Vajpayee did not impress many world leaders. He also exacerbated the fears of some Pakistani hardliners who hold the belief that India wants the world to forget Kashmir and that to avert that possibility Pakistan must keep up some kind of pressure on India.

Since the NAM summit, there have been other verbal duels between Islamabad and New Delhi. In a media interview, General Musharraf referred to claims about US pressure on Pakistan to control militancy in Kashmir as ‘‘humbug’’. An Indian spokesman described his calls for dialogue as ‘‘hackneyed’’. Over the last few days, Indian leaders have also complained about ‘‘US weakness’’ in dealing with Pakistan. The harshness of the two sides’ language towards each other is depressing for those who seek accommodation between the nuclear-armed South Asian antagonists. There seems no willingness in New Delhi to take even baby steps in the direction of reducing hostilities and resuming dialogue. Islamabad, on the other hand, does not see the need to review its own strategy towards its now increasingly richer and more powerful neighbour.

There are signs that the India-Pakistan rivalry is about to be played out once again by proxy in Afghanistan. And Pakistani intelligence is beginning to complain that India is trying to subvert Pakistan through ethnic and religious terrorists (especially in Sindh) in retaliation for what Indians see as Pakistani support for Kashmiri insurgents. Despite India’s numerous historic, political, economic and strategic advantages, the ongoing lukewarm war with Pakistan remains a stalemate. Pakistan has created a situation that ties down India to South Asia, limiting its potential as a player on the world stage. Of course Pakistan is paying a heavy price but it can gain some comfort from inserting a hyphen in India’s international relations.

The world’s sole superpower, the United States, and other major powers all talk about India-Pakistan issues, diminishing India’s size and stature. During a recent visit to Washington the Indian Foreign Secretary ended up spending much of his time talking about Pakistan even after saying he did not want Pakistan to be the focus of his conversation. India has a strategic partnership with the United States, forged through high technology exchanges, burgeoning trade, and expanding military cooperation. But Pakistan’s recently revived alliance with the US — symbolised last week by the capture of Al-Qaeda’s brain, Khalid Shaikh Mohammed — is having a disproportionate disruptive effect on the India-US partnership.

Much can be said on both sides about who is wrong, where and how much but neither India nor Pakistan is posting any practical gains from their unending bitter exchanges. Assuming that in politics every action is part of a strategy, one cannot discern what strategic advantage India hopes to secure by responding cynically to every Pakistani comment or step. And it also does not make sense for Pakistan to use international forums only to talk to itself. While mention of Kashmir internationally is popular in Pakistan, there has been no shift in international opinion that can be construed as amounting to substantive internationalisation of the dispute. Both India and Pakistan need to change their approach o each other. India, in the words of Congress leader and former diplomat Mani Shankar Aiyar, must recognise that ‘‘you cannot kick Pakistan out of this subcontinent. Peace has to be made here’’. Pakistan, too, must take account the fatigue and exhaustion of the international community with the intractable nature of India-Pakistan relations.

Just days before General Musharraf was invited for the Agra summit in 2001, India had adopted a stance similar to its current policy of not talking to Pakistan. On that occasion Aiyar, who had served in Pakistan as Consul-General in Karachi, wrote: ‘‘The end of the Lahore process (was) written into its beginning. Lahore was not diplomacy; it was poetry. Vajpayee is a poet, not a diplomat. Hence his repeated blunderings in foreign policy, his consistent inconsistency. Today, he makes great play of not talking to a military dictator. When he was External Affairs Minister, 1977-79, he prided himself on being the first External Affairs Minister ever to visit Pakistan (Nehru had gone as Prime Minister, not External Affairs Minister).’’

Another Indian intellectual, Inder Malhotra, had argued at the time, ‘‘There is no doubt that the Vajpayee Government’s policy of not talking to the Musharraf regime in Pakistan has widespread public support. Also, there is logic in the stand that after the perfidy of Kargil and Kandahar, the Lahore process cannot be revived until Pakistan ends cross-border terrorism. Even so, an inflexible refusal to communicate with a neighbour, especially when armed with nuclear weapons, can be sterile, even counter-productive.’’

Malhotra had lamented that the policy of refusing to talk would have a negative effect on international opinion ‘‘that is at last changing in India’s favour after a long spell of Pavlovian support to Pakistan over Kashmir. During his visit to the subcontinent, President Clinton did concede at one stage that talks between India and Pakistan could not go on if ‘violence in Kashmir continued’. But throughout his five-day sojourn he never let upon his demand for parleys between New Delhi and Islamabad. Resumption of the ruptured dialogue was one of his famous four R’s.’’ Malhotra used an interesting argument to support India-Pakistan dialogue. He felt that India’s interests would be better served by agreeing to talk to Pakistan, if only to appease the international community. Heeding the advice of people like Aiyar and Malhotra, Vajpayee invited Musharraf to Agra in the summer of 2001. But instead of bringing the two nations closer, the summit ended without agreement.

Pakistan’s revived relationship with the US after 9/11 has generated a misplaced confidence among Pakistani decision-makers about how they can stay their course in domestic and regional politics. India’s leaders are also failing to show statesmanship. Anti-Pakistan sentiment in India has increased manifold since the December 13, 2001 attack on the Indian Parliament and subsequent developments. India-Pakistan relations have become stuck in a familiar pattern. Musharraf is making repeated offers of unconditional talks with India without substantive actions that would make such talks fruitful. India’s refusal to talk at all, accompanied by dismissive comments about Pakistan’s intentions does little to break the impasse. Will the two nations have to wait for a new set of leaders to transcend the unbearable bitterness that has crept in into their feelings towards one another?