As analyses of the Strategic Dialogues continue to roll out, there has been some good advice about what to take away from the discussions, and how the two nations can best proceed. An important step will be for the US to stop operating as Pakistan’s patron, and more as a partner.
Beginning today, Secretary of State Hillary Clinton and Pakistan’s Foreign Minister Shah Mehmood Qureshi will meet during the third US-Pakistan Strategic Dialogue in Washington, DC. But what exactly does ‘Strategic Dialogue’ mean, and what with the officials from each countries be discussing?
Yesterday, U.S. Deputy Special Representative for Afghanistan and Pakistan Frank Ruggiero briefed the press about the dialogues and answered many of these questions.
EU officials announced that this Thursday they will unveil plans to grant trade concessions to Pakistan to help the country grow its economy following the historic floods. The US should follow suit.
Recently, Pakistani Foreign Minister Makhdoom Shah Mahmood Qureshi spoke at the Council on Foreign Relations where he explained why open markets support democracy, stability, and the fight against terrorism in Pakistan.
Americans for Democracy & Justice in Pakistan agrees, and has encouraged the reduction of textile tariffs as a means of helping Pakistan grow its domestic economy and reduce its reliance on foreign aid.
By following the EU and adopting a package of trade concessions for Pakistan, the US would stand to benefit in two important ways.
US businesses and consumers would have access to equipment and products at a lower cost. This would provide a much needed boost not only to the Pakistani economy, but to our own struggling economy as well.
One of the greatest recruiting messages of extremists is that the democratic government cannot provide stability and economic growth necessary. Strengthening the Pakistani economy is essential to the long-term stability of Pakistan’s democracy.
With the EU moving ahead with more general waivers including not only textile exports but also industrial goods, the US should pass its own trade concessions to further Pakistan’s ability to support itself economically, and to strengthen the security of a key ally.
Pakistani foreign minister Makhdoom Shah Mahmood Qureshi spoke at CFR, where he discussed the regional development challenges that Pakistan faces due to the catastrophic floods, the need for constructive dialogue with India and Afghanistan, the strengthening relationship with the United States, as well as the fight against terrorism.
The devastation caused by flood waters that have submerged twenty percent of Pakistan will leave lasting scars across the embattled nation for years, if not decades to come. Terrorist militants are using the opportunity to launch suicide bomb attacks on soft targets including mosques in an attempt to destabilize the democratic government, and patience is wearing thin among a war-weary public. While the US has given over $150 Million in aid for flood relief, as well as $7.5 Billion in civilian aid via the Kerry-Lugar bill, Pakistan needs more than just a handout. The US should remove tariffs on Pakistani textiles to provide Pakistan sustainable economic growth and political stability.
Sustainable Economic Growth
Waqar Khan, secretary of Pakistan’s Textile Ministry, told the Wall Street Journal earlier this week that,
“Clearly a big crisis is looming on the horizon for the textiles sector, which is the mainstay of the country’s economy. Yarn shortage is inevitable. Market access will greatly mitigate the imminent disaster.”
This isn’t a case of teaching a man to fish. Pakistan knows the textile sector, and provides inexpensive and efficient production that benefits both domestic employment while lowering the price of goods in other countries. This is a case of giving a man access to the pond.
The country’s textile sector directly employs 3.5 million people, accounting for 40% of urban factory jobs. Textile-product exports were $10.3 billion—just over half Pakistan’s total exports—in the last fiscal year. About $3 billion of those goods went to the U.S. and a similar amount to Europe.
But the sector has faced a slump in the past 18 months, due in part to competition from China’s much-larger industry, which uses its size to win big U.S. orders and keep costs down. While China’s textile-goods exports have powered ahead over the past three years, Pakistan’s have stagnated. Some producers, also hurt by the rising cost of raw materials like yarn and by more expensive electricity, have been forced out of business.
Additional global macroeconomic benefits could be reaped by reducing textile tariffs as well. Presently, the primary competitor for Pakistan is China, whose economy is overly dependent on exports, creating an artificial trade imbalance. While many economists call on China to allow the Renminbi to float freely, such a move is politically unlikely in the near future. However, by reducing textile tariffs for Pakistan, the US could create structural changes that level the playing field for Pakistani goods, thereby reducing China’s ability to dominate markets with their ability to operate with massive economies of scale.
Most importantly, though, lowering textile tariffs would allow Pakistan the opportunity to grow its economy naturally, unfettered by artificial constraints imposed from without. Vietnam can serve as an example here. Despite being ruled by a communist party, Vietnam has increased its exports to the US over recent years, growing its economy rapidly. In turn, it has begun to discover consumerism and promises to balance its economy between imports and exports in the long term, providing a reciprocal market for US goods and services.
Whether in main street America or main street Pakistan, politics largely boils down to President Clinton’s famous maxim: “It’s the economy, stupid.” And the devastation of the flooding threatens Pakistan’s already struggling economy.
Coping with the social and economic costs of the catastrophe will strain the government’s finances. The budget deficit was already on track to reach 4.5% of gross domestic product in the fiscal year ending June 30 before the crisis but now could widen to as much as 6% to 7% of GDP, said Mr. Mitra. That’s a grim prospect for a country, which had external debt totaling $55.63 billion as of June 30.
President Asif Ali Zardari’s government has been reaching out to other countries for help. A delegation met with IMF officials Monday in Washington. Donors including the U.K. and the European Union have so far pledged almost $500 million in additional help.
Moody’s is unlikely to upgrade Pakistan’s credit rating in coming months due to the devastation from the floods and other challenges, but the country’s current B3 rating “adequately captures the risk” of the likely economic slowdown and is unlikely to be downgraded further, said Mr. Mitra. A B3 rating is just one notch above the C level, which applies to countries in effective sovereign default, and makes it hard for a country to issue bonds in the international market.
As important as relief aid is, it is structural changes such as tariff reduction that will give Pakistan access to markets where it can compete and provide sustainable growth to the nation’s economy. This will demonstrate that its leaders are effectively promoting Pakistan’s interests in the world community, and quell popular dissatisfaction as people become better able to provide for themselves and their families
Moreover, improving Pakistan’s economy through actual economic growth rather than aid gives Pakistanis an ownership over their own nation that is too often missing in countries that require substantial amounts of foreign aid. Questions surrounding condition-based aid such as those that arose in the debate over the Kerry-Lugar bill and IMF programs would be moot, as Pakistan’s economy would be free to grow naturally. No longer could democratic political leaders be accused of “selling the country for peanuts” by anti-democratic forces.
The unprecedented destruction of Pakistan’s floods combined with continued attacks from extremist militants pose an existential crisis for Pakistan. American aid and generosity, as well as our ability to organize effective international relief is vital. But Pakistan cannot live on aid alone. If we are to truly help our friends in Pakistan, we must use our standing as a global economic power to hold open the door to international markets so that Pakistan can develop its own sovereign economic strength. Then we will truly see democracy and justice in Pakistan.
Pakistan’s President Asif Ali Zardari wrote in yesterday’s Financial Times that Pakistan’s stability is a key to defeating terrorism. While his column references Pakistan’s relationship with Britain, the Pakistani leader makes bold and encouraging statements about the direction he wants to take his country, and the challenges he faces in his effort to secure a “democratic, liberal, tolerant, progressive and forward-looking Pakistan.”
Our economic planning has reduced the fiscal deficit, gross domestic product growth is improving, while inflation has decelerated. Foreign investment and foreign exchange reserves are increasing. To kick-start our economy, we have organised an international consortium, called the Friends of Democratic Pakistan, in which the UK is a lead partner. We want trade not aid, MOUs not IOUs.
My party pledged to undo the last vestiges of dictatorship. We have done away with anti-democratic distortions in the constitution which had made the parliament a rubber stamp. I voluntarily relinquished powers in favour of the prime minister and parliament. Continuing Benazir Bhutto’s vision for national reconciliation, our government successfully gave a National Finance Commission Award for the equitable distribution of resources among the provinces – previously a bone of contention. Our landmark achievement has been granting provincial autonomy to the satisfaction of all stakeholders.
President Zardari goes on to discuss the great sacrifices that his country has made as a nation on the front lines of a war against militant extremism, and their dedication to eradicating the terrorists who threaten their peace and stability.
In the war against extremism and terrorism, we have played the role of a frontline state, losing 2,700 soldiers, including senior officers, and more than 27,000 civilians. Collateral losses total more than $50bn and are still being incurred at the expense of our economy and prestige. No one can match our determination, resilience and sacrifices. We do not need to be lectured as to how to conduct the war against violent extremism.
Terrorism is not just Pakistan’s problem. The Kabul conference last month acknowledged that the problem in Afghanistan was regional and needed a regional solution. Stability in central and south Asia will depend on regional and international co-operation to attack the terrorist threat politically, economically and militarily.
President Zardari has come under criticism of late for his decision to attend meetings with French President Nicolas Sarkozy and British Prime Minister David Cameron while devastating floods ravage the Pakistani countryside. But his sense of purpose and dedication to principles of liberal democracy and internationalism are encouraging.
Pakistan faces immense challenges – both internal and external – as it struggles to achieve its potential as a modern democratic state in South Asia. We offer the people of Pakistan our full support that they may live free and peaceful lives on their own terms.
Text “SWAT” to 50555 from your phone to give $10 and help Pakistan’s flood victims.
One of the more interesting recommendations of the recent RAND report, Counterinsurgency in Pakistan, is the development of a civilian nuclear power program for Pakistan. Pursuing a civilian nuclear power program for Pakistan makes sense, and could provide significant improvement in regional security, civilian infrastructure and perceptions of American intent.
NPR’s Steve Inskeep has been reporting from the Grand Trunk Road, an ancient road that traverses South Asia. On Friday, he checked in from Islamabad and what he reported about Pakistanis conversations about Faisal Shahzad sheds important light on the road to peace in Pakistan.
What Inskeep heard actually surprised him – how little most Pakistanis were talking about Faisal Shahzad. This is not to say that Pakistanis are not concerned with terrorism – far from it. Since the Times Square incident, editorial boards and columnists in Pakistan’s media have written extensively about the urgent need to eradicate the terror networks in their country.
But religious extremism is not Pakistan’s only problem. Young and middle class Pakistanis – the very people who are must be engaged to effect sustainable change in the country – are beset by a host of problems other than terrorism.
Economic inflation, a lack of foreign investment to provide expanded employment opportunities, and scheduled blackouts due to a lack of energy capacity all provide daily interruptions to young people’s lives.
Still, each of these issues can be traced back to terrorism. Pakistan is besieged by almost daily attacks from groups like Tehrik-e-Taliban Pakistan, the group that is suspected of having provided support to Faisal Shahzad. Over the past two years, more than 3,000 Pakistanis have been murdered by these groups.
Pakistan’s government and military have greatly increased their efforts to fight these terrorists, gaining high praise from US Generals Stanley McChrystal and David Petraeus.
McChrystal said fighting terrorism within its own borders was important for Pakistan and the US, and important for partnership between the two states. General David Petraeus, Commander of US Central Command, also said the Pakistani military had gone after the Taliban effectively last year in its northwest territories. “It’s important to give Pakistan credit for what it has done,” he said in his key note address to the 2010 Joint War fighting Conference in Virginia.
But these efforts have left Pakistan’s government with limited resources to address issues not directly related to security. Recognizing this, the US government tripled non-military aid to Pakistan.
“The United States is firmly committed to the future that the Pakistani people deserve — a future that will advance our common security and prosperity,” Obama said. “Just as we will help Pakistan strengthen the capacity that it needs to root out violent extremists, we are also committed to working … to help Pakistan improve the basic services that its people depend upon — schools, roads and hospitals.”
Talking to people in Islamabad, NPR’s Steve Inskeep found that people often wanted him to send a message back to the US – that Pakistanis are by far good, peace loving people who only are struggling against difficult odds.
The road to peace is before us. By supporting the people of Pakistan and their struggle for democracy and justice, we help clear the obstacles on that road that provide cover for militant extremists. When we clear the path towards democracy by providing essential non-military support, we empower the people of Pakistan to better their situation, and we in turn secure our own.
Attacks on Pakistan’s democratically elected government by opposition parties and a hostile judiciary are damaging the nation’s economy according to Moody’s Investor Services analyst Aninda Mitra. According to an interview Mr. Mitra gave to Reuters news service on Wednesday.
“The government is constrained in its focus on long-term economic issues,” Aninda Mitra, Moody’s sovereign analyst for Pakistan, told Reuters in a telephone interview from Singapore.
“Its political position and legitimacy is constantly being questioned by various quarters, including state institutions as well as opposition political parties, and there is a somewhat tense relationship with the armed forces as well,” said Mitra.
“So all this exhausts the government’s political management capabilities, and limits the government’s focus on major economic issues.”
The government of President Asif Ali Zardari is under pressure from a hostile judiciary, sections of the media and the opposition led by former prime minister Nawaz Sharif.
Americans for Democracy & Justice in Pakistan released the following statement in response to this report:
“Moody’s B3 sovereign rating for Pakistan is a symptom of the larger issues in Pakistan our committee seeks to address. The government has been so hindered by the political maneuvering of opposition forces and a politically motivated judiciary that it ‘s efforts to improve the country’s economy and social well-being have been adversely affected. For example, the Supreme Court gave the National Accountability Bureau 24 hours (until today) to demand that the corruption case in Switzerland against President Zardari be re-opened, even though the previous ruling against Zardari in this case was overturned on appeal.”
“Investors, jobs, and economic growth are best promoted in a climate of political stability, with all sides working constructively together , within defined democratic processes, to improve the lives of the people. Citizens and political opponents must use the power of the vote, rather than strong-arm tactics, to create change. This is the formula for progress in thriving economies throughout the world. In spite of their rhetoric, political opponents are hurting, not helping, the people by undermining the sitting, democratically elected president rather than thinking creatively about how to generate economic progress.”
Foreign Direct Investment (FDI) has been down in Pakistan recently, in no small part due to fears of political instability as the democratic government has met a barrage of attacks – both from terrorists and political opponents – since it was elected. Analysts expect foreign investment in Pakistan to climb once investors’ fears about the security and stability of the government are assuaged.