Asia Times: Pakistan's payback; what payback?


	February 15, 2002	atimes.com

India/Pakistan

Pakistan's payback; what payback?
By Nadeem Malik

ISLAMABAD - President General Pervez Musharraf's visit to the United States has definitely highlighted the geopolitical significance of Pakistan after a decade of sanctions, mistrust and economic turmoil, but it appears that the urgent demands of the United States have overshadowed the longstanding, important requirements of Pakistan.

If he ends his visit without solid promises of financial injection, debt relief and military hardware support, Musharraf will be obviously disappointed over the payback terms. The United States has not changed its position on the sale of F-16 fighter jets, which are badly needed in the given regional situation. And the US has maintained its broad policy lines of priorities being the continued progress of anti-terrorism efforts, the recovery of kidnapped Wall Street Journal reporter Daniel Pearl, and the de-escalation of tensions with India. Whereas the Pakistani delegation was expecting a bigger focus on trade concessions, debt write-offs and military sales.

Musharraf went to Washington after accomplishing a job for which many believe he was not competent. Siding with the United States in the face of tough domestic resistance, his abandoning of support for the Taliban, who were so close to the heart of the military, and above all his bold position to take on extremist religious groups and madrasas (Islamic seminaries) were previously unthinkable from a Pakistani general who was labeled as the "Kargil Guy" before the events of September 11.

In return for this paradigm shift in its foreign policy and domestic approach, Pakistan first got some economic and financial gains that were crucial to stabilizing the vulnerable debt profile of the country. Agreement with the Paris Club creditors and new multilateral arrangements with the International Monetary Fund, World Bank and the Asian Development Bank had infused some hopes that the external quagmire would probably end in the medium term.

The first concrete indication of these developments was a rating upgrade by Moody's on Wednesday, from Caa1 to B3. That's still below investment grade, but at least better than the Selective Default (SD) category that Pakistan was in only a few years ago. Moody's noted that the current geopolitical climate benefits Pakistan financially in spite of the recently heightened tensions with India, which could yet precipitate a dangerous escalation in their hostilities. "Taking the opportunity afforded by its newfound global respectability, the government has negotiated a generous debt restructuring with the Paris Club and earned improved trade access to the European Union and Japanese markets, with additional military, trade, and financial assistance likely to be won from the United States as well."

This latter part of the deal was more significant for Musharraf - and Pakistan - as he celebrates with US President W Bush the outcome of their newfound "friendship". There are strong indications and suggestions that the United States will extend sizable support for education reform in Pakistan, but there are no concrete and specific numbers on the issues of debt forgiveness and defense sales that Musharraf was looking for as a reward.

"Together, our nations will continue to cooperate against terror and trafficking in drugs. We will strengthen the ties of trade and investment between our nations. We'll work to improve educational and economic opportunities for all Pakistanis, especially women and children," Bush said in the joint news conference.

Bush and Secretary of Defense Donald Rumsfeld both avoided specific numbers and values, beyond reiterating that "we are committed to [providing] support in every possible sphere of bilateral cooperation". However, Musharraf was clear on what he wants from the United States: not only help to stabilize and strengthen Pakistan, but also concrete action to show his people the advantages of engagement over estrangement with the United States.

"There's a list of our requirements which we have discussed. And the defense consultative group will look into the physical side of what we are [looking for], and what we need to address. I think the future holds good for our relationship and for the equipment that you are talking about in concrete forms. As time passes, things will start happening," Musharraf said on the question of defense sales. US Undersecretary of Defense Doug Feith will represent the United States in negotiations to restore defense cooperation with Pakistan to pre-sanctions level, said Rumsfeld. Wide-raging sanctions were imposed against Pakistan after the withdrawal of the Soviet Union from Afghanistan in 1989.

However, defense analysts believe that the United States remains reluctant to sell state-of-the-art aircraft, which was one of Musharraf's biggest priorities. In the immediate future, however, the sale of military equipment, border security tools (including helicopters) and intelligence-gathering gadgets (including modern radar systems), could be a possibility. There was also some talk about the leasing of military hardware and the transfer of excess defense articles.

Musharraf said that he would also talk about a possible debt writeoff. Pakistan owes US$3 billion to the United States and was hoping that a part of this loan, or at least the interest on the outstanding liability, could be written off. Bush, for his part, expressed his willingness at least to discuss the issue.

However, on the subject of trade access, there appears to have been a major setback. The amount indicated so far is just $142 million in the shape of additional quotas for textile apparel and other products. Islamabad, however, was anticipating relief similar to what was offered it by the European Union - a direct benefit of $1 billion through to 2004. White House press secretary Ari Fleischer said that this issue is still being discussed. "There are many people on the Hill who have strong opinions about that issue. So those discussions are ongoing."

Regarding fresh money flows, Fleischer said that Bush has committed $200 million worth of economic assistance to Pakistan, which will result in a paying down of the Pakistani debt. Fleischer said these funds were part of the fiscal 2003 budget, but admitted that Pakistan had requested even more funds for this year. The United States has taken the position that if you pay $200 million now, it would accrue a benefit of $1 billion in debt payments over the years in net present value terms.

Pakistanis will not be at all happy with this limited return for their strategic shift in the region. There were large expectations that remained unmet. Although Bush made a strong statement to remain engaged in a long-term partnership with Pakistan, the latter will see it more as a measured response based on Washington's perception of Pakistan's steps forward in the former's policy interests, rather than as a lucrative friendly gesture to strengthen Pakistan.

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