A New Great Game: Pakistan, America, and China

Pakistan and America

If you were the US press secretary and a reporter asked you to summarize America’s relationship with Pakistan, what would you say? The Obama administration championed  reference to Pakistan’s changing “strategic calculus,” but, although catchy, it doesn’t encapsulate the raw disappointment of the relationship, see Osama Bin Laden’s hiding. Perhaps, being skilled at averting difficult topics, you would characterize the relationship as a “challenge,” mentioning Pakistan’s help in Afghanistan and how they could help further. But if a quick witted reporter follows up to ask why Pakistan explicitly supports US adversaries in the Afghan Taliban and Haqqani Network while aiding America’s fight against other extremist groups such as Al Qaeda and the Pakistani Taliban, how does one answer? Perhaps you could write an American haiku, a tweet:

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It certainly seems reasonable to express the relationship in a dollar value, because America has given large sums of aid to Pakistan for quite some time. American aid can be split into two categories: military aid and economic aid.

pakistan aid

The Obama administration decided early on to provide carrots in the form of the Kerry-Lugar-Berman bill (Official Bill) to bring Pakistan towards the global community. The idea was to separate defense and development aid, isolating development aid from the geopolitical mess that defines Middle Eastern politics. This is intuitive because it would allow for economic aid and development to function with long term economic planning. Overall the bill allowed for a possible $7.5 billion disbursement over five years. Lastly, economic aid increased at the expense of military aid. Economic aid from fiscal year 2010 to fiscal year 2014 was 41% of total aid. For reference, economic aid averaged to be almost exactly 30% during the Bush administration.

The Kerry-Lugar-Berman bill ran into problems almost immediately. Not surprisingly, effectively dispersing a billion dollars a year proved difficult. Legitimate road blocks included corruption, security, capacity of local partners, and lack of necessary economic reform. What this meant is that a large and often majority of the money the United States government earmarked for long-term economic aid to Pakistan went unspent.

Pakistan aid 2

If you scale back our initial query of the America-Pakistan relationship to Developed World-Pakistan relationship, the picture is bleak. In more than a decade the developed world provided carrots and sticks across economic and military vectors. Importantly, the United States wasn’t the only country attempting to court Pakistan in defense and economic development. It has been a global effort.

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Further aid came from multilateral institutions. The Asian Development Bank provided $4.4 billion from 2009 through 2012. The World Bank currently has $5 billion worth of projects in Pakistan. Following the Great Recession the IMF dispersed more than $5 billion to Pakistan over 2 years.

Here is the rub. Pakistan’s foreign policy since 1980 has revolved around exporting violence. Pakistan and America worked together to fund terrorists in the 1980s to fight the Soviets in Afghanistan. When the Soviet-Afghan war ended America stopped funding those terrorist and expected Pakistan to also not continue funding for terrorists, not develop nuclear weapons, and not hedge its terrorist connections to accomplish foreign policy goals (create a constant friction with India as justification for the military to dominate all forms of government). These foreign policy objectives greatly affect the reality for everyday people inside Pakistan. Roughly 60% of Pakistan’s population lives on less than $2 a day. Around 40% of people in Pakistan can neither read nor write. 44% of Pakistani children under 5 are stunted. It is no coincidence that a state supporting terrorism is plagued by school’s being razed. It is no surprise that a country that sponsors terrorist cannot develop a working economy. It is no surprise or coincidence that Pakistan is currently on the precipice of total economic failure; given the path Pakistan has chosen, it is expected.

What then did a wide variety  of carrots and sticks from different actors and administrations yield since the end of the Soviet-Afghan war?  Pakistan continues exporting terrorism and violence all over the world, fails to develop a sustainable economy, and fails to provide for its people. Pakistan acquiesces safe havens for the Afghan Taliban and its vicious Haqqani branch in Pakistan. Worse yet, Pakistan has provided direct military and intelligence aid to both groups, resulting in the deaths of U.S. soldiers, Afghan security personnel, and civilians, plus significant destabilization of Afghanistan. Here (Wikipedia) is a good start to the list of global violence that Pakistan harbors.

So, dear reader, if you were the White House Press Secretary, how would describe the United States relationship with Pakistan? At risk of sounding melodramatic, nouns like failure and adjectives such as disastrous seem appropriate. Human lives and billions of dollars have been given with no change to Pakistan’s strategic calculus.

Long Term Goals

Given the lives, money, and outcomes, what should be done? I don’t think it is extreme to stop providing aid, something the United States has already done. I also don’t think it is extreme to say that without global support Pakistan will remain a quagmire. Before we write off the 200 million people that make up Pakistan, it is worth outlining what the best outcome for the country is.

Two thoughts should prove important to the global community’s response to Pakistan. First, it is in the global community’s interest to integrate Pakistan. To quell violence and provide alternatives for a better life, Pakistan’s economy must develop. A sustainable economy is a prerequisite for safety. Secondly, is the following quote taken from the excellent must read, The Great Convergence:

From 1820 to 1990, the G7’s share of global income soared from about a fifth to almost two-thirds. For the past two decades, the G7 share has been torquring downward at a mighty pace. Today it is back to the level that it first attained at the very beginning of the 19th century… Accompanying this ‘shocking share shift’ was a changeover in manufacturing. Curiously, the G7’s share loss of manufacturing showed up as share gains in very few nations. Only six developing nations (China, Korea, India, Poland, Indonesia, and Thailand ) saw their share of world manufacturing rise by more than three-tenths of one percentage point since 1990. The curiosity lies in the fact that the effect is so concentrated.

Why should the impact of globalization be so narrow geographically? It is worth reading Richard Baldwin’s book, but the answer doesn’t concern the relationship between developed countries and Pakistan. Instead our two points create an interesting summary: Pakistan should develop into a responsible member of the global community, but since 1990 globalization’s big success is limited to a group of six countries.

Developed countries don’t have the means or ways to develop Pakistan. Will is not enough.

One Belt One Road and America’s Own Goal

Pakistan’s economy is staring down complete failure in the form of a balance of payments crisis.  Pakistan runs a large trade deficit and exports too few goods to pay, in dollars, for its imports. In this past year, Pakistan has repeatedly lowered the value of its currency in order to make its exports more competitive. Pakistan’s problem is two fold. First, the country isn’t competitive. Secondly, Chinese imports for the China Pakistan Economic Corridor (CPEC) are creating short term debt management problems.

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Donald Trump’s tweet quoted a wasted investment of $33 billion over 15 years. China, through CPEC and One Belt One Road, has made plans to invest up to $62 billion. Long term questions such as how China can efficiently allocate such a large sum of money persist, however how Pakistan can pay Beijing in the short term is proving the more immediate concern. Payment scheduling and Beijing’s terms for investment aren’t publicly available, but it is publicly known that Pakistan lacks the ability of continue its current path of massive imports.

China has gone to great lengths to accommodate Pakistan. To stave short term financing problems, China recently provided a $2 billion loan. This is on top of currency swap agreements between China and Pakistan which were doubled to nearly $3 billion in May.  Pakistan’s financing woes at a time when Pakistan plans to request a $12 billion IMF bailout  is raising eyebrows.

Pakistan’s payments to China must add to the depletion of foreign currency reserves, and the Wall Street Journal recently revealed that Pakistan is falling behind on payments for several projects. It is not clear that any bailout to Pakistan by the IMF would not bailout the existing projects along the China Pakistan Economic Corridor. 


世界舞台上的习近平 “Xi Jinping on the World Stage”

Forgive me for seeing China’s $60 billion investment in Pakistan’s potential upside as far outweighing its downside, provided IMF funds aren’t used to bailout Chinese hubris. US Secretary of State Mike Pompeo warned the IMF of bailing out Chinese projects, but I fail to see why the IMF should be bailing out Pakistan at all. Why is the Asian Investment and Infrastructure Bank not taking the lead? It is an own-goal for America not to be able to encourage the AIIB to take on responsibility. As an aside, my thoughts on the importance of the AIIB are similar to Michael Pettis’s.

The AIIB was created to finance long term investment projects across Asia. Why wouldn’t the AIIB be able to fill the gaps in Pakistan’s foreign currency payments, to China no less? It is an absolute mistake that the United States isn’t encouraging a rival with a debt problem to expand its balance sheet into an area that developed countries have failed to develop.

If Xi Jinping wants to expand China’s global footprint, China will be confronting some of the greatest challenges of the past 100 years. If China wants to court the Taliban and create an economy that works in Pakistan, the world should wish them the best of luck. If there is a new great game in which China and America compete for the ability to shape global rule sets, it is not a loss for China to take an expensive position in Pakistan. This is especially true when the America-Pakistan relationship can best be described in one noun: failure.