View Full Version : Pakistan's Arms Race And Financial Woes

11-11-2008, 08:59 AM
Pakistan's arms race and financial woes


(Gold9472: What I think is funny is that the world seems to think that the U.S. had no possible knowledge of the ISI's connection to Al-Qaeda, and the U.S. was "double crossed" with the money they gave them. As if a lowly U.S. citizen such as myself, has more intelligence than the CIA, the DIA, etc...)


Toronto, ON, Canada, — Pakistan is in financial trouble, with its foreign reserves nearly depleted for the second time in a decade. Pakistani President Asif Ali Zardari visited China last month to appeal for US$1.5 billion in assistance – out of a total of US$4-5 billion needed – but it seems he did not get a positive response.

In 1996, a similar situation occurred. At that time, the Pakistani finance minister rushed to China for an emergency loan of US$500 million, which he received. The same tactic did not work this time around.

How did Pakistan get into this problem? It is related to expenditures channeled into a continuous military buildup to confront India. Pakistan’s military has a sole objective – to defeat India and avenge the surrender of Pakistani forces in huge numbers in Bangladesh in 1971. To this end the country has forsaken national development and spent its money on military modernization to keep up with India.

In the past seven years, from October 2001 to August 2008, a benevolent United States handed over US$10.5 billion to Pakistan. Of this, US$7 billion was military aid to capture al-Qaida leader Osama Bin Laden and neutralize the Taliban, while the remaining US$3.5 billion was economic aid.

With this money the United States expected Pakistan to leave no stone unturned and catch the 9/11 culprits and their benefactors. However, none of this money was ever spent on finding bin Laden. Instead, it paid for heavy military equipment to match India’s military hardware, while the poorly equipped Frontier Constabulary, a paramilitary group of tribal fighters, was tasked with fighting the insurgents. It lost heavily in each encounter.

With the U.S. money, Pakistan bought 40 new F-16 fighter jets and refurbished the 35 or so previously supplied; purchased three P-3B naval surveillance planes fitted with E-2C Hawkeye airborne early warning systems and 26 Bell attack helicopters; ordered three airborne early warning systems from Sweden; purchased 300 T-89 tanks from Ukraine; ordered multiple Agosta submarines from France; added 100 Harpoon missiles from Lockheed Martin and ordered 100 JF -17 fighter jets from China. Pakistan has also taken delivery of four frigates for its navy from China and has ordered four more. The list goes on.

India, in the wake of the 1999 Kargil misadventure by Pakistan, decided to upgrade its armed forces. India is seven times bigger than Pakistan, has a roaring economy and can afford escalating defense expenditures.

For Pakistan, whose economy is one-tenth that of India, matching everything is economic suicide. India spends US$24 billion a year on defense, or 2.1 percent of its gross national product, which is modest for its size. Pakistan’s military expenditure of US$9 billion plus the annual US$1.5 billion in military aid from the United States is 3.5 percent of its gross national product, which is way too high.

Pakistan spends more than 50 percent of its overall annual budget of US$19 billion on defense. Since the military has controlled this budget, it has remained hidden in the name of nationalism and security.

Pakistan’s military leaders painted a very progressive picture of its economy from 2003 until 2007, trying to show that U.S. aid was working for the welfare of the people. However, it was all hogwash. The economy underwent some improvements during this period, but the military remained the leaders’ main focus and they went on a spending spree. Fighting al-Qaida and the Taliban was simply an excuse to get U.S. aid.

Pakistan’s inflation this year is 24 percent. Its trade deficit has widened exponentially to US$22 billion, thanks to high oil prices, and its GNP is purported to have grown 5-6 percent in the last five years. However, these statistics could be faulty.

Exports, the main dollar earner, are stuck at about US$19 billion per year. Gross domestic product, at about US$110-115 billion, does not allow huge expenditures on defense. But Pakistan continues to borrow and spend. The US$15 billion remitted home by Pakistani citizens abroad has kept the nation afloat. People are now wary, however, and turning to mosques for guidance, with dire results.

Due to their burning desire to capture or kill Osama bin Laden, the Americans paid no attention to Pakistan’s double cross. Americans assumed that General Pervez Musharraf was doing a fine job. But sometime in 2006-07, Americans became aware that they were being sweet-talked. Musharraf had taken their money with no intention of catching bin Laden.

So, the United States stepped up its military raids into Pakistan’s frontier territories, where al-Qaida terrorists and bin Laden were allegedly hiding. The U.S. raids did not go well initially; they only infuriated the locals. Local thugs calling themselves the Pakistani Taliban began to blame Musharraf for the U.S. raids and retaliated against Pakistan’s Frontier Constabulary.

The Frontier Constabulary was no match for the Taliban and al-Qaida, who were regrouping in the frontier region. Time was on their side. They would sit out and strike at the right time, which they successfully did. The United States tried to persuade Musharraf to rush his huge army to the border region, but he refused.

Only when suicide bombers began hitting cities did Musharraf send the army to the border regions. By then the situation was out of control. The United States began to take a second look at the situation. Although this rang alarm bells for Musharraf, he continued his sweet talk. He relinquished his office in early 2008, but not until all orders for military hardware purchases had been placed.

In late August, when foreign reserves slid toward zero and an immediate cash infusion was needed, the new civilian government began sounding the doors of foreign governments. The United States understood the situation and immediately advised International Monetary Fund remedies. The Pakistani leadership, however, preferred to consult Saudi Arabia and China, who in turn would make no promises without consulting the United States. Now Pakistan is in a bind with only the IMF remedy remaining.

Pakistan is wary of dealing with the IMF as it hates two conditions that come with its aid package: a budget deficit reduction and a 30-percent cut in defense expenditures. So far only informal consultations have taken place. The IMF can relieve Pakistan’s monetary crisis, but will curb its spending on military hardware. This is a hard pill to swallow for the Pakistani army.

Ten years ago, the formidable prime minister of India, Atal Bihari Vajpayee, vowed to tackle Pakistan permanently. His technique was similar to what U.S. President Ronald Reagan did to the Soviets in the 1980’s – invite them into an arms race. He hoped that just as the Soviets bankrupted themselves in that arms race, Pakistan would do the same. Vajpayee was right. Today Pakistan has bankrupted itself trying to match India bullet for bullet, in the process ignoring its civil and social progress.

If China or Saudi Arabia were to step in and rescue Pakistan, it would ensure the continuity of its arms race with India. They would not insist on a 30-percent reduction in its defense budget. So, greater perils lie ahead for Pakistan.

In summary, there is an alternative for Pakistan to turn around its financial mess – make peace with India and halve its military expenditures. That would permanently remove the military from its power base, and civilian progress would wean the leaders from their destructive politics.