Can China fill the need gap?
By Shahid Javed Burki
Monday, 17 Oct, 2011
SINCE Pakistan gained independence 64 years ago, it has needed foreign funds to augment its poor domestic savings. That was generally true of all the countries that emerged from under colonial rule in the 1940s and 1950s and became independent.
This was also the time when improvements in public health added significantly to life expectancy in what came to be called, the developing world. Low savings meant low rates of investment which in turn meant low rates of GDP growth. Low GDP growth would translate into higher incidence of poverty for the rapidly increasing populations in the developing world.
The only way to break into this vicious cycle was to have government-to-government aid flow into the developing world.
Most developed countries came up with aid programmes while the World Bank and its sister regional banks were equipped to finance development in poor nations.
Pakistan`s leaders thought that they could use the strategic location of their country as an added reason why the West in particular the United States would come to its assistance. In the 1960s, the 1980s and the early 2000s, it received large amounts of aid from Washington.
Some $20 billion flowed into the country in the ten year period since the 9/11 terrorist attack on the US. Then president Pervez Musharraf responded positively to Washington`s call for help and the country was compensated by the Americans. The US launched attacks on Afghanistan on October 7, 2001 using Pakistan`s airspace.
These three periods of extensive American help produced one positive and one negative impact. The positive impact was that in each of these three periods the growth rate of Pakistan`s national product increased by 50 per cent, more than its structural rate of increase.
Without external help, Pakistan cannot have managed a GDP growth rate of more than 4-4.5 per cent a year. In the aid-abundant periods, the GDP increased by an average of 6.5 per cent a year. The negative consequence of foreigner assistance was that practically no effort was made to raise resources for de-velopment from within the economy.
Economists and financial people call this mode of behaviour `moral hazard`. If there are friends prepared to support, you turn to them during periods of crisis rather than make own sacrifices to avoid repeating the situation. For many reasons, that option may no longer be available to Pakistan at this time. The United States has gone negative on Pakistan. Its senior leaders continue to hold it responsible for the difficulties Washington is running into as it begins to pull out of Afghanistan.
Having softened somewhat the public statements issued by Admiral Mike Mullen who has recently retired as the chairman of Joint Chiefs of Staff in the US, the administration went back to beating on Pakistan.
On October 6, President Obama in a press conference called to address America`s economic difficulties was asked about Pakistan. His long answer was not encouraging for Pakistan. `I think that they have hedged their bets in terms of what Afghanistan would look like,` he told the press.
`And part of hedging their bets is having interactions with some of the unsavory characters who they think might end up regaining power in Afghanistan after coalition forces have left. The United States will constantly evaluate Pakistan`s cooperation. But there is no doubt, you know, we`re not going to feel comfortable with a long-term strategic relationship with Pakistan if we don`t think that they are not mindful of our interests as well`.
The American president left no doubt in the minds of his listeners at the press conference where his country was headed in terms of its relations with Pakistan. One newspaper analyst drew the right conclusions. `Mr Obama`s remarks seemed to call into question whether the United States could continue supplying Pakistan with billions of dollars in military and economic aid, as it has done since the September 11 attacks, if its intelligence service could not be persuaded to drop its support for militant groups long used as proxies against India and Afghanistan, wrote Rick Gladstone of The New York Times.
This is a demand Pakistan is unlikely to meet given the sentiment that exists in the country about the United States.
A recent Pew Center survey reports that only 12 per cent of the Pakistani population has a favourable view ofthe United States.
As suggested in an earlier article in this space withdrawal of economic aid by the United States will not be disastrous for the Pakistani economy. But military aid has been significant and since money is fungible its decline will put pressure on the country`s already precarious resource situation.
It is the hope of the Pakistani policymakers and its citizens that China will step into the gap, increasing its already significant involvement with Pakistan.
But there are serious doubts in some policy circles whether Beijing would be prepared to commit itself to Pakistan`s development as much as the Pakistanis would like.
According to one analysis, `a rising China with global ambitions is unlikely to supplant the United States in Pakistan.
And while Pakistan`s latest flirtations with Beijing have been received cordially, Pakistani officials have walked away from their junkets with far less that they might have hoped.
Nonetheless, the two countries do share a strategic interest in limiting India`s rising influence in the area. Beijing in particular would not want a very close relationship to develop between Washington and New Delhi. All the talk about, `all-weather friendship` between the two countrieshas yet to be translated into close economic links.
For instance trade between China and Pakistan remains less than significant. It has grown to $9 billion with Pakistan`s exports only a billion dollars. China`s trade with India, on the other hand, exploded from $2.9 billion in 2000 to $61 billion in 2010. This was a twenty-fold increase in a decade.
At some stage China would like to develop a naval presence in the Arabian Sea and also gain access for its western provinces to the sea. This would mean upgrading the port at Gwadar on the Balochistan coast and the Karakoram Highway.
According to the analyst quoted above, China`s `core interests lie somewhere else -in its competition with the United States and in East Asia. It has shown little interest in propping up the troubled Pakistan economy, consistently passing up opportunities to do so.` The implication of the American displeasure with Pakistan and not enough interest on the part of the Chinese is that Pakistan will have to rely on its own resources to finance the working of the government, pay for defence and invest in development. No country has ever succeeded in moving towards sustainable development without investing its own resources.
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