Global crisis and war on terrorism
The International Monetary Fund (IMF) warned on Saturday that “debt-ridden banks were pushing the global financial system to the brink of meltdown” and “the rich nations had so far failed to restore confidence”. According to it, “solvency concerns about a number of the largest US-based and European financial institutions” have pushed the international financial system towards meltdown.
The reference is to the $700 billion bailout package sanctioned by the US Congress that the US thinks the world will finance by buying US treasury paper, but the world is threatened with recession as economies contract and the panic-stricken banking sector chokes off lending to businesses and households. The “credit crunch” is supposed to hit the developing states more severely. And the Group of 27, which includes India and Pakistan, says its economies could come crashing down.
In Pakistan, other crises are compounding the financial crisis. Lack of water in the dams has increased load shedding and the banks are on the brink of suffering runs as big deposits flee and salaried employees, succumbing to rumours, line up to encash cheques. The war against terrorism is on in Pakistan and the determination to fight is still not gelling sufficiently because of the noise made by the opposition in and outside the parliament after a briefing by the Army.
Under the economic crunch, Pakistan has asked its friends abroad to bail it out financially, especially to shore up its foreign exchange reserves that have shrunk dangerously lower than the value of its annual oil bill and other crucial imports.
The war against terrorism is a complex phenomenon and is linked to the ongoing conflict in Afghanistan. As our Army advances in Bajaur and makes gains against the terrorists, “foreigners” come across the Durand Line from the adjoining provinces of Afghanistan to undo them. These operations are expensive and are being funded by the US as a part of the war against terrorism which Pakistan has joined in its own interest. But it can fight on only if its economy is saved from collapsing totally. The effects of the global crisis are visible, and like the rest of the world our stock market is under pressure and money is being dollarised and sent abroad by panic-stricken investors.
Above all, Pakistan needs funds to fight terrorism. And to stay alive as a state to fight this war its economy needs injections of “friendly funds” to avoid defaulting on debt repayments and on payments due on its imports. Both crises strike at the root of the existence of the state. If it tries to win reprieve from the terrorists by accepting their sharia-related demands, the system they will replace the 1973 Constitution with will mean the undoing of the state as envisaged by its founding fathers.
Therefore, not so much for the sake of the world as for its own sake, Pakistan needs to survive the current global crisis. Thankfully, too, it is not as “globalised” as some states that are under threat of meltdowns and it can weather the storm if its friends at the forthcoming Friends of Pakistan forum can finance its deficits and leave it free to fight the terrorists.
But the scene is changing every minute in the world economy. The rich states with most to lose are turning inward and appear less ready to hand out money to a friend in need. Enthusiasm for the war against terrorism is also losing some steam as nations involved in Afghanistan become distracted by stringencies at home. Military commanders are already saying the war can’t be won. Unlike Pakistan, the war for them is a distant phenomenon and can be offset by mounting less expensive measures at home. Will the friends be forthcoming?
The US is squeezed by the current crisis. Even the Iraq war was fought by it with borrowed money. As the Council on Foreign Relations report of September 2008, titled Sovereign Wealth and Sovereign Power, puts it, “China and Russia bought the debt the United States issued to finance the war in Iraq even though they voted against the United States in the UN”. Saudi Arabia, which was favourably inclined to meet our request for a “deferred payment” package, may be a little shaken by the contracting demand for oil in the world and its steeply falling price. Iran, not our normal source for oil, has still to process our request for deferment sales. Will the Friends of Pakistan forum come up with the sort of money we need to tide us over?
China will definitely be a major player behind putting together the $700 billion bailout package. Its foreign reserves, standing at around a trillion dollars today, will help it withstand the global crisis. The threat to it of the rising oil price has subsided and if it helps Pakistan ride out the current crisis the funds thus saved would suffice. But China will probably wait till the Friends of Pakistan have shown their hand. Pakistan expects its Arab friends to step up to the plate. The war against terrorism has to be fought by Pakistan for its own survival. But the world also has a serious stake in it. (Daily Times)