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The Rediff Special/ Swaran Singh

A dangerous place

Government officials have indicated that the 1998-99 budget -- to be announced on June 13 -- will contain as much as 50 per cent cut in all non-developmental expenditure and provide for other measures to promote industrial growth along with stricter financial discipline. As part of the austerity measures Prime Minister Nawaz Sharief is reported to have decided to shift from his present secretariat to a more modest building.

According to initial estimates, the current account deficit in the first nine months of fiscal 1997-98 was $ 1.13 billion. The budgetary deficit is likely to reach $ 3.4 billion by the end of this year. Pakistan's National Economic Council, the country's top economic planning body, has said it will also review the salaries and allowances of government servants.

The United States, which has already announced sanctions, can halt the rollover of an estimated $ 700 million to $ 1 billion in commercial loans and credit lines for items like food and oil imports which are provided for by American banks. Finance Minister Sartaj Aziz has announced plans to launch three major campaigns to counter the sanctions. These include increasing exports, raising revenue and expanding agricultural production. He hopes to recover an estimated Rs 140 million of bad or overdue debt and to recover taxes paid only by one per cent of 140 million Pakistanis. All these projections look fairly ambitious, to say the least.

More optimistic analysts believe that since over 90 per cent of foreign assistance flows into Pakistan from multilateral donors, the reduced inflow of US aid may not really result in a complete economic collapse. Although the US and Japan have considerable influence over these agencies, not always have their opinions resulted in suspension of grants by the World Bank or the International Monetary Fund. The World Bank funds some 40 ongoing projects in Pakistan and is committed to funding capital market and banking sector reforms.

However, can Pakistan keep on track of the targets and the reforms it had promised? As per mutually agreed norms for these loans, Pakistan is required to meet certain targets for budget deficit, revenue collection, growth rate of gross domestic product and inflation in order to qualify for the $ 1.1 billion left in the IMF's $ 1.56 billion structural adjustment programme signed last October.

Pakistan's foreign debt repayment is likely to emerge as one major crisis. Some commentators fear that Pakistan may default on its foreign debt obligations as it faces spiralling inflation and cuts in development spending, resulting in an economic slowdown. According to World Bank officials, Pakistan needs $ 5.3 billion annually to service and repay its estimated $ 32 billion foreign debt, of which as much as 20 per cent is short-term.

Already, fearing a run on foreign currency bank deposits of about $ 10 billion, against official cash reserves of only $ 1.3 billion, the State (central) Bank of Pakistan shut commercial banks the day after the first nuclear tests on May 28 and froze all foreign currency deposits and budgetary transactions. It partially lifted the freeze the next day and allowed people to draw their foreign currency in rupees at the rate of Rs 46 per dollar against the official rate of Rs 44.05. According to experts, all this has caused irreparable damage to investor confidence. There will be very few commercial lenders and investors interested in taking an exposure in Pakistan even at a higher rate of return.

But apart from these purely economic costs, the implications of these tests for regional geo-strategic equations also portend an equally difficult future. There are a variety of reasons why Pakistan's weaponisation has made Pakistan anathema not only for this region but for all other proponents of non-proliferation. This is especially so because of its inherent linkage with Chinese supplies about which the US remains very concerned.

Secondly, it has linkages with Islamic countries like Saudi Arabia, Iran and Syria, and this threatens to spill over into the extremely sensitive energy epicentre of West Asia. This region remains critical to Washington's foreign policy formulations. There is no dearth of evidence to prove that right from its inception, Pakistan's nuclear capabilities have been visualised in terms of technology and training from China while the funding allegedly came from its Islamic friends. Some of these friends might one day pressurise Pakistan to share this nuclear technology.

Looking at Pakistan's extensive involvement in hosting and sponsoring insurgencies in Afghanistan and India during the last 15 years these fundamentalist organisations have obtained tremendous access and influence over Pakistan's power elite. It cannot be ruled out that these nuclear weapons are now far more likely to be slipped into the hands of terrorists. Even if such a formal transfer does not take place, there is still great potential for other complications. This is because, unlike the other six nuclear weapons states where the final control on nuclear weapons remains in the hands of a popularly elected civilian leadership, in Pakistan's case it is the military that controls not only the nuclear button but the entire polity of Pakistan, thus making it far more an instrument of militaristic thinking and far less accountable to Pakistan's public.

These internal pressures are now going to become more and more assertive. Having tested these nuclear devices, the Pakistan government will now be expected to make further allocations for building its overall nuclear deterrent -- warheads and delivery systems. According to a former army chief, General Mirza Aslam Beg, Pakistan spent $ 250 million on its nuclear programme during 1979 to 1992. Considering that this was during the inception of its nuclear programme, the expenditure is sure to be multiplied by Pakistan's post-Chagai requirements.

Moreover, this has to be seen against the backdrop of the steep fall in the value of Pakistan's rupee which was devalued by as much as 50 per cent in 1993 and has continued to slide following the nuclear tests. It is a well known fact that beginning in the early 1980s, Pakistan had continued to allocate vast funds for military purposes at the cost of economic security. During the decade 1986 to 1995, Pakistan's defence expenditure stayed at about 7 per cent of GDP and at about 30 per cent of its annual budget.

Such consistently high allocations have had an adverse impact on Pakistan's economic development. This has to be seen along with Pakistan's unusually high rate of annual debt repayment which is generally over 60 per cent of the total estimated revenue. During 1995, for which figures are available, defence expenditure (Rs 115 billion) and debt repayment (Rs 157 billion) together exceeded Pakistan's total revenue of Rs 265 billion. This trend has more or less sustained itself all these years.

There has been some decline in Pakistan's defence allocations these last two or three years, but this is understandable in terms of its push to its nuclear and missile programmes.

Pakistan's nuclear tests have further complicated India's policies, both towards Pakistan and China. This is because Pakistan's nuclear programme has inherent linkages with China's actions and policies towards India. Though it was widely expected, the visit to Beijing by Pakistan Foreign Secretary Shamshad Ahmed, followed by the nuclear tests on May 28 and 30, added to India's suspicions about China's motives and contribution towards Pakistan's nuclear tests.

To make this Sino-Pak linkage obvious, in his address to the nation on May 28, Nawaz Sharief sounded grateful when describing Pakistan's 'time-tested' relations with Beijing, saying, "Our friendship has been further strengthened." In India this is bound to be interpreted in the context of China's alleged involvement in promoting Pakistan's nuclear and missiles programmes.

The wildest speculation making the rounds have described the Pakistani tests as actually conducted by China which, it is said, decided to please its ally and also circumvent the CTBT. However, the failure of some of these devices does not lend credence to such speculation.

At a more serious level, since the late 1980s, there has been a well established, sustained correlation in China's development projects on various missiles and their arrival and announcement by the Pakistani leadership which proves how Islamabad owes most of its nuclear and missile arsenals to Beijing.

Finally, what makes Pakistan's nuclear tests particularly dangerous is that the Chinese have continued to ignore all these signals and play soft vis-a-vis Pakistan. China is now trying to gang up with the United States in declaring India as the culprit and protectiing Pakistan from the consequences of its nuclear response to New Delhi.

What is worse is that these nuclear weapons may not have to be actually used to unleash death and destruction. From the Indian point of view, looking at the immediate reaction within Pakistan, where the tests were followed by a declaration of a state of emergency and all transactions in foreign exchange halted, the most dangerous prospect of economic sanctions may be one where it results in Pakistan's internal instability and political disorder. This may be the most dangerous threat to India's security and peace.

Dr Swaran Singh, author of Limited War, is a Research Fellow at the Institute for Defence Studies & Analyses, New Delhi, where he specialises on China's defence and foreign affairs.

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