A Dialogue On Pakistan’s Future Challenges – Dr Maleeha Lodhi

A two-day conference convened by the Atlantic Council in Washington last week saw Pakistani participants having a conversation more among themselves than with their American counterparts.

The first day witnessed a rich debate on Pakistan-US relations and the regional environment, including Afghanistan. But on the second day’s discussion of Pakistan’s economy and governance, several Pakistani participants seemed not to see the point in connecting these issues to bilateral ties or broader foreign policy, which was the conference’s apparent purpose. Instead they turned these sessions into a rant about Pakistan’s ills.

My intervention that Pakistan is already the world’s most over-diagnosed country was lost on those who seemed to relish going on about Pakistan’s problems rather than engage in a constructive dialogue that involved proposing solutions.

In spite of this, the conference provided thoughtful insights into the present and future course of Pakistan-US relations. The Pakistani side presented familiar though instructive perspectives. It was generally agreed that relations were in a better place compared to the recent past. The relationship however was in transition although it was unclear what it was transitioning to.

Observations by two former American officials were particularly interesting. One of them recalled that for some time both countries kept pretending all was well. But this gave way to a phase in which Pakistan was blamed for everything. Salala, he said, was a turning point, which underscored the limits to US ability to force Pakistan to do as Washington wished.

At present, he said, the two countries could only agree on short-term, tactical issues, as there was no articulation of longer-term shared goals. Counter terrorism, he pointed out, was not a strategy. Any relationship based on that would necessarily be limited.

Relations appeared steady right now mainly because the region was off Washington’s radar, he argued. If US policy was one of withdrawal and its attention had shifted elsewhere, that obviously reduced the chances of friction. The US currently “cared too little about South Asia to have a strategic conversation” with Pakistan. And at a time when US foreign policy lacked clarity, that didn’t give countries a good reason to hitch their wagon to Washington.

His characterisation of the present relationship was that its anchor – security – was too narrow. An economic orientation of relations could provide an important counterweight. But that required fundamental economic change in Pakistan. This has yet to happen. Pakistan is not part of any emerging market discussion because it is not positioned there. But in the future, the middle class, Pakistan’s “biggest asset”, should be befriended by America as its “natural partner”.

The other American speaker, a former defence official, raised the question of where Pakistan fitted in with Washington’s two top geopolitical priorities: a Middle East in turmoil and the US ‘rebalance’ to Asia. On the latter, he foresaw Pakistan to be “hypersensitive” to China’s concerns. Even beyond this, Pakistan will insist on autonomy in its relations with the US.

Discussing the growing strategic/defence relationship between the US and India (even though India had been “very slow on the pickup”) he said this held “enormous potential to enable India to modernise and upgrade its military capabilities”. But Washington needed to recognise the impact of this on Pakistan, whose conventional military capabilities had already diminished over time, forcing it to rely more on nuclear deterrence.

There were two options for US policymakers with regard to Pakistan. The dominant (though not unanimous) view according to him, was to give up, especially as weariness with the ‘Af-Pak’ region had set in, despite a recognition that this approach would lead to greater regional instability.

The other approach, which he advocated, was to engage meaningfully to identify and cooperate on overlapping geopolitical interests. He acknowledged that so far, the so-called strategic dialogue between the two countries had neither been strategic, nor a dialogue.

Mohsin Khan, economist and former IMF official, made a thoughtful presentation. He said in principle there was great merit in the pitch made by successive Pakistani governments to Washington that they wanted trade, nor aid.

There was overwhelming evidence that trade (and FDI) are the engine of growth and create jobs. Aid did neither. But in reality, all Pakistani governments have wanted both aid and trade. Rarely, if ever, has Islamabad offered to “forego aid for trade”.

Mohsin argued that ‘trade not aid’ was an empty slogan until Pakistan got its act together. This meant addressing its narrow export base as well as improving competitiveness. He asked how much Pakistan would gain if opposition within the US was overcome to allow duty free imports, including textiles. The gain was calculated to be around $2 billion a year. But even that would depend on Pakistan out-competing other textile-exporting countries enjoying a similar trade advantage.

He cited Pakistan’s telling experience with the GSP-plus status secured from the EU. Textile exports to Europe in fiscal year ending June 2014 increased by a billion dollars. But in the same period, textile exports fell to the rest of the world. This suggested a combination of trade creation and trade diversion, making the net benefit quite modest.

Pakistan, therefore, needed to develop new export industries, move up to higher value added products and maintain competitiveness. Mohsin and other speakers stressed the need for Pakistan to extricate itself from a low-level textile equilibrium trap. Bangladesh, it was pointed out, had already surpassed Pakistan in exports last year.

Mohsin also questioned a former Pakistani minister’s repeated claim during the conference that “Pakistanis just don’t like to trade or sell their products to anyone”. His retort was that Pakistan earns $16 billion annually through remittances from the export of manpower. Trade doesn’t just involve commodities.

Speakers from Pakistan’s business community voiced greater optimism about the country’s economic future while recognising the daunting impediments, especially crippling energy shortages and bureaucratic red tape. Attractive opportunities exist in a large and quality conscious market where the middle class is growing, said a leading captain of industry. Sectors like IT have seen new entrants and dynamic entrepreneurship.

Shahid Javed Burki also outlined several positives, citing the spurts in growth the country had achieved in three distinct periods of its economic history. But he also underlined how the country perpetually lived on the brink, knowing that someone will bail it out.

He recalled that when he took over as interim finance minister, the country’s foreign exchange reserves had plunged to $42 million and not $342 million, as often believed. Another speaker said that elsewhere in the world, crisis bred reforms. But as Pakistan had always been bailed out, it felt no compulsion to reform.

There was consensus at the conference that Pakistan’s economic fortunes rested on wide ranging structural reforms and poor governance defeated even the best-devised economic policies. Good policies and good governance could quickly turn the economy around. But this required a constituency for reform and it was unclear whether one existed.

A former American diplomat echoed a point made by many Pakistanis about the link between politics and what economics could achieve. He said the country’s elite had not adjusted to the world around it and entrenched privilege remained a barrier to reform. Parties of patronage were resistant to change so the very structures of politics had to change to create an environment for reform. Most delegates put their faith in Pakistan’s burgeoning middle class, even though questions were raised about its size and homogeneity.

Many participants offered a welcome antidote to the excessive cynicism of others. But everyone converged on the point that Pakistan’s problems could only be solved by Pakistanis, not outsiders.

As for Pakistan-US relations, the challenge was to reconfigure the post-2015 relationship by identifying areas of common interest in a rapidly changing but increasingly unsettled world.