Why
America oppose IMF funding to Pakistan?
Dr
Shabir Choudhry London
17 August 2018
In reply to
my paper on ‘IMF package, Pakistan and
CPEC’, Mr Nafees Muhammad sent me the following email:
Dear Dr. Shabir
Choudhry saheb,
Thanks for sharing a
good article on the subject that reviews the issues from different angles and
provides answers to many unanswered questions. However, it remains short
of addressing one point that keeps boggling my mind; Why does US think that the
IMF loan would be used to pay off loans acquired from China? If Pakistan
does make use of this loan for this purpose why does it cause any concern to
USA? After all, the loan is loan and it would be paid back by Pakistan on
the terms and conditions of the IMF. Any insight on this subject would be
appreciated.
New
Pakistan is being made with old style politics, horse trading, massive rigging,
bribing and blackmailing corrupt politicians. In order to get the desired
results, PTI and establishment assembled all corrupt people belonging to other
parties and urged them to support their agenda or face consequences.
From
this, it is clear that old politics and old style tricks will continue in new
Pakistan. The engineers of new Pakistan were so confident of their success that
they did not even care to change the bottle, or put a new label. They know
whenever there is a competition or tug of a war with the ‘bloody civilians’
they always win.
With
the change of government in Pakistan, the Pakistani politics will not change. Overnight
they will not become pious or corruption free society. Their bad habits will
surely have negative impact on the CPEC investment, which is the biggest in
history of Pakistan. To make matters worse, the leaders of new Pakistan have no
experience in governance. Also, they lack political maturity, required
seriousness and sincerity.
Although
Imran Khan says he wants to lower trade deficit and provide new opportunities
to entrepreneurs, especially expatriate Pakistanis and Azad Kashmiris. These
people have ability to bring - in massive investment, provided they get
security and conducive environment, which is extremely difficult in a country
like Pakistan.
Wil
the new government be able to provide the required security and facilities
required for the investment? Will they be able to satisfy competing demands of
the provinces? Will they be able to stop rampant corruption and bad working
practises?
Moreover,
Pakistan urgently needs peace within, and with its neighbours. That is exactly
what the former Prime Minister of Pakistan, Nawaz Sharif ventured. His efforts
were fiercely opposed by the establishment and their political foot soldiers.
Three times elected Prime Minister of Pakistan was accused of being ‘Modi ka
yaar’ and a ‘traitor’. After hard work of establishment and judiciary, Nawaz
Sharif is in Adiala Jail now.
Will
the establishment allow Imran Khan to pursue the policy of Nawaz Sharif, and
establish friendly relations with India, and keep hands off the matters in
Afghanistan?
Situation
in Afghanistan is getting out of hand. Once again allegation is that the
Taliban are supported by the Pakistani establishment. If this support continues,
or situation continues to deteriorate in Afghanistan, it will have very serious
ramifications for Pakistan. The interested parties can also create security
problems for Pakistan and the CPEC.
It
is also feared that with the temperament of Imran Khan, he may clash with his
mentors and engineers of the new Pakistan, which can jeopardise the entire
project.
American concerns over the IMF bailout.
Apart from what the US Secretary of
State, Mike Pompeo, said about the IMF bailout, there are other politicians who
are seriously concerned about this bailout and how it may be utilized.
A group of sixteen American Senators
have communicated their serious concern on the IMF bailout to countries that
have taken out ‘predatory Chinese infrastructure financing’.
In a letter dated 3 August 2018, to
Mike Pompeo and Steven Mnuchin, Treasury Secretary, the Senators requested the administration
of Donald Trump to deal with the ‘dangers of China’s Belt and Road Initiative’.
The letter mentions $1.5 billion IMF bailout
programme for Sri Lanka in 2016, because the country agreed to take out
unsustainable loans from China for infrastructure projects. In this context,
serious concerns were expressed about Pakistan’s economic situation mainly
because of debt obligation acquired because of the CPEC projects.
The letter explicitly holds China
responsible for these unsustainable infrastructure projects and subsequent
economic crises by saying that:
‘These financial crises illustrate the
dangers of China’s debt trap diplomacy and its Belt and Road Initiative to
developing countries, as well as the national security threat they pose to the
United States’. 1
It
is believed that there are around 68 countries which are hosting China’s One Belt
One Road funded projects; and 23 of them are ‘at risk of debt stress’. Furthermore,
eight countries have a serious threat ‘about sovereign debt sustainability’.
The
Centre for Global Development report expressed concern about behaviour of
Chinese creditors have ‘not been subject to the disciplines and standards
that other major sovereign and multilateral creditors have adopted
collectively, and in the process, debt levels and dependence on China are
rising’. 2
When
countries trapped in quagmire of economic crises and negotiate with China to
free themselves from growing debt, they feel incapable to resist pressure, and
end up giving up parts of sovereignty and strategic assets. Furthermore,
Beijing uses economic muscle to influence important foreign policy decisions.
These
Senators and many strategic experts fear that Pakistan will also encounter the
same fate like Djibouti and Sri Lanka; and may end up giving strategically
important Gwadar port and other concessions to China.
With
a naval base in Gwadar, and with help of ‘string of pearls’, Beijing will have
a permanent presence in the Indian Ocean. America, India and some other
countries are alarmed of this prospect, as this pose a serious threat to their
economic and strategic interests.
Amar Diwakar,
a research consultant writes on this top:
Furthermore, as China grows in size and developing economies become
increasingly dependent on its markets and exports, there are signs that it is
starting to infringe upon the sovereignty of its debtors by leveraging
infrastructure financing into geopolitical purchase. 3
It
is no secret that America and China have serious differences on various
international issues. They have trade war going on. Rise of China, economically
and militarily, is perceived as a serious threat to American interests.
Slowly
but surely, China is establishing a new economic world order that will
eventually pose a serious threat to the economic world order established by
America after the second World War. In its own way, China is building alliances
with either like - minded countries or with those who are depended on China.
Ultimate aim is to make China great again and dominate the world politics by
using its economic muscle.
America
is aware of the designs of Beijing, and want to deal with it before it becomes
a potent threat. Washington is the major contributor to the IMF. They have no
objection on IMF provide bailout package to Pakistan, as long as that package
does not strengthen Beijing’s agenda of dominating the world economic order.
In
this context, all the CPEC projects, or in broader sense, all projects that are
part of the BRI could be viewed as projects that will empower China’s agenda.
IMF
bailout packages come with conditions, and an economic plan. The recipient
country is given a list of actions which they have to take; and they are told
not to do certain things. In some cases, they help the recipient country with
new budget as well.
It
is a loan which should be used for specific purposes. It is not a loan that can
be used for some other activity. For example, if I take out a loan to buy a
car. I have to buy a car. I can’t buy anything else. I have to tell the bank,
make and model of the car, and how much it will cost. In certain cases, the
bank pay directly to the garage concerned.
Sometimes
you can get a loan which is directly paid in to your account. Then it is up to
me to buy a car or buy a gun with that loan money. IMF managers will ensure
that their money is spent in accordance with their prescription.
In
the past, America made mistakes, and the Trump administration doesn’t want to
repeat them. America helped Pakistan militarily and financially, because Pakistan
was considered as an ally in the ‘war on terrorism’. They discovered to their
horror that some of the help filtered down to establish a credible terrorist
infrastructure that was used to strengthen those who were fighting America.
Americans
believe that the American dollars paid to Pakistan to fight terrorism, were
used to kill American soldiers and seriously hurt the American efforts to fight
against terrorism.
With
the lessons, they have learnt in Afghanistan, they want to ensure that their
dollars are not used via IMF to strengthen China’s agenda to challenge American
hegemony.
In
this context, they want assurance that the IMF bailout package comes with
conditions that the funds will not be used to pay back to China; or complete
the existing CPEC projects. They also don’t want any new CPEC projects to start
with the IMF money.
In
other words, demand of America is that the IMF package should be used to
strengthen the Pakistani economy, and not strengthen their enemy China.
Explanation
of China
China’s
ambitious plan to make China great again rests on two efforts: ‘the rapid development of economic and military power and
the cultivation of a global political environment conducive to Chinese
interests’.
However, China is careful
not to frighten other countries about its agenda. Xi Jinping in his key note
speech to the 19th Party Congress, asserted:
“China’s development does
not pose a threat to any other country. No matter what stage of development it
reaches, China will never seek hegemony or engage in expansion.” 4
The Chinese leadership
feels that the old established international order is in transition, and it
will go through changes mainly because of steady decline of American power and
influence. China is preparing itself to fill in the vacuum. In future China
plans to take a bigger and more active role on the world stage.
However, China makes
serious efforts to assure its own people and the world outside that Beijing is
strongly committed to a people-centred philosophy of development and common
prosperity for everyone.
In my view, China may not
wish to become a world policeman like America; however, all the signs are that
China is determined to build a new international order that is conducive to its
world agenda, and that enhances Chinese power, influence and culture. In other
words, a world order that is closer to the Chinese dream, and that thinks and
acts like Chinese do.
Beijing hopes that other
countries can learn from their development experience. China is ready to share
their expertise and knowledge with other countries under framework of Belt and
Road Initiative, which will ultimately make immense contribution to global economic
growth.
With that in mind, Xi Jinping declared that they want to ‘build
a global community with a shared future and make new and greater contributions
to peace and development for all humanity’. 5
If
Chinese investment results in economic stability in the recipient countries,
then the Chinese model of investment – infrastructure led development could
become universal model. However, if this investment results in serving
interests of Beijing by dumping excess domestic capacity; and promoting geo
strategic interests, then this investment will be viewed as neo colonial
projects.
Additional
aim of which is to counter American hegemony and establish financial
institutions to compete with the financial world order established after
Bretton Woods Conference.
Writer is a renowned writer and author of many
books. He is also a senior leader of UKPNP and Chairman South Asia Watch,
London.
Reference:
2.
Ibid
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