India-Pakistan: Debt Traps And Lost Opportunities

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April 26, 2023: Pakistan is in all sorts of trouble and the situation continues to get worse. At the center of this mess is the Pakistani military, which has grown powerful over the last half-century by exploiting religion, greed and paranoia about threats from neighbors, especially India and Afghanistan. After decades of relative success that while good for the military was bad for Pakistan, the military finds itself under attacks from all sides and in danger of losing its power over Pakistani politics while so much else in Pakistan is rapidly eroding with no relief in sight. Popular support for the military has been declining for over a decade and is accelerating because of an unprecedented economic crisis and the military’s meddling in Afghanistan backfiring in a spectacular fashion. Military efforts to control local politics is also a losing endeavor.

The chief political threat to the military is former prime minister Imran Khan, who is seen as the winner in upcoming elections because Khan wants to make the military subordinate to the elected government and keep it that way. This is something neighboring India did from the beginning in 1947 when India and Pakistan were the two largest new democracies emerging from the end of British colonial rule over South Asia. Neither of these new nations was an outstanding success, but the Indians made fewer mistakes and had more success than Pakistan. Both new nations were cursed with an ancient tradition of corruption. One reason the British lasted so long and were so successful at running their huge Indian colonial empire was the British were less corrupt and more efficient running the region. An example of this is the peaceful departure of the British and their efforts to help the new nations organize governments that would last. This effort was more successful with India and the other, smaller new states created in 1947. Pakistan turned out to be a slow-motion trainwreck which took decades to devastate Pakistan economically, politically and militarily.

Another source of trouble is Pakistan’s large number of state-owned companies, whose revenue accounts for ten percent of GDP. These firms include the national railroads, the national airline, other transportation, electric power generation operations, oil and gas production, finance and investment firms, real estate development, travel and marketing firms and dozens of smaller trade or manufacturing firms. Except for the oil and gas operations, all the others make little or no profit. Most, like the power generation firms, lose enormous sums annually. The primary problem is poor management by personnel who got their jobs for political reasons, not management ability. The losses these firms generate are one reason Pakistan has a hard time getting foreign loans to avoid financial collapse. Reforming these unprofitable operations requires more management and political capabilities than Pakistan can assemble.

Privatizing many of these firms is difficult because there are no buyers due to well-founded fears that government corruption would result in them being sold to politically-connected buyers at bargain prices, or being forcibly re-sold to the politically connected even if they had just been bought by a less-connected purchaser. Some of the money losing operations cannot just be shut down because they provide critical services. Foreign lenders and investors, including the IMF (international monetary fund), China and Saudi Arabia, have lost patience with Pakistan and are unwilling to take further financial risks there. One financial risk is the $77 billion debt to China and Saudi Arabia. This money is supposed to be repaid between 2023 and 2026. Pakistan doesn’t have the money to make the payments and is trying to negotiate an extension. Until this issue is resolved there will be no more loans or investments from China or Saudi Arabia. A side-effect of all this financial turmoil is high (47 percent) inflation which is felt by all Pakistanis.

Another failed investment was the Taliban and various Islamic terrorist groups. The Taliban was supported so it could take control of Afghanistan and show its gratitude by shutting down Islamic terrorists and separatist groups in Afghanistan that attacked Pakistan. That has not happened. The Taliban were also supposed to provide stability for Pakistani investments and trade. China was willing to make major investments in Afghanistan if conditions were stable. That has not happened and Pakistan gets most of the blame.

Disagreements between the Pakistani and IEA (Islamic Emirate of Afghanistan) governments over how to deal with the TTP (Pakistani Taliban) have resulted in the TTP remaining safe in their Afghan camps while launching attacks across the border into Pakistan. This is mainly because of political surprises in Afghanistan. Pro-Pakistan officials in the IEA government complain about how they have lost control of government policy. Pakistan believed that once the IEA took over the pro-Pakistan members of the IEA government would give Pakistan their long-desired control over, or at least influence on, the Afghan government.

That might have happened except for the fact the official leader of the Afghan Taliban, Mullah Hebatullah Akhundzada, is unpopular with many Taliban faction leaders, in part because Akhundzada was seen as a figurehead and his chief deputy, the head of the Haqqani Network, is actually in charge. That was true but the secret was that Akhundzada only acted as a figurehead because he had to operate from the Pakistan sanctuary in Quetta, a city just across the border from the Afghan province of Kandahar, where many of the original Taliban came from. Kandahar was where Akhundzada went after the IEA replaced the IRA (American backed-Islamic Republic of Afghanistan) in mid-2021. Once back in Afghanistan, Akhundzada could exercise his power as the official head of the Taliban and do so without potentially lethal pressure from Pakistan.

The Pakistanis underestimated how widespread the hatred of Pakistan was in Afghanistan, even among the many Afghan Taliban who seemed to maintain a pro-Pakistan attitude. Pakistan believed this would neutralize the many Afghan Taliban factions who had openly expressed their opposition to Pakistan interference in Afghanistan. Mullah Akhundzada was a highly respected Islamic scholar who rarely commented on his political beliefs. The Pakistani ISI (military intelligence service) that created the Taliban in the mid-1990s and “managed” them ever since misjudged Akhundzada’s silence on his attitude towards Pakistan. This was seen as agreement with or neutrality towards the ISI and Pakistan in general. Akhundzada had widespread support in Afghanistan while the pro-Pakistan IEA officials who were appointed while the Taliban were still in Quetta had little such support.

When Akhundzada overruled Pakistan-backed IEA officials, it was clear he was no longer a figurehead. Akhundzada was not a rigid religious fanatic either. When he imposed a ban on women’s higher education in December 2022, he paid attention to the reaction of most Afghans and agreed to lift most of the restrictions. Akhundzada understands he is responsible to what Afghans, not the ISI, want.

This revelation means a lot of problems for the ISI and the Pakistan military, who are in trouble with Pakistan voters and elected officials who are closing in on curbing the independence of the Pakistan military. The military’s policy towards Afghanistan played a minor role in this, but revelation that the Afghans hate the Pakistani military as much as most Pakistanis do has implications for the military’s future. Inside Afghanistan, the pro-Pakistan Haqqani government officials are being told to not criticize IEA leader Akhundzada openly because that might lead to more anti-Pakistan violence inside Afghanistan.

Another Afghan problem with Pakistan is that Pakistanis tend to take their Islam more seriously than Afghans do. This is part of a larger problem because since the founding of Pakistan in 1947 there has been frequent and continuing sectarian, religious and ethnic violence. Religion continues to be a major cause of violence. Attacks are carried out between different sects of Islam, primarily Shia and Sunni but there are other sects that attract violent attention. There is even violence between identical religious/ethnic groups because those who lived in Pakistan before 1947 don’t get along with those who fled Indian anti-Moslem violence in 1947 and settled in Pakistan. Most Moslem Indians stayed in India in 1947 and India currently has more Moslems than Pakistan. There is religious violence on both sides of the border but it is worst in Pakistan, whose name translates to “Land of the Pure.”

Afghans, in contrast, tend to be more tolerant. The exception is radical Afghan Moslems like the original Taliban. Their radical attitudes were the result of the Taliban being created by the Pakistani military in the mid-1990s. This left a lethal legacy as clashes in northwest Pakistan between Pakistani troops and Islamic terrorists continues. To a lesser degree, violence occurs in the southeast (Baluchistan) with Baluchi separatists. Afghans and Pakistani elected officials blame the Pakistani military for causing the separatist and religious violence and the resulting economic problems. While Pakistanis complain of their “Afghan problem” the Afghans are more justified complaining about a much more active and damaging “Pakistani problem.”

Inside Pakistan the major problem is the excessive power of the Pakistani military. Even though Pakistan military spending, at $11 billion a year, is the lowest in the region, the Pakistani military is a major political power, with veto power over any decisions the elected government makes. This contributed to current economic problems that have Pakistan facing bankruptcy. While the Pakistani military budget is only four percent of GDP, that is the highest percentage of GDP for military spending in the region. Active duty and retired military officers have a lot of control over the national economy and exercise a form of corruption that aims to take care of the military first and anything else second. This arrangement has been under attacks since the Pakistani debt crises began in 2019. The generals can, literally, blame it all on “foreign bankers” and largely infidel (non-Moslem) ones at that.

The IMF (International Monetary Fund) is reluctant to loan Pakistan any more money because of its excessive defense spending, poor performance of state-owned firms and lack of progress in getting wealthy Pakistanis to pay taxes. There are also accusations of financing Islamic terrorism. The IMF warned that if charges that Pakistan is allowing Islamic terrorists to raise and move cash out of the country are verified, Pakistan would have more problems obtaining foreign loans. The terrorism funding charges are evaluated by the FATF (Financial Action Task Force) which threatened to put Pakistan on the gray list and will escalate to the black list if Pakistan does not make effective efforts to block Pakistan based terrorist groups from using the international banking system to finance their violence. Pakistan reduced the illegal financing activity coming out of Pakistan and by 2019 FATF took Pakistan off the gray list. Being on the gray list leads to being put on the black list and that would mean Pakistan would have some financial problems because of resulting international banking restrictions. Without IMF assistance Pakistan would slide into financial collapse. That would hurt all Pakistanis, including the military. This is also dangerous for the neighbors and distant enemies of Pakistan because the military controls Pakistan’s nuclear weapons.

April 24, 2023: In northwest Pakistan (Khyber Pakhtunkhwa) an explosion inside a Swat Valley Counter-Terror facility was apparently the result of mishandling explosives stored there. The dead included 11 police, five prisoners and two civilians.

April 22, 2023: In central India (Madhya Pradesh state) police encountered two senior female Maoist leaders that were armed and refused to surrender. The two were killed in a brief gunbattle. Each had cash a reward of $17,000 for their capture or surrender. These bounties are for informants or for the wanted Maoists, who justify the bounty by providing information about their organization. The bounties are regularly adjusted according to the rank and usefulness of a Maoist or Islamic terrorist leader or official. The cost of the bounties is less than the cost in cash and lives to eventually find and capture or kill the subject. The bounties are one reason the Maoists and Islamic terrorists have a policy of trying to hunt down and kill men who surrendered and provided information that damaged the organization. These bounties are an ancient practice and are also used by the Americans to capture or kill senior Islamic terrorist personnel.

The Indian Maoist rebels were once a major problem in parts of eastern India. Maoist activity has declined, as has violence by tribal separatists in northeast India. Pakistan-backed Islamic terrorists are still a problem in the northwest (Kashmir) and China continues to threaten the use of force to take Indian territory China has long claimed as its own. China has reduced its operations on the Indian border because of more pressing problems inside China and with Taiwan and the United States over threat to Taiwan and Chinese outposts in the South China Sea. The South China Sea problems extend into the Indian Ocean and make India and the United States allies against China. Not very active allies, but both countries have an interest in halting Chinese advances into the Indian Ocean. Meanwhile China has become a partner with Iran in the Persian Gulf and recently negotiated a peace deal between Iran and Saudi Arabia. China gets most of its oil from Persian Gulf producers and needs to maintain peace there to keep the oil flowing.

April 20, 2023: In northwest India (Kashmir) five soldiers were killed and several others wounded when their vehicle was ambushed by the Pakistan-backed People's Anti-Fascist Front.

April 19, 2023: In southwest Pakistan (Baluchistan) local separatists took credit for destroying Chinese built mobile cell phone towers. These were built as part of the CPEC (China-Pakistan Economic Corridor) project, which the separatists also oppose. There has always been some separatist violence in Baluchistan against whoever was in charge there at any moment. This escalated when Pakistan and China agreed in 2013 to build the CPEC project. This cooperation began a decade earlier when China agreed to expand the port of Gwadar in Baluchistan. Many Pakistanis, not just the Baluchis, saw such cooperation with China, especially the CPEC, as a threat to Pakistani independence and Baluchi separatism. This was made clear in 2021 when the Pakistani Navy and Coast Guard refused to give up 47 hectares (116 hectares) at the site of the expanded Gwadar port project. The commanders of the Navy and Coast Guard were making a public protest against the policy of being so economically and militarily dependent on China. This opposition was also growing within the military leadership, who see this dependence on China as a surrender of independence which also puts Pakistan at risk of becoming collateral damage if China decides to fight India and its Western and East Asian allies for control of the Indian Ocean. The Pakistani naval officers have done the math and believe China has little chance of prevailing against that kind of coalition. Worse is the fact that Pakistan is becoming economically and diplomatically dependent on their northern neighbor. This public protest, which the Chinese demanded be resolved quickly, began in late 2020 and surfaced in 2021 because the Chinese were visibly upset at such insubordination. There is growing opposition within Pakistan, and the Pakistani military, towards the increasing brutality of the military against elected officials, critical media and anyone who opposes the military getting its way, and not just among junior officers but also some senior commanders, especially those who retired.

The military decided over a decade ago that Pakistan should be willing to pay a high price to get CPEC done because it meant Pakistan had an ally against India, Iran and even Western powers that might have some violent disagreement with Pakistan. China addressed that by pointing out that China does not have allies, just powerful trading partners (the West in general) and client states (like Pakistan). That has always been the Chinese outlook and it hasn’t changed.

While China is picking up most of the $60 billion cost of CPEC, it means that China owns many of those new economic assets, especially the new port of Gwadar. In early 2017 China and Pakistan signed an agreement granting China a 40-year lease on new Chinese-built facilities at Gwadar. The lease granted China most (over 80 percent) of the revenue brought in by port and free trade zone operations.

China usually imports its own workers from China to do most of the work on projects like this. By 2022 China had several hundred thousand Chinese in Pakistan, some of them with their families. The easiest way to provide protection is to have most of them live in a heavily guarded and restricted access area. Gwadar is a key part of CPEC and it has the misfortune of being in a province (Baluchistan) that does not want to be part of Pakistan. China and the Pakistanis try to ignore this by not reporting on non-Islamic terror attacks on CPEC construction projects. The government has long been accused of suppressing news of tribal separatists in Baluchistan attacking government targets and especially those related to CPEC. The separatists claim they regularly carry out attacks on CPEC construction projects, but most of their attacks are still directed at Pakistani security forces and government facilities.

Because of the security threat to Gwadar, China demanded that Pakistan build 30 kilometers of three-meter (ten foot) -high security fencing near the two main entrances to Gwadar. In addition, the Chinese installed 500 security cameras within the perimeter of the port. Pakistanis fear the entire port area will eventually be fenced off to protect what is described by locals as a Chinese military base guarded by Chinese and Pakistani troops. Since early 2019 Pakistan has been responding to Chinese complaints about lack of security, and agreed to add more troops to the security forces already assigned to guard over 300 Chinese projects in Pakistan and the 15,000 foreigners (mainly Chinese) who were then working on them. The existing force has over 15,000 personnel with 9,000 being soldiers and the rest local para-military forces. This will be in addition to the special naval force that protects navy facilities in Gwadar and the waters off Pakistan.

In mid-2017 Pakistan also agreed to build a walled and restricted residential area near the port of Gwadar to house up to half a million Chinese that will eventually be working in Pakistan. Chinese construction work on Gwadar port facilities is visible to anyone on the ground or flying by, and it was noticed that some features of the new port and airport facilities are clearly intended for military use. India has long claimed that China (despite denials) was planning to use Gwadar as a base for Chinese warships and naval aircraft. Pakistan never had a problem with the Chinese military using Gwadar as it helped keep local troublemakers out. Pakistan assured China that there would be no terrorist violence against Chinese working on upgrading the port of Gwadar and land links north to China. The military now has to assure their Chinese overlords that dissent within the Pakistani military will be suppressed as well. That is not working and the violence against the military and Chinese in Baluchistan continues to escalate.

April 16, 2023: In Pakistan there were about 850 deaths and injuries due to terrorist activity during the first three months of 2023. This is twice the number of casualties suffered during the same period in 2022.

April 15, 2023: In northwest Pakistan (South Waziristan) the army acted on a tip about Islamic terrorists’ activity and encountered a group of armed men who fired on the troops. A brief gun battle left eight Islamic terrorists and two soldiers dead

April 14, 2023: The economic sanctions imposed on Russia because of their Ukraine invasion have led to Russia being unable to supply credit for $10 billion worth of spare parts and two S-400 batteries air defense systems for India. This is a problem because India is unable to find ways to pay Russia without violating US sanctions. Russia is unwilling to accept payment in Indian rupees due to exchange-rate volatility, while India simultaneously does not want to pay in Russian rubles which it does not have.

April 13, 2023: In southwest Pakistan (Baluchistan) police raided the hideout of some local separatists and killed three armed men who were in possession of a large quantity of weapons and ammunition.

April 11, 2023: India’s population (1.428 billion) has surpassed China’s for the first time, making India the most populous country on the planet. China helped India achieve this record by establishing a mandatory “one child” (per couple) policy in the 1980s. This made possible the rapid economic growth that made China a wealthier nation than India. There were drawbacks in the form of eventual annual GDP growth declines and a labor shortage that gets worse because there are fewer working-age Chinese. The birth dearth caused problems in more ways than expected. For example, as the military completes its decades old modernization program it is now running into a severe shortage of qualified recruits. This was due to the growing shortage of working age Chinese created by the one child policy. The government saw this labor shortage coming and relaxed the one child policy in 2015 and basically turned it into a two-child policy. Young couples did not respond as expected. In response to that the government offered cash incentives to couples who have a second child. That did not work either. Surveys found that 60 percent of young couples were reluctant to have a second child mainly because of the expense involved. In 2016 there were nine percent more births which was only 1.3 million more babies and not enough to make a dent in the growing shrinkage of the working age population, which declined over four million in 2016. The government had expected three million more births a year. It appears that China has, since implementing the one child policy in the 1980s, managed to acquire the “affluent mother” syndrome. That means better educated and paid women refuse to have a lot of children. South Korea, Japan and Singapore already suffer from this as does most of the industrialized world. This hit the military particularly hard as the Chinese have, for all practical purposes, come to depend on volunteers to staff the growing number of demanding technical and management jobs. Too many of the too few potential recruits want to make a career of the military or, if coerced, spend much time in uniform at all. But the Chinese military, as it modernizes (even with manpower reductions) cannot find enough qualified people. This situation is made worse by the requirement that all officers and key technical people be loyal to the communist party. The requirement is rigorously and repeatedly enforced by the party leadership even if it means the military is not as capable as everyone is led to believe. This illusion is difficult to sustain in some cases. The best example is the expansion of the navy with over a dozen major warships entering service each year and there are not enough competent officers and sailors to run the ships. The navy has urged more women to join the navy and go to sea but it’s not enough.

Many Indians are willing to accept these problems if that’s what it takes to economically match or overtake China. So far the Chinese are increasing their annual GDP growth but a much less than the rate that China sustained for nearly three decades to become the second largest economy in the world

April 10, 2023: In southwest Pakistan (Baluchistan) separatists detonated a remotely controlled bomb near a police station, killing four people and wounding 15.

April 9, 2023: In southwest Pakistan (Baluchistan) police found and arrested two Islamic terrorists and arrested a third who were extorting money from local businesses.

April 1, 2023: In southwest Pakistan (Baluchistan) four Pakistani border guards were killed when they were attacked by armed men coming from Iran.

March 28, 2023: Iran is a major factor in Russian efforts to keep its economy going in spite of the economic sanctions. Russia also depends a lot on its most loyal trading partners; China and India. These two nations assist Russia in exporting its oil despite the sanctions. They can also obtain some items Russian can no longer obtain from Western suppliers. Care must be taken because many of these components can easily be identified and traced back to the last legal purchaser. Ukraine has been diligent about collecting debris from Russians weapons that are not supposed to exist because of the ban on selling Russian essential components. This has led to the discovery and elimination of several smuggling operations. This often involves sanctioning Chinese or Indian businesses and some of their key personnel. China, more than India, has to be careful about this because Western sanctions on Chinese firms means China can no longer obtain key components from Western suppliers. This sort of thing didn’t start with Russian operations in Ukraine and has been encountered for decades as Iran copes with similar sanctions.

 

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