Turning trumped-up embargoes into economic opportunities

LAHORE: In the immediate wake of 1998 nuclear tests, United States (US), European Union (EU), and Japan straitjacketed Pakistan’s economy by choking all kinds of monetary and non-monetary assistance. To make things worse, even International Monetary Fund (IMF) cancelled a $600 million loan agreement with Pakistan under the influence of the international powers.

Pakistan braved that storm of sanctions back in the day, but this time around, the threat is of a more serious nature as it comes only from the US, which is the largest single importer of Pakistani goods and services.

No sanctions on trade, as such, were imposed then and at that time Pakistan’s economy was in dire state. The country had less than $1 billion in foreign reserves and it owed to the expatriates more than $10 billion that was frozen by the then government.

Despite this the country survived the challenge and was finally bailed out after it started cooperating with the United States on war on terror in Afghanistan. Ironically Pakistan is now paying the price for that cooperation as the US wants it to do more from its own resources.

The economy of the country has suffered four times more than the assistance provided by the international community during past seven years.

President Donald Trump is not a popular person among the European allies of the US. He has threatened Pakistan to do more or lose NATO ally status and more.  The threat of US sanctions is worrisome for the businesses in Pakistan, particularly exporters that earn almost 25 percent of the total export earnings. Most of the exports are textiles. This is still not clear whether the sanctions would also impact trade.

This seems unlikely because US intends to increase its troops in Afghanistan. It needs to transport at least its equipment using Pakistani soil. In case of trade sanctions this route would be denied to it and the alternate route is many times expensive.

The United States succeeded in slapping sanctions against Iran through the United Nation Security Council (UNSC). Approval of the Security Council will be hard to get as China, perhaps Russia also, and some EU members would veto it. We are not seeking assistance from IMF but if we need it the US can deny that assistance because of its higher voting power in IMF. Still the sanctions could create foreign exchange constraints for Pakistan. Instead of waiting for hard times to come the planners should immediately curtail imports by at least $6 billion per year.

All unnecessary imports should immediately be stopped. Higher tariff measures have not worked in the past. The goods are heavily under-invoiced to beat them. Unnecessary exports have to be banned for the time being until things settle down.

We also have to study the way other nations tackled trade sanctions. Americans have not been able to bog down nations that showed determination to uphold their independence. Cuba is one example.

This tiny country, which borders a superpower, faced blockade from sea, road and air for almost 50 years and survived. What Cubans immediately did was boost their agriculture.

Their leaders believed that as long as the country was self sufficient in food no power on earth could subdue them and they proved it. Cubans never imported food and they never faced hunger in the past 50 years. Iran’s only precious wealth is crude oil.

The sanctions against Iran were so severe that it lost most of its crude oil market to other global players. Still it did not succumb. It negotiated a respectable deal with the developed economies and maintained its sovereignty. The sanctions have not broken the will and determination of the Iranian government to pursue its path.

The US threat has come at a time when the China-Pakistan Economic Corridor (CPEC) infrastructure is almost complete and the stakes of China are very high. The CPEC route is a gateway to China, Central Asian States and Russia. All these countries would benefit from it immensely.

Pakistan could offset most of US economic threat by vitalising this route with more vigor. Fortunately Pakistan was slowly moving out of US influence and its threats, though serious, are not as imposing as they would have been 10 years back.

By: Mansoor Ahmad

Source: https://www.thenews.com.pk