South Asia's most modern city, Islamabad, Pakistan.

It’s been a while since I wrote about how I see Pakistan’s macro situation developing. Even though the noise in the media about Pakistan has died down considerably over the past year or so, you still come across oddities now and then that make you wonder how mainstream publications can put across nonsense that couldn’t be further removed from ground realities. Well, I suppose they count on the fact that their readers won’t take the flight over to confirm things for themselves, and selling the image of conspiracies unfolding in a mysterious and ornery land is so much easier than dealing with reality!

But ignoring the actors playing to the audience, what really is the nature of the Pakistan that is emerging early in the 21st Century? What trends and developments are shaping our future and what do we have to look forward to? These are obviously vast topics, but I’ll try to give you a glimpse of how I see things and will try to convey as much cold, hard fact as I possibly can so as to point out the underlying reasons that cause me to believe what I believe.

To start off with, in this segment I will survey part of our national and immediately relevant regional situation in broad contours. In a subsequent part, I will talk about some of the projects unfolding now in Pakistan which have the potential to change things in a phenomenal way.

The Afghan Situation: If at first you fail, enable the Pakistanis and let them handle it

After almost a decade of highly destablising US presence in Afghanistan, the Afghan situation is rapidly heading to a favourable conclusion for us. From what appears fairly obvious now, the Americans will be starting a withdrawl as soon as 2011, NATO will be spending $500M to bribe the very forces they have fought for 9 years and Pakistan’s role will be pivotal in ensuring a safe exit for ISAF/NATO from Afghanistan. Our justification for why we have an interest in Afghanistan and why we seek to defend it has been made plain and public by none other than our Foreign Minister and our Chief of Army Staff.

Gone are the days of dancing around the issue and deft diplomatic maneuvering. It is all out in the open now and unfolding before our eyes. It is almost impossible to imagine how Pakistan will not wield greater influence in Afghanistan than any other single country after the saga of this drawdown/withdrawl concludes.

Now that there is a near-term end in sight for the destabilizing presence of foreign forces in Afghanistan, Pakistan must use its influence to support and ensure the emergence of a more inclusive government in that country. The advent of such an inclusive government, in particular, will itself address many of the underlying factors that have allowed a band of rag tag fanatics to develop broad based support for their insurgency. Provide for a fair and level playing field in Kabul where all groups feel that they are part of the solution and not being unfairly excluded, and you will rob support from the fanatic fringe. Pakistan is being tasked by its allies to accomplish such an outcome and this bodes well for Afghanistan, Pakistan and the region.

Dealing with India: Undoing the overdo

Indian Occupied Kashmir's Chief Minister acknowledges Pakistan's role in peace in IoK

There is such a thing as being too nice. And I think Pakistan has been guilty of this error over the past 4-5 years with respect to relations with our eastern neighbour. In this period, Pakistan has used its resources and influence to help calm the situation down in Indian occupied Kashmir, has publicly condemned and offered help with multiple acts of terrorism within India, has tried suspects of the Mumbai incident, has downplayed and not vociferously raised in international fora the presence of terrorists and extremists within the Indian Army – such as Col. Purohit – who have blown up trains and killed dozens of Pakistani citizens on Indian soil, and has even attempted to address key issues such as India’s violation of the Indus Water Treaty in an understated and diplomatic way.

All of this was done, presumably, under the misdirected belief that being nice, or indulging in “CBMs” as they are referred to in diplomatic parlance, would bring a more amiable India to the negotiating table and the two of us would be able to sit together decently and work out our problems.

No such luck. What is that old expression about giving an inch and being taken for a mile? There is, like I said, such a thing as being too nice. I think the Pakistani establishment has received this message loud and clear and is now working to address the excess we have been guilty of. “Undo the overdo”, should be the mantra in effect on this front and it seems to be, if you listen to Gen. Kiyani’s recent speech about our posture viz India.

I think this evolving realism will do far better for us in addressing issues from a position of strength or equality than the “Aman ki Asha” sing-along affection marathon. In the context of this recent clarification of our India policy by Gen. Kiyani, we stand at a much better place than at any time during the past five years of confusion and diplomatic excess.

China: Partnering with a Dragon that is beginning to soar

Chinese tourist in Islamabd enjoying a view of the city

Chart the data and graph the trends. There is no second opinion about China’s emergence as an economic and military superpower. And armed with leverage of a dozen kinds, such as the $800B in US debt that it holds, the $2.2T in foreign reserves it commands, the world’s largest and most rapidly modernizing army, the world’s largest manufacturing base, the world’s largest population of middle class consumers and the list goes on. Having embraced the sense of arrival as a dominant player on the world scene, China has become far more aggressive in its position on a number of regional and international issues.

Take its stance on India, for instance. Suddenly, we see Chinese troops cross the line of control in Southern China and deposit “we were here” souvenirs for the Indians to clean up. We see Chinese diplomats raise the issue of disputed territory aka “Arunachal Pradesh”. We see the Chinese moving in international fora to block aid to India. We see a much stronger position on Tibet and a sanctioning of companies supplying Taiwan. And finally, in the Indian Ocean we see a Chinese Navy undergoing massive modernization and growth beginning to project its force in numerous ways.

It is important for Pakistan to support the Chinese to the hilt as they emerge as the premier super power. They have been a true friend and ally to us over five decades, through thick and thin. Pakistan not only has a lot to learn from China, but also finds itself in the unique position as the most allied ally of what will be the world’s greatest power in just a little more than a decade.

Energy: Capitalizing on location

Pakistan is THE conduit for energy in the region

Most of success is hard work, but some of it is also luck. Clearly, with our strategic geographical location, that second element is at work. We couldn’t possibly have been positioned in a more crucial place on the globe. For if India needs access to Central Asian oil, it must route those pipelines through us. If that Central Asian oil needs to find a close by warm water port, it must send its black gold to Gwadar. If Iran is to supply India with gas, then that gas must cross Pakistani territory. If the West/NATO is to supply Afghanistan overland and, then that too must happen through Pakistani territory.

While the Government of Pakistan has commited the folly of getting distracted with many other issues of almost no importance and could have used this energy to fast track these initatives, the emergence of Pakistan as a leading global energy conduit has happened anyway.

One recent example is India’s role as spoiler in the erstwhile IPI pipeline. For a couple of years, India delayed signatures on this Iran-Pakistan-India pipeline which would have provided India with much needed gas at an internationally competitive price. Finally, it became clear that these delays would be unending and Pakistan requested Iran to proceed without India. Not only did Iran oblige, it is now becoming increasingly probable that China will join this effort, changing the IPI to an IPC pipeline.

As a side note, much has been said about Iran-Pakistan relations. While these have been historically very friendly, lately many external players have invested their time and energy to attempt to derail these ties. What is particularly reassuring about massive project such as the IPC pipeline, or the Islamabad-Tehran-Istanbul rail initiative is the fact that Iran and Pakistan’s relations continue to remain in excellent standing.

Not only will the IPC pipeline address Pakistan’s energy needs, it will also create a regional framework of cooperation between China, Iran, Pakistan and perhaps Central Asian countries in future. This framework is one which India has self-selected itself out of on account of intransigence. If you aren’t part of something, you don’t maintain leverage.

Turkey: A trusted ally and an emerging European power

Amongst a long list of defence projects, Turkey is also offering Pakistan T-129 ATAK gunships

Pakistan and Turkey have an excellent relationship going back decades. In trying times, Pakistan has always supported Turkey (Kurdistan issue, disputes with Greece etc.) and Turkey has reciprocated by supporting Pakistan’s Kashmir stand and participating in dozens of joint ventures and development projects in Pakistan. With a GDP now approaching $1T and the largest Armed forces in Europe, Turkey will be a major regional and international player.

Thanks to a variety of factors, cooperation between Turkey, Iran and Pakistan has continued to increase. Just recently we covered President Abdullah Gul’s announcement about the initation of a $20B Islamabad-Tehran-Istanbul rail link.

It bodes well for Pakistan that along with our own development, two of our most allied allies, Turkey and China, are in very strong positions. From a foreign policy perspective, if both these countries have supported us unquestioningly even when they were relatively weaker, what do we have to look forward to when their position is so much stronger?

In a nutshell, I think the emerging regional situation is generally looking quite favourable for Pakistan. Having endured 10 years of the Great Game unfolding in our region with a mixture of grit, might and wit, we are now in a position to reap the rewards of fortitude. Much else is happening within Pakistan which I will cover in an upcoming post. We’ll continue the discussion in part II of this series.

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Details on this shot-in-the-arm package, said to be materializing rapidly, are still sketchy. There have been several reports in the mainstream Pakistani news media that the Finance Ministry is close to announcing a $10BN package being formulated with Saudi Arabia and China. The Saudis will contribute $6BN in the form of deferred oil payments and the Chinese are considering an injection of about $4BN.

In addition to this $10BN, IMF officials visited Islamabad and offered a multi-billion dollar support package with softer terms than the IMF typically provides. The IMF support payments were offered in $500M tranches. Pakistan has expressed its inclination to turn down the IMF offer, which seems to be consistent with the views espoused by IMF’s Asia head, Mohsin Khan. He recently stated that Pakistan didn’t really need an IMF loan. He characterized the Pakistani economy as fundamentally resilient and expressed his opinion that with a bit of “belt tightening” the current crisis could be overcome.

China’s $4BN package will probably come in the shape of infrastructure and business investments in Pakistan. Two examples of these inflows were highlighted to Prime Minister Gilani recently during a meeting with China Chemical and Engineering Corp. executives:

Prime Minister Gilani was told that China Mobile had already invested $ 800 million in Pakistan’s telecommunications sector and was set to invest more in the country this year.

During the meeting with CNCEC, the Prime Minister appreciated China National Chemical and Engineering Corporation’s $ 900 million investment in operating nine plants in fertilizer and PVC sectors in Pakistan.

In addition to the $1.7BN highlighted in the above quote, China has also announced that it will be fully funding the $8.5BN Daimer-Bhasha dam. After initial delays, construction is now set to start in 2009 and disbursements are expected in the next few months.

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