Pakistan feels economic cost of struggle with India

By Jack Redden

ISLAMABAD (Reuters): Anaemic economic growth and a dearth of foreign investment is forcing Pakistan to look at the heavy cost imposed by a foreign policy mired in its conflict with India.

The spokesman for Pakistan's government, Maj. Gen. Rashid Qureshi, noted a shared need for "economic progress" in welcoming Wednesday's long-sought Indian offer of talks with military ruler Gen. Pervez Musharraf.

While many Pakistanis dismiss the image of a dangerous region as a distortion, few investors will venture into a country where the struggle over Kashmir has ensured nearly 54 years of hostility with giant neighbor India -- especially when both have nuclear weapons.

Even Pakistan's involvement in the civil war in neighboring Afghanistan is entwined with the conflict with India.

"A lot of political and geopolitical issues impact on economics," Finance Minister Shaukat Aziz conceded at a May 20 economic conference. "A peaceful environment will help the economy to grow. The issue is an important one; we are very conscious the issues cannot be divorced."

Aziz was responding after Canadian High Commissioner Ferry de Kerckhove had bluntly attacked a "parochial" foreign policy and a wide range of other concerns about the future of Pakistan.

Foreign investment is frightened off. Pakistan had meager foreign direct investment of US$143 million in the last six months of 2000 -- about a dollar per capita and down $164 million from the same period a year earlier.

But Pakistan is also diverting its own resources that are desperately needed to fight 60 percent illiteracy and counter economic decay. It has seen the number below the poverty line rise from 18 percent to 34 percent of the population since 1987.

"You have defense spending that you have pared down to four percent of GDP," said de Kerckhove, complimenting Aziz on that progress. "But it is still noted that the PSDP (public sector development program) is only two percent of GDP."

There has been little serious public debate on Pakistan's key foreign issues -- Afghanistan, Kashmir and relations with India. These are policy areas dominated more by intelligence departments and the military than diplomats -- and they are all interwoven.

While Pakistan denies any military backing for the Taliban movement that controls most of Afghanistan, UN officials say most of an estimated 15,000 foreigners with the hardline Islamic organization are from Pakistan.

Taliban military training camps, which the United Nations has demanded be closed on the grounds they are churning out "terrorists", produce a stream of fighters who find their way across Pakistan into the jihad struggle in Kashmir.

Islamabad denies it is helping the guerrillas fighting Indian rule in Kashmir but finds few believers when the organizations all have offices in Pakistan.

"Pakistan is stuck in a policy of wearing down India," said a senior diplomat. "On the Pakistan side there is a game plan that is not realistic and won't work. The Indian side has no game plan."

Economics dictates that Pakistan is the weaker side in this struggle. In a war of attrition, the country with the higher growth -- and the greater ability to afford new weapons -- will prevail.

Pakistan's growth rate this year will be under four percent -- not much above the estimated 2.4 percent population growth that adds more than three million mouths a year -- and no substantial improvement is expected for several years. Pakistan needs annual growth rates above six percent -- such as India has been running -- to reduce poverty.

"Pakistan finds itself in a situation where the adversary has far greater capability to fund its military modernization," security analyst Ayesha Siddiqa-Agha wrote in a paper for the economic conference, arguing for a total military rethink.

She likened spending on the 630,000-man armed forces and other parts of the military establishment that exceeds that on all health, education and other development needs to a time-bomb ticking rapidly toward detonation.

"Military security is important, but the cost is phenomenal," said Siddiqa-Agha, noting that some people had used the label "failed state" for her country. "Pakistan is in no position to continue spending more resources on defense at the cost of development."

The paper, however, did not address a question posed often by foreign observers: what concessions are needed to end the struggle over Kashmir that began in 1947 when its Hindu ruler took the majority-Muslim state into India rather than Pakistan.

As few foreign experts can foresee India ever withdrawing, will Pakistan ever be willing to drop its 54-year-old goal of that happening? There is no sign that Pakistan is yet willing to accept the current lines between their forces as a permanent border.

In the public forum Finance Minister Aziz, a respected former executive with Citibank with wide international experience, repeated Pakistan's familiar position that a resolution of the Kashmir struggle depends on India.

And despite acknowledging the economic burden imposed on a country slipping further behind its large neighbor, he felt compelled to defend the military spending: "We can't allow our defense and sovereignty to be compromised."