Money Matters

A new web

By Ihtasham Ul Haque
Mon, 11, 16


Jolted by the stunning upset victory of a political outsider in the White House, Pakistan fears new protectionist policies that may also cause setbacks to Islamabad’s $2 billion textile exports to the United States and the annual home remittances worth $2.5 billion.

The palpable unease that has been induced in the political realm around the globe due to a stellar Donald Trump victory is not only an issue in the cognitive dimension. It might have resounding negative effects for certain countries in diplomatic and economic domains. Pakistan seems to be one of them. Political and diplomatic consequences aside, this development might have serious economic outcomes for Islamabad. 

There are also speculations that the president-elect of the world sole super power could use his influence in the World Bank and the IMF to tighten their policies towards Pakistan to force it to slow down, if not abandon, its prestigious nuclear programme.

As soon as Trump reaches the White House on January 20, 2017, the highly concentrated textile lobby in North Carolina will start exerting its pressure on Republicans, who now control House of Representatives and Senate for the first time since 1928, to slap new protective duties on Pakistani and Chinese textile exports to America.

But there are other hopefuls in the government who maintain that now when the election rhetoric is over, the businessman turned politician, is expected to pursue fair trade and economic policies that would benefit both the countries.  Negotiations on struck up Bilateral Investment Treaty (BIT), could be re-opened to help lure US investors in Pakistan. This could also help increase Pakistani exports in that country.

Stock markets around the globe crashed or went down heavily over Trump’s success, whereas the Pakistani market behaved interestingly. It went down on Wednesday and increased by 400 points on Thursday when on the same day dollar appreciated against Pakistani currency – a strange phenomenon still to be explained by the market players and the officials of the central bank.

“Donald Trump has got an anti-globalisation vote, and I see new protectionist policies to be vigorously pursued by him, and I am afraid this does not auger well for countries like Pakistan,” former finance minister Dr Hafiz Pasha said.

He said China, which has $3.2 trillion foreign exchange reserves, could face serious trade and economic challenges, especially to its exports starting early next year. “But look at the Chinese leadership, which depreciated their currency by eight percent and we are trying to maintain an artificial exchange rate which will cause further problems to our already declining exports to the United States,” he said. The countries like Pakistan should be ready to experience new trade barriers and tariff increases, and this calls for urgent new strategies to protect exports, he added. Pakistan would face tough times when repaying loans in two years with a burgeoning external debt, likely to reach $90 billion from the current $72 billion, Dr Pasha said.

Another former finance minister, Dr Salman Shah, however, did not see any change of policies on both the economic and political fronts and said unless Pakistan settled its political disputes with US, nothing plausible was expected. He said Pakistan needs to decide which way it wanted to go to secure political and economic support of the US, and also the International Financial Institutions (IFIs) where Washington enjoys extraordinary influence.

“In the first place, we should forget about getting any financial support from the US. Whatever we were getting through Coalition Support Fund (CSF) and under some other heads has already gone, therefore, I do not see any cooperation on that front,” he said.

Under Trump presidency, US would be more inward looking and less over-reaching towards other countries, and Pakistan should forget about any meaningful cooperation let alone the revival of talks on BIT, he added.

Dr Shah said the new president-elect has already decided to do away with Free Trade Agreements (FTAs), so why would he be allowing new negotiations on stalled BIT.

Renowned economist Dr Ashfaque Hasan Khan said that Trump had never held any public office in his 70 years, and nobody knows about his ability to govern the US administration. “I believe he will be a changed man after occupying office in the White House leaving behind him the election rhetoric.”

He said the foreign office and the Pakistani Embassy in Washington will have to carefully assess Pak-US relations, and explain to the new US authorities that Islamabad wanted positive bilateral political and economic relations with them. “In an environment of economic war, Pakistan will have to make serious efforts to rebuild relations with US by first immediately appointing a foreign minister,” Dr Khan said.

He was of the view that no alarms should be made at this point in time, and to let the new US president settles down as is being viewed by the international community. Pakistan is a major US trading partner and cannot be totally ignored in coming days and months and “once Trump adjusts to the new realities, he might like to forge better ties with countries like Pakistan.”

State Bank of Pakistan (SBP) Governor Ashraf Mehmood Wathra was of the view that it was too early to predict anything and that it may take a while to understand what was the real agenda of the new US administration.  “To me it seems unlikely that there will be any negative fallout for Pakistan and its economy,” he said. There was a global economic slowdown hurting exports and in case of Pakistan, it was mostly related to domestic reasons and constraints.     

“Our exports and home remittances do not face any immediate threat because of the change of government in Washington,” Wathra said. Trump may have to deal with other global players on some strong footings but not countries like ours; therefore I would avoid jumping to any conclusion and would like to wait for some time.

Generally, it is said that the president-elect, who vowed to build new infrastructure, desperately needed money, and for this he would stop $10 billion annual assistance to Afghanistan and wind up billions of dollars military engagements in other countries. Achieving that end would not be possible without drastically cutting undue expenditures, especially US financial assistance to many countries.

The US ambassador to Pakistan has said that there would be no change of policies towards Pakistan and that the new administration would make sure to have good economic and political relations with Islamabad.

Sources close to US embassy here say that China and India may suffer during Trump’s presidency but not Pakistan, being smaller compared to their economies. “There will be a currency war with China, while billions of dollars worth of IT business with India will witness a sharp decline as Trump plans to provide thousands of  new jobs  to the jobless Americans for which he had made repeated statements,” a source close to the US embassy said.

During his 16 months election campaign, the president-elect did not mention Pakistan once and this was something intriguing for most Pakistani analysts. But he did offer to mediate between India and Pakistan to help end their old rivalries. Prime Minister’s Advisor on foreign affairs Sartaj Aziz welcomed that statement which like always was not approved by the Indian leadership that does not want any mediation because of what many say their “weak stand” on Kashmir.

The BIT issue, lingering for many years, is very important for Pakistan. Till 2013, the present government kept itself engaged with the officials of the US commerce department, though there was no outcome because of the differences over the US template that carried dangerous obligations for Pakistan.

The US side has been seeking strict compliances in favour of the American investors in case of disputes with their Pakistani counterparts, including their right to appeal in the US courts. While Pakistan had agreed to arbitration in some European courts, over which negotiations continued for some time, but then were delayed indefinitely. The US commerce department maintains that it had shared its BIT template with Pakistani authorities and was awaiting their response.

But, commerce minister Khurram Dastgir has said on record that the US template carries retrospective implications, and Pakistan has concerns over clauses on international arbitration for business disputes. Both the countries started negotiations on BIT about thirteen years ago. Their talks collapsed several times because of US insistence on including clauses dealing with the defence programmes and prior notification of changes being introduced to any law that could hurt US investments. The Strategic Planning Division (SPD) of Pakistan expressed concerns over the security of the missiles and nuclear programme if opened to foreign investment. This induced a gridlock that did not allow the US side to offer trade concessions to Pakistan.

This backdrop has given rise to the idea that the new administration headed by Trump will offer only conditional trade and investment relations with Pakistan. Official quarters are not very worried about trade and economic relations with US under Trump presidency. But they do fear that India will connive with US to try to scuttle $46 billion China-Pakistan Economic Corridor (CPEC) project.

Once completed, CPEC can cause serious problems to Iran’s Chabahar sea port, even making it redundant, which means that oil supplies from Iran, Iraq, and Saudi Arabia will become totally dependent on Beijing and Islamabad. This will further help both the countries to capture central Asian markets that cannot go well with India and US. Senior Pakistani officials maintain that CPEC is a win-win situation for Pakistan and China, and they both know how to protect their strategic interests in coming days, months, and years.

The writer is a senior journalist based in Islamabad