Economics of unconventional warfare

Three features of the present economic and security environment lead to the surmise that Pakistan is in the grip of what is termed ‘unconventional warfare’ or ‘hybrid warfare’.

First, after nine months of following a diluted version of economic policy within an IMF paradigm, Pakistan has signed a staff level agreement with the IMF. Even the diluted version of an IMF policy approach has halved GDP growth, rendered four million people unemployed and doubled inflation. At the same time the cushion of expenditure on health and education has been sharply reduced. The resultant human misery has led opposition political parties to threaten to launch a street agitation over the issue.

As Pakistan initiates a more intense version of economic policy under IMF conditionalities, the middle classes and the poor would be placed in a double bind: the price of utilities and inflation of commodity prices could increase precipitously while the burden of taxation could increase by about 50 percent (Rs700 billion). Much higher unemployment would add fuel to the fire of economic deprivation. While the capacity of the IMF programme to achieve sustainable ‘financial stabilisation’ is questionable, what is clear is that there is a danger of political destabilisation. This is the first element in the unconventional war that appears to have been unleashed against our beloved country.

Second, militant attacks by sub-nationalist elements not only in (former) Fata but the major cities of Pakistan are occurring with increased frequency. For example, there was a terrorist attack in Quetta on May 13; two days earlier on May 11, a high-profile attack by Baloch insurgents was launched on the Pearl Continental hotel in Gwadar; before that on May 8, there was a suicide bombing attack at an entrance of Data Darbar. Before that, on April 18, at least 14 passengers in a bus were forcibly off-loaded and then shot dead on the coastal highway in Ormara, Balochistan – and so the trail of blood goes on, to give testimony of the second element in the hybrid war: use of guerrillas.

Third, the Line of Control remains hot, with the frequency of exchange of fire across it increasing recently. The continued high alert status of Pakistan’s armed forces is expensive in terms of fuel, spare parts and munitions. This is nothing short of a war of economic attrition that, while creating martyrs almost daily, is bleeding our depleted foreign exchange reserves. Last week, the Indian high commissioner in Islamabad is reported to have made a ‘request’ seeking an end to artillery fire. This should be interpreted as a veiled warning coming at the time it has. There is a danger of another limited military adventure by India to place further economic pressure on Pakistan.

Let us see how the IMF fits into the US system of national power. The IMF claims that its policy is dictated by its membership of about 150 countries. But Roland Vaubel, who has researched the behaviour of the IMF, has argued that the ‘accountability’ of the IMF is according to the percentage of votes the member has, with the top ten members now having 54 percent of the votes. However the policy of the IMF over the years has become increasingly discretionary. Babb and Buira argue that this discretion is exercised in response to the demands of the IMF’s “most powerful organisational constituent: the US Treasury”.

James Raymond Vreeland in his 2007 book on the IMF’s politics of lending suggests that the managing director “rarely acts against the will of the US, since the US has veto power over his appointment and reappointment”. There is a whole corpus of work by scholars such as Cheryl Payer (1974) and Richard Swedberg (1986), which suggests that the IMF is used by the US for political objectives.

Recently a quite remarkable document has been made public by Julian Assange at Wikileaks, which shows clearly that the IMF is a key element in the pursuit of US strategic objectives. Indeed it is integral to the US Special Forces Unconventional War operations. The document is titled: Army Special Operations Forces Unconventional Warfare, Headquarters Department of the Army, September 2008, FM 3-05.130

The ‘unconventional war manual’ of the US in Chapter 2 makes the eminently sensible proposition that the agency that controls finance, wields power. The document then shows that “...ARSOF (Army Special Operations Forces) can use financial power as a weapon in times of conflict... “It goes on to say: “Financial incentives and disincentives can build and sustain international coalitions waging or supporting US Unconventional War campaigns” and, most interestingly, “Participation in international financial organisations such as the World Bank (WB), International Monetary Fund ( IMF), Organisation for Economic Cooperation and Development (OECD), and the Bank for International Settlements (BIS), offers the US diplomatic-financial venues to accomplish such coalitions”.

What is the geo-strategic context in which the above mentioned three elements of unconventional war have been brought into play as a means of putting pressure on Pakistan to support US strategic goals in the region? A key strategic aim of the US is to counter the rapidly growing economic, political and diplomatic influence of China as it emerges as a global power. In this regard, first it is in the US interests to build up India as a dominant power in South Asia to act as a counter weight to China. Second, in the 140-country global connectivity network that China is building, CPEC is a key component. It is in the US interest to block or slowdown progress on CPEC. This is because apart from the trade and investment implications of CPEC, the Gwadar Port at the end of the north-south corridor would provide China with naval access over the Indian Ocean which is seen as the principal theatre for military contention amongst the major powers in the 21st century.

Third, the US would like Pakistan to use its influence with the Afghan Taliban to help the US to achieve a face saving exit from Afghanistan. Fourth, the US would like to get Pakistan to give its political and military support to the US confrontation against Iran in the Straits of Hormuz.

If Pakistan in the first few weeks of the PTI government had effectively apprised China, Saudi Arabia and UAE about the critical urgency of a financial support package of $25 billion to avoid an economic meltdown, given their strategic stakes, that support would have been forthcoming. Pakistan could also have informed China that in the absence of that support there was a danger of destabilization through an IMF package. A destabilization that would not only hold back CPEC but also change the regional balance of power in favour of India and the US.

With the fiscal space afforded by $25 billion, the PTI government could have pursued a new trajectory of sustained and equitable high GDP growth based on human development. Such growth would have been a more sustainable way of tackling the twin deficits, fiscal and balance of payments respectively. (1) High GDP growth could have reduced the fiscal deficit through high revenues rather than drastic cuts in development expenditure. (2) A human development based high growth strategy could have enabled a diversification in the exports structure towards knowledge intensive high value added exports. Only such an export structure can guarantee a growth in exports that is high enough to prevent recurrent balance of payments crises and associated loan dependence.

It is a tragedy of history that at a key juncture, inadequate management and orthodox advice led Pakistan into the arms of the IMF and towards suffering the travails of unconventional warfare.

The writer is a dean at the Information Technology University Lahore.

Email: akmal.hussain@itu.edu.pk