The eco­nom­ics of peace

The Pak Banker - - 4EDITORIAL - Dr Ak­mal Hus­sain

Anew con­fig­u­ra­tion of in­ter­na­tional re­la­tions is emerg­ing in this re­gion: old ad­ver­saries are be­com­ing aware of new op­por­tu­ni­ties of pros­per­ity through peace. Here we will an­a­lyse the eco­nomic and political dy­nam­ics that un­der­lie the ten­dency to­wards re­gional co-op­er­a­tion that is now man­i­fest. There are three key trig­gers to this process of change in in­ter­state re­la­tions in South and Cen­tral Asia.

First is the im­per­a­tive for the emerg­ing global pow­ers, China and In­dia, to con­nect eco­nom­i­cally with the coun­tries of the re­gion in or­der to sus­tain their high eco­nomic growth rates. China has to in­crease its GNP growth rate from the present 7 per­cent to 9 per­cent to be able to fi­nance its huge hu­man de­vel­op­ment and other pub­lic ex­pen­di­tures. With in­vest­ment in do­mes­tic in­fra­struc­ture and cap­i­tal goods peak­ing, it has to find op­por­tu­ni­ties for in­vest­ment in in­fra­struc­ture short coun­tries such as Pak­istan and In­dia.

What makes this south­ward thrust of in­vest­ment par­tic­u­larly at­trac­tive is its $3 tril­lion of Cen­tral bank re­serves. The po­ten­tial rate of re­turn from in­fra­struc­ture in­vest­ment in the re­gion would be far higher than what it can get from US Trea­sury bills. The $46 bil­lion com­mit­ment by China in the China-Pak­istan Eco­nomic Cor­ri­dor is a key ini­tia­tive in this di­rec­tion. It will not only give China high eco­nomic re­turns at its south­ern doorstep, but also pro­vide ac­cess through Gwadar to the In­dian Ocean: pas­sage­way to most of the world trade, strate­gic raw ma­te­ri­als and the new theatre of con­tention amongst global pow­ers. How­ever for this op­por­tu­nity to be seized, China un­der­stands that it has to play a role in se­cur­ing the re­gion against ter­ror­ism as well as the in­ter­state con­flict be­tween Pak­istan and In­dia.

The CPEC could carry Pak­istan onto a new tra­jec­tory of high growth. How­ever, this would re­quire our pol­i­cy­mak­ers to train the nec­es­sary tech­ni­cal per­son­nel, pro­vide the in­sti­tu­tional frame­work for an­cil­lary in­dus­tries in the au­to­mo­tive and light en­gi­neer­ing sec­tors along the CPEC route and bring lo­cal com­mu­ni­ties as well as pro­vin­cial economies into an eco­nomic net­work for max­imis­ing the sec­ondary mul­ti­plier ef­fects. Th­ese pol­icy ac­tions by Pak­istan would also be nec­es­sary to broaden the eco­nomic growth process trig­gered by the CPEC.

In con­sid­er­ing the eco­nomic gains from the CPEC it may be help­ful to in­di­cate the mag­ni­tude of trade in­volved and its im­pli­ca­tions for peace. Cur­rently China's in­ter­na­tional trade amounts to about $200 bil­lion an­nu­ally. If China di­rects even 10 per­cent of this through the CPEC about $20 bil­lion could flow into Pak­istan. It could be as much as $30 bil­lion due to the 'fun­nel' ef­fect once the road be­comes op­er­a­tional and safe. Un­der the present con­di­tions it will re­quire a ma­jor di­ver­si­fi­ca­tion of Pak­istan's econ­omy to ab­sorb even a frac­tion of this trade. There­fore to max­imise the eco­nomic gains for Pak­istan from the CPEC it would be ad­vis­able to build a west-east cor­ri­dor as well, link­ing Iran through Pak­istan across In­dia up to Myan­mar.

Thus the economies of the Middle East could get a road and rail link with South and South East Asia, thereby cre­at­ing an eco­nomic stim­u­lus of im­mense mag­ni­tude for a vast re­gion with Pak­istan as the hub. But this po­ten­tial eco­nomic trans­for­ma­tion re­quires new frame­works for in­ter­state as well as in­trastate peace be­tween Pak­istan, Afghanistan and In­dia. Pak­istan and in­deed the other two coun­tries too are be­gin­ning to be­come aware of the pow­er­ful im­per­a­tive of a new ap­proach to peace.

The third trig­ger for peace that re­in­forces the se­cond one is the pres­sure on Prime Min­is­ter Modi's govern­ment to ful­fil its elec­tion man­date by pulling In­dia's econ­omy from the dip of 4 per­cent GDP growth to the trend rate of 7 per­cent. The key to achiev­ing this goal and long-term pros­per­ity for In­dia is to con­nect with the CPEC and fa­cil­i­tate a west-east cor­ri­dor dis­cussed above. But the nec­es­sary con­di­tion for this is es­tab­lish­ing last­ing in­ter­state peace with Pak­istan and co­op­er­ate to over­come the com­mon threat of ter­ror­ism.

Modi had ear­lier been fol­low­ing an ag­gres­sive pol­icy to­wards Pak­istan, esca- lat­ing bor­der ten­sions and at the same time let­ting the RSS build up com­mu­nal ten­sion against Mus­lims within In­dia. He may now have re­alised that such an ap­proach is counter-pro­duc­tive for har­ness­ing the great eco­nomic op­por­tu­nity that has opened up with China look­ing South. It is an op­por­tu­nity that re­quires reach­ing out to Pak­istan for an in­sti­tu­tion­alised and com­pre­hen­sive process of peace be­tween the two coun­tries and co­op­er­a­tion to counter ter­ror­ism. It is now ap­par­ent that mil­i­tant ex­trem­ist groups seek to sab­o­tage the peace process and the eco­nomic trans­for­ma­tion of both Pak­istan and In­dia. Prime Min­is­ter Modi's sur­prise visit to Raiwind and the spon­ta­neous em­brace with Prime Min­is­ter Nawaz Sharif in­di­cated that a new paradigm in In­di­aPak­istan re­la­tions has emerged.

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