There is a price tag


What will the standoff cost?

The Urdu turn of phrase, directly translated as “on the same pay” is being thrown around these days by the lot that is the most optimistic about the outcome of the standoff between the US and Pakistan. The conjecture being that all the posturing is going to subside and both sides are going to work as partners again “on the same pay.” Nothing could be farther from the truth. Things have changed irrevocably; the point of no return having been reached from within the American political class.

On the other side of the analytical spectrum are those predicting war. Incorrect as well; all-out war isn’t an option. Even the most hawkish within the American security setup probably shy away from bringing it up.

The real outcome could be one of the many shades from within these two extremes. Since, even one of the worse scenarios, no part of the Pakistani civilian populace – or even the military, for that matter – will probably come in direct confrontation with American forces, it is basically the economic costs of the standoff that will hurt the most.

But just what are the economic costs? That will, of course, depend on how far the Americans want to take the confrontation. At the very least, the suspension of military aid will continue and it might lead to a suspension of civil aid as well. But the fallout won’t just be limited to aid. Trade could be next on the list: the US is Pakistan’s single largest trading partner. Tougher times are going to require for us to quit being a quota queen and start getting more competitive.

If the confrontation really heats up, we could feel the pinch pretty bad. If the Americans interfere in the not insignificant remittances that go from the US to Pakistan, things are going to get dicey on the current account front. If they bar all flights of the national airliner from landing there, we’ve got another problem, especially if the Americans use leverage with other countries to do the same.

The most immediate inflationary pressures of all this is going to be due to the devaluation of the rupee in an import-based economy. Whether the devalued (more competitive) rupee is going to yield increases in exports that would be more than the quantum lost out with the Americans (as mentioned above) would remain to be seen. Out on a limb: it’d be unlikely.

All of these are valid concerns that the military leadership – the only one empowered to do anything here – must take into account before reaching a conclusion. The wages of deceit ensure the “same pay” is going to be a thing of the past.