CGD in the News

Pakistan's Political Crisis: The Limits of U.S. Leverage (Foreign Policy, AFPAK Channel)

January 24, 2011

CGD president Nancy Birdsall, research and communications Wren Elhai and senior policy analyst Molly Kinder's article on Pakistan and the limitations of U.S. leverage was published on Foreign Policy's AfPak Channel.

From the Article:

Pakistan marked the start of 2011 with a series of events that signal another year of turmoil. In the span of little more than a week, Pakistan's governing coalition fell apart and then reunited in equally dramatic fashion, a secular-minded provincial governor was assassinated, and progress on critical economic reforms was rolled back, putting more than $3 billion in IMF funds in jeopardy. Within days, U.S. Vice President Joseph Biden arrived unannounced in Islamabad, offering his assurances of sustained U.S. support. The turmoil illustrates two hard realities for U.S. policy in Pakistan. First, despite commitment from Pakistan's technocratic economic team, its leaders have yet to find a way around the political roadblocks standing in the way of urgently needed economic reforms. And second, the deep pockets of the United States' civilian program in Pakistan-in the form of $1.5 billion a year in development assistance-don't seem to contain the leverage to push those reforms through.

istan's difficult start to 2011 will continue to exact a heavy toll on the idea of effective civilian government in the months and years ahead. The assassination of Salmaan Taseer will likely have a chilling effect on the willingness of smart, capable men and women to serve in public office and to speak their minds openly. The week's political brinksmanship calls into question the ability of the ruling Pakistan People's Party to move critical economic reform legislation through Parliament. Prime Minister Yousaf Raza Gilani succeeded in holding his governing coalition together only by undoing an unpopular increase in fuel prices and by deferring indefinitely consideration of a contentious tax reform package.

istan's international donors lamented the terms of the deal. U.S. Secretary of State Hillary Clinton said, "It is a mistake to reverse the progress that was being made to provide a stronger economic base for Pakistan." An International Monetary Fund (IMF) spokeswoman said the fuel price subsidies would mainly benefit large corporations and the wealthy. The IMF's view matters, because Pakistan has been waiting for the remaining $3.5 billion from an $11.3 billion bailout package that kept Pakistan's economy from collapse in the wake of the 2008 financial crisis. But that support carries explicit conditions, including progress on both energy pricing and tax reform.

months, Pakistan's technocratic economic policy team has signaled its commitment to progress on reforms. In a major speech delivered to the Pakistan Development Forum in November, Pakistani Finance Minister Dr. Abdul Hafeez Sheikh identified reducing energy subsidies and tax reform as two of his top six priorities. Unfortunately, the real challenge lies not in diagnosing the problem or even in prescribing solutions, but in addressing the treacherous politics of reform.

U.S. policymakers should note well this series of events and remember a simple lesson. Billions of dollars of U.S. assistance-and a sustained diplomatic focus on the reform agenda-have not given the United States the ability to dictate the outcomes of Pakistan's political process. This is inconvenient for the United States, but not surprising. For the United States and for other major donors in Pakistan, money has never brought leverage.

Read the Article.