US Secretary of State Mike Pompeo listens and US President Donald Trump (Olivier Douliery-Pool/GettyImages)
  • Pakistan in financial crisis, US announces cut in military aid. How would China react, and how would all of this affect Pakistan’s ongoing proxy war on India?

US Secretary of State Mike Pompeo visited Pakistan en route for the ‘two plus two’ talks in New Delhi, which commenced on 6 September 2018. The sight of a US Secretary of State in Pakistan is not an unfamiliar one. There have been frequent visits over the years usually with the intent to seek greater Pakistani cooperation in the fight against the Afghan Taliban in Afghanistan. Pompeo before the visit said there were a "lot of challenges" in the US-Pakistan relationship but he was hopeful of finding "common ground" with the country's new leadership, a statement probably known by rote to the media which follows such visits. This one is in the wake of a couple of developments.

First is the recent advent of Prime Minister Imran Khan as the new head of government in Pakistan.

Second is the fact that Pakistan is now in deep financial crisis with just $10 billion in foreign exchange (forex) reserves, a precarious position with forex lower than that of even Afghanistan. Much of this is likely to be paid out for various payments which are due. It has already borrowed close to $6 billion from China in the last one year. It is known to be seeking a $9 billion bailout package from the International Monetary Fund (IMF).


Mike Pompeo was the first to comment almost a month ago on this issue when he made it clear that the US would extend support for an IMF bailout only if the loan was not going to be used for servicing the earlier loans taken from China. He had gone on record to state that Pakistan would have to make much more transparent the terms and conditions under which the China Pakistan Economic Corridor was financed by China. At least $62 billion is known to have been invested by China as loans, the repayment of which is to begin next year with a debt servicing close to an estimated $4 billion a year.

The third development is the announcement by the Trump Administration that it was withholding $300 million worth of military aid, for a perceived Pakistani failure to decisively fight against terror networks which affected US interests. Earlier this year, the US Congress stripped $500 million in coalition support funds from Islamabad, meaning it has now removed $800 million in total.

President Trump’s New Year tweet threatening action against Pakistan for having failed to deliver adequately in the fight against terror was then taken as rhetoric. However, the US Administration appears dead serious in its intent of forcing Pakistan to do its bidding in the fight against the Taliban, especially in preventing safe havens inside Pakistani territory.


Shah Mehmood Qureshi, Pakistan’s newly appointed Foreign Minister, tried to take the traditional path of explanation by stating that the $300 million military assistance was something the US owed Pakistan due to services already rendered, and was not aid. The US policy on Afghanistan is largely dependent on cooperation by Pakistan. It is clear that there is no way that the US and Coalition troops in Afghanistan could have been maintained through airheads in Tajikistan or Uzbekistan. The logistics tail had to extend to Karachi which provided the crucial sea link. Over the last 17 years, logistics convoys have travelled through Sindh and Baluchistan all the way to Afghanistan.

There have been times when there has been friction between the local Pakistan administration and the convoy authorities and the convoys were often attacked with petroleum tankers and other vehicles having been burnt.

So has the US taken a risk in denying Pakistan the aid which is due? Is it likely to spur the new Pakistani government to look at its Afghanistan policy afresh and change tack by extending more than the usual support to the US for its fight in Afghanistan? There is no doubt that after former US President George Bush’s famous threat of bombing Pakistan to the stone age in late 2001, there has been grudging cooperation by Pakistan but the full support it could have extended has always been held back. Pakistan explains this as its domestic compulsion as it perceives that the ramification of its support to the coalition forces is usually felt within Pakistan. A serious internal security situation has existed in Pakistan for almost 10 years necessitating in the Pakistan Army finally launching its Operation Radd-ul-Fasad in 2015-17 to clean up internal security threats.


With Pakistan facing a serious financial crunch, its ability to launch sustained counter terror operations is questionable and that is going to be the ploy that will be played out to the aid givers and those who support the bailout of the nation. Whether the aid, if granted, will actually be utilised for the specific purpose of aiding the US interests in Afghanistan, remains in doubt. Mike Pompeo ensured that he did what has come to be an accepted practice for important officials visiting Islamabad; he also visited Rawalpindi to meet the all-powerful Army Chief General Qamar Bajwa. It is from that quarter only that he could have extracted any serious promises of intended action which aid US interests. However, the Pakistan Army, having established a modicum of stability in the internal security environment may not wish to rock the boat on Afghanistan.

China has not given any further indications after the last $1 billion loan was sanctioned in early July 2018. Saudi Arabia has extended an energy credit to Pakistan but nothing in terms of a concrete bailout. It was expected that Pakistan may send a contingent of troops to fight at the Saudi-Yemen border after its strict refusal to do so in 2015. This would be compensated by an aid package by the Saudis who are as much all weather friends for Pakistan as China.

Should Pakistan’s financial predicament have a positive effect on the state of relations with India and will there be a change in the quantum of support for the proxy war in Jammu and Kashmir (J&K)? The financial crunch may not really have a diluting effect on the proxy war as it has been fought either through illegal drugs/narcotics money or counterfeit currency. There is no dearth of that yet available. What Pakistan would and should be worried about is the feasibility of the Line of Control coming alive again and intended or inadvertent triggers which may force India to act decisively in way of a conventional response.


With a financially weak Pakistan to contend with, Indian response to an uncontrolled terrorist strike with mass casualties anywhere in India may get dictated by these considerations. It is not for nothing that the New York Times has come out with a report of a secret attempt by the Pakistan Army to establish a military to military link between the Pakistan and Indian armies for some form of engagement. This is known to have been in the offing for some time but may raise premature hopes.

All eyes should be on the ‘two plus two’ talks between Pompeo along with Secretary of Defense James Mattis and External Affairs Minister Sushma Swaraj along with Defence Minister Nirmala Sitharaman. Clearly they will be seeking to consult all around and perhaps consider ways to quiet Pakistan’s eastern border with India, especially J&K, in order to get a greater commitment from Pakistan about cooperation in Afghanistan. However, China may well act the spoiler by providing Pakistan a conditional bailout package to offset any US advantage in Afghanistan.

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