Britain cannot afford a failed Pakistan

Elliot Wilson says that the near-collapse of the Islamic state should focus minds in this country, which is inextricably linked to Pakistan. Its implosion would stoke extremism here Pakistan is a failing state, and barring a mammoth bail-out few can now afford, it will become the world’s first bankrupt nuclear power. Bowed down by our own financial crisis and an economy teetering on the edge of recession, should we care?

In sovereign terms the Islamic Republic of Pakistan, which last year celebrated its 60th birthday, is into its adolescent years, now something of a cross between a prodigal son and the family’s black sheep. A major exporter of fertiliser, potash and terrorists, it is also the world’s only Muslim nuclear power. The country’s ruling authorities, supported and undermined in equal measures by a raft of millionaire military officers, landed gentry, feudal landlords, industrialists, extremists and religious zealots, are forced to recognise their roots as an Islamic nation while tipping a nod toward a constitutionally secular legislature.

As with any adolescent, Pakistan constantly demands more attention and money than it deserves. Since the turn of the decade, Islamabad has treated the West as a sort of giant cash machine, extracting £5.8 billion of aid from Washington since 2001 to fight extremists active in its troubled western frontier regions. Britain and other nations, along with multilaterals including the World Bank and the International Monetary Fund, have handed over billions more.

Some of this munificence has been used for its intended purpose — preventing terrorism from spreading over there in order to ensure our security and sanctity over here. Far more

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has gone into lining the pockets of the military and their government stooges, up to and including former president Pervez Musharraf, who stepped down in August. ‘One of the great secrets of dealing with Pakistan is that the country always borrows money and never pays it back,’ says Lord Meghnad Desai, an economist and Labour peer.

Yet still Pakistan looks for handouts. Its newish president Asif Ali Zardari, a slippery customer viewed at home as a crook and a spiv, and in Britain and America as a crook and a spiv who couldn’t be trusted with the milk money, has recently been courting power-brokers cap in hand, desperate to shore up the nation’s flagging finances and stave off bankruptcy. An appalling choice for president of a troubled and embattled nation, Zardari, one of the country’s richest men, with a fortune estimated at between £1.5 billion and £6 billion, was given Pakistan’s nuclear launch codes in September, ten months after the mysterious and still-unsolved assassination of his wife, Benazir Bhutto.

Seeking hard cash, Zardari found mostly hollow words in Washington, Pakistan’s closest ally over the past decade. In Saudi Arabia he sought — and was denied — oil concessions. Pakistan imports 70 per cent of its energy, most of it sourced from Riyadh, and spiralling oil prices have shredded the country’s finances. Islamabad is also seeking around £1.8 billion from the World Bank and the IMF, and a £500 million credit line from Britain’s Department for International Development.

Even China, Pakistan’s chief Cold War ally, has proved reluctant to open its wallet. For all the fanfare surrounding a recent trip to Beijing by Zardari and his respected finance adviser Shaukat Tarin, China gained more than it gave, linking aid to industrial projects by promising to help build two nuclear power facilities and a hydroelectric dam in the country, but declining to hand over the item at the top of Zardari’s shopping list: a cheque for between £900 million and £1.8 billion.

Pakistan’s woes benefit China’s communists, who are quietly making hay while the West scrambles to find a solution to its own ongoing fiscal crisis. Each time China pushes a little further into Pakistan, officials in London, Washington and New Delhi tremble a little in their boots. The nuclear facilities will be Chinese-owned and operated when they open, sitting on Pakistani soil but decked with fluttering red-and-gold flags signifying ownership by the Chinese state. Beijing is also pushing ahead with its first blue-water military port, on the Pakistan coast at Gwadar, west of Karachi.

Yet this was scant consolation for Zardari, a man fast running out of ATMs. Back in 1996, a considerably poorer China granted Pakistan a £300 million credit line when Islamabad was on the brink of default. But those days are over, and Pakistan, a country long reliant on the financial largesse of others, is in real trouble. National debt is soaring, up to £25 billion from £20 billion four months ago, while its foreign exchange reserves — the key buffer against national bankruptcy — stand at barely £2.3 billion and falling fast, down 67 per cent from the same time a year ago.

Rubbing salt into the wound, on 6 October the ratings agency Standard & Poor’s slashed a slew of ratings on Pakistan to a notch above default status citing ‘rising doubts’ about the country’s ability to pay £1.8 billion worth of debt, due in a year’s time. Speaking to The Spectator, Agost Benard, a Singapore-based primary credit analyst at S&P, said there was a 50 per cent chance of Pakistan defaulting and being barred from accessing the world’s capital markets over the next 12 months.

Given such staggering financial and diplomatic incoherence, why then should we care what happens in a troubled nation tens of thousands of miles away, much less dip into our pockets (yet again) in search of a financial solution?

For one thing, Britain’s imperial past constitutes an almost unbreakable umbilical cord linking London with Lahore, and Pontypridd with Peshawar. For all of the conjecture surrounding the future of globalisation, we do, for better or worse, now live in a global village, where people, capital, goods and services migrate across borders with a fluidity not seen since the Edwardian era.

One million British Pakistanis live in the UK, the vast majority of whom work hard, pay their taxes, and add a richly textured cultural layer to modern Britain. Only a handful genuinely hate their adopted home, and were Pakistan allowed, humiliatingly, to fail as a state, that number would inevitably rise. ‘A fractured or failed Pakistan would lead to increased extremism and terrorism in Britain and across the world, not just in Pakistan,’ says Baron Ahmed of Rotherham, Britain’s first Muslim peer. A proud country of 170 million people that struggles to assert its own identity on the regional and global stage, Pakistan also sits at the nexus of many of the world’s most strategically vital trade routes. Resource-rich Central Asia and resource-hungry China are connected to the warm waters of the Indian Ocean via the long and fertile Indus valley and the barren peaks of Balochistan. Moscow also continues to exert influence on a country that is both a pawn and a player in the Great Game, the strategic rivalry that began between the British and Russian empires and which has gained and lost a few protagonists since 1813, but has never truly ended. Closer to home, Pakistan acts as a buffer between India’s democracy and Afghanistan’s heroin-fuelled bedlam. Officials in New Delhi scan the horizon daily for fresh signs that Islamic extremism is spilling over into northerly Jammu and Kashmir, and fret over rising Chinese influence in the neighbouring Islamic state.

In theory, allowing such a globally vital sovereign state to fail — or to fracture into four, ethnically homogeneous fragments, with the Punjab and Sindh in the east and Balochistan and Waziristan in the west — is unthinkable. That at least is the attitude of the legion of experts who believe, pragmatically or not, that someone, somewhere, will somehow ride to Pakistan’s rescue.

Yet the country is fast running out of rich friends. Key Gulf powers like Saudi Arabia and the United Arab Emirates have been surprisingly reluctant to help, and Pakistan has struggled to gain the attention of Western governments preoccupied with a financial and economic crisis that threatens to scupper the world economy.

All the while, the country’s border regions descend further into violence and chaos. Pakistan’s corrupt military seems increasingly incapable of stemming the increasingly aggressive insurgents. A recent truck bomb that killed scores of people at the Marriott Hotel in Islamabad is just the latest sign that Pakistan’s army is losing the war at home. A senior US official was recently quoted in the American press as saying that a rising al-Qa’edaorchestrated insurgency spreading out from the northwestern frontier had put Pakistan ‘on the edge’.

Fading hopes of a fiscal rescue rest on a financial injection from the IMF and World Bank in Washington — assuming, that is, that the US-centric institution feels like bailing out a country now cozying up with Beijing. The bleak situation is summed up by Farrukh Sabzwari, the head of Pakistan’s largest stock trading house, KASB Securities. ‘Everything that could have gone wrong has gone wrong, from currency reserves to skyrocketing energy prices to terrorism and the rising threat from the Taleban,’ he says. ‘There is a crisis of confidence in every part of the country.’