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Case Studies in Sanctions and Terrorism: Pakistan

Case Studies in Sanctions and Terrorism

<< Case Studies Index

Case 79-2:
US v. Pakistan (1979– : Nuclear Missile Proliferation)
See also Case 99-3
US, Japan v. Pakistan (1999–2001: Coup, restore democracy)

| Chronology of Key Events | Goals of Sender Country | Response to Target Country |
Attitude of Other Countries | Economic Impact | Assessment | Author's Summary |
Bibliography |

Economic Impact

Observed Economic Statistics

Pakistan received $6.4 million in aid in FY1996, and $2.5 million in FY1997 under the counternarcotics and food aid programs. (US Agency for International Development, FY1998 Congressional Presentation)

Pakistan paid $658 million for 28 F-16s, which were stored at a US air force base in Arizona after Pressler amendment barred transfer. (Associated Press, 25 May 1995)

"US aid had totaled about $650 million annually. But last month, the US, pinched by budget austerity, decided that even if Pakistan gives up its nuclear-weapons program, it only will receive about $200 million." (Wall Street Journal, 5 February 1991, A8)

Military spending accounts for almost half of Pakistan's $13 billion annual budget. India spends slightly more in absolute terms. (Associated Press, 8 January 1996)

"As 1998 began, the only tangible benefit Pakistan received [from the Brown amendment] was the delivery of $368 million worth of military equipment, which it had paid for already, and the renewal of investment guarantees." (Kux 168)

"Across Pakistan, the economic news worsens by the day. Since the nuclear tests in May, the prices of such basic goods as food and gasoline have shot up by as much as 25 percent. The Karachi Stock Exchange had lost 40 percent of its value before Thursday-and it dropped again after the missile strikes. The rupee, Pakistan's currency, has lost 30 percent of its value against the dollar." (International Herald Tribune, 8 August 1998, 1)

"Pakistan depends on foreign aid to cover its budget deficit, and was jolted when the IMF stopped one payment of a phased, three-year, $1.56 billion loan package as part of economic sanctions following the nuclear tests." (Associated Press, 7 September 1998)

"The immediate pressure is acute, with reportedly less than three weeks' import cover, and reserves insufficient to cover the estimated $1.7 billion owed over the next eight weeks to foreign commercial banks and to the World Bank and the IMF." (International Herald Tribune, 4 September 1998, 8)

"Mr. Sharif's fall-back solution for the economy is an aid package expected from the Islamic Development Bank and other Middle Eastern donors. But though this could amount to as much as $1.5 billion, it is no long-term solution when the external funding shortfall this year is likely to be $4 billion or more." (Financial Times, 27 August 1998, 9)

"Since the Indian tests, the KSE-100 index has fallen more than 40 percent. But in the past two weeks, the market has clawed back 9.5 percent on expectations that Pakistan is about to sign the Comprehensive Test Ban Treaty to end its nuclear row with the west. Reports that the Jeddah-based Islamic Development Bank has extended a $200m loan to co-finance a $1.5bn Islamic loan fund for Pakistan also helped sentiment." (Financial Times, 22 September 1998, 38)

"There is now only about $500m left in liquid foreign reserves or just two weeks' worth of imports, down from over $1bn when the nuclear tests were conducted." (Financial Times, 7 October 1998, 4)

"The country's foreign exchange reserves have fallen sharply to just over $400m, … and it has accumulated almost $1.4b in unpaid debts to commercial banks and other creditors since June, when sanctions were imposed." (Financial Times, 2 December 1998, 4)

"Sanctions imposed on Pakistan following last year’s [1998] nuclear tests precipitated a balance-of-payment crisis and a near default on its external debt. The Pakistani economy, unlike India’s, faced an immediate foreign debt crisis. A U.S.$1.56 billion loan from the International Monetary Fund (IMF) helped stave off default and stabilize the country’s external financing position. … Although an IMF loan has enabled the country to reschedule U.S. $3.3 billion of its short-term bilateral debt with the Paris Club of official creditors, the country’s external financial position remains vulnerable. With declining foreign remittances and foreign exchange earnings, Pakistan is vitally dependent on debt rescheduling agreements to meet its external payment obligations. At present, the government is seeking to reschedule about U.S. $800 million in commercial debt with the London Club of commercial creditors and U.S. $520 million in offshore trade debt with a group of commercial foreign banks." (Center for Strategic Studies, South Asian Monitor no. 11, 1 July 1999)

"Pakistan’s economy is in the midst of a recession. Output growth has slowed from 4.3 percent in 1997-1998 to 3.1 percent in 1998-1999, … Growth in agriculture slowed sharply from 3.8 percent in 1997-1998 to 0.4 percent in 1998-1999,… Growth in manufacturing has also slowed steeply of the last year, from 7.9 percent to 2.7 percent." (Center for Strategic Studies, South Asian Monitor no. 11, 1 July 1999)

"Foreign direct investment fell over the last year from U.S. $436 million to U.S. $296 million, and portfolio investment from U.S. $204 million to U.S. $4.7 million." (Center for Strategic Studies, South Asian Monitor no. 11, 1 July 1999)


Pakistan: US assistance, 1984-2001
(millions of US dollars)


Years
Military aid
Economic Aid
Total

1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
300.3
326
312
313.6
260.8
230.9
229.9








110.8

307.4
339.2
356.4
351.5
465.8
352.1
357.3
101.2
18.8
52.7
49.6
17.1
16.1
42.3
18.0
61.8
3.8
90.4
608.1
665.2
668.4
665.2
726.6
583.0
587.2
101.2
18.8
52.7
49.6
17.1
16.1
42.3
18.0
172.7a
3.8
90.4

a Numbers partly reflect settlement reached in December 1998 over F-16 fighters bought by Pakistan but never delivered.
Source:
US Agency for International Development, Overseas Loans and Grants, Obligations and Loans Authorizations, available at http://qesdb.cdie.org/gbk/index.html.


Pakistan: Export-Import Bank assistance, 1994-2001 (millions of US dollars)


Years
Loans
Guarantees
Insurance
Total

1994
1995
1996
1997
1998
1999
2000
2001

103.9
96.9




15.1
122.8
387.0
0.2










15.1
226.7
483.9
0.2




Source: Export-Import Bank annual reports, various issues.

 

Pakistan: US military sales, commercial exports licensed under Arms Export Control Act (millions of dollars)


 
Military sales
Commercial exports

 
Agreement
Delivery
 

1992
1993
1994
1995
1996
1997
1998
1999
2000
2001



78.0

97.0
37.0







146.4
184.4
76.7


8.1
4.7
1.7
6.2
4.2
2.2
0.3



Source: Foreign Military sales, Foreign Military Construction Sales, and Military Assistance Facts, as of September 30, 2001.

"As a result [of heightened US export controls], much of …the $1.2 billion in exports to Pakistan in 1997 consisted of low-tech products like fertilizers, cereals and consumer goods." ( Journal of Commerce , 25 March 1998, 1)

Pakistan: Multilateral loans, 1992-1996 (million of dollars)


 
Total multilateral
Concessional
multilateral

1992
1993
1994
1995

1996
1,174
1,337
1,478
1,163
1,275
426
512
808
629
694

Source: World Bank, World Debt Tables, 1996.

Calculated Economic Impact (annual cost to target country)

Phase I: 1979-90
 
1979 cutoff of economic and military aid more than offset by much larger aid flows following Soviet invasion of Afghanistan
$0
Phase II: 1991-98

Reduction in economic and military aid after application of Pressler amendment; welfare loss calculated as 50 percent of average annual aid flows, 1988-90 (this assumes that a substantial reduction of aid flows was inevitable with collapse of USSR)
$316 million
Military equipment paid for but withheld under Pressler amendment, including F-16s; welfare loss calculated as 10 percent of value of equipment withheld.
$115 million
Total, Phase II
$431 million
.
Phase III: 1998

Reduction in reserves and increase in debt arrears due in part to suspension of IMF lending for 6 months; welfare loss calculated as 10 percent of value of drop in reserves and increase in arrears
$200 million
Total average annual cost, 1991-98
$456 million

Relative Magnitudes


Gross indicators of Pakistani economy  

        Pakistan GNP (1990)
        Pakistan Population (1990)

$ 41.1 billion
112.4 million
Annual effect of sanctions related to gross indicators  
        Percentage of GNP
        Per capita

1.0
$4.06
Pakistan trade with US as percentage of total trade
        Exports (1990)
        Imports (1990)

12
13
Ratio of US GNP (1990: $5,524.6 billion) to Pakistani GNP
134

Source: IMF, International Financial Statistics Yearbook 1998; IMF, Direction of Trade Flows Yearbook, 1996.

Assessment

US State Department
April 1979: State Department officials say they doubt aid cutoff would restrain Pakistanis' nuclear ambitions; some suggest it could move them closer to building bomb. "Although a senior State Department official said the cutoff would convince Pakistan and other would-be nuclear powers 'that we mean business in our nuclear nonproliferation policy,' numerous officials insisted that in halting over $80 million in economic assistance, the administration lost the little leverage it had on Pakistan's nuclear plans." (New York Times, 17 April 1979, A3)

Central Intelligence Agency
January 1982: CIA estimates that Pakistan will have capability to detonate device within three years but probably would choose not to do so, at least in part because of Zia's "unwillingness to jeopardize the Reagan administration's six-year $3.2 billion military and economic aid program." (New York Times, 24 January 1982, A6)

Shirin Tahir-Kheli
"At the very least, the pressure applied by the Carter administration on Pakistan hardened the latter's attitude and pushed the issue within the rhetoric of intense nationalism." (Tahir-Kheli 127)

Gerard C. Smith and Helena Cobban
"[W]hile the two branches of government deliberately and visibly subordinated nonproliferation policy to Afghan policy, Pakistan was sliding over the threshold of nuclear weapons possession." (Smith and Cobban 59)

Leonard S. Spector
"[I]t appears that Pakistan is firmly committed to enlarging its de facto nuclear weapon stockpile. At the same time, because of the threat of U.S. sanctions and the fear of stimulating India to pursue its own nuclear capabilities more aggressively, Pakistan appears unlikely to alter its ambiguous nuclear status by conducting a test or declaring it possesses nuclear arms." (Spector 1988, 146)

T. V. Paul
"[T]he evidence that sanctions did not result in a change of policy is to be found in Pakistan's continuing development of a nuclear weapons programme. … Economic sanctions against trade in arms have not forced Pakistan to abandon its nuclear acquisition efforts. India is perceived as such an enormous security threat that the Pakistani elite acquired all the components necessary for a nuclear weapons programme through clandestine means. … [In general] sanctions against a potential proliferator in a protracted conflict zone without a nuclear ally are unlikely to succeed, particularly if the proliferator is an isolated state." (Paul 1996, 454-455)

Dennis Kux
"Although one can argue that sanctions deterred Pakistan from fielding an overt weapons capability, the fact that India had not done so until 1998 probably was more important. As long as India kept its capability undeclared, Pakistan could satisfy its deterrent requirement by nuclear ambiguity." (Kux 169)

Teresita C. Schaffer
"The U.S. threat to discontinue aid probably delayed the completion of Pakistan's nuclear explosive device, perhaps by a couple of years. Nevertheless, neutralizing India's military advantage by developing nuclear capability consistently ranked higher on Pakistan's priority list than receiving economic aid and even military supplies from anyone, including the United States." (Schaffer 172)

Journal of Commerce
"Problems with the sanctions law emerged soon after both countries [India and Pakistan] staged a series of nuclear tests last May. It quickly became clear that the mandatory curbs were so tough that they could only serve as a deterrent. No one knew how to apply them if testing actually took place.

"The first thing that U.S. officials found was that they had neglected to write implementing regulations for the sanctions law.

"… As a result, the sanctions were ineffective as a deterrent and ambiguous as a punishment." (Journal of Commerce, 22 February 1999, 4A)

Daniel Morrow and Michael Carriere
“The fact that the threat of the US sanctions failed to prevent the nuclear tests by India and Pakistan is certainly not sufficient reason to abandon the Glenn Amendment. Although the US threat ultimately failed in the case of India and Pakistan, it might be the case that the threat of sanctions delayed testing by many years for both nations. A sufficient rationale for executing the threat was, as Undersecretary of State Talbott said, to create a disincentive for other states to exercise the nuclear option if they are contemplating it.” (Morrow and Carriere 1999, 13)

Randy J. Rydell
“Both the threat and the implementation of sanctions have advanced US nonproliferation goals in both India and Pakistan, whether they be measured in (a) the length of time it took for such tests to finally occur, (b) the costs of having to undertake such tests quickly, underground, and with elaborate measures of deception, or (c) the message US actions have sent to the world community about America’s commitment to defend both global ideals and its own national security interests. The sanctions are in all likelihood key reasons explaining why neither country has proceeded with additional tests.” (Rydell 1999, 11)

Author's Summary

Overall Assessment
1979–97
1998–2001

Policy result, scaled from 1 (failed) to 4 (success)

1
2

Sanctions contribution, scaled from 1 (none) to 4 (significant)

1
2

Success score (policy result times sanctions contribution) scaled from 1 (outright failure) to 16 (significant success)

1
4
     
Political and economic variables    

Companion policies J (covert), Q (quasi-military), R (regular military)

International cooperation with sender, scaled from 1 (none) to 4 (significant)

1
3

International assistance to target A (if present)

A1
 

Cooperating international organizations

G-8

Sanction period (years)

18
1+

Economic health and political stability of target, scaled from 1 (distressed) to 3 (strong)

2
1

Presanction relations between sender and target, scaled from 1 (antagonistic) to 3 (cordial)

3 2

Regime type of target, scaled from 1 (authoritarian) to 3 (democratic)

2 2

Type of sanction X (export), M (import), F (financial)

F,X F,X

Cost to sender, scaled from 1 (net gain) to 4 (major loss)

2 2

1 Saudi Arabia and other Arab states provided small amounts of offsetting assistance to Pakistan in 1979 but it was swamped by the flows of US assistance after the Soviet invasion of Afghanistan.

Comments

In the late 1970s, 1980s, and 1990s, public assessments focused on dissuasion; in the immediate aftermath of nuclear tests, the assessments focused on deterrence; thereafter attention shifted to the CTBT and associated restraints. Obviously dissuasion and deterrence failed. The policy result score of 1 assumes that Pakistan will not sign the CTBT anytime soon, and will not sign the Fissile Material Cut-off Treaty or discontinue the weaponization of missiles.

Bibliography

Congressional Research Service, Library of Congress. 1980. Nuclear Proliferation Factbook. Prepared for Subcommittee on Energy, Nuclear Proliferation, and Federal Services of the Senate Committee on Governmental Operations, and the Subcommittee on International Economic Policy and Trade of the House Committee on Foreign Affairs. 96th Cong., 2d sess., Summer. Washington.

Congressional Research Service, Library of Congress. 1992. US Economic Sanctions Imposed against Specific Foreign Countries, 1979 through 1992. August 10 (revised). Washington.

Congressional Research Service. (CRS ) 2002a. India and Pakistan: Current U.S. Economic Sanctions . RS20995. By Dianne E. Rennack. Updated 11 February.

Congressional Research Service. (CRS ) 2002b. India-US Relations. IB93097. By K. Alan Kronstadt. Updated 7 November.

Congressional Research Service (CRS) 2003. Pakistan-US Relations . IB94041. By K. Alan Kronstadt. Updated 6 May.

Foreign Broadcasting Information Service. 1979. Daily Report: the Middle East and Northern Africa,13 April, S3.

International Monetary Fund (IMF). 1980. International Financial Statistics Yearbook. Washington.

Kapur, Ashok. 1980. A Nuclearizing Pakistan: Some Hypotheses. Asian Survey 20 (May): 495-516.

Kux, Dennis. 1998. Pakistan. In Economic Sanctions and American Diplomacy, ed. Richard N. Haass. New York: Council on Foreign Relations.

Morrow, Daniel and Michael Carriere. 1999. Economic Impacts of the 1998 Sanctions on India and Pakistan. The Nonproliferation Review 6, no.4 (Fall): 1-16.

Paul, T. V. 1996. Strengthening the Non-Proliferation Regime: The Role of Coercive Sanctions. International Journal 51, no. 3 (Summer), 441-65.

Rydell, Randy J. 1999. Giving Nonproliferation Norms Teeth: Sanctions and the NPPA. The Nonproliferation Review 6, no. 2 (Winter): 1-19.

Schaffer, Teresita C. 2002. U.S. Influence on Pakistan: Can Partners Have Divergent Priorities. The Washington Quarterly 26, no. 1 (Winter): 169-183.

Smith, Gerard C., and Helena Cobban. 1989. A Blind Eye to Nuclear Proliferation. Foreign Affairs 68 (Summer): 53-70.

Spector, Leonard, US Senate Governmental Affairs Committee, Subcommittee on Energy, Nuclear Proliferation and Government Processes. Interview with authors, 24 January 1983.

Spector, Leonard. 1983. The Undeclared Bomb. Cambridge, MA: Ballinger.

Tahir-Kheli, Shirin. 1982. The United States and Pakistan: Evolution of an Influence Relationship. New York: Praeger.

Yager, Joseph A., ed. 1980. Nonproliferation and U.S. Foreign Policy. Washington: Brookings Institution.

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