U.S. aid cut to Pakistan could hurt economy

ISLAMABAD Mon Jul 11, 2011 2:21pm EDT

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ISLAMABAD (Reuters) - A U.S. decision to suspend $800 million in military aid will not affect Pakistani army operations, a Pakistani military spokesman said on Monday. But analysts say the move is likely to fray ties and could harm the country's economy.

White House Chief of Staff William Daley confirmed on Sunday a New York Times report that the Obama administration had held off a third of $2 billion in security aid in a show of displeasure over Pakistan's cutback of U.S. military trainers, limits on visa for U.S. personnel and other bilateral irritants.

The United States provides hundreds of millions of dollars a year to reimburse Pakistan for deploying more than 100,000 troops along the Afghan border to combat militant groups. Other funding covers training and military hardware. The White House announcement puts $300 million in reimbursement and another $500 million in aid in question.

"The tribal operations won't be affected" by the loss of U.S. assistance, said Pakistan's military spokesman, Major-General Athar Abbas. "We can conduct our operations without external support."

Some of the assistance, he said, was reimbursement for money already spent on several operations on the Afghan border rather than money for future operations.

"I don't think there will be any significant impact from this," he added.

Politically, however, it would be damaging to the relationship, said Pakistan's former ambassador to the United States, retired Major-General Mehmood Durrani said, reflecting a widespread view in Pakistan that it was fighting America's war, for which Washington must reimburse it.

"This is something that they have to pay, and if they don't then it's breach of agreement and breach of trust," he said.

In Washington, Pentagon spokesman Colonel David Lapan said the $800 million in U.S. aid had been put on hold and could be resumed if Pakistan increased the number of visas for U.S. personnel and reinstated the training missions.

"It's ... directly tied to those decisions by the Pakistani military to curtail training and to not grant visas for some of the U.S. personnel that we need to get in. So if those things change, then this aid will change as well," Lapan said.

Lapan said the aid that had been put on hold included money for training as well as equipment that ordinarily would be provided with a trainer or adviser.

Some of the aid put on hold was money from the Coalition Support Fund, which goes to reimburse U.S. allies for their assistance in counterterrorism operations, he said.

ECONOMIC IMPACT

Pakistan's economy could be hit if Washington holds back on the $300 million reimbursement from the Coalition Support Fund that Pakistan says it is owed.

Because it is reimbursements for money already spent on military operations, CSF monies go into the general treasury. So holding back these payments will not hurt the military, but would strain the country's finances further at a time when it is battling a deep downturn.

The money was expected by June 30, and its delay has already bumped Pakistan's fiscal deficit to 5.3 percent of gross domestic product for fiscal year 2010/11 (July-June), a finance ministry official said. With the CSF money, the deficit was anticipated to be 5.1 percent.

CSF money also supports Pakistan's current account. Though the July-May current account is in surplus by $205 million, it may not be able to maintain the surplus in the long term because of rising international oil prices and lower prices for cotton, its main cash crop.

Pakistan received $632 million from the CSF in its 2010/11 fiscal year. Finance ministry officials were unavailable for comment.

The cutback in assistance is part of a high-stakes stand-off between the United States and Pakistan, said Ayesha Siddiqa, an expert on the Pakistan military. Washington has given up on winning Pakistani hearts and minds and is now counting on Pakistan's precarious financial situation to bring it onside.

"America understands that Pakistan needs money," she said. "Pakistan is insolvent. It cannot disengage (from the United States), so eventually it will turn around."

DOWNWARD SPIRAL

The U.S.-Pakistan relationship has been on a downward spiral since last year, but the decline accelerated after the killing of two Pakistanis by a CIA contractor in Lahore in January and the U.S. raid to kill Osama bin Laden, which Pakistan complains it was not told about and says was a breach of its sovereignty.

Pakistan has demanded the number of U.S. military personnel in Pakistan be slashed, and the U.S. has complied. Pakistan also wants to cut the number of U.S. intelligence officials.

If ties became truly frigid, Pakistan could seek closer links with China, it's single largest arms supplier.

(Additional reporting by Sahar Ahmed; Editing by Sanjeev Miglani and Daniel Magnowski)

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Comments (4)
beancube2101 wrote:
Pakistan doesn’t need military aid to fight terrorists. Americans should know who are those terrorists, like those 9/11 reporter authors and Journalists, they should fight in America first. Who is in charge in Pakistan is none of our business. We have enough high risk nuclear facilities hijacked by war sellers in this country right now. Our risks are thousand times much higher than those in the Middle East and Asia. America can become a war zone because people must revenge against our war sellers and Zionist Jews at all costs.

Jul 11, 2011 4:22am EDT  --  Report as abuse
cocostar wrote:
In other words we pay Pakistan to buy weapons from China and tell the terrorist around the world where to come and hide..? Both of these lands are to far away for America to worry about. And if its necessary for our country to have a war in this area we shouldn’t be worried about surgically removing any of them from harms way. We should be bombing them into oblivion!

Any thing else is nothing but a military industrial complex war that big oil and weapons manufacturers are the only beneficiaries. Our country is a double loser because we borrow the money to pay for their war!
The Bush and Cheney crime families are perfect examples of war mongers. You can be sure their profits are in the billions! And you can be sure that they are setting up several politicians with big bucks to play their game with them!

Jul 11, 2011 8:48am EDT  --  Report as abuse
dadasys wrote:
How about bringing the troops home, closing and selling our bases there and stop giving them ANY money at all. Then have a simple trade agreement… whatever they add to our imported goods, we do the same to their imported goods. This is what we should do Worldwide!

Jul 11, 2011 9:54am EDT  --  Report as abuse
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