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Case Studies in Sanctions and Terrorism

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

| 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

“International Monetary Fund officials said that Pakistan could lose key loans if democracy isn’t restored. Before, the coup, the IMF and Pakistan were trying to resolve differences over sales tax and private power policies to enable the release of $280 million, part of a $1.6 billion loan approved in 1997. Other foreign aid hinges on the IMF assistance. Pakistan, an impoverished country of 140 million people, reached agreement with international banks this year to reschedule $877 million in commercial loans and struck a deal with Western governments to roll over $3.3 billion in credits under the umbrella of the Paris Club. But none of the agreements have been ratified, and they could fall apart in the absence of an elected government….” (Wall Street Journal, 14 October 1999, A22)

“Pakistan’s military rulers must act quickly to shore up their international finances or face a serious drain of funds at a time when reserves are worth less than two months of imports…. With reserves of only around $1.5bn, Pakistan cannot afford to lose aid inflows or to see the unraveling of existing rescheduling arrangements of more than $4bn, which are dependent on an IMF programme being in place. Altogether Pakistan has $32bn of foreign debt. It has been running a debt service to exports ratio of 40 per cent before the reschedulings were agreed.” (Financial Times, 14 October 1999, 6)

According to Asian Development Bank, Pakistani external debt reached 58 percent of gross national income in 1999. (Asian Development Bank, Pakistan Key Indicators of Asian and Pacific Countries)

In 1999, development aid accounted for 8 percent of Pakistan’s gross capital formation and 5.7 percent of central government expenditures. (World Bank, World Development Indicators)

Pakistan: US assistance, 1991–2001 (millions of US dollars)
Year	Military aid	Economic aid	Total
1991	–	101.2	101.2
1992	–	18.8	18.8
1993	–	52.7	52.7
1994	–	49.6	49.6
1995	–	17.1	17.1
1996	–	16.5	16.5
1997	–	42.3	42.3
1998	–	18.0	18.0
1999	110.8	61.8	172.7
2000	–	3.8	3.8
2001	–	90.4	90.4
Source: USAID, Overseas Loans and Grants, Obligations and Loans Authorizations, available online at http://qesdb.cdie.org/gbk/index.html

Pakistan: Net official development aid, 1991–2001 (millions of dollars)
Donor	1991	1992	1993	1994	1995	1996	1997	1998	1999	2000	2001
Canada	39.4	22.0	10.1	4.6	3.3	9.7	18.0	16.1	12.1	13.1	13.9
Japan	127.4	173.3	188.5	271.0	241.0	282.2	92.2	491.5	169.7	280.4	211.4
United Kingdom	40.5	33.0	31.3	36.5	53.1	61.4	42.5	46.4	39.5	23.7	27.4
United States	114.0	39.0	54.0	–53.0	–82.0	–101.0	–76.0	–40.7	75.0	88.5	775.6
DAC donors	471.5	469.4	490.3	508.5	360.1	338.6	78.6	534.8	435.2	475.1	1,110.1
EC	25.0	30.6	22.8	18.7	12.6	28.4	21.8	19.2	19.8	33.1	50.0
Total multilateral	820.8	602.7	561.9	1,110.8	528.5	609.4	529.9	522.0	297.2	226.7	813.5
Other donors	78.8	–58.1	–46.8	–13.7	–64.7	–63.9	–12.2	–3.7	0.7	1.0	14.6
EC + EU members	185.8	220.3	236.7	274.0	184.6	151.4	47.7	69.5	182.7	108.4	142.2
Total donors	1,371.1	1,014.1	1,005.4	1,605.6	823.8	884.1	596.3	1,053.0	733.1	702.8	1,938.2
Source: OECD, Geographical Distribution of Financial Flows to Aid Recipients.

Calculated Economic Impact (annual cost to target country)
Suspension of US, Japanese bilateral aid; negligible since aid was already suspended after 1998 nuclear test		Negligible
Total		Negligible
Relative Magnitudes
Gross indicators of Pakistani economy
	Pakistan GNP (1999)	$59 billion
	Pakistan population (1999)	135 million
Annual effect of sanctions related to gross indicators
	Percentage of GDP	—
	Per capita	—
Pakistan trade with US, Japan as percentage of total trade
	Exports (1999)	26
	Imports (1999)	14
Ratio of US, Japan GNP (1999: $13,700 billion) to Pakistani GNP		232
Sources: World Bank, World Development Indicators; IMF, Direction of Trade Flows Yearbook.

Assessment

Pamela Constable
“Abroad, the coup was greeted with stern disapproval by Western European leaders and, under pressure from India, Pakistan was suspended indefinitely from the council of the Commonwealth nations. Yet, Washington’s response was one of guarded tolerance. Having already imposed economic sanctions on Pakistan after its nuclear tests in 1998, the United States made no further move to punish it after the coup. In part, this was a reflection of the longstanding strategic ties between the two countries, especially their military and intelligence communities; and in part, it was a recognition of Musharraf’s domestic popularity and potential as a bulwark against the growing influence of Islamic fundamentalism.” (Constable 2001, 21)

Aqil Shah
“…the September 11 attacks put Pakistan squarely on the front line of the U.S. led war on terror in Afghanistan. General Musharraf quickly allied himself closely with the antiterrorist coalition that the United States was building, thereby securing international acceptance for his bloodless October 1999 putsch against the democratically elected government of Prime Minister Nawaz Sharif. Much to Musharraf’s delight, even token international pressure for a return to civilian rule rapidly faded.” (Shah 2002, 67)

Author's Summary

Overall assessment
Policy result, scaled from 1 (failed) to 4 (success)	1
Sanctions contribution, scaled from 1 (negative) to 4 (significant)	2
Success score (policy result times sanctions contribution) scaled from 1 (outright failure) to 16 (significant success)	2
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)	2
International assistance to target: A (if present)	—
Cooperating international organizations	EU, Commonwealth
Sanction period (years)	2
Economic health and political stability of target, scaled from 1 (distressed) to 3 (strong)	1
Presanction relations between sender and target, scaled from 1 (antagonistic) to 3 (cordial)	2
Regime type of target, scaled from 1 (authoritarian) to 3 (democratic)	1
Type of sanction X (export), M (import), F (financial)	F
Cost to sender, scaled from 1 (net gain) to 4 (major loss)	1

Comments

Economic sanctions were not successful in reinstating a civilian government in Pakistan. Economic leverage over Pakistan was limited because the country already received only limited aid as result of its nuclear weapons program and the fear that further pressure would lead to the collapse of the economically and politically weak state. After September 11, 2001, terrorism and the war in Afghanistan overwrote concerns over democracy and human rights.

Bibliography

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

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

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

Constable, Pamela. 2001. Pakistan’s Predicament. Journal of Democracy 12, no.1 (January): 15–29.

Shah, Aqil. 2002. Democracy on Hold in Pakistan. Journal of Democracy 13, no. 1 (January): 67–75.

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