The Dollar Auction: Some Figures

I have maintained for a while that the reason that Pakistan gets propped up by the US and its allies is that India and Pakistan are engaged in a dollar auction game and therefore anytime Pakistan is about to go bankrupt (and therefore be unable to continue the game), the US and its allies rush to prop it up. How much money is involved in keeping Pakistan alive so that it can continue to wage jihad against India? Here are the figures from an article, “Fail, then reap rewards,” by Brahma Chellaney in the Deccan Chronicle.

Pakistan has long proved to be adept at diplomatically levering its weakness into strength. Now it is using the threat of its possible implosion to rake in record-level bilateral and multilateral aid.

Bountiful aid has been pouring in without any requirement that Pakistan address the root cause of its emergence as the epicentre of global terrorism — a state-instilled jihad culture and military-created terrorist outfits and militias. Even though the scourge of Pakistani terrorism emanates not so much from the Islamist mullahs as from generals who reared the forces of jihad, rewards are being showered on the procreators of terrorism.

The Pakistani-scripted Mumbai terrorist attacks, far from putting Islamabad in the international doghouse, have paradoxically helped open the floodgates of international aid, even if involuntarily. Between 1952 and 2008, Islamabad received over $73bn as foreign aid, according to Pakistan’s Economic Survey. But in the period since the Mumbai strikes, the amount of aid pledged or delivered to Pakistan has totalled a staggering $23.3bn. This figure excludes China’s unpublicised contributions but includes the IMF’s $7.6bn bailout package, released after the Mumbai attacks.

Just last week, Islamabad secured some $5.2bn in new aid at a donors conference — the first of its kind for Pakistan. At that conference, host Japan and America pledged $1bn each, while the EU promised $640 million, Saudi Arabia $700 million, and Iran and the UAE $300 million each. [Emphasis added.]

Chellaney says, “put simply, Islamabad is being allowed to reap a terrorist windfall.” I would make a stronger assertion: that Pakistan is being rewarded precisely because it promotes terrorism against India.

But the global jihadi terrorism of the type that Pakistan promotes is a more recent phenomenon than the pouring of aid into Pakistan. The explanation of why Pakistan gets enormous amounts of aid is clearly to keep India engaged in a bloody dollar auction game. Of course, Islamic terrorism against India is another arrow in Pakistan’s quiver and it makes Pakistan a lot more lethal to India. Which is why every act of Pakistani Islamic jihadi terrorism against India is rewarded by the US and its allies (which, in this context, included China).

Go read the chilling article by Chellaney. He concludes with

The reason Pakistan can harvest tens of billions of dollars by playing the failing-state card is no different from what endeared it to US policy since the 1950s or made it an “all-weather ally” of China. Pakistan remains too useful a pawn for external powers involved in this region. These powers thus are unlikely to let it fail, even as they play up the threat of implosion to bolster the Pakistani state. It’s no wonder Pakistan seems determined as ever to pursue its “war of a thousand cuts” to turn India — with its aging, toothless leadership — into a failed state.

If you have been following the story of aid to Pakistan from a set of nations called “The Friends of Pakistan”, you know the drill. In a Sept 2008 post, “Why Pakistan is Useful Just the Way it is“, we have a bit more:

The “Friends of Pakistan are “Britain, France, Germany, the United States, China, the United Arab Emirates, Canada, Turkey, Australia and Italy plus the United Nations and the European Union.” Among these are nations — US, China, the Arab states, France, Britain — that give aid to Pakistan. The military component of the aid is what Pakistan uses to initiate and fight bloody wars with India. India, a desperately poor country, cannot afford these costly wars but it has to fight them because the Friends of Pakistan want that India bleeds. Pakistan is the instrument.

I can see the reason why the economic meltdown of Pakistan is certainly not in the interests of the Friends of Pakistan. The biggest dagger stuck in India’s rib would be pulled out and with it will disappear the prospects of selling arms to India, of keeping India engaged in 1,000-year jihads which Pakistan regularly declares against India. The Friends of Pakistan more certainly do not want Pakistan to fail. You too would get worried if the pit bull you have trained for years to attack suddenly is in danger of dropping dead.

The Friends of Pakistan have an interest in keeping the conflict between India and Pakistan alive. Why do I say that? I use the revealed preference argument. Basically it says that by freely choosing something, you reveal what you prefer. If you have the power to choose a “Pakistan Friendly to India” but instead choose a “Pakistan as a Sworn Moral Enemy of India”, you have revealed that you prefer that. I take it is obvious that the Friends of Pakistan could have easily enough told Pakistan that it should stop its belligerence towards India and concentrate on economic development. But they do not and that is why I believe that they have an interest in keeping Pakistan dependent on their money because Pakistan does their bidding.

Please take a look at that post. For your convenience, here’s a bit from it:

Absent the conflict, the Indian subcontinent will develop differently and could in fact become economically prosperous and consequently exert an independent influence on the world. That independent influence could potentially alter the current power structure. As it is, controlling China is out of the question. They have had to make space for China. But they will be damned if India also becomes powerful.

Here’s how I imagine the Friends of Pakistan reasoning:

“Sure, there is a lot of talk in India about India becoming a ’super power.’ (snigger, snigger.) We are fine with India deluding itself into thinking that it is an economic superpower just because it has a lot of software coolies and call center operators. Good for them. It keeps them distracted.

“But let’s not forget that without Pakistan as a mill around India’s neck, India could have a decent shot at actually developing. We cannot afford the disintegration of Pakistan. To keep Pakistan in business is not such a costly affair, in any case. We’re rich enough to chip in a few billion dollars and they will do what we want them to do. The generals are not very expensive anyway. If we had to keep the civilian population happy, it would have been more expensive. But this is much cleaner. We buy the generals and give them shiny new fighter planes and even help with getting them a few nukes to jerk off over. In turn, the generals have the politicians eating out of their hands, and rule the starving population with an iron fist.

“Now let’s just pull together, shall we? The last thing we need is Pakistan disintegrating. We are not always on the same side of the table. But on this one we are as one. Even China needs to be — has to be — on our side. China especially sees the need for containing India. For the greater good, we all, we the Friends of Pakistan, have to make sure that we give just enough to keep the pit bull alive. It should be kept hungry. That dependence on us keeps it obedient to us and savage against India. Remember, not too much though. It should be hungry and mean, not fat and lazy.

“We have plied Pakistan with lots of military hardware. The economic collapse of Pakistan would be disastrous because the same hardware in the hands of the factions within Pakistan would be totally useless against India. It bloody defeats the bloody purpose. That cannot be allowed to happen.”

To be fair, my modeling of a long-lasting global conflict as a dollar auction is just a hypothesis. The model makes predictions and unfortunately all the evidence is consistent with the model’s prediction. This adds confidence in the model’s accuracy.

For more, please see a September 2001 (right after 9/11) post titled “The Looking Glass War” for the beginning of this line of reasoning.

Related posts:

“The Dollar Auction Continues” — Dec 2006.

“Quo Vadis, Pakistan” — Nov 2007.

“The War and the Circus” — Apr 2009.

Author: Atanu Dey

Economist. View all posts by Atanu Dey