By S.
Sethuraman
Lifting
of sanctions to help US investors
THE US
Administrations partial lifting of economic
sanctions against India and Pakistan is clearly designed
to bail out Pakistan from its worst economic mess as well
as to facilitate US exports to and investment in India
and enable American companies operating in India
competitive as against the Japanese and Europeans.
US officials have made no
secret of the fact that the waiver had more to do with
helping Pakistan overcome the economic crisis with an IMF
rescue package which could total $ 5 billion, inclusive
of lending by the World Bank and the Asian Development
Bank.
The twice-postponed IMF
mission will now negotiate the assistance programme with
Pakistan and the pre-conditions already set are honouring
of tariff agreements with independent power producers
with foreign stake in utilities and a firm time-table to
bring fiscal deficit under control along with other
structural reforms. Pakistan cut domestic electricity
rates while IMF was calling for raising them.
Prime Minister Atal Behari
Vajpayee termed the US action as
discriminatory inasmuch as the waiver does
not apply to the blocked lending by international
financial institutions like the World Bank and ADB. These
institutions would, however, join the IMF in the rescue
operation to be mounted for Pakistan faced with an
external debt of $ 32 billion immediate repayment
obligations of $ 1.5 billion and a reserve of a mere $
500 million.
US officials deny any bias
against India and point out that restrictions on
financing by US Export-Import Bank (Ex-Im Bank) and
political risk insurance and financing by the Overseas
Private Investment Corporation (OPIC), both of which have
programmes at present only for India, have been lifted.
The waiver also covers activities of US banks in India
and Pakistan which had been barred.
But what is of utmost
importance to India is resumption of multilateral lending
with funding by the World Bank/ADB for infrastructure
projects already before them. While the World Bank had
approved a few loans/credits on humanitarian
assistance basis after the sanctions were enforced
in May last, all other non-basic human needs
loans stand deferred. These are of the order of $ 3
billion of which $ 1 billion would have been committed in
the Banks fiscal year ending June 30, 1998. Some of
the International Finance Corporations loans to
private sector in India also remained suspended.
Countries like Japan and
Germany also postponed new bilateral loans in the wake of
US sanctions, and the Group of Seven leading industrial
nations reportedly agreed on putting on hold any project
loans by the World Bank where they have the decisive
voice. It is in this background that the World Bank has
not sponsored the annual meeting of the India Development
Forum at which aid pledges, bilateral and multilateral,
would have been made in June last. Such strong
indications in the past had given stability to official
capital flows to India.
By selectively freeing the
US federal agencies in doing business with India, the
Clinton Administration has extended relief to American
companies which faced the risk of giving way to
competitors from Europe and Japan. At the time sanctions
were enforced, the Ex-Im Bank had lined up loans and
guarantees for US exports to India worth $ 500 million
while approximate $ 3.5 billion of exports were projected
over a longer period under guarantees which were pending,
US firms like Boeing, General Electric and Enron
Corporation would now benefit in striking deals in India.
Thus, by keeping sanctions
in regard to loans from international institutions
intact, the US Administration is trying to exert pressure
on India to take steps it desires before recommending to
the Congress to extend the waiver beyond one year or
remove all sanctions. The partial lifting is ostensibly
aimed at creating a more positive environment
for the ongoing bilateral dialogue on issues related to
nuclear non-proliferation.
The US Administration had
laid down several conditions, including the signing of
the Comprehensive Test Ban Treaty (CTBT) without
conditions, non-deployment of nuclear weapons or missile
systems, halting production of fissile material for
nuclear weapons, participating in negotiations for a
Fissile Material Cutoff Treaty (FMCT) and firming up of
policies on not exporting nuclear weapons and missile
technology or equipment. The USA has also linked progress
in Indo-Pak bilateral dialogue on resolving all disputes,
including Kashmir, with lifting of sanctions.
While Pakistans
grave economic situation has been cited for
the exercise of the waiver authority given to President
Clinton by US Congress, there is growing realisation that
economic sanctions are not a desirable means of achieving
political aims and they have often proved
counter-productive. There is strong criticism of the
mechanism of sanctions even within the USA while the
targeted countries keep claiming that they would have no
effect on them. In the case of India, which USA
acknowledges is economically strong, the sanctions, if
continued for long, would affect external capital flows
which are vital for infrastructure building for an
economy moving into a higher growth trajectory: The
resulting uncertainty also hinders freer flow of private
investments, as has been the case in recent months.
Mandated by the Congress,
the sanctions regime remains in force with the built-in
waiver authority to the President for a year. US
officials maintain that what has been done for Pakistan
is a one-time response to prevent a financial
collapse and that once an agreed IMF programme is in
place, the USA would oppose any multilateral lending for
the future. Japan is also reportedly intending to lift
sanctions on Pakistan imposed after the nuclear tests in
May, as an exception, to unlock economic assistance to a
country in crisis.
The sanctions now in force
against India include termination of foreign aid and
sales of defence articles, opposition to multilateral
loans and prohibition of exports of specific goods and
technology subject to export licensing by the Commerce
Department. US bilateral aid to India has been
insignificant for several years now and in fiscal 1998
the budget had provided for $ 51 million of bilateral
assistance. IPA
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