The United States pressure on Pakistan continues unabated. After suspending $ 2 billion of assistance, Washington has succeeded in getting Pakistan placed in a “Grey List” of countries on a terrorism financing watch list.
The Financial Action Task Force (FATF) did not officially list Pakistan, though the resolution has been passed at the FATF plenary, its members are giving Islamabad six months to set things right, if not the listing will take place in the June plenary of the organisation.
The FATF has a blacklist comprising of two countries—North Korea and Iran—though action against the latter is suspended as a result of the 2015 nuclear deal. In addition, there are 9 countries in the “grey” watchlist.
The FATF decision came after Washington pressed a second vote on the issue on Thursday after Saudi Arabia and China had voted down a US-proposal to put Islamabad on the watch list on Tuesday. The US directly confronted the Saudis directly and compelled them to drop their support to Pakistan. Seeing this, China, too, abandoned Islamabad. It is not clear whether Pakistan’s decision, earlier this month, to send 1600 troops to Saudi Arabia, was aimed at shoring up the support of Saudis who also represent the six GCC members in the FATF.
“For the first time we’re holding Pakistan accountable for its actions. We’ve seen modest progress in terms of Pakistan’s actual acknowledgment of these concerns, but the president is not satisfied with progress when it comes to Pakistan,” White House spokesman Raj Shah said Thursday.
The consequences of the listing range from making it more difficult for Pakistan to tap international markets and make borrowing more expensive. It would also damage the prospects for the country receiving FDI. Indeed, it could also encourage some western companies to leave Pakistan.
The Trump Administration has been critical of Pakistan for its lax controls over terrorist financing and money laundering and inaction against terrorists operating from its soil. Islamabad had desperately sought to stave off the vote by cracking down and seizing assets of the Jamaat-ud-Dawa which fronts for Hafiz Saeed’s Lashkar-e-Tayyeba as well as charities associated with the outfit such as the Falah-e-Insaniat Foundation. Pakistan claimed it has seized 200 properties of the group, which they should have actually done ten years earlier when the group was proscribed by the United Nations in the wake of the Mumbai terror attack. Hafiz Saeed has been arrested and then released six times on various pretexts and outfits like the Jaish and LeT have openly collected funds in public places.
If all this sounds somewhat symbolic, it probably is. Pakistan has been there before when it was on the watchlist between 2012-2015. At the time, it was still able to tap the global bond market and get a bailout package from the IMF. The watchlist is not the same as the black-list which targets countries like North Korea and Iran.
But there are two differences now. First, the Pakistani economy is not in good shape on account of its current account deficit and overvalued currency. Second, this could be only the first of a succession of measures thought up by Washington to bring Islamabad to heel on the issue of supporting terrorism. The real pressure could come if Pakistan sought to approach the IMF for help to stabilize its economy.
The same plenary also proved disappointing for Iran which was hoping it would be permanently taken off the blacklist following the 2015 nuclear deal, the so-called Joint Comprehensive Plan of Action (JCPOA). Teheran had hoped that with European support it will be able to succeed, but it did not. Sanctions have been suspended for another six months till June. Iran has also passed fresh laws to bar terrorist financing and money laundering but it is unable to move the Trump Administration which is actually contemplating walking out of the nuclear deal. Because of this, large multi-national banks have avoided contact with their Iranian counterparts.
So, Pakistan has six months to show that it is serious in cracking down on terrorism financing and money laundering. Islamabad has been a slippery customer in the past and managed to get out of many a scrape with the US, using its wit and support from friends like China and Saudi Arabia.
The crunch would come if the Americans decide to press for Pakistan to be placed on the black-list. Such an eventuality is not expected, but it is where the FATF process ends. That would be a disaster for Islamabad as no foreign banks or corporate would touch it with a barge-pole. It is such a listing that has brought a much richer Iran to its knees.
No doubt, Pakistan will hope that the Saudis and the Chinese will bail them out, as they have done so in the past. But it is important to understand the processes that go into organisations like the FATF. Though it works through consensus, it also involves significant lobbying where the financial clout of the United States and Europe is viewed with respect. Beyond a point, neither Beijing, nor Riyadh would like to cross Washington. If anything, they would seek a quid pro quo elsewhere and leave Islamabad twisting in the wind, alone.
Greater Kashmir February 26, 2018