Apart from the macroeconomic fallout, a major concern is the diplomatic tension between America and Europe, which could spread to trade



Mar 24 - 30, 2003



It now appears almost certain that the only super power in the world, with its adventurous and arrogant rulers, is bent upon waging a most unpopular war in its history, not only most of the world including some close allies of the United States have condemned it, millions of US citizens, unprecedented in their history, have repeatedly demonstrated on the streets strongly opposing the decision to attack Iraq. Today the sole super power which enjoyed the almost the whole world support a year back in its war against terrorism stands almost isolated by its people from within and abandoned by its friends from abroad as a result of its new doctrine of expansionism starting from a war against defenceless Iraq.

Weeks of intense diplomatic efforts by France, Germany, Russia and China to avert war has failed to convince the adamant US leadership to seek peaceful disarmament of Iraq through the UN weapons inspectors. The unprecedented worldwide protest rallies against war have not stirred Bush's conscience about the imminent bloodshed and annihilation in Iraq as a result of the US attack. A great human tragedy is, therefore, in the making, as a turmoil in the region is obvious and hundreds of thousands of innocent people may fall victim to Bush's unjust war. It will obviously be premature to say about the course that the Anglo-US war on Iraq may take in view of the White House plans to reshape the Middle East, but the danger of its escalation certainly exists. It is, therefore, hoped that France, Germany, China and Russia will not abandon their efforts for peace with the launching of attack against Iraq by the United States. They owe it to humanity to do everything possible to protect the Iraqi people from devastation. These nations must continue their pressure on the US to refrain from imposing its whimsical map on the Middle East to strengthen Israel and to dominate the oil reserves of the region.

A number of political rationales are being propounded to understand the real motive of U.S. for waging war against Iraq. The economic motive of U.S. seems to be to control the Iraqi oil that has proven reserves of 112.5 billion barrels — the second largest in the Middle East and the world, the first being Saudi Arabia with 261.8 billion barrels of oil reserves. Washington feels somewhat frustrated to see oil wealth being spent by a defiant regime of President Saddam on manufacturing modern weapons and thus another Islamic country, this time wealthy enough to achieve its goals in a short period. Oil is the necessity of industrialised world, which is spread over in the continents of America, Europe and Asia. A smooth and reasonably inexpensive supply of oil is imperative for he world, regional, emerging, developed and developing economies for sustainable growth. No one disputes that but an unknown fear has now gripped Washington because of events of September 11 and increasing international terrorism. Washington feels that this scenario has created a sort of justification to control the government of oil rich countries, secure routes of oil supply on high seas and seek change of governments that could threaten supply of oil or are alleged to support terrorism.



The economic costs and consequences of this insane misadventure have never been seriously assessed or systematically analysed by those undertaking it. This cavalier neglect is based on the fond, if misplaced, belief that its benefits to them and allegedly to the rest of the world would be so immense that they would completely outweigh their deleterious effects, which in any event are viewed as being minimal and inconsequential. However, costs considerations can be ignored, even by economies as large as the U.S., only as long as they remain low and affordable. If the costs, especially in terms of human lives, which are not easily convertible into dollars, begin to escalate, on both sides of the battle lines, the tolerance levels of the peoples involved, both directly and indirectly can radically change, as in the case of the Viet Nam war. If, in addition, the increased defence expenditure necessitates major tax increases or results in a deep recession, or if the United States' image in the world is further tarnished because of callous attacks on civilian populations and other collateral damage, it could face an unprecedented backlash, both at home and abroad.

In view of the importance of the costs and its likely impact on the economy, independent analysts and reputed academics have attempted to estimate the costs of the war against Iraq to the U.S. economy alone. The most wellknown of such estimates is that of Professor William Nordhaus of the Yale University, currently one the world's leading macroeconomic model range from a low estimate of under $100 billion a to high estimate of under $2 trillion. The estimates relate to the costs to the U.S. economy alone and are the aggregate for the decade following the expected eruption of the conflict.

The estimates of costs does not depend on who will win, for it is a foregone conclusion that, notwithstanding Saddam's bravado, the United States' overwhelming military might will prevail and overcome whatever resistance Iraq's military may be able to muster. Rather, the difference lies in the duration of the war and the nature of resistance, both within and outside Iraq, to be faced by the invading forces. In the case of short, surgical operation, as in the case of the 1990-91 Gulf War or the more recent war in Kosovo, the military costs are likely to be limited. In case, however, the war drags on and assumes the nature of an organised resistance as in Viet Nam the possibility of which is severely discounted by the U.S and its allies the military costs alone could escalate threefold.

Mr Shaukat Aziz, PM's Advisor on Finance is also optimistic that war will be short one and Pakistan would receive minor jolts on its economy which it could absorb. Independent economists, however, do not share his views. According to them Pakistani economy faces many threats. In 1991 the position was comfortable, the economy was growing more than 5 per cent, fiscal deficit was though than today but manageable, inflation was higher but compatible with healthy growth, debt servicing liability was almost half of the current level, institutional decay was in the initial stages, and more importantly Pakistan received assurances of help from friendly countries. Today, the position is different, Economy has started coming out of the decade-long sluggish growth, the effects of four-year drought have begun withdrawing, one third of the population is below the poverty line, hostile international environment has infected the prospects of reasonable trade volume, institutional mess and consumer and business confidence are at the lowest ebb. The gloom appears dispelling, but with another crisis looming to thwart the stability.

The likely slowdown will result in revenue shortfall and will also hurt in other ways. Today, when the fiscal deficit is at more than 5 per cent of the GDP, any revenue shortfall will deepen the fiscal crisis. The government needs to gauge war's effects. Pakistan relies heavily on the US, the UK, Germany and Japan for foreign investment, trade and inflow of official and unofficial transfers. Germany, Japan (due to already hefty public debts), America (on account of heavy consumer indebtedness) and the euro area (because of its stability pact) have little room to ease the policy, even in the event a further downturn. Record consumer debt leaves the American economy vulnerable to shocks, while consumer confidence is at nine-year low. America's over-indebted households, Japan's deflation and its crippled banks, Europe's structural rigidities and its overly tight fiscal and monetary policies mean that the world economy is vulnerable to shocks. Though the Pakistani economy has shown resilience to external shocks during the past three years, but the adverse developments in major trading partners are likely to affect it. Apart from the macroeconomic fallout, a major concern is the diplomatic tension between America and Europe, which could spread to trade. Pakistan has to rearrange these preferences to keep a balance between Europe and America.