Mar 28 - Apr 3, 2011

It is now a stark reality about Pakistan's economy that it takes a hit or boost from its state of ties with the United States, the country's largest donor. Islamabad and Washington again indulged in a fresh standoff following a US drone strike in North Waziristan hardly 24 hours after the two countries settled a long diplomatic crisis over Raymond Davis, who was acquitted of double murder charges and released by a Pakistani court this month. Pakistani stocks witnessed a rise and fall, reacting to the state of Pakistan-US ties that eventually eased and tensed.

Davis was released by a Pakistani court after the United States paid $2.3 million in "blood money" to the victims' families. Washington hailed the release of Davis and pledged to continue its support to the country, its frontline ally in war on terror. The country's main stock market had reacted positively to Davis release, which ended the country's long diplomatic crisis with the US, dragging the KSE 100-share index in the positive zone by boosting the investors' confidence.

A day after the release of CIA contractor Davis, US missiles hit a local jirga in which at least 38 people including tribal elders were killed in North Waziristan. Pakistan strongly protested over the attack and asked the US to apologize for the incident saying it unacceptable and a flagrant violation of all humanitarian rules and norms. Panic selling was witnessed in the country's main stock market after the foreign office summoned the US Ambassador, and termed the US strike as unjustified and intolerable.

Washington had suspended high-level contacts with Pakistan because of the diplomatic spat and threatened to cut off aid, which is believed to be crucial for Pakistan's economy. The country is the beneficiary of $7.5 billion of civilian aid and $2 billion in military aid. The new US special Envoy for Pakistan and Afghanistan, Marc Grossman was recently in Islamabad with a task to release Davis by dangling the country both carrots and sticks.

Increased US pressure on Islamabad for release of Davis stirred anti-American sentiments across the country. There is already found a countrywide rage against the US drone attacks inside the Pakistani territory. The people wanted trial of Davis in Pakistani court for sack of justice. Hundreds of protesters burnt tyres outside a US consulate in Pakistan soon after the release of Davis.

Washington tried to prove Davis a diplomat. But, even if it was true, killing is no diplomacy, and a killer cannot have any immunity. Do the diplomats roam through the streets carrying spy equipments and weapons and shooting the people dead in any country of the world? 'The American killer must not have gone unpunished'- is today the populist rhetoric in the country.

Washington's aid to the country has been insufficient compensation for the price that the country has to pay for cooperation with the US. Local experts blame high cost of war-on-terror for having crippling impact on the country's economy, as the costs of the war are over three times greater than the bilateral assistance from the US.

"Whereas cost of participation in the war-on-terror has risen exponentially resulting in dislocation of economic activity, high losses of life and property and impact on the investment climate was even much higher," says a recent report of Social Policy and Development Centre (SPDC), a Pakistani think tank.

The resources have been shifted away from economic activity to security and war-on-terror leaving such areas of development like water, power, health and education with paucity of funds. The report analyses the impact of security crisis on the economy of Khyber Pakhtunkhwa where escalation of armed conflicts has had repercussions on the lives and livelihood of the masses.

The cash-strapped government has reportedly stopped printing currency notes to reduce its fiscal deficit and get the International Monetary Fund (IMF) program back on track. The IMF suspended its $11.3 billion loan program in May, over the government's inability to implement tax reforms. The financing of a large fiscal deficit forced the government to rely on borrowing from the central bank and commercial banks, triggering inflation and squeezing private sector.

Finance Minister Dr Hafeez Shaikh recently told a press conference that the measures of new taxes and expenditure control were announced by the government to create a fiscal space of Rs210 billion in the current fiscal year 2010- 11. He said the measures would help stabilize the economy and strengthen the confidence of international donors.

Critics say that the government's move to withdraw tax exemptions on machinery import will add to industrial woes, as the levy of 17 per cent GST on purchase of machinery and domestic sales of export-oriented items like textiles, leather, carpets, sports goods and surgical instruments will hamper industrial growth.

Some analysts argue that strained ties with the US means that the country may lose further assistance from IMF, which has categorically declared that the country will receive no funds until the enforcement of reformed general sales tax (RGST).

Dependence on foreign loans and aid will ultimately convert us a client state to the United States. This despicable dependence is taking toll on our sovereignty and national pride and honor. The case of Reymond Davis, the killer of two Pakistanis and a spy, was a litmus test of our honor as a nation. We preferred interest over honor and released him.

We have been bowing to US pressure largely because of our financial compulsions. No government ever dared to strain its relations with Washington. Our foreign policy has manly been anchored to our relationship with the US.

The country's economy has been dragged to the brink where nation could not do away with loans, as there is still no plan on the card for retiring the country's debt burden, though the government does have a solid plan of securing more loans from the international lenders.

It is only the self-reliance which could restore our dignity as a nation. The ruling elite have both the 'expertise and the experience' of running the country's affairs on loans and donations, while the talk of self-reliance, debt retirement and breaking of begging bowl has merely confined to the fiery speeches of politicians in pre-poll public meetings.