Pakistan Turns to the IMF

Maha Vajiralongkorn's consolidation; S-400 power plays; U.S.-China "competition"

The Big One.

It’s on: Imran Khan’s government heads to the IMF for its bailout.

Pakistan’s new government has finally swallowed the bitter, but necessary, pill of formally approaching the International Monetary Fund with regard to an $8 billion dollar bailout package: its best chance at averting certain fiscal meltdown. “An IMF team will visit Islamabad in the coming weeks to initiate discussions for a possible IMF-supported economic programme,” IMF Managing Director Christine Lagarde said, after meeting Pakistani Finance Minister Asad Umar in Bali, Indonesia, on the sidelines of the IMF’s annual meeting there. The sum Pakistan seeks is its largest ask yet of the IMF, which has previously put together a dozen bailouts for the country.

Some questions for Pakistan going forward will include the conditionalities on this latest, record-breaking IMF bailout; this extends to limitations of potential repayments of Chinese creditors (something the United States has publicly mentioned). U.S. Secretary of State Mike Pompeo has reportedly swung around on the issue. First, he noted in July that “there’s no rationale for IMF tax dollars, and associated with that American dollars that are part of the IMF funding, for those to go to bail out Chinese bondholders or China itself.” However, in September, Pompeo reportedly told his Pakistani interlocutors in Islamabad that “if Pakistan opted to go to IMF for any financial help, the USA will not oppose it.” 

Going to the IMF doesn’t magically get the country’s economic problems out of the woods; the Pakistani rupee went into freefall ahead of the IMF encounter, underlining the uncertainties that lie ahead. The political fallout of this latest bailout can also be expected to be severe. Imran Khan’s prime ministership is built on a razor-thin coalition edge with seven parties and, given the onerous austerity terms the IMF is likely to impose on Pakistan, these coalition partners will see an opportunity to extract concessions from the government on a range of issues.

Northeast Asia. 

U.S.-China ties continue their nosedive. The big highlight in early October was a speech on the relationship by U.S. Vice President Mike Pence. The speech was easily the most important high-level U.S. statement on the relationship with China in a long time and sets up the keyword that’ll define the bilateral for the rest of the Trump presidency: “competition.” Pence took pains to discuss recent comments by Trump in September that China was seeking to interfere in U.S. politics. As The Diplomat’s editor-in-chief Shannon Tiezzi astutely observes:

But Pence’s specific examples, while concerning, don’t amount to a covert influence campaign similar to Russia’s actions during the 2016 campaign. On the contrary, most of the cases he brought up had been widely reported before. Most notably, Pence’s main example of China seeking to influence the upcoming U.S. midterm elections is the tariffs China implemented in response to the Trump administration’s own tariffs. These tariffs are targeting “industries and states that would play an important role” in the midterms – and specifically targeting Trump supporters, Pence said. But using economic tools to shape a foreign government’s policymaking decisions is par for the course in statecraft.

The Diplomat’s Dingding Chen offers his perspective on the three main categories of reactions to Pence’s speech over in China, separating them into the pessimists, the concerned realists, and the calmer optimists. Pence’s speech raises the fundamental question too of how far the Trump administration goes beyond “competition” with China; that alone is not a strategy.

Either way, the current trajectory is set to continue at least until the Trump-Xi encounter at the G20 summit in late-November. (The Diplomatic & Strategic Dialogue scheduled for October has been called off.)

Bottom Line: Get ready for a new era of U.S.-China “competition.” The downsliding in bilateral relations is here to stay.

Bonus: A farewell tweet from the Financial Times’s Victor Mallet, the first journalist to be denied a visa in Hong Kong for arbitrary reasons related to his moderation of a panel on Hong Kong independence.

Victor Mallet@VJMallet

Mallet’s departure comes as another harbinger of the effective death of ‘One Country, Two Systems.’

South Asia.

India and Russia have clinched a $5.5 billion major deal that will see Moscow’s advanced S-400 surface-to-air missile system transferred to New Delhi by the early 2020s; the agreement was concluded during Russian President Vladimir Putin’s visit to New Delhi last week. The system, which can target aircraft, cruise, and ballistic missiles, will give India an important capability against both Pakistan and China (Beijing also recently took delivery of its S-400s). The sale has raised concern of India eventually facing U.S. sanctions.

File:S-400 SAM during the Victory parade 2010.jpg

When asked on October 10 if India would face the brunt of U.S. sanctions under the Countering America’s Adversaries Through Sanctions Act (CAATSA), Trump noted ominously that “India will find out” soon. “You'll see. Sooner than you think,” the U.S. president added. CAATSA includes a waiver for U.S. partners and allies, but New Delhi remains concerned that the administration could move ahead with sanctions anyway; the issue has come up in recent U.S.-India high-level interactions, including reportedly the high-level ‘two-plus-two’ meeting in August.

Sanctions on India would be a departure from the serious nurturing of the U.S.-India relationship that has gone on under this administration, representing continuity from the Obama years. It would also hinder the United States’ efforts to build a coalition of like-minded partners in the Indo-Pacific, with India being the most important non-allied node.

Bottom Line: The issue of CAATSA sanctions on New Delhi appears to still have the potential to go either way.

Southeast Asia.

The Thai monarchy is undergoing interesting changes under the still relatively new king, Maha Vajiralongkorn (Rama X). As Pavin Chachavalpongpun notes at The Diplomat, “king’s decision to evict old members of the Privy Council close to his late father, King Bhumibol Adulyadej, the stripping of the power from its president, General Prem Tinsulanonda, as well as the appointment of his close confidants as new Privy Councilors, suggests that, more than just a process, this is part of the growing aggrandizement of political power of Thailand’s new King Maha Vajiralongkorn, or King Rama X.” Changes are also taking place on the side of royal security, with a massive planned expansion to the royal police security unit, charged with the King’s personal security. Torsak Sukvimol, the newly-appointed head of the King’s Special Service Division, noted a planned expansion from a personnel level of 400 to 1,617, suggesting a quadrupling of the capability afforded to the king. Prashanth Parameswaran explored some of the implications:

The focus on the security forces around Vajiralongkorn ought not to be understated – the monarchy remains a powerful institution in Thailand, and Vajiralongkorn himself is no stranger to power politics, having himself served in the King’s Guard when he was Crown Prince. That said, it is still early days in his reign, and the real impact of efforts such as a boost for its security force will likely only be felt as we see Thai politics evolve and concretize.

Bottom Line: Thai King Maha Vajiralongkorn is consolidating power around the monarchy.

Catch Up: The September 28 earthquake and tsunami that struck the northwestern portion of the Indonesian island of Sulawesi has claimed more than 2,000 lives, with another 10,000-plus injured. The natural disaster is among the worst to strike Indonesia in recent years and poses a major setback to the region. The devastation has initially proven too much for Indonesia’s domestic capacity, prompting significant overseas humanitarian assistance and disaster relief aid.

Don’t Miss It: An expert working group over at CSIS has put together a terrific new resource on defusing the South China Sea disputes. (The Diplomat’s Prashanth Parameswaran is a member.)

Central Asia.

Uzbekistan remains skittish about growing instability in Afghanistan. Uzbek President Shavkat Mirziyoyev made his government’s trepidations clear during a recent meeting of the heads of the Commonwealth of Independent States (CIS). As The Diplomat’s Umida Hashimova recounts, Mirziyoyev’s speech at the CIS summit “focused on terrorism threats posed by Afghanistan.”

Mirziyoyev’s speech at the CIS summit indicated a departure from his previous rhetoric of active engagement in the peace process, but this was also one speech. The prominence of security issues has, however, been rising lately for the current administration along with reportedly ascending influence of the security services over Mirziyoyev. It could well be that these worries are motivating a shift in Mirziyoyev’s position and opinion on Afghanistan.

Of the nine topics he covered in his address, Afghanistan’s instability was granted the most space.” Read the speech here.

Bottom Line: Growing instability in Afghanistan is causing ripples in Uzbekistan and growing concern about spillover effects.

In Case You Missed It: You may recall the case of Sayragul Sautbay, which I covered on previous editions of this newsletter. The Kazakh government has rejected her application for asylum, underlining Astana’s difficulties in navigating the situation it finds itself in with China.

Asian Defense. 

Japan’s recently set up Japan Ground Self Defense Force (GSDF) Amphibious Rapid Deployment Brigade (ARDB)—an indigenous take on a marine corps—is getting their boots dirty. U.S. Navy and GSDF ARDB troops conducted joint amphibious drills earlier this month in the Philippine Sea. The ARDB is going through growing pains currently, with a capability shortfall on amphibious assault vehicles and a general lack of experience, but that’s going to change in due course. Japan intends to grow the ARDB in the future.

Bottom Line: Japan’s amphibious capabilities continue to see quick improvement and use. Expect more where that came from.

In Case You Missed It: You won’t see any North Korean ballistic missile tests this year in all likelihood, but, if you’re nostalgic, Pakistan just flight-tested the Ghauri, it’s indigenously modified variant of North Korea’s Nodong.

Something to Watch: Franz-Stefan Gady examines new murmurs that Japan’s failed 2016 bid for Australia’s Collins-class replacement submarine contract may get a second wind amid doldrums in negotiations between the Australian government and France. Canberra picked French consortium DCNS’ Shortfin Barracuda-class offering over Japan’s Soryu-class.

Extras.

This may be one of the more incredible photographs you’ll see this year:

Alexander Gerst@Astro_AlexGlad our friends are fine. Thanks to the rescue force of >1000 SAR professionals! Today showed again what an amazing vehicle the #Soyuz is, to be able to safe the crew from such a failure. Spaceflight is hard. And we must keep trying for the benefit of humankind.#Exp57 #SoyuzMS10

Nick Hague and Alexey Ovchinin, an American and Russian astronaut respectively, had to abandon their mission and make an emergency landing in the ascent phase of their flight after their Soyuz launcher malfunctioned. The escape tower allowed the two to remarkably reach safety via “ballistic descent” (that’s as scary as it sounds). The acceleration imposed on the escape capsule that allowed the astronauts to survive would also have imparted upwards of 12-15gs of force on each of them.

Also, if you missed it, we reviewed Asia’s time at the United Nations General Assembly in New York on the most recent Asia Geopolitics podcast. Listen here.

Finally, I had an opportunity to speak on North Korea’s nuclear weapons and ballistic missiles with Jonathan Corrado at the Korea Society here in New York. You can catch the video here. I’d welcome your reactions.

Please do feel free to reach out with comments, tips, and feedback at either ankit@thediplomat.com and follow me on Twitter at @nktpnd and The Diplomat at @Diplomat_APAC.