By Farrukh Saleem
Capital suggestion
The China-Pakistan Economic Corridor (CPEC) has two main components: the corridor and the projects. The corridor component is roughly $11 billion, or 25 percent of the total, and the projects $34 billion, or 75 percent of the total. In international finance, foreign involvement comes in five forms: loans, grants, concessional loans, foreign direct investment and project financing. Chinese involvement under the CPEC is strictly project financing – project financing that has neither clarity nor transparency. In the Karot Hydropower Project, the Chinese are charging an interest rate of Libor plus 4.5 percent during construction (around 5.5 percent in dollars terms). In the Sahiwal Coal Power Project the Chinese demanded – and got – an internal rate of return of 27 percent. To be certain, these are both awfully expensive propositions and the terms of the contract overwhelmingly favour the Chinese – not the Pakistanis.
In 2013, the $9 billion, 6,600MW Gadani Energy Park was launched with full fanfare. The project has since been shelved (it lacked economic viability). The $360 million, 300MW, Gwadar Coal Power Project has also been shelved.
The global economic machine comprises four financial powerhouses: the US, the EU, China and Russia. The Russian economy, dependent on hydrocarbon reserves, is in trouble. Last year, Russia’s GDP actually contracted by an alarming 4.6 percent because of low oil prices and Western economic sanctions.
In 2015, China’s economic growth was the weakest in the past 25 years. In January 2016, the Yuan settled at a five-year low. In 2015, China’s foreign exchange reserves plunged by a wholesome $513 billion – the first annual drop in the past 24 years.
The once booming Shanghai Stock Exchange has lost half of its value whipping off 12 trillion Yuan or an equivalent of $1.8 trillion. The budget allocated to the Peoples’ Liberation Police is now higher than the one allocated for the Peoples’ Liberation Army (meaning that the Chinese leadership is more concerned about internal strife). To be certain, the Peoples’ Liberation Army has little or no capacity to project military power over long distances.
Within the EU, there’s the sovereign debt crisis, the immigration crisis, the Brexit referendum (withdrawal of the UK from the EU) and Grexit (Greek withdrawal from the eurozone). The European Union is falling apart.
It’s still a unipolar world. The US has 4.4 percent of the global population and produces nearly 25 percent of global GDP. The US spends $596 billion on defence followed by China $215 billion, Saudi Arabia $87 billion, Russia $66 billion, the UK $66 billion and India $51 billion.
The US is the topmost hegemonic power in the world. And the US is at the top of the economic ladder. On top of the $596 billion defence budget there’s emergency discretionary spending, supplemental spending and stimulus spending that add up to an additional $150 billion. Defence-related spending outside of the US Department of Defence comes up to at least $200 billion. Add them all up and the US spends a colossal $950 billion on defence. In essence, of the 193 members of the UN 192 collectively spend about the same as does the US on its own.
What is the American foreign policy? Three things: no ethics, no morality, all realism. It is about achieving two objectives: first, to keep the US the topmost hegemonic power in the world with or without the consent of others. Second, to keep the US at the top of the economic ladder, with or without the consent of others. The US’s current obsession is ‘containment of China’. And if India continues to grow, the US’s future crush will be ‘containment of India’.
For Pakistan, we need to undertake a strategic SWOT analysis of our strengths, weaknesses, opportunities and threats. Our strength is our army and our geography. Our weaknesses are many – the economy and enemies both internal and external.
For Pakistan, “Step with care and great tact. And remember that life’s a great balancing act. Just never forget to be dexterous and deft. And never mix up your right foot with your left.”
Source: https://www.thenews.com.pk