PIIE Blog | RealTime Economic Issues Watch
The Peterson Institute for International Economics is a private, nonprofit, nonpartisan
research institution devoted to the study of international economic policy. More › ›
Subscribe to RealTime Economic Issues Watch Search
RealTime Economic Issues Watch

The Fallout on Pakistan from the Killing of Osama Bin Laden

by and Raza Agha | May 21st, 2011 | 08:07 am
|

The killing of Osama Bin Laden in Abbottabad, Pakistan, on the night of May 2 has raised a host of questions about the implications of the operation for Pakistan.  First, for the United States the main question is how the most wanted terrorist in the world could have hidden "in plain sight" in Pakistan for 5-6 years.  Either the military, and in particular the Inter Services Intelligence agency (ISI), knew of his presence, in which case the government of Pakistan was complicit in hiding him. Or the government and the ISI did not know, in which case they were incompetent.  Second, the question that appears to trouble Pakistani officials and the public more is how the US operation itself could have gone completely undetected.  After all, one of the helicopters crashed, there was a firefight in the compound, and multiple fires broke out, and yet not a single policeman apparently came to check.  Once again, from the Pakistani perspective, either the military and the ISI were complicit, only this time with the United States, or incompetent and incapable of protecting the sovereignty of the country. 

The question of who in Pakistan knew of Bin Laden’s presence in the country and what they knew will undoubtedly be investigated at length by the Pakistanis and the United States.  It is highly probable, as President Obama said on May 8, that Bin Laden had some type of support network inside Pakistan, although it is not known whether he had the support of the government or the military. Presumably in time the answer to this question will emerge, and hopefully it will be made public as well. 

On the other question, it strains credulity that "Operation Neptune Spear" could have taken place without any Pakistani assistance.  After all, US helicopters flew from their base in Jalalabad in Afghanistan to Abbottabad, some 250 kilometers away inside Pakistan, flying over some of the most militarized areas in the country.  The Pakistanis claim that the Bin Laden compound had been investigated previously by the ISI and that they had shared information about it with the United States. since 2009. US officials dispute that contention, claiming they did not know of the Bin Laden compound until last August.  Finally, the CIA rented a house near the Bin Laden compound for surveillance, and it is logical to conclude that at least some Pakistani authorities had known that this had been done and why.

If there was cooperation, the story that US forces carried out the weekend operation themselves without the knowledge of the Pakistani government could well reflect the Pakistan government’s own request.  In a country that has seen increasing radicalization since the late 1970s, and where this radicalization has led to increasing militancy since 9/11—due to operations against militant/extremist organizations—the authorities would be averse to publicly stating that they played any role in such an operation.  Indeed, some believe that this very strategy is also pursued when it comes to US drone attacks inside Pakistan; the government publicly condemns such attacks as a violation of sovereignty as it looks the other way, according to this view. Indeed, there is suspicion that some drones may actually fly from bases within the country.  Perhaps confirming the view that the Pakistan government may have known about the operation, the Tehreek-e-Taliban Pakistan (TTP), the organization responsible for the most daring assassinations, suicide attacks and militant operations within Pakistan, has stated that its revenge attacks will focus on the Pakistan government, including a targeting of political leaders.

Even if the Pakistan government were involved in hiding Bin Laden, the reason why the United States. will likely continue its support in recognition of the reality that as bad as elements within the Pakistani administration may be, and as much as some of them may be playing a double game, the alternatives are worse.  Allegations of double play by Pakistan are hardly new.  In this case, the current government in Pakistan is the result of democratic elections, perhaps the freest in decades, in 2008.  The government of the Pakistan People’s Party (PPP) is largely secular and nationally representative. Its ouster would only risk bringing relatively more conservative forces– who have taken a much harsher stance against US interference in Pakistan—into office, implying that bilateral relations could worsen from their already delicate position. As things stand, at least this Pakistani government remains committed to fighting militancy despite having suffered more than 30,000 civilian and military casualties. 

So far, the political fallout in Pakistan has been manageable. While there has been a call for the resignations of President Asif Ali Zardari and Prime Minister Yusuf Raza Gilani by the former foreign minister and senior PPP member Shah Mahmood Qureshi, generally public opposition has been muted.  The demonstrations of extremist Islamic parties decrying the killing of Bin Laden have been small and very easily contained by the police. 

What about the economic consequences? Certainly, the threats by extremist groups seeking to avenge Bin Laden’s killing will create greater insecurity in the country. In an economy in virtual recession with growth this year projected to be only 2-3 percent, the higher uncertainty will translate into even slower economic activity.  Add to this increased security expenditures to fight the terrorist groups, which will mean that either the fiscal deficit will increase from the projected 6 percent of GDP for this year, or government social or development expenditures will have to be cut.  Neither of these options is an appealing choice.

The cutting off of US aid, which some politicians and opinion-makers in the United States. are calling for, would have serious economic consequences for Pakistan. The macroeconomic implications for Pakistan from the possibility of reduced US assistance are significant. Total hard currency inflows from the U.S. into Pakistan (loans, grants, exports, remittances and so on) amount to about $8 billion annually, which represents about 16 percent of total inflows of around $50 billion. And while this amount seems small in relation to inflows from other countries, the United States continues to have considerable influence over inflows from other countries as well, implying that the impact of a deterioration in bilateral relations could be wider than just the US-specific inflows.  Considering that gross external financing requirements are around $12 billion annually over the next few years, the consequences of lost multilateral and bilateral financing would be much beyond just the external sector.  This should provide a compelling reason for the Pakistani government, including the military which receives about $1.5 billion a year in US direct support, to stay engaged with the United States.

Despite the possible immediate political and economic fallout, the killing of Osama Bin Laden could well lead to a positive outcome for Pakistan. With the army and the ISI on the defensive, the embarrassment of this episode could in fact strengthen the civilian governments’ hands in overseeing the security services. It is highly unusual in a democratic society to have the main intelligence service report to the military and not to the elected government.  Furthermore, in trying to regain its reputation internationally as well as domestically, the military may take the fight to the extremist groups operating inside Pakistan and in the border areas between Pakistan and Afghanistan. If so, the killing Bin Laden could have a real net benefit for Pakistan. Hopefully, the Pakistan government and the military will be able to reap this benefit.

Raza Agha is vice president, Royal Bank of Scotland, United Kingdom, and Mohsin S. Khan is senior fellow at the Peterson Institute for International Economics. The views expressed in this article are those of the authors and do not reflect the views and opinions of the institutions with which they are affiliated.

Comments (0)

Leave a Comment