Daniel W. Drezner

Is Pakistan the next geopolitical canary?

Is Pakistan the next geopolitical canary?

As part of this blog’s continuing series exploring the geopolitical ramifications of the current financial meltdown, we now turn to Pakistan.  The Washington Post‘s Anthony Faiola and Karen DeYoung explain

Pakistan has reached a critical new phase in its long-deteriorating financial situation, as investor flight and bleeding of national reserves force the country to scramble for international funds to shore up its economy. With the global financial crisis draining coffers in the United States and Europe, the key U.S. ally in the war on terrorism is seeking help from an old friend newly flush with cash: China. President Asif Ali Zardari arrived in Beijing on Tuesday for a four-day state visit as concern has surged over a possible debt default by Pakistan that could cripple its economy and spark more civil unrest. While the amount of money Pakistan needs in the short term is relatively small — $4 billion to $6 billion — analysts say the climate of crisis and public anger over domestic bailouts in the United States and Western Europe have made even a modest infusion from its Western allies politically difficult…. Pakistan is going to the Chinese now “because you go to the guys with the money,” a senior International Monetary Fund official said. “And right now, the Chinese are the ones with the money.”

Hat tip to Kevin Drum, who observes: 

[T]his is the kind of thing that’s a canary in the coal mine. Global power generally flows to “the ones with the money,” and to the extent that this is China, not the United States, our influence in the world inevitably wanes.

The thing is (and Kevin acknowledges this), Pakistan and China have a longstanding alliance, so this kind of move is not as surprising as the Reykjavik-to-Moscow box step.  Furthermore, from a U.S. perspective, this is disconcerting only if the trip to Beijing undercuts Western institutions like, say, the IMF.  Which this move by Pakistan does not seem to be doing:

A last option might be seeking a lifeline from the IMF, though such an agreement is seen as politically difficult for the new government. Pakistan paid off the last of several IMF loans in 2005, with Musharraf hailing the accomplishment as a breaking of the nation’s beggar’s bowl. By seeking IMF help now, analysts say, the new government may find itself in the difficult position of explaining to the population why it needs to glue that bowl back together. Pakistani officials, however, are meeting with IMF officials in Washington now, seeking their “seal of approval” on the plan to rein in runaway spending threatening to bankrupt the government. Although IMF officials say the Pakistanis are not seeking a loan, IMF approval of their economic plans could pave the way for other institutions, including the World Bank and Asian Development Banks, to offer lending. It could also make approval of an IMF loan at a later date happen faster. “What they want is an endorsement in principle,” a senior IMF official said, “something that would make financial support go more smoothly if they decide they do need to ask for it.”

Conclusion:  as a harbinger of change, this is a very small canary.  UPDATE:  The Financial Times reports that Hungary and Ukraine are going to the IMF for emergency lending to stabilize their financial systems.  What’s telling here is that Ukraine went to the IMF rather than Russia.