War economy

Following the Peshawar massacre, the public pressure to eradicate the menace of terrorism has started mounting. The army has taken full control of the situation, and all the political leadership is, at least on the face of it, is on one page to kill the Frankenstein within.
This is going to be a tough task, one that cannot be only done with the help of military operation, as the problem is far more deep rooted than usually perceived, and therefore it has to be dealt on all fronts, including economic and ideological.
The militants, whether they are either recruited in the country or come from other regions, don’t really have their own economic means to live, plan, buy gadgets and ammunition and execute terrorist attacks. Huge sums of money are involved in all these activities and feeding thousands of militants and tens of militant factions. Without plugging the funding conduits, therefore, the terrorists will eventually regroup, recruit more and will be back in action.
The question is what exactly those channels of funding are, and why the military and political leadership is reluctant to touch the sensitive areas. The problem is that there are so many domestic and foreign hands that have direct and indirect linkages with militancy, which is supported by a huge parallel economy. The CIA and other foreign agencies working in the region pump in hard cash in the informal segment, and a part of that money is eventually used by the militant economy. The need is to have a strong check on the money routing in to run others’ proxy war. How can money laundering can be stopped without ringing the neck of these suspicious flows?
Evidence suggests that on a daily basis $10 million flows in and out of the country through informal channels in Peshawar, on top of the human resource and weapons that easily come in through the porous Pak-Afghan border. What are the steps envisaged to put a stop on these flows? How come our military is unable to tackle the technology being used by the militants?
The issues are not confined to KP; rather it is deeply enriched within large faction of population. That is why major political parties (PTI and PMLN) have soft corners for a few militant factions to support their vote bank in various belts. To add to the ado, military establishment has been using informal recruits to run their proxy wars in east and west borders for decades. Can they all resolve to weed out all the militant factions indiscriminately? Are we all on same page not to distinguish between good and bad Taliban? Are we mentally prepared to do away with supporting Mujahidin in Kashmir?
Thousands of madrassas have been running across the country for decades — convincing youth for jehad. Many of these are being unknowingly funded by tens of thousands of households who dole out their Zakat and Sadqa monies to madrassas in good faith, without fully knowing where the money is being spent. Who is the enemy and against whom the fight is? The need is to change the ideology which has been carefully inculcated over, at least, two generations. It’s a hard task to undo the social engineering. One may ponder are we prepared to mend the flaws? The need is to deliberate debates across all forums to change the mindset and be prepared for the backlash. There is also a need to realize that the country is in a state of war and things may get worse before they improve on a sustainable basis.
The solution does not lie in establishing military courts or revoking ban on imposition of death penalties. Rather, these steps, beyond the days of military emergency, will take the trade and investment potential away from the country and may isolate us more on the international front.
Anti-money laundering laws also need to be more aligned with international standards to curb the loads of money coming through illegal channels. That can have its toll on the currency and can perturb the nascent economic recovery. The SBP is actively buying dollars from the interbank market that is routed through open market to build up reserves and that process can be disturbed once informal flows are tightened.
Then there are direct fiscal imperatives of intensification of military operations against terrorism. The militants are widespread and are desperate to retaliate – and are falling to the lowest ebb of humanity by hitting on soft targets such as school, malls and bazaars. The military therefore needs to be beef up spending to mitigate these risks, which might add Rs50-100 billion in fiscal bills during this year, according to a conservative estimate, and may go beyond this level next year.
The military operations can delay the privatization plans of PML-N government and may hinder the investment plans of China and other countries to build requisite power and roads infrastructure, which is imperative for sustainable growth. The economic growth may remain stuck to 2-4 percent. Inflation can also rise, once the oil prices start rebounding and the currency starts depreciating. The energy woes may further escalate and the unemployed youth may pile up more, which can create other forms of social unrest at the one end, and an easy prey for terrorists’ recruiters at the other.
But still, that does not undermine the imperative to curb the roots of terrorism. The need is to get prepared to pay the cost in the short to medium term so our children can reap the benefits.