The CSF carrot

Did Uncle Sam just have a change of heart? Since late August when Donald Trump announced his South Asia strategy, the Pentagon started signaling it wouldn’t be business as usual with Pakistan. Pakistan pushed back, for the new ‘strategy’ laid blame on Pakistan for what’s gone wrong in Afghanistan while giving India a broader role on Pakistan’s western flank. Then, both sides started talking last month.

For now it seems the threat of using ‘sticks’ has been let slide; ‘carrots’ are back in play. News reports suggest that America may resume its Coalition Support Fund (CSF) disbursements to Pakistan.

Half of the $700 million funds sanctioned by US Congress for Pakistan in fiscal year 2018 are expected to arrive in the near future. The other half have been restricted from release, until the US Secretary of Defence could certify that Pakistan was going after the Haqqani Network, America’s bête noire in Afghanistan.

That the US can still withhold $350 million shows that the ‘do more’ mantra is still alive. But that leverage is questionable. More significant is the impression – gauged from the fact that the Pentagon certification requirement does not include Pakistan cracking down on Lashkar-e-Taiba (LeT) – that Trump’s generals want to focus exclusively on Haqqani’s in Afghanistan and seek Pakistan’s cooperation thereof.

These are tough times for Pakistan’s external accounts. The current account deficit is a big void that will swallow the CSF millions and still leave a huge financing gap. But CSF inflows – which have remained an important part of the country’s equity inflow mix for quite some time – are still important because they signal to multilateral, diplomatic and commercial players that the US-Pak relationship is still functional.

The potential CSF resumption, however, does not mean that all is well in the transactional US-Pak relationship. Focused on the Haqqani’s right now, the Pentagon may be looking to gradually pile the pressure on Pakistan. Perhaps that’s why India hasn’t pushed back on recent US re-engagement with Pakistan. India is playing it cool despite the US recently ruling out an Indian military role in Afghanistan.

As both countries have conflicting priorities, it is likely that James Mattis, the US defence secretary, will continue withholding some of the CSF funds.

The Pentagon chief’s visit in a couple of weeks may tell which way the wind is blowing. It didn’t look pretty last week – the two sides traded blame when US Centcom Chief was in Islamabad last week to lay the groundwork for his boss’s visit.

Baby steps are afoot to repair the US-Pak relationship. But the regional trend-line is that of US and India moving closer to grow the latter’s regional clout. The Congress’s recent defence authorization bill urges the Trump administration to define and deepen their defence cooperation with India, which was designated as a ‘major defence partner’ of the US back in 2016. As for Pakistan’s dealings with Uncle Sam, the delicate dance may continue even as its newfound love for China heads into another spring.