It was only a matter of time before the US was going to challenge Pakistan for its support for terrorist groups across the border in Afghanistan and India.

The Financial Action Task Force (FATF), a global money laundering watchdog, decided during its plenary session in February to put Pakistan on its gray list if the country fails to take satisfactory measures to check terror financing by June. The decision comes as a result of “strategic deficiencies” in Pakistan’s anti-money laundering/countering terror finance infrastructure. The United Kingdom, France and Germany had complained that despite Pakistan having the right resources in place, the effectiveness of its implementation is doubtful.

At a cursory glance, the decision may seem like another routine development in the series of complex FATF bureaucratic procedures. However, this time around it has ramifications not only for Pakistan’s economy, but for its domestic politics too, as well as the geopolitical dynamics of South Asia as a whole.

After US President Donald Trump withdrew $50 million in financial aid from Pakistan for not taking effective action against the Haqqani network — a terrorist group with a history of attacks on NATO forces in Afghanistan, rumored to have the backing of the Pakistani secret services — the FATF’s decision hardly comes as a surprise. It seems that Pakistan’s expertise in creating smokescreens has been exposed, and the damage is irreversible. It will not be possible for it to freeload on US dollars and at the same time endanger American soldiers. It was only a matter of time until Washington was going to challenge Pakistan for its support of terrorist groups across the border in Afghanistan and India.

Further, China’s aggressive posturing in the world of today — seen in the People’s Liberation Army flexing its muscles in the South China Sea or in the mammoth Belt and Road initiative — has changed the patterns of geopolitics in Asia. America needs India as a bulwark against China, but this support will not come if the US continues to turn a blind eye to Pakistan’s political maneuvering in the region.

Beyond Any Reasonable Doubt

Pakistan’s lack of cooperation during the 2008 Mumbai attacks investigation, the discovery of Osama bin Laden’s hiding place near a military academy in Abbottabad, and the protection given to recognized terrorists such as Hafiz Saeed (the mastermind of the Mumbai attacks) have exposed Pakistan’s complicity with terror groups beyond any reasonable doubt. The seizure of assets from Jamaat-ud-Dawa (JuD) and its charity wing, Falah-e-Insaniyat Foundation (FIF), both of which are on the UN list of terrorist organizations, just days before FATF session looked more like a way to placate the watchdog. The connection between Pakistan’s deep state — the infamous Inter-Services Intelligence (ISI) — with the Haqqani network and Lashkar-e-Taiba (LeT), a Pakistan-based extremist group thought to be responsible for the 2001 attack on the Indian parliament as well as the Mumbai attacks, is an open secret.

The current proposal to place Pakistan on the FATF gray list was not merely the result of American power play based on narrow geostrategic calculations. While the proposal was initiated by the US, it was strongly supported by Britain, Germany and France. Previously, Western countries seemed to accept the narrative of Pakistan being on the receiving end of terrorism and believed its anti-extremism pledges and pronouncements. However, now it seems that Pakistan’s position on terrorism is no longer acceptable to the global community.

The FATF decision also indicates that Pakistan will increasingly face diplomatic isolation. Trusted allies such as Saudi Arabia and China have refused to come to the rescue. There is a strong sense of realization among the intelligentsia that Pakistan cannot rely on Russia and China for unequivocal support in multilateral forums the same way it could on the US. Journalist Umair Jamal suggests in The Diplomat that although China was expected to support Pakistan in the recent FATF vote, its decision not to hardly comes as a surprise. He further stresses that it reflects Beijing’s frustration with Pakistan’s inaction against extremist groups more than any kowtowing under India’s diplomatic pressure.

On several earlier occasions, China supported Pakistan and blocked the inclusion of Masood Azhar, the man behind the 1999 hijacking of Indian Airlines flight 814 in Kandahar, in the UN’s list of terrorists. However, there is a limit to which China can afford to shield Pakistan in matters sensitive enough to arouse strong emotions around the globe. Beijing is looking for a leadership role in multilateral bodies such as the FATF. This may explain why India is believed to have convinced China to withdraw its support for Pakistan in lieu of India’s support to its claim in return for a top position in the watchdog. It appears that China is still trying to establish itself as a responsible power in the existing world order, and it prefers not to lose its credibility as a nation standing with the international community in the war against terrorism.

Economic Fallout

The FATF’s decision is also likely to bring a number of economic difficulties. It will entail rigid scrutiny by international banks on Pakistan’s foreign transactions, and the cost of moving foreign currencies to and from Pakistan might increase. As a result, the financial sector might experience a major setback if the international banking institutions pull out of the country. Babar Ayaz, writing for The Daily Times, suggests that even the legitimate transactions will be hurt. He further informs that banks operating outside Pakistan have already begun refusing to open accounts for Pakistani citizens.

The current account deficit may witness a further increase due to a decline in foreign transactions and foreign currency inflows. Foreign investors and companies will be discouraged, access to funds from the international market and bodies like the International Monetary Fund will be affected, and Pakistan might have to face a downgrading in its international credit ratings.

It appears that Pakistan’s government underestimates the economic risks, arguing that previously when the country was on the gray list between 2012 and 2015, it still received foreign remittances and loans from international institutions. However, some experts like Uzair Younus believe that in the past, strong American support ensured easy access to IMF loans. This time around, the decision to sanction Pakistan is itself a result of American will and the global consensus to hold Pakistan accountable.

Further, as Michael Kugelman, the Asia program deputy director at the Woodrow Wilson Center, points out that the country’s economy is highly vulnerable. In March, the global agency Fitch Ratings downgraded its assessment on Pakistan’s long-term foreign and local currency issuer default ratings from stable to negative due to the falling foreign reserves and widening fiscal deficit. Moreover, Chinese loans associated with the China-Pakistan Economic Corridor are already increasing its debt burden.

Difficult Times Ahead

It appears that Pakistan is headed for difficult times ahead, facing the twin threats of economic and diplomatic isolation. However, the question arises whether Pakistan will change its policy toward extremist organizations. Domestic factors present a very different picture. Terrorist groups such as the JuD and FIF have a strong grassroots base and the backing of the military and the judiciary. Anyone who dares to question them tends to be seen as a traitor and faces threats of kidnapping and death. For political parties, including the current government that is eager to win the military’s support in elections, cracking down on terror groups is not only dangerous politically, but also beyond the reach of their sociopolitical clout and the influence over state policy.

According to Raza Rumi, editor of The Daily Times, the Haqqani network and LeT are the most crucial instruments of Pakistan’s Afghan and Kashmir policy. Pakistan will continue to nurture these proxies to keep its hold in Afghanistan and Kashmir. The Pakistani army views them as strong geopolitical assets to continue the disruptions in the region. This is unlikely to change any time soon.

With the next general election looming in July, no party will want to appear as capitulating to US pressure and advocate a crackdown on extremist groups. Terrorist groups such as LeT and Jaish run charities in Pakistan and enjoy popular support. Further, decades of Wahhabi radicalization have nurtured a fertile social milieu for Islamic extremist groups in Pakistan.

In this atmosphere, it appears that terrorist activity might not be purged from the country. But we are already witnessing increasing attempts to mainstream terrorist organizations, such as the rise of Hafiz Saeed’s political party Milli Muslim League (MML), JuD’s political wing. Allegedly, MML, with a possible ISI nudge, backed a candidate in the September 2017 by-election for the constituency vacated by ousted Prime Minister Nawaz Sharif in Lahore.

Unsurprisingly, the army is exploring ways to integrate militant groups into the country’s political structure, which is even more dangerous. Yet the global consensus against Pakistan’s sponsorship of terrorism appears to be strong. With US pressure, it will not be easy to dodge the global watchdog.

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.

Photo Credit: Asianet-Pakistan / Shutterstock.com