Pakistan’s Bailout Request: A Unique Strategic Opportunity for the United States and India

Chinese President Xi Jinping meets Pakistani Prime Minister Imran Khan at the Great Hall of the People in Beijing. Photo Credit: Reuters

By: Felipe Herrera, Columnist

On October 15th, China’s Minister of International Development Song Tao met with Prime Minister of Pakistan Imran Khan and announced Beijing’s support for Khan’s ‘New Pakistan’ initiative, a key point of the Pakistan Tehreek-e-Insaf Party’s platform.[i] Tao affirmed China’s “support for Pakistan at all regional and international fora,”[ii] as Khan and Tao agreed to continue building closer ties to construct the China-Pakistan Economic Corridor (CPEC).[iii] In addition to tightening economic relations, the Pakistani government is set to import 48 Wing Loong II aerial drones from China, a deal expected to preview future coproduction of the drones between China’s Chengdu Aircraft Industrial Group and Pakistan’s Aeronautical Complex Kamra and further cooperation between the military industries of both states.[iv]

Against the backdrop of these tightening relations, India has repeatedly raised concerns over the CPEC, most recently at the 39th session of the Human Rights Council in Geneva, Switzerland, on the grounds that the project violates India’s sovereignty and territorial integrity,[v] as part of the project is being laid through Pakistan-administered Kashmir.[vi] Additionally, after Bhutan’s electorate chose the Druk Nyamrup Tshogpa (DNT) party to form a new government in its October 18 election, India has been wary of its traditionally close ally to the northeast. China has made ‘quiet overtures’ in Bhutan since the 2017 China–India Doklam standoff, and the DNT’s rise to power will provide further inroads for closer China-Bhutan cooperation.[vii] This furthers a recent trend in which Beijing’s use of soft power through diplomatic leveraging and economic aid has “reaped rich dividends in South Asian countries where India has long held sway like Sri Lanka and the Maldives.”[viii] From India’s perspective, its main economic rival and the largest regional power in Asia is steadily making incursions into its neighboring states.

The United States, additionally, understands the strategic importance of containing China’s Belt and Road Initiative, particularly the China-Pakistan Economic Corridor which provides China’s navy future access to the deepwater port at Gwadar, Pakistan.[ix] Once secured, this access will allow China to exert considerable influence in the Arabian Sea. Beyond the military advantage a deep-water port at Gwadar signifies for China, the port is especially crucial as it is the planned intersection of the Silk Road Economic Belt and the Maritime Silk Road. Also threatening US interests in the region is the election of new Pakistani Prime Minister Imran Khan, who won his election in August “with the backing of an increasingly pro-Chinese military,” and who “promised to pull Pakistan out of the War on Terror.”[x] A brewing Pakistani shift away from the West allows China to directly exert influence over the internal affairs of a major non-NATO ally of the United States.

Muddying the picture for China, however, is Pakistan’s recent decision to seek a bailout from the International Monetary Fund (IMF),[xi] and Prime Minister Khan’s announcement that he will seek significant changes in China’s projects in Pakistan when he embarks on his first visit to Beijing on November 3rd.[xii] China is wary of international scrutiny of its loans to Pakistan, which the U.S. State Department has labeled as being responsible for Pakistan’s debt and current economic crisis. When Prime Minister Imran Khan took office little over two months ago, he had available to him a wide range of options to choose from to address the challenges Pakistan faces, and he was able to “choos[e] liberally from a menu of Western and Asian futures.”[xiii] After a relatively short ‘pivot to Asia,’ Pakistan’s leading economists agreed only the IMF was capable of providing Pakistan with the bailout it required,[xiv] forcing a major reversal in Khan’s refusal to seek financial help from the West.

On July 30th, while Pakistan was still considering whether or not to turn to the IMF for a bailout, Secretary of State Mike Pompeo bluntly stated, “Make no mistake, we will be watching what the IMF does. There’s no rationale for IMF tax dollars […] to go to bail out Chinese bondholders or China itself.”[xv] The U.S. should seek to ensure that the bailout package will not be used to aid China’s strategy of debt-trap diplomacy. Pakistan has until now believed its ‘all-weather friendship’ with China would carry it through its current economic crisis, but what Xi Jinping termed a ‘friendship of iron brothers’ is increasingly being revealed to be a ruse that masks Beijing’s policy of debt-trapping. Pakistan’s concession of the limitations of its relationship with China and Prime Minister Khan’s shift towards the IMF is a unique strategic opportunity for the United States to contain China and for India to curtail Pakistan’s ambitions.[xvi] Given U.S. authority in the final decisions on IMF bailouts, it is likely the terms and conditions of the deal will seek to exploit as many strategic benefits as possible. India will have an opportunity influence the outcome of the IMF negotiations, and should leverage its weight as a major regional partner, especially now that the United States and India have achieved “the highest level of institutionalised security engagement between the two countries ever” following the inaugural 2+2 Dialogue.[xvii] The upcoming IMF negotiations provide a special chance for the U.S. and India to address some of their security concerns with China’s growing influence in Pakistan and the continued development of the CPEC. Although the IMF negotiations will not be the magic bullet that frustrates China’s economic expansion, they can effectively serve as a facet of America’s broader strategy of Chinese containment.












[i] “China Backs Imran’s ‘Naya Pakistan’ Initiative – Times of India.” The Times of India. October 16, 2018.

[ii] Ibid.

[iii] “China, Pakistan Vow To Jointly Construct Economic Corridor.” Indo-Asian News Service. October 16, 2018.

[iv] Dillhon, Dilsher. “China Is Set to Sell 48 Military Drones to Pakistan.” Business Insider India. October 10, 2018.

[v] “India Raises Concern over CPEC at UN in Geneva, Says Project Ignores New Delhi’s Worries on Sovereignty, Territorial Integrity.” Asian News International. September 15, 2018.

[vi] “China Backs Imran’s ‘Naya Pakistan’ Initiative – Times of India.” The Times of India. October 16, 2018.

[vii] “China Woos Bhutan, to India’s Displeasure.” The Economic Times. October 17, 2018.

[viii] Ibid.

[ix] Perlez, Jane, and Yufan Huang. “Behind China’s $1 Trillion Plan to Shake Up the Economic Order.” New York Times, May 13, 2017.

[x] Judah, Ben. “Pakistan’s Pivot to Asia.” The Atlantic. October 19, 2018.

[xi] “Pakistan to Seek IMF Bailout despite $6 Billion Saudi Assistance.” The Economic Times. October 25, 2018.

[xii] “Imran Khan to Seek ‘significant Shift’ in China’s CPEC Projects in Pakistan: Report – Times of India.” The Times of India. October 22, 2018.

[xiii] Judah, Ben. “Pakistan’s Pivot to Asia.” The Atlantic. October 19, 2018.

[xiv] “Pakistan’s Proposed Bailout by IMF Offers India, US Strategic Opportunity to Reign in ISI and Army.” First Post. October 10, 2018.

[xv] “CNBC Exclusive: CNBC Transcript: U.S. Secretary of State Mike Pompeo Speaks with CNBC’s Michelle Caruso-Cabrera Today.” CNBC. July 30, 2018.

[xvi] “Pakistan’s Proposed Bailout by IMF Offers India, US Strategic Opportunity to Reign in ISI and Army.” First Post. October 10, 2018.

[xvii] “For India and the United States, 2+2 Equals More.” The Economic Times. September 09, 2018.

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