The South Asia Channel

Freeing Pakistan's Economy from the Military's Grip

Iran and Pakistan are in surprisingly parallel situations this year. Both countries held landmark elections that brought hope for change; both have acknowledged their flailing economies as a key issue; and both have a civilian government that is facing an incredibly powerful military institution. Iranian President Hassan Rouhani, in one of his many attempts to improve the Iranian economy, has suggested that the Iranian Revolutionary Guard Corps (IRGC) limit itself to only a few economic activities. The IRGC is one of the largest economic players in Iran, with business interests in everything from the state oil company to construction and car manufacturing. 

Rouhani's logic is that constraining the guards to fewer economic activities would strengthen private companies, particularly small ones that cannot compete with the IRGC behemoth and their role in the economy without completely antagonizing the powerful military corps. While Rouhani's idea was just a suggestion, not an actual reform, Iran's eastern neighbor, Pakistan, could learn from it. Just as Rouhani's election and the recent nuclear deal with the West may allow for some important changes in Iran, Pakistani Prime Minister Nawaz Sharif has an opportunity to decrease the military's control over Pakistan's economy.

Though Pakistan is financially better off than Iran, the country is still in extremely difficult economic straits. While some progress has been made regarding Pakistan's economy, it is just a start. Pakistan's military has an extensive, albeit indeterminate, amount of economic power; there is little doubt that it is one of the largest economic forces in the country. This has numerous negative implications, not least of which is that it makes long-term successful economic reforms nearly impossible.

However, Rouhani's rhetoric points to an intermediate step between maintaining the status quo, and drastic changes in the military-economy. Rather than forcing the army out of the economic sphere, which would likely be political suicide, Sharif should attempt to contain it by limiting the army to specific projects and spheres of the economy, ideally just those pertaining to defense and weapons procurement. The army and its leaders would retain some economic perks, but their influence over the entire economy would be lessened, and the private sector would be strengthened. 

While this may sound idealistic and unlikely at the moment, there are some compelling reasons this could work for Pakistan now. Sharif is a businessman; he comes from a wealthy industrialist family and is the owner of one of the largest steel conglomerates in Pakistan. He also has a well-known pro-business bias. Decreasing the role of the military in the economy would create new business opportunities for private companies, especially for well-established ones as they would be able to act quickly. It would create sectors of the economy in which private companies would not have to compete against the army, thus giving them greater opportunities to thrive and make money. Thus, decreasing the economic role of the military would help one of Sharif's constituencies -- his fellow businessmen -- while curtailing the power of the biggest threat to his rule -- the military.

Decreasing the military's hold on the economy would also be a step in proving that the civilian government really does have control and oversight over the military, as opposed to them being equals, or, even worse, that the civilian government cannot do anything without the military's approval. Given Sharif's unhappy history with the military, exercising civilian oversight while decreasing the army's power, particularly when it will not have a negative impact on the country's security, should be very appealing.

The recent change in army leadership from Gen. Ashfaq Parvez Kayani to Gen. Raheel Sharif (no relation) should also increase the likelihood of successful reforms. Gen. Sharif is largely considered to be apolitical and thus a relatively safe choice to head the Pakistani army. An apolitical leader means the prime minister has less to fear from the military this time around -- likely a deliberate consideration on his part -- and thus does not need to tip-toe around the military establishment.

Of course, these reforms would only succeed if done in conjunction with increased transparency of business dealings and ownership, as well as more governmental oversight of business practices. Otherwise, the army could simply set up new shell companies and have its subsidiaries own various other companies, leaving the current situation roughly unchanged. Transparency is difficult in a country as mired in corruption as Pakistan, but some improvements must be made. Ideally, there should also be some concessions made for smaller businesses to compete in sectors of the economy that the military vacates. Otherwise, Pakistan runs the runs the risk that the already wealthy and well-connected will acquire all of the newly-privatized companies, making them richer and leaving the average citizen in an often worse situation. However, that reform is highly unlikely. 

Nothing will change overnight and these steps alone will not solve Pakistan's economic problems. However, they are steps in the right direction, and could have significant, positive ripple effects, and not just for Pakistan's economy. Pakistan's business community is very interested in the potentially lucrative Indian market. Greater privatization could lead to increased India-Pakistan trade, which in turn could enable more contact between the two nations, and potentially, less hostile relations. While trade does not inherently lead to peace, it would increase communication across the border, a prerequisite for improved relations. The two Sharifs have an opportunity to work together and curtail the non-security aspects of military power in Pakistan, leaving the economy stronger, and the military more focused on fighting insurgencies and domestic violence in Pakistan.

Kathryn Alexeeff has a masters degree in Security Studies from Georgetown University and currently works at the Atlantic Council's South Asia Center.