FATF began its six-day plenary meeting in Paris on Sunday to discuss the safety and security of the global financial system.
The resolution to place Pakistan on FATF’s list is spearheaded by the US, with the support of Britain, France and Germany. The US has reportedly had concerns about the depth of Pakistan’s commitment to tackling money laundering and terror financing.
US-Pakistan relations hit a new low last year when Washington — unveiling its new strategy for Afghanistan — accused Pakistan of harboring and supporting terrorists.
Pakistani Foreign Minister Khawaja Mohammed Asif is currently visiting Moscow on a four-day tour, at the invitation of his Russian counterpart Sergey Lavrov.
Asif will likely raise Islamabad’s concerns about the FATF in an attempt to muster Russian support against the four countries leading the attempt to include Pakistan on the watch list.
Last year, FATF’s International Cooperation Review Group resolved to scrutinize Pakistan’s apparent support of proscribed groups operating on its soil and requested a report on the country’s efforts to combat terror financing ahead of the its next sessions. The global intergovernmental organization meets three times a year.
“This time (the effects) would be even greater because there are other pressures on Pakistan,” political commentator and retired Lt. Gen. Talat Masood told Arab News, speculating on what might happen should Pakistan be included on the watch list again.
“Pakistan’s balance-of-payment position is very adverse at the moment and internal stability is not good. It will have a greater impact than it had last time,” he continued, urging the government to take “appropriate measures” to combat the imminent danger of sanctions.
Pakistan spent five years on FATF’s watch list from 2010, before its compliance with international standards saw it removed from the list.
Masood said that if financial restrictions are imposed on Pakistan, it would be as a result of the country’s “foreign policy and internal situation,” which he said the government needs to review and revise to avoid risking Pakistan’s economic stability and further tainting the country’s international image.
Former diplomat Javed Hafiz, however, believes “it’s an institutional, not a policy, problem.”
Hafiz told Arab News, “It’s a pressure tactic to force Pakistan to do more than it’s already doing. It’s already in our national action plan not to allow banned organizations (or individuals) to operate, even under a new name, and to freeze their assets.”
Senior economist Dr. Syed Nazre Hyder described the potential impact of Pakistan’s inclusion on the watch list — should it happen — as “near lethal.” He pointed out that the cost to banks’ customers will rise, investors in the international capital market would request a much higher rate of return from Pakistan, and multilateral financing organizations would add risk premiums on any money borrowed.
Furthermore, financial experts fear the International Monetary Fund (IMF) may reject any loan extension Pakistan might request as a bailout to curb its widening trade deficit, or offer a new deal with stricter guidelines dictated by the US and the European Union.
“Pakistan will need a loan to pay off its debt burden,” Hyder told Arab News. “If it’s included on the list, the country will face a serious challenge sourcing funds for repayment leading to the possibility of default. This would cripple Pakistan economically.”
Dr. Ashfaq Hasan Khan, a former adviser to the Ministry of Finance, believes Pakistan’s inclusion on the FATF’s list may not have the expected impact, however.
“Pakistan has done a lot as far as anti-money laundering is concerned. It’s taken additional steps last week to further strengthen (that section of law),” said Khan, referring to the government’s seize, freeze, and control operation against Jamat-ud-Dawa (JuD) and its charity wing, the Falah-e-Insaniat Foundation (FIF).
Both JuD and FIF are linked to Hafiz Saeed, whom India accuses of masterminding the November 2008 attacks in Mumbai. Saeed has a $10 million bounty on his head.
Khan believes the impact on Pakistan’s relations with the international financial market would be insignificant. The FATF, he pointed out, “deals with terror financing and money laundering, against which we have taken action.”
Khan said the present government would not allow the US “to pull Pakistan’s strings financially.”
India has also lobbied for Pakistan’s inclusion on the FATF list. But Islamabad is banking heavily on support from China, Russia, Turkey, and members of the Gulf Cooperation Council.
Masood, for one, thinks Pakistan’s need for Chinese support is worrying.
“We are relying far too heavily on China. I don’t think even China likes that,” he said, adding that Pakistan needs to focus on internal stability before it can successfully resist international pressure, and that it should use its relationship with China to gain tangible benefits, rather than “frittering it away to counter negative pressure from the US, India and others.”