October 28,2008:  Pakistan has asked the IMF (International Monetary Fund) for some financial help. The IMF will do so, but only if the Pakistanis reduce their military budget by 30 percent over the next five years. The financial crises stems from government spending more money than it has, in order to keep people happy, while continuing to build up their armed forces. This lack of fiscal discipline has made potential lenders reluctant to throw good money after bad.

The U.S. has given Pakistan nearly $8 billion in aid since September 11, 2001. About 40 percent of that was economic aid, while the rest was for the military, mainly to assist in fighting Islamic terrorism. But much of the money intended for counter-terrorism was diverted to shore up forces facing India, and some of it was stolen. The Pakistani generals are willing to stare down the U.S., and the IMF. While the U.S. has backed off, the IMF is another matter. Thus Pakistan is continuing to beat the bushes for a few billion bucks to bail them out, before facing the IMF.

There are 619,000 personnel in the Pakistani armed forces, most of them in the army. It's an all volunteer force, and recruiters can be picky about who they let in, for there is no shortage of applicants. The official military budget is about $5.3 billion a year (now less than $4 billion because of the local currency be devalued because of the financial crises). That's about three percent of GDP. But in reality, the military get close to 7 percent of GDP. That because the military has a welfare trust (the Fauji Foundation), set up over half a century ago, that controls commercial firms amounting to about six percent of GDP. Profits from these operations pay for health, education and other benefits for members of the armed forces (active and retired) and their families. The senior officers in the armed forces benefit most from this arrangement.

Recently, the army has been using a lot of that money to improve health and education benefits for the troops and their families. Housing and living standards for troops will also be improved. All this will improve the morale of the troops, apparently to maintain morale because of the offensive against Islamic militants that has been underway for several months now. This morale boost is needed because the Taliban and al Qaeda have turned some parts of the Pushtun and Baluchi tribal territories into terrorist sanctuaries. From these locations, attacks are planned and carried out against targets within the tribal territories, and the rest of Pakistan. In effect, the Taliban and al Qaeda are at war with the government of Pakistan, and have made public announcements to that effect. But about fifteen percent of army personnel are Pushtun, and many of these have kin in the tribal territories. In this case, morale and motivation matters, a lot. The Taliban and terrorists are funded by drug gangs in Afghanistan (which produce most of the heroin produced in the world), while the Pakistani depend on their own mismanaged economy, and the generosity of the United States.

The Pakistani military is greatly outclassed by the Indians, and the only real defense they have are nuclear weapons. The U.S. is trying to convince the Pakistanis to stop competing with India in conventional weapons, and turn more to troops expert in counter-terrorism. Pakistan has lots of civil unrest, but the generals still see a conventional war with India as a major worry.