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Sanctions have had modest success, says US economist

Amberish Diwanji

Economic sanctions imposed by the United States on India have had only modest success, according to C Fred Bergsten, director of the Institute of International Economics, an influential think-tank based in Washington DC.

Bergsten, who is currently touring India, pointed out that today more than 50 per cent of the world is under some sort of sanction or the other. "There are the severe types imposed on Iraq and the not-so-severe types imposed on India and Pakistan after they conducted the nuclear tests."

He categorically stated that economic sanctions have a very limited role in influencing major policy decisions in other countries. "A country will weigh other factors in making its decision and we have found that in the case of security issues sanctions or the threat of sanctions can do very little to actually influence policies, especially security ones," he said.

The economic sanctions, according to the IIE study, hurt business worth $ 500 million in India. Given that India's GDP is $ 400 billion, this works out to an effect of slightly more than 1 per cent of the GDP. On the other hand, US sanctions also cost Pakistan about $500 million, but this worked out to a massive five per cent of Pakistan's GDP.

Surprisingly, Bergsten said that despite the difference, economic sanctions had a greater impact on India than it had on Pakistan in terms of influencing policy decisions. In fact, in grading the effect of sanctions in terms of its success in influencing policy decisions, the IIE gave India 4 out of 16 (a 16/16 score means 100 per cent successful in influencing policies) while Pakistan got a score of just 2/16.

"Though India was hurt far less, it was keen to normalise relations with the US and hence it has been more amenable to suggestions from the US on issues concerning nuclear proliferation, the Comprehensive Test Ban Treaty, and the like. Even then, the most major influence upon India is its own security perceptions and hence our study gives sanctions only a 25 per cent influence grading.

"But why Pakistan listened to the US much less even though its economy was hurt more simply because Pakistan's entire security policy decisions regarding the CTBT, nuclear non-proliferation, etc will be based on what India does, not on what Washington says," he said. Which means, that the biggest influence on Islamabad are New Delhi's decisions!

The best example of how little Islamabad cared for the US threat of sanctions was that even after repeated pleas not to test, Pakistan tested its nuclear weapons a fortnight after India.

Bergsten said that for economic sanctions to work, there are some rules which include that the country imposing sanctions must have an economy that is about 100 times larger the victimised country. The US economy is worth $ 8.5 trillion (slightly over 20 times India's economy).

Moreover, the greater the linkages between the two economies, the more sanctions hurt. And they have a greater impact in democracies than in countries with dictators who often use sanctions to strengthen their position with the country. "Sanctions are a good weapon to use against your friends rather than your foes," he added.

The IIE director also agreed that the tremendous success of the Resurgent India Bonds, which saw non-resident Indians totally put in a massive $ 4 billion, also completely negated any limited effect the sanctions might have had. "Every country facing sanctions has a lobby working against it. For India, that lobby was that of the NRIs," he stated.

Bergsten declared that if New Delhi had chosen to liberalise in a big way right after the nuclear tests, it would have created a vested interest lobby of corporations within the US. "That is what China does and which is why Beijing always gets away with all the human rights complaints," he said.

Bergsten felt India was close to signing the nuclear Comprehensive Test Ban Treaty and Non-Proliferation Treaty, thus paving the way for normalisation of relations. "Obviously the reason is not sanctions but a desire to take relations to the high that existed before May 1998. There must be other reasons for India to sign the CTBT and NPT," he declared.

The IIE director agreed that more than economic, the imposition of sanctions had a psychological effect on business and investment in the country, coming at a time when the country was witnessing a political flux. "It is difficult to calculate in figures how much such effects cost but certainly it plays a role in influencing decisions and perceptions," he added.

Bergsten pointed out that in the US, a sanction-fatigue syndrome is coming up, with too many sanctions having seen too little success. "The US has had sanctions against North Korea for 50 years to no effect," he said, "And a team that went to Cuba to study the impact of sanction said the Helms-Burton Amendment should be renamed the Helms-Burton-Castro Amendment because it has only helped Castro."

Despite the limited use of sanctions, the IIE director insisted that they had a role in international relations. "Whenever something occurs which outrages the world, there is a great desire and demand to do something. And sanctions is a sort of middle path between not doing anything and going to war," he said, adding that sanctions must be used rarely but effectively.

In fact, to make sanctions effective, they must be multilateral rather than bilateral (unless the bilateral trade is more important than multilateral trade), and imposed fast and hard.

The most effective sanctions in the world was against the apartheid regime in South Africa, forcing the minority white government to abdicate and allow the blacks to form the government. "It was imposed by most nations, and it actually saw success when private commercial banks, giving in to pressure from anti-apartheid lobbies and their consumers, also began to boycott South Africa, completing the economic sanctions," he stated.

Incidentally, India too has successfully used sanctions to influence policy. In the 1980s, New Delhi imposed sanctions upon Nepal (allegedly for becoming too friendly with China). "India's economy dwarfs Nepal's while trade and other and the linkages are too great for Kathmandu to ignore," said Bergsten. A classic case, proved when Nepal toed India's line.

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