Heroin, Taliban and Pakistan

by B. Raman
The Financial Times (Asian edition)
August 10, 2001

Pakistan's illegal heroin economy has kept its legitimate State economy sustained since 1990 and prevented its collapse. It has also enabled it to maintain a high level of arms purchases from abroad and to finance its proxy war against India through the jehadi organisations.

While no estimate of the money spent by it on its proxy war is available, it has been estimated by Pakistani analysts ("Friday Times" March 9 to 15, 2001) that about 80 per cent of its total external debt of US $ 38 billion, that is, about US $30.4 billion, was incurred on arms purchases since 1990. This includes its purchases of aircraft and missiles from China, missiles from North Korea, for which payment was made partly in cash and partly in imported US and Australian wheat, Agosta class submarines from France, reconditioned Mirage aircraft from France, Lebanon and Australia and other items from countries such as Ukraine. The clandestine procurement of nuclear technology and material from Western countries and the Chinese-aided nuclear power station at Chashma were also financed through external borrowing.

The use of the heroin dollars for such purposes started after the withdrawal of the Soviet troops from Afghanistan in 1989. In the 1980s, at the insistence of the Central Intelligence Agency (CIA) of the US, the Internal Political Division of the Inter-Services Intelligence (ISI), headed by Brig (retd). Imtiaz, who worked directly under Lt.Gen.Hamid Gul, the DG of the ISI during the later years of Zia-ul-Haq and during the first few months of Mrs. Benazir Bhutto's first tenure as the Prime Minister (1988-90), started a special cell for the use of heroin for covert actions.

This cell promoted the cultivation of opium and the extraction of heroin in Pakistani territory as well as in the Afghan territory under Mujahideen control for being smuggled into the Soviet controlled areas in order to make the Soviet troops heroin addicts. After the withdrawal of the Soviet troops, the ISI's heroin cell started using its network of refineries and smugglers for smuggling heroin to the Western countries and using the money as a supplement to its legitimate economy. But for these heroin dollars, Pakistan's legitimate economy must have collapsed many years ago.

Not only the legitimate State economy, but also many senior officers of the Army and the ISI benefited from the heroin dollars. Brig.Imtiaz was sacked by Mrs.Benazir on coming to power in 1988 for interfering in internal politics, but was reinstated by Mr.Nawaz Sharif on coming to power in 1990 and subsequently made Director of the Intelligence Bureau (IB).

In fact, in Pakistan, Mr.Sharif is seen as the creation of Brig. Imtiaz. It was he who, as head of the Internal Political Division of the ISI in the 1980s, had persuaded Mr.Sharif, then a small businessman in Dubai, to return to Pakistan and take over the leadership of the Pakistan Muslim League (PML) in order to counter Mrs.Benazir's Pakistan People's Party (PPP).

Mrs.Benazir again had him sacked on her return to power in 1993 and arrested and prosecuted him on charges of indulging in illegal activities, but he was acquitted.

After capturing power on October 12,1999, Gen.Pervez Musharraf, Pakistan's self-reinstated Chief of the Army Staff (COAS), self-styled Chief Executive and self-promoted President, had Brig.Imtiaz, because of his proximity to Mr.Sharif, rearrested and prosecuted for having assets disproportionate to his known sources of income as an officer of the ISI and the IB.

He was convicted by a court on July 31,2001, and jailed for eight years. According to evidence produced in the court by the National Accountability Bureau (NAB), Brig.Imtiaz had foreign exchange bearer certificates worth US $ 20.08 million, a Pakistani rupee account in the Union Bank with a balance of Rs.2.13 billion, a US $ account in the Deutsch Bank with a balance of US $ 19.1 million, five residential houses, five commercial units and three shops. This huge wealth was allegedly accumulated by him through heroin smuggling.

It is believed that there are at least 30 such Army and ISI officers, serving and retired, who have accumulated similar wealth through heroin smuggling.

The present estimate of Pakistan's annual earnings through heroin dollars, including by this writer, is about US $ 1.5 billion. It is difficult to come across precise, direct evidence for such estimates.

The estimate till now has been based on indirect evidence such as the following:

* The Government of Pakistan releases its foreign exchange reserves position in two parts. The first part gives the figures of reserves maintained by the State Bank of Pakistan (SBP). These are the amounts earned through foreign trade, investment flows, foreign aid and loans and remittances by overseas Pakistanis. The second part gives the figures of reserves available with other banks. These are the deposits of resident Pakistanis, who are allowed to maintain dollar accounts with no questions asked about the origin of the money and about its liability for income tax. Under Pakistan Government orders, these amounts cannot be used by the Government for its purposes though Mr. Sharif froze them temporarily after the Chagai nuclear tests in 1998 in order to be able to use them if the economic sanctions hit the State economy hard.

* US dollars kept by private citizens in their possession without being deposited in the banks. The SBP periodically purchases these dollars to meet debt servicing and other governmental needs.

In any analysis, it would be reasonable to presume that the dollars kept in the bank accounts of resident Pakistanis and the dollars in private circulation must have been largely, if not totally, derived from the heroin trade. There cannot be any other explanation for it because Pakistan has been having a trade deficit for many years in succession, there has been a 73 per cent decline in foreign direct investments and a negative flow of portfolio investments and there was no international assistance forthcoming from October,1999, till November,2000, when the IMF resumed its stand-by credit facilities to Pakistan.

Quoting SBP sources, the "Business Recorder" of Pakistan (August 1,2001) gave the following figures, which provide a fairly accurate estimate of the US dollars available in private hands during the financial year 2000-01:

* The SBP had $ 1.7 billion, which was the official foreign exchange reserve of the State. In addition, resident Pakistanis had deposits in various commercial banks amounting to US $ 1.5 billion.

* During the financial years 1999-2000 and 2000-01, despite the suspension of credit facilities by the IMF and other multilateral institutions after the military coup, the Government fulfilled debt servicing (debt and interest payments) obligations amounting to US $ 7.8 billion. Out of this, US $ 4 billion came from the Govt. coffers and the balance of US $ 3.8 billion was purchased from resident Pakistanis.

In other words, the total amount of US $ in private circulation since the military regime came to power was almost equal to that in the Govt. coffers, if not more.

The first direct piece of evidence about the total value of the heroin money being pumped into the Pakistani economy every year has come from an unexpected source---the Taliban. Before 1998, opium was being grown in the North-West Frontier Province (NWFP) of Pakistan and in the Nangarhar province in Taliban-controlled Afghan territory. All the Pakistani-owned refineries for heroin extraction were located in Taliban-controlled territory.

In 1998-2000, the Pakistani authorities stopped the cultivation of opium in the NWFP. In 2000-01, the Taliban too, under international pressure, ostensibly banned opium cultivation in its territory, but did not dismantle the Pakistani-owned heroin refineries. It demanded that international narcotics control agencies should reimburse to it the money lost by its farmers due to this ban so that they can shift to other crops.

US and other foreign narcotics control officials, who visited Nangarhar, confirmed that opium cultivation has been stopped. However, doubts remain on the following points:

* Has the Taliban secretly shifted the opium cultivation from the traditional areas in Nangarhar to which international experts had access to other remote areas to which they did not have?

* Due to a bumper crop and record heroin production in previous years, the prices of heroin in the international heroin market had been coming down. Pakistani smugglers, supported by the ISI, had enough heroin stocks to meet at least two years' demand of the market. Was the Taliban merely suspending cultivation during this period to stabilise the prices?

Despite these misgivings, the US announced a contribution of US 1.5 million to international narcotics control programmes for disbursement to the Afghan farmers who have stopped poppy cultivation. The Taliban has been describing this as worse than peanuts and demanding much more.

This was one of the subjects which figured during the discussions of Mrs.Christina Rocca, US Assistant Secretary of State, with Mullah Abdus Salam Zaeef , the Taliban Ambassador in Islamabad, and his No. 2, Mr. Sohail Shaheen, at Islamabad on August 2. According to the "Frontier Post" of Peshawar (August 3,2001), while briefing pressmen after the discussions, a spokesman of the Taliban said : "We have told the US team that Afghanistan was earning 12 billion dollars a year from the poppy cultivation and we have eliminated the poppy from the country."

How much of this amount was going to the Taliban and how much to the Pakistanis and the ISI, who owned all the refineries? No direct evidence is available, but one can estimate roughly that out of this at least US $ 11 billion per annum was going to Pakistan from the following circumstantial evidence:

* There are no reports of large amounts in US dollars circulating in private hands in Taliban-controlled Afghanistan , whereas Pakistan is awash with them.

* There are no large-scale development and other activities in Afghanistan which would indicate the availability of large funds in cash. There is so much poverty due to lack of development that thousands of Afghans have been migrating to Pakistan.

* Since its capture of Kabul in September,1996, the Taliban had not been publishing its budget figures. Some details are now available for the first time. According to these figures, during the financial year 2001-02, the Taliban would have an estimated expenditure of US $ 82.53 million, of which US $ 43.53 million is shown as the Discretionary Fund of Mulla Mohammad Omer, the Amir. The balance is to be spent by various departments. Quoting a study of the New York University Centre, the "Dawn" of Karachi (June 4,2001) estimates that the Taliban gets US $ 45 million per annum from the heroin trade, an amount nearly equal to the Amir's Discretionary Fund.

If this figure of what the Taliban gets is taken as reasonable, more than US $ 11 billion per annum from the heroin trade goes to Pakistan, that is, more than Pakistani Rs. 715 billion at one US $ equal to 65 Pak rupees. During 2000-01, the Pakistani State had a total revenue of Rs.570.6 billion, of which Rs.471.6 billion came from taxes. That is, Pakistan's heroin economy was 30 per cent larger than its legitimate State economy.

Is it any wonder that its economy does not collapse despite the worst predictions and that it is able to defy international pressure on its sponsorship of terrorism against India and on its support to the Taliban and Osama bin Laden?

© Copyright 2001

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