1998 Congressional Hearings
Special Weapons
Nuclear, Chemical, Biological and Missile




STATEMENT BY KARL F. INDERFURTH

ASSISTANT SECRETARY OF STATE FOR SOUTH ASIAN AFFAIRS



SENATE FOREIGN RELATIONS COMMITTEE, 
SUBCOMMITTEE ON NEAR EASTERN AND SOUTH ASIAN AFFAIRS
JULY 13, 1998



Mr. Chairman, thank you for the opportunity to appear before your
Subcommittee today to continue our discussions about the critical
situation in South Asia. In our previous meetings, we have discussed
how the nuclear tests by both India and Pakistan in May have
dramatically altered the context of our South Asia policy. We also
have reviewed the definitions and scope of sanctions that have been
applied against both countries, as required by law, as well as our
efforts to re-establish a basis for resuming the type of broad-based,
cooperative relations that we had hoped to promote with both countries
prior to the tests. Today, I wish to review briefly for you the
developments that have occurred in our diplomatic exchanges with the
Indian and Pakistani governments, as well as certain issues with
regard to the sanctions regimes.


Diplomatic Efforts



As you know, Mr. Chairman, we have begun in earnest a process of
re-engagement with both India and Pakistan in an effort to secure
genuine progress on our non-proliferation concerns and in improving
relations between the two countries. Deputy Secretary of State Strobe
Talbott, who has been given the lead by the President and the
Secretary of State for our contacts with the Indian and Pakistani
governments, has held two productive sessions with Indian Deputy
Planning Commissioner Jaswant Singh, who is Prime Minister Vajpayee's
designated envoy to the United States on these matters. I was pleased
to accompany the Deputy Secretary to Frankfurt this past week for his
most recent meeting with Mr. Singh.


Similarly, with Pakistan the Deputy Secretary has held separate and
useful meetings with Prime Minister Nawaz Sharif's envoy, former
Foreign Minister Shahabzada Yaqub Khan, as well as Foreign Secretary
Shamshad Ahmed.


We are grateful for the constructive efforts of you and your
colleagues to address the policy dilemmas in South Asia in the wake of
the nuclear tests. In particular, we noted with great interest the
conversations that you and Senator Robb had with the key players in
both Delhi and Islamabad on your recent trip. We believe that it is
critical that the governments, press and publics of both countries
develop an understanding and appreciation of the role that the
Congress plays on these issues.


As a result of these diplomatic efforts, it appears we are making
progress in defining the principles that will underpin U.S. relations
with India and Pakistan in the post-test environment, in laying out
our non-proliferation and other objectives, and in discussing the
steps and activities that will be necessary to get us there. We will
not let our current momentum slip: the Deputy Secretary plans to
travel to both Islamabad and New Delhi next week, where I will
accompany him along with the Vice Chairman of the Joint Chiefs of
Staff, General Ralston, and the NSC Senior Director for Near Eastern
and South Asian Affairs, Bruce Reidel.


Impact of Sanctions



Mr. Chairman, we have discussed in earlier hearings the sanctions that
we are required by law to place against both India and Pakistan. For
your convenience, I have brought with me a fact sheet on the sanctions
that has been provided to the Committee previously. I ask your
permission to include the fact sheet in the record of today's
proceedings.


As you know, we are implementing these sanctions firmly and correctly.
They will result in significant economic and political costs for both
countries. That said, our purpose is not to punish for punishment's
sake, but to influence the behavior of both governments. We do not
wish for unnecessary harm to fall upon the civilian populations of
either country -- particularly the poor and less fortunate -- or on
U.S. businesses. For this reason, we are pleased that the Senate acted
last week to correct an obvious unintended consequence of the
sanctions law preventing the provision of credits for agricultural
commodities.


It is too early to quantify, Mr. Chairman, the effect that these
sanctions will have on economic growth or business activity in either
country. Even prior to the onset of the sanctions regime, however,
both India and Pakistan had been encountering difficulties in their
economies. In India, sluggish industrial production, high tariffs,
oppressive bureaucratic red tape, infrastructure bottlenecks, massive
subsidies and scarce funds for investment had all contributed to lower
rates of economic growth and a serious decline in investor confidence.
U.S. sanctions will amplify some of those trends.


To date, we have not seen from Indian policymakers or commentators a
serious recognition that these sanctions, much less the underlying
structural inequities, require serious economic policy adjustments.
The introduction of a rather lackluster budget by the government only
weeks after the nuclear test took place underscores that point. We are
concerned that these developments, which come in the midst of
significant economic turmoil in Asia, will put at risk all of the
important economic progress that India has made since the onset of
liberalization.


In Pakistan, the situation is even more complex and potentially of
grave concern. Pakistan has been grappling for months' with a
significant balance of payments shortfall, and its economy suffers
from similar, if more acute, structural deficiencies as India's. The
Pakistani rupee has been under serious pressure -- on Friday it
plunged past the 60 per dollar threshold -- and the stock market has
been dropping steadily. Pakistan is particularly dependent upon
external financing from the IMF and the multilateral development
banks, and we are concerned that with dwindling foreign exchange
reserves, Pakistan could soon begin defaulting on its international
obligations.


We are deeply troubled that Pakistan's leadership does not appear to
be taking the necessary steps to deal with the country's difficult
economic position. Not only has Pakistan been slow to implement tough
economic reforms mandated by the IMF and ostensibly espoused by the
Prime Minister, it has inexplicably acted to alienate the vanguard of
the foreign investor community -- the independent power producers. For
months, and with what has been increasing intensity, the IPPs have
been faced with what can only be described as a shake down effort by
the government to conserve hard currency. Recently the government of
Pakistan announced arbitrary termination of a number of the IPP
contracts, calling into question its understanding of and commitment
to a fundamental business principle: the sanctity of contracts.
Pakistan can ill afford to act in such a way at this critical time.


Sanctions and Flexibility



When we last met, Mr. Chairman, you, Senators Robb and Hagel and I
discussed the effectiveness of the sanctions regime and whether the
law permits the President sufficient flexibility to maximize his
ability to influence events and behavior. That discussion, along with
Thursday's debate on the Senate floor has put this question into sharp
relief. To the extent that it is possible to discern a common thread
among the various statements that have been made, it appears safe to
say that both the Administration and the Congress share a desire to
inject a greater degree of consistency, flexibility and effectiveness
into the sanctions regimes against India and Pakistan, and indeed, our
entire approach to sanctions in general. That is a very welcome
development, and it is absolutely vital that we build upon this very
strong foundation to effect the requisite changes in our policy and in
our laws.


In the Department of State, Under Secretaries Stuart Eizenstat and
John Holum have the lead responsibility for our sanctions policy. They
have both articulated to the Congress a number of principles and
objectives that we seek for the various sanctions regimes that are
already in place, and for future instances where sanctions may be
needed. If you will permit me, Mr. Chairman, I would like to address
briefly some of the issues that apply specifically to the sanctions
against India and Pakistan.


First, let me be clear that we have already laid out a number of
objectives that we seek in implementing the sanctions. We have
consistently articulated these objectives in our meetings with the
Indians and the Pakistanis, in previous testimony to the Congress, and
in our bilateral and multilateral exchanges with others. By no
accident, they reflect the objectives -- some shorter term, others
longer term -- that were spelled out in the communiques adopted in the
recent meetings of the P-5 in Geneva and the G-8 in London and in U.N.
Security Council Resolution 1172. To reiterate, we have established
that we want to see both governments do the following: conduct no
further nuclear tests; sign and ratify the Comprehensive Test Ban
Treaty immediately and without conditions; refrain from deploying
nuclear weapons or missile systems; halt the production of fissile
material for nuclear weapons; participate constructively in
negotiations towards a fissile material cut-off treaty; formalize
existing policies not to export weapons of mass destruction and
missile technology or equipment; and resume direct dialogue to address
the root causes of tension between them, including Kashmir.


Again, Mr. Chairman, these are steps we want to see both governments
take. They are not demands. We fully recognize that New Delhi and
Islamabad will have to assess them in light of their own national
security requirements. At the same time, we believe these steps cover
the full range of what will be necessary to make real progress in
South Asia. We will need to engage with both governments to explore
fully how best to pursue each of these objectives, in the shortest
possible timeframes. It is clear that we will need greater flexibility
than the law currently allows to tailor our approach, influence
events, and respond to developments.


In this regard, Mr. Chairman, we seek waiver authority for all of the
sanctions currently in place against India and Pakistan. Of course, we
would not utilize that authority until such time as substantial
progress has been achieved on the objectives outlined above, or in the
event that there were a serious negative and unintended consequence to
a specific sanction -- such as impending financial collapse leading to
economic chaos and political instability. We also would like
additional flexibility to guard against an overwhelmingly
disproportionate effect of the sanctions on one country versus
another; ideally, the sanctions should have roughly the same effect on
India as they do on Pakistan.


That said, we do not believe it would be advisable, nor could we
support efforts to codify or legislate the steps that India and
Pakistan would need to take in order to gain relief from sanctions, or
to match specific actions by India or Pakistan to the lifting of
particular sanctions. While I believe there is substantial agreement
between the Administration and the Congress on the objectives, it
would tremendously complicate our efforts to bring about change if we
were bound by a series of benchmarks in law. Our experience with India
and Pakistan tells us that neither would respond well to such an
approach. We believe the steps we are encouraging them to take are in
their own national interests, and we hope they will share this view.
But writing such steps into law would create the impression that India
and Pakistan would be acting under pressure and simply to ensure the
lifting of U.S. sanctions. This would greatly constrain our chances of
achieving the outcomes we seek.


Conclusion



If I may leave you with one thought, Mr. Chairman, it is the
conviction that our discussion of these matters should not leave India
and Pakistan with the impression that a lifting of sanctions is
imminent. Affirmative, positive steps will be necessary by both
parties if sanctions are to be lifted and our relationship restored to
where it had been heading prior to the events of May -- including the
Presidential visit later this year. The sanctions have been imposed
for specific purposes, and India and Pakistan are well aware of them.
As I have already mentioned, the Administration does not plan to ask
for easing sanctions unless India and Pakistan have achieved
significant progress in meeting our non-proliferation objectives. That
said, it seems we have a rare opportunity to have a serious discussion
and adopt some changes in law and policy. These will better serve our
own national interests, and better position us to deal effectively
with both India and Pakistan on the critical issues that are at stake.


Thank you, Mr. Chairman, and I look forward to your questions.



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