Economic Analysis of Nuclear Explosion

By Asad, S. Hasan | Economic Review, May 1998 | Go to article overview

Economic Analysis of Nuclear Explosion


Asad, S. Hasan, Economic Review


The pinch of economic sanctions coupled with higher defence outlay will be felt in the coming budget. The squeeze in import will raise the price of foreign goods which our people are accustomed to use. Frugality and thiftiness must be encouraged at every level and conspicuous consumption curbed. Corruption must be fought on war-like footing. A national agenda for austerity to face possible economic sanctions is likely to be unveiled soon.

May 28, 1998 will be remembered as a memorable day in the history of Pakistan when five nuclear blasts were conducted. The 17-day period of uncertainty since the Indian nuclear underground explosion of May 11 thus came to an end. The most important consideration delaying the blast by Pakistan was the threat of economic sanctions by developed nations. It is now time to recapitulate the adverse impact of blast on the already vulnerable economy.

Ever since coming into power in March this year, the belligerent BJP was expected to test nuclear bomb as per its election manifesto. Therefore, it should not be a surprise to anyone in Pakistan or abroad. Three tests were conducted on May 11 followed by two on May 13. The first three tests involved a fission device which yielded 12 Kilotons a thermonuclear device of 43 Kilotons (although denied by Dr. Abdul Qadeer Khan) and a sub-Kiloton device. The two other tests used devices which yielded between 0.2 to 0.6 Kilotons. The world reaction was no doubt one of condemnation but the sanctions were limited to only few countries like USA and Japan. The sanctions will prove ineffective as Indian economy is comparatively inward-looking and self-reliant with a hefty foreign exchange of $26 billion equivalent to almost one year of imports. What is the price of being a member of prestigious nuclear club for India? Only a loss of few hundred million dollars. It is another matter that India has spent billions of dollars in the past on nuclear programme and missiles since the first detonation of May 1974.

Prior to detonation, Indian defence minister George Fernandes declared China number one enemy only to please USA and other western countries. However, afterwards, the threats were directed against Pakistan. Home Minister L.K. Advani asked Pakistan to roll back its anti-India stance particularly over Kashmir in view of "the change in geo-strategic situation in the region". The tension between the two countries was thus escalating.

Pakistan was cornered as the pressure from USA and its allies was mounting against detonation while on the other hand, people felt insecure and majority of them were in favour of blast as Pakistan has acquired nuclear capability by 1980's. US offer of "peanuts" was, in fact, no price for its security or rather insecurity. Pakistan was caught between Scylla and Charybdis. On the one side was the threat of economic sanction and on the other was ire of the people.

The first victim of Indian explosion was Karachi stock market whose KSE 100 index nose-dived from 1514 on May 11 to an unprecedented 1040 on May 28 or by 474 points wiping out Rs.120 billion in market capitalisation. The situation was worsened by confrontation between the government and independent power projects which was sending wrong signals to overseas investors. SOS was, therefore, sent to the government. Likewise, the value of US dollar also reflected rise in the Kerb market.

With little option left, the government detonated five devices ranging 35-36 Kiloton strength on May 28, to be followed by another test on May 30 for technical purpose. Nawaz Sharif appealed to the people to "tighten belts" to face sanctions to be imposed by industrialised nations. Emergency was declared, foreign currency accounts were frozen, money changers' licences were suspended and banks were closed on May 29. In fact, these measures were not warranted as people did not throng on banks on the next working day on May 30. Many changers' licences were restored after 24 hours. …

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