``...and more recently, after the Kargil affair and its unfortunate fallout, exports have emerged as a lifeline not only for foreign exchange earnings but also for the very existence of the country and the security of the people of Pakistan. Under the new economic order, a country has to be strong on its economics, diplomacy and media fronts to face any external threat''
Pakistan's The News.

Quite right too. For the first time in the troubled history of bilateral relations have economic considerations played such an important part in ending a military conflict. In retrospect, that is probably unsurprising. Economics came into own and out of the shadow of politics worldwide with the Cold War's end and accelerating globalisation. That denies countries their old luxury ofindulging their peculiar idiosyncrasies or ploughing any lonely furrows that they may have a mind to plough.

Added to that are the ways of the information age where the implications of events and trends in defence, diplomacy and politics factor themselves instantly into economic calculations, promptly and violently affecting indices ranging from the markets to currency and credit and investment-worthiness.

The Karachi Stock Exchange index fell a stunning 26 per cent within a month of fighting breaking out. Till recently it had gained 11 per cent in the wake of the Pakistani withdrawal. The Sensex fell when the fighting began but stabilised early on the strength of far sounder fundamentals. And it has famously and repeatedly seen the breaching of the records of the Harshad Mehta days since the withdrawal.

It is noteworthy that Pakistan's defence budget was raised by a modest 11 per cent in nominal terms in the face of an ongoing war. This, and the observation that exports are crucial to security, are thebest admissions of what is plain common sense. A country that would wage war on a neighbour had better have much deeper pockets, or a powerful and munificent ally, both of which Pakistan is currently lacking.

A third of the budget outlay this year is for debt servicing: Rs 288 billion out of Rs 642.2 billion. The total domestic and foreign debt is 100 per cent of GDP at Rs 2,500 billion. The economy last year grew at just over 3 per cent. The rupee, which fell to close to 60 to the dollar, is expected to fall a further 10-15 per cent this year. This may do its languishing exports some good, but is no sign of a healthy economy.

Pakistan was forced to bring back a series of controls on capital flows in the wake of the crisis as the rupee crashed, reversing some of the long-term reforms it had effected and which in fact went much farther than India's.

Reserves were recently down to a few days' of imports. The export base is so narrow that three commodities -- leather, synthetic textiles and rice -- make upover a third of export earnings. Exports dropped 15 per cent from 1997-98, missing their target by 30 per cent.

Economic reductionism serves no purpose as Pakistan's initial Kargil misadventure amply testifies. But it is a moot question how much enthusiasm the government in Islamabad would have had for making trouble in Kargil if it had foreseen that its IMF loan would become hostage to the conflict.As to the conflict's end, even -- indeed, particularly -- if it is seen as the pure success of American pressure, that is simply an economic explanation.

If the Indian government's line is bought that Nawaz Sharif accepted the Washington formula in response to the situation on the ground, that at least is a military reason. But diplomatic pressure on Pakistan from Washington is simply economic pressure in the absence of other handles in Washington's hands.

If Pakistan has fallen low in America's scheme of things post-Afghanistan, it goes without saying that Washington's ability to influence its policies andactions has similarly diminished: Pakistan has far less to lose today from defying America than it did in the Eighties. It is no wonder that America has to use the threat of blocking loans from international fora.

India is a different story. Its economy has been anything but rosy for some years but is an economy looking to the future with confidence and expectations of high growth. The disincentive for it to wage prolonged battle is more the fear of colossal potential economic loss than sheer economic survival. Economically bruised as it has been by Kargil even in the short run -- in the long run security costs post-Kargil are going to be daunting -- India could have lived much more easily with the conflict's costs than Pakistan, just as it did with the costs of post-Pokharan economic sanctions.

The interesting thing is that, subliminally, India seemed more willing to pay the price of its nuclear tests in lost growth opportunities than of a prolonged border conflict. Certainly the Indian people were clearthat war should be waged for as long as it took, but unease about the economy manifested itself in many ways, not least in talk of a Kargil tax to prevent a long-term economic spillover. The unease was probably the greater in this case because whereas the economic results of sanctions were always seen to be short term, there was no telling about Kargil.

India today, having tasted high to medium growth in recent years, is concerned with opportunity cost. This is emphatically true of its people. By association, it is also true of its leaders. The acceptability of the Hindu rate of growth is a thing of the past.

Equally, if not more important, is government skittishness about investor sentiment turning nasty. This is something that no government in its right mind -- even one with strong short-term controls on capital flows -- can discount after the Asian debacle.

None of this need of course mean that Pakistan's fragile economy will inhibit it in the future: nationalism and Islam make too potent a cocktailfor mere sanity to be an antidote. But at least the complacency that bad behaviour will not bring international economic punishment is gone.