Turned down by its allies, Pakistan seeks IMF rescue
By Saeed Shah | McClatchy Newspapers
ISLAMABAD — Pakistan has sought an emergency bailout from the International Monetary Fund, a humiliating step forced on Islamabad after allies refused to come up with the cash needed to prevent the country from going bust.
The U.S., China and Saudi Arabia have all rebuffed Pakistan's urgent money-raising requests, despite Islamabad telling its allies that it should be rewarded for its key role in the "war on terror."
Relations with Washington may have been damaged as a result, analysts said. A separate political development in Pakistan on Wednesday may test the U.S. alliance further.
Against expectations, a special debate in parliament on counter-terrorism policy, which had lasted nearly two weeks, resulted in an agreement between all the parties that demanded "an urgent review of our national security strategy." It said that negotiation, not military action, would be the policy used to tackle extremism.
The IMF funding would stave off bankruptcy for Pakistan, which would've nudged it closer to instability as the nuclear-armed country fights an Islamist insurrection at home and reinforces the U.S.-led coalition in neighboring Afghanistan. However, Pakistan's leaders had been desperately trying to find other sources of funding. Finance Minister Shaukat Tareen recently described going to the IMF as his "Plan C."
In Pakistan, the IMF programs of the past had been deeply unpopular, requiring the country to agree to strict austerity measures. The previous regime, led by former President Pervez Musharraf, had trumpeted its break from this source of finance.
"Musharraf, everyone, celebrated that Pakistan had graduated out of IMF programs. He said he had 'broken the begging bowl,'" said Faisal Bari, a professor of economics at the Lahore University of Management Sciences. "Going back to the IMF means that the country is carrying the begging bowl again, that it is not on a path of sustainable growth."
The IMF on Wednesday confirmed that Pakistan asked for funds, "to meet the balance of payments difficulties the country is experiencing." A deal is expected to provide $5 billion or more for the coming year, with billions more for subsequent years.
Pakistan's foreign exchange reserves will run out in about seven weeks, meaning that it won't be able to meet external debt payments and will be bankrupt. The restoration of democracy with elections last February coincided with an economic collapse that's sent inflation soaring and led to a nosedive in the value of the rupee.
Islamabad had hoped that, as the frontline state in the "war on terror," international allies would come to its aid because as a bankrupt country it wouldn't be able to fight Taliban and al Qaida extremists. Foreign Minister Shah Mahmood Qureshi warned on Wednesday that the West would suffer if Pakistan weren't helped.
"You have to wake up and realize that Pakistan is a victim, Pakistan has stood by you. Stand by Pakistan, and if you don't stand by Pakistan you will let yourselves down," Qureshi said in an interview with the BBC.
U.S. Assistant Secretary of State Richard Boucher, visiting Pakistan earlier this week, said bluntly on Monday that the "goal was not to throw money on the table."
The IMF typically lends money in return for economic reforms that require steep cuts in government expenditure and a rise in taxes. But the coalition government has already carried out some of these painful measures, mostly by withdrawing subsidies for fuel, electricity and food, moves that have dented its appeal.
"This is good news," said Mushtaq Khan, an economist at Citibank in London. "The IMF is like bitter medicine but, unfortunately, that's what is required. An IMF program can pull in support from others."
Pakistan is to make a last-ditch attempt to elicit other sources of financing before agreeing finally to the IMF. New president Asif Ali Zardari will go to Saudi Arabia early next month, while a consortium of Pakistan's allies are to meet in Abu Dhabi in mid-November.
In parliament, a heated debate on anti-terror strategy resulted in a unanimous 14-point resolution that stipulated that "dialogue must now be the highest priority" with extremists, and "the military will be replaced as early as possible by civilian law enforcement."
Tariq Azim, a leading opposition politician, said that the army would not be immediately withdrawn from operations it is currently conducting against Taliban and al Qaida strongholds close to the Afghan border, but the military approach must be replaced. Boucher had praised that military operation only this week as "necessary."
"What the Americans call 'collateral damage' can't go on. It's not right that, to kill a militant, it takes another 100 innocent lives," Azim said.
(Shah is a McClatchy special correspondent.)
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McClatchy Newspapers 2008
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