Pakistan wary of IMF demands
By Syed Fazl-e-Haider
QUETTA, Pakistan - Pakistan officials in talks with the International Monetary
Fund (IMF) for a rescue package aimed at helping the country resolve balance of
payments difficulties will face harsh demands rather than negotiating points,
according to local analysts.
The United States is using the Washington-based and largely US-financed IMF as
a tool to impose its own terms and conditions related to the "war on terror",
in which Pakistan has been declared by the US as a major theater of war, the
analysts said.
An IMF-assisted program is seen as essential before Islamabad, which failed
last week to win financial support from China, can
secure assistance from other donor countries and international financial
institutions.
Islamabad has come out strongly against the US launching air strikes and ground
operations against Taliban militants in Pakistani territory. Army chief General
Ashfaq Parvez Kiani recently said that Pakistan would not allow any incursion
by the United States or other allies inside its territory and vowed to protect
Pakistan's borders at all costs.
Islamabad wants to handle the terrorist threat by itself within its borders and
is seeking to deter the US from mounting cross-border raids on al-Qaeda and
Taliban targets.
"The IMF does not negotiate but dictates its terms and this time the US has in
fact pressurized Pakistan to turn to the IMF by not giving much-needed cash to
the country in the meeting last month of the Friends of Pakistan," economist
Shahid Hasan Siddiqi said on a private TV channel.
The United States and Britain jointly launched an initiative to form Friends of
Pakistan last month as alarm grew over the country's gradual economic meltdown,
with fears increasing that financial chaos may allow terrorists to deepen their
roots in Pakistan. The "Friends" delegation included representatives from the
United States, Australia, Canada, Italy, Germany, Saudi Arabia, China, the
United Kingdom, the United Arab Emirates (UAE) and Turkey. The group's first
working session will be held in Abu Dhabi in the UAE next month.
Islamabad claims it has not yet formally asked the IMF for a loan facility, but
that it would borrow money from the IMF as its last option on its own terms and
conditions.
The government "should negotiate safely with the IMF and not succumb to their
tough conditions", Agence France-Presse on Sunday quoted leading Pakistani
investor Aqeel Karim Dhedhi as saying.
While talks with the IMF continue this week, the government is trying to build
public opinion in favor of an IMF program. An IMF-assisted plan may require
Islamabad to cut defense, development and other current spending and raise
taxes, which could hurt the poor. The government has already decided to bring
non-taxpayer sectors into the tax net and to increase the tax-to-gross domestic
product ratio to 15% from the present 10.5%.
The IMF has not asked Pakistan to cut military spending by a third, although it
has urged the country to take a number of painful economic measures, Dawn
newspaper reported at the weekend, citing an unnamed senior Pakistani diplomat.
The US did, however, want Pakistan to "refocus its military strategy on
fighting the militants" instead of devoting most of its resources on
confronting India, the diplomat was quoted as saying.
Zardari recently returned from China without a commitment for much-needed aid.
Pakistan is struggling to combat inflation, which has risen past 25% and is
heading towards 30% and a collapsing currency. The central bank, meanwhile,
holds barely enough foreign currency to cover five weeks of imports. Owing to
the fast depleting foreign exchange reserves, local traders have canceled
import orders worth as much as 5.5 billion rupees (US$67 million).
Worsening external liquidity may imperil the country's ability to meet about $3
billion in upcoming debt obligations, as foreign reserves held by the central
bank have slumped to $4 billion from a record high of $16.5 billion last
October. The country's total foreign exchange reserves (held by the central
bank and commercial banks) plunged by $426 million to $7.3 billion during the
week ended October 18.
Smuggling of US dollars to Afghanistan is helping to drive down the value of
Pakistan's currency, the rupee, which has tumbled to a historic low of more
than 82 against the dollar. In Peshawar, the provincial capital of North-West
Frontier Province, adjoining Afghanistan, and an important center for
exchanging currencies with as much as $4 million to $5 million smuggled to
Afghanistan each day, the rupee has fallen to 86 to the dollar.
Not all the smuggled funds are for immediate use in Afghanistan, with large
amounts being transferred to Dubai in the UAE, according to a recent Business
Recorder report. The government has blamed the present decline in the currency
on the policy of its predecessor administration under prime minister Shaukat
Aziz, saying it maintained an artificially high rate of 60 and 62 rupees to the
dollar.
Islamabad needs foreign capital inflows in the shape of loans, grants and
investment to cover the ballooning gap in its current account. About $4 billion
is needed immediately, while the balance of payments financing gap for the year
to June 30, 2009, is projected at about $7 billion.
Slow foreign inflows and rising imports have already widened the current
account deficit by 74% to $3.9 billion during the first quarter of the current
fiscal year (July-September) against $2.27 billion during the corresponding
period last year. The trade deficit rose 52.65% to $5.55 billion in the three
months to September, from $3.63 billion a year earlier, according to the
Federal Bureau of Statistics.
The current global financial crisis has limited Pakistan’s options as many
donor nations, including the United States, are embroiled with their own
financial crises.
The IMF at the weekend announced an outline $16.5 billion loan agreement with
Ukraine, after Iceland secured a $2 billion IMF loan last week. Hungary is also
seeking an IMF deal as it reels from the impact of the global financial crisis.
Syed
Fazl-e-Haider, sfazlehaider05@yahoo.com, is a Quetta-based
development analyst in Pakistan. He is the author of six books, including The Economic
Development of Balochistan, published in May
2004
.
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