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Sunday, October 19, 2008
Can Pakistan Avoid IMF Bailout?
Pakistan may have to accept politically unpopular aid from the International Monetary Fund to ward off possible economic meltdown if wealthy nations turn it down, the government said Sunday.
Battered by high inflation and a plunging currency, nuclear-armed Pakistan needs up to US$5 billion to avoid defaulting on sovereign debt due for repayment next year.
Foreign Minister Shah Mehmood Qureshi said Sunday the "IMF was an option" but no decision had been made yet.
Shaukat Tareen, the finance official leading the country's efforts to secure the money it needs, said he was confident Pakistan would not default but that IMF aid may be needed as a "backup."
He predicted the country would soon receive more than US$4.5 billion through the acceleration of planned development loans and direct assistance from rich countries.
The crisis comes as the country's new civilian leaders struggle against Islamist militants in the northwest blamed for soaring violence at home and in neighboring Afghanistan.
Seeking help from the IMF would be politically difficult for the government because the agency's help is often on condition of deep cuts in public spending that can affect programs for the poor.
Pakistan hopes its front-line status in the war on terrorism will mean the international community will not have the stomach to see it default. But its plea for help comes as many countries are distracted by the global economic crisis.
President Asif Ali Zardari returned Friday from wealthy China with no public commitment of help.
Through much of its history, Pakistan has struggled with chronic economic instability and foreign debt, but the current crisis comes at an especially dangerous time.
The country has seen more than 90 suicide blasts since July last year.
Last month, a suicide bomber struck the Marriott Hotel in Islamabad, killing 54 and leading the U.N. and foreign embassies to withdraw the families of foreign staff.
Pakistan's overwhelmingly poor population of 160 million is already suffering from skyrocketing food and fuel prices and enduring daily power cuts caused by energy shortages.
Defaulting on debt risks shattering any remaining local and foreign investor confidence in the battered economy. It could escalate into an economic meltdown with out-of-control price increases, fewer jobs, more power shortages and a general breakdown in law and order.
"Bankruptcy, should it happen, could unleash a massive tidal wave of social unrest," the U.S.-based intelligence risk assessment agency Stratfor said in a report. "Exactly what the jihadists on both sides of the Afghan-Pakistani border would like to see to advance their goals."
The financial crisis was caused in part by the previous administration of President Pervez Musharraf, which subsidized fuel and food even as international commodity prices soared last year.
That created a huge hole in public finances, meaning the new government has had to borrow heavily from the central bank, stoking inflation that this month reached 25 percent.
The Pakistani rupee has lost about a third of its value this year. The benchmark 100-stock index had already fallen more than 40 percent from a record high in April when its board of directors put a floor under it at the end of August.
Associated Press writers Stephen Graham in Islamabad and Ashraf Khan in Karachi contributed to this report.
Source: International Herald Tribune
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the question is not if but when
China's came back with a courteous but firm no. The US will not commit anything before Jan 20 and Saudi Arabia is no friend of Zardari. The IMF must happen.
The monumental ignorance of the previous unelected "finance minister" (Qamar) and of Zardari "print-the-notes" himself, is downright scary. Maybe someone grown-up - like the IMF - beating the economy into some reasonable shape is not such a bad idea.
Here's a Dawn story about the duplicity of Pakistan's "democratic leaders" published Jan 16, 2009:
ISLAMABAD: While publicly it criticizes former President Musharraf for the present economic mess, the government in its official documents has appreciated the economic policies of the previous regime that became a strong base for seeking loans from multilateral donors and friends of Pakistan.
The PPP-led coalition partners have been blaming Musharraf regime in public speeches for fudging economic figures to paint a rosy picture, while its overall policies pushed the country into economic crisis.
The letter of intent (LoI), on the basis of which, Pakistan sought the much-needed $7.6 billion bailout package from the International Monitory Fund (IMF), has bit by bit appreciated the Musharraf policies since 2000.
During the past one decade (1999-2007), the LoI says Pakistan’s economy witnessed a major economic transformation from substantial increase in the volume of gross domestic product (GDP) to greater international trade.
Talking to Dawn on Thursday former Finance Minister Ishaq Dar said whatever he said about the health of economy was based on the balance sheet existed on March 31, 2008. He said the balance sheet was dully approved by the then cabinet headed by Prime Minister Syed Yousuf Raza Gilani.
He said no body denied the contents of the balance sheet. The focus of the previous economic policy was on promotion of consumerism without supporting the industrial base.
Apparently not willing to agree with the LoI contents, he said though he has a different view of the past economic growth but quickly added the same was destroyed in the last 15 months of the military led dictator.
An official source requesting not to be named said the economic wizards in the finance ministry are not politicians to make only speeches but they have to look into ground realities. ‘We reported to IMF whatever is factual and based on evidence,’ the official added.
The LoI said the country’s real GDP increased from $60 billion in 2000-01 to $170 billion in 2007-08 with per capital income rising from under $500 to over $1000. During the same period, the volume of international trade increased to nearly $60 billion from $20 billion.
For most of this period, real GDP grew at more than 7 per cent a year with relative price stability. The improved macroeconomic performance enabled Pakistan to re-enter the international capital markets in the mid-2000s. Buoyant output growth, low inflation, and the government’s social policies contributed to a reduction in poverty and an improvement in many social indicators.
Former Finance Minister Dr Salman Shah told this scribe the government has made the 170 million people fool while telling them pack of lies in the past nine months about the economic policies of the Mushrraf regime.
He said that as the present government acknowledged in black and white, the impressive past growth made their way easier to make access to the new facility of the IMF for emerging markets hit by the crisis to support the balance of payment problems.
Had growth not been achieved, Pakistan would have to apply for other long term IMF financing facilities like poverty reduction, structural adjustments etc, Shah said adding government should tell truth to the nation if they have confidence.
‘The recruitment made so far for running the finances of this country is very depressing. This shows this government has neither commitment nor capabilities to take the country out of the current crisis,’ Dr Salman said.
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