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