Source: CNN.Com
Pakistan turns to IMF for financial helpStory Highlights
ISLAMABAD, Pakistan (AP) – Pakistan sought help from the International Monetary Fund on Wednesday to avoid defaulting on billions of dollars in loans and skirt a financial crisis brought on by high fuel prices, dwindling foreign investment and soaring militant violence.
A man counts coins at his roadside stall in Karachi, Pakistan, on Wednesday.
Pakistani officials had previously said turning to the IMF would be a last resort.
Aid from the agency often comes with conditions such as cutting public spending that can affect programs for the poor, making it a politically tough choice for governments.
Dominique Strauss-Kahn, managing director of the fund, said in a statement that an IMF mission will begin discussions with Pakistani authorities in the next few days “on a program aimed at strengthening economic stability and enhancing confidence in the financial system. The amount of (IMF) financing under a stand-by arrangement has yet to be determined.”
He said Pakistan has requested discussions with the IMF “to meet the balance of payments difficulties the country is experiencing as a result of high food and fuel prices and the global financial crisis.”
Iceland, Hungary, Serbia and Ukraine have also turned to the IMF for financing to ease the current crisis.
Created in 1944 to rebuild the world financial system after World War II, the IMF initially helped developed nations lend to one another. By the 1990s, it had evolved into a rescue fund for troubled emerging economies – but gave them little say on the terms of their loans.
Pakistani economists say up to $5 billion is needed to avoid defaulting on sovereign debt due for repayment next year, but that $8 billion more may be need overall.
The country has also asked for loans from wealthy nations and multilateral agencies such as the World Bank. Analysts say the country will probably get that help also because of its front-line status in the war on terror.
Any default would further shatter local and international confidence in the government and the economy at a time of intense fighting against al Qaeda and Taliban militants near the Afghan border.
High oil prices and dwindling investment from overseas have triggered a balance of payments crisis that is undermining the Pakistani rupee. The country is also battered by high inflation and chronic power shortages.
The total amount of foreign currency in Pakistani banks has fallen by more than half since last year and currently stands at $7.75 billion.
Leading Pakistani economist Qaiser Bengali said the government had no choice but to ask the IMF for help. He said the agency should condition any assistance on spending cuts in defense and the civil service – two areas he said were currently overfunded – and spare programs that boost the economy.
“We are like a factory that spends more than its revenues on the head office and on security guards and there is no money left for spare parts and raw materials,” he said of Pakistan. “That kind of factory is certain to shut down.”
Through much of its history, Pakistan has struggled with chronic economic instability and has several times turned to the IMF for assistance, but the current crisis comes at a particularly dangerous time.
Militants sheltering in Pakistan’s northeast near Afghanistan are blamed for escalating violence on both sides of the border. Osama bin Laden and other top al Qaeda leaders are thought to be hiding in the frontier region.
Last month, a suicide bomber struck the Marriott Hotel in Islamabad, killing 54 and leading the U.N. and some foreign embassies to withdraw families of foreign staff.
Late Wednesday, a special session of parliament passed a resolution calling for an urgent review of the government’s national security strategy, saying dialogue should be the “highest priority” means of eliminating the militant threat facing the U.S.-allied nation.
In the latest violence, Taliban militants bombed a convoy of Pakistani troops and opened fire on the survivors, sparking a battle that killed five security officers and seven attackers, police said.
Taliban spokesman Muslim Khan said 15 troops and five militants died in fighting Tuesday in the Swat Valley, a former tourist destination where troops have been battling Islamic extremists for a year.
Meanwhile Wednesday, at least 10 militants were killed and several others wounded when fighter jets pounded their positions in the Bajur tribal region, where the military has staged an offensive against insurgents, said Jamil Khan, a government official.
Government restrictions that ban foreigners and most journalists from the restive frontier region make it difficult to independently verify casualty figures from Swat or Bajur
Official IMF Statement
Statement by IMF Managing Director Strauss-Kahn on Pakistan
Press Release No. 08/254
October 22, 2008
Mr. Dominique Strauss-Kahn, Managing Director of the International Monetary Fund (IMF), issued the following statement today on Pakistan:
"The Pakistani authorities have requested discussions with the IMF on an economic program supported by financial assistance from the Fund to meet the balance of payments difficulties the country is experiencing as a result of high food and fuel prices and the global financial crisis. A Fund mission will begin discussions with the authorities in the next few days on a program aimed at strengthening economic stability and enhancing confidence in the financial system. The amount of Fund financing under a Stand-By Arrangement has yet to be determined. Financing could be made within framework of the Fund’s Emergency Financing Mechanism.
My personal opinion - no doubt the country is in a terrible place right now.
We definatley need help – but I think we need a sturdier government to make this work.
I dont want to see this money falling through the holes.
How do you guys think this money should be allocated?