10/22/2008, 00.00
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Pakistan asks for international loan to avoid default

10-15 billion dollars could be provided by international organizations, to pay down foreign debt and support public spending. It is a forced choice, after China refused a direct loan, although it had promised greater investment.

Islamabad (AsiaNews) - Pakistan discussed yesterday in Dubai the granting of 10-15 billion dollars in aid, from the International Monetary Fund (IMF) and other international organizations, in order to stabilize its economy and avoid the risk of being unable to pay its foreign debt and cover its domestic spending needs.

The aid is expected to come from it organizations like the IMF, the World Bank, the Asian Development Bank, but also from individual countries like Saudi Arabia. The international community wants to avoid a crisis in a country believed to be essential in the war on Islamic terrorism. Islamabad has seen its foreign currency reserves fall rapidly, and two days ago the finance minister said it was "urgent" to find at least 4 billion dollars to avoid defaulting on its foreign debt and support public spending. It is unclear whether the lenders will impose conditions, but analysts maintain that economic reforms will be requested, as well as changes in monetary policy, with higher taxes and cuts in public spending.

Pakistan's finance minister says that this request "may be humiliating for us politically but given our increasingly difficult conditions, we may have no other choice." Shaukat Tarin, the prime minister's economic adviser, says that "Pakistan has to take action in the next 30 days." The move is seen as a forced choice, after the country's traditional allies, China and Saudi Arabia, refused direct aid, and the United States is in a serious financial crisis.

Pakistan is facing its worst economic crisis in at least a decade, with the government being forced to cut domestic subsidies intended to keep food and fuel prices low. The difficult economic situation, the war in the northern regions against tribals and the Taliban, and the elevated risk of anti-Western Islamic terrorism are discouraging the necessary foreign investment. Karachi's stock market has fallen about 40% since April, and the rupee has lost 30% of its value since January, although news of the possible loan led to a rebound.

In recent days, Pakistani president Asif Ali Zardari has also gone to Beijing to ask for help from China. On October 18, Beijing announced the construction of two nuclear power plants in Chasma (Punjab), with a capacity of 680 magawatts, and the intention of Chinese banks and companies to deploy investments in the country, partly in order to create a mega-dam and hydroelectric facilities. The country suffers from a chronic shortage of electricity, estimated at more than 4,000 megawatts: even in the large cities, electricity is often unavailable 12 hours a day. Pakistani foreign minister Shah Mehmood Oureshi has applauded the closer relations with China, and has announced visits by Zardari to China every three months, "in order to promote economic integration between the two countries." There is an intention to create industrial areas for Chinese companies, and Shaukat Tarin has spoken of 1 billion dollars in projected private Chinese investments starting in June of 2009.

Analysts comment that China has nonetheless refused direct loans, and that the nuclear agreement has a mainly symbolic value, since it will take years to implement it. So far, the United States, a traditional ally of Islamabad, has also refused loans, partly in order to avoid offending India, Pakistan's traditional rival.

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