WORLD BANK MIGHT LEND BUT PAKISTAN WANTS DEBT RELIEF. The World Bank may be prepared to bump up financial assistance for Pakistan if the country requests it and the lender's shareholders back it, reports Reuters, but Pakistan is pinning its economic hopes on debt relief. Because of a pledge to cooperate with the US in the wake of last Tuesday's terrorist attacks on New York and the Pentagon, Pakistan is expected to receive favorable treatment on the international financial stage where the US is often the most influential player.
Heavily indebted and impoverished Pakistan stands to gain the most if it meets U.S. demands for cooperation, reports the Washington Post (A9). Staggering under $30 billion of debt and broad U.S. economic sanctions, with a third of its population in abject poverty and virtually no foreign investment, Pakistan could parlay its cooperation into economic assistance it sorely needs.
An economic aide at the Embassy of Pakistan in Washington said the country would not seek any loans that it was not already seeking before the attacks took place, notes Reuters. Tanwier Agha, economic minister at the embassy, said the tragic events of last week should not have any impact on its borrowing from the lending institutions. "Pakistan is interested only in support which is consistent with its ongoing economic program, nothing related to the tragic events," he said.
Pakistan has a comprehensive lending program with the World Bank, notes the story. Under the program-known as a country assistance strategy-$374 million was disbursed between April and June of this year. A new program is in the pipeline but may not be ready until the end of the year. Extra lending could still be provided in the meantime if the shareholders of the Bank decided it was appropriate.
In addition, the country has a $596 million stand-by loan from the IMF. But this is due to expire on September 30 and the country is hoping to reach an agreement on a new Fund program. The Pakistan authorities were planning to continue discussions on a new program at the annual meetings of the IMF and the World Bank at the end of September, with a follow up mission due shortly after.
Those meetings have now been called off, raising the question of when the next encounter between the IMF and Pakistan will be. The final review of the existing program is due to take place some time this month, but the IMF could not confirm an exact date. Pakistan is hoping for a poverty reduction and growth facility financed at concessional lending rates.
A successful review of the existing program and a speedy agreement on a new one is crucial for Pakistan's effort to reduce its foreign debt, the story says. The country is struggling to pay off $38 billion and would like to see some of it forgiven by the Paris Club of creditors. "What we'd be after is something that imparts sustainability to the debt burden and to ensure that Pakistan doesn't have to go in for repeated rescheduling," Agha said. "Up till now we have just had Houston terms and Pakistan has always said its debt burden is something that is a problem."
If Pakistan were under so-called Naples terms, the Paris Club would forgive 67 percent of all eligible debt, which would provide much more relief for the cash-strapped country. If Pakistan were to participate in the Heavily Indebted Poor Countries program of debt relief run by the World Bank and the IMF, it would enjoy even further debt reduction. Countries in the HIPC program are eligible for more than 90 percent debt relief.
But Pakistan is reluctant to get involved in HIPC even though its economic statistics are comparable to those of HIPC countries, the story notes. "What I would say is that we have not sought HIPC terms," Agha said. "What we would like is a program that ensures a quick economic recovery with poverty alleviation that does not cripple Pakistan's access to other lending."
Given the elusive nation of the enemy in America's new war, the economic dimension could help isolate terrorists and the countries that support them, U.S. officials said, as well as rewarding countries willing to support the United States, reports the Washington Post. Pakistan is the main focus of attention. Once a close U.S. ally, sanctions were imposed numerous times during the 1980s, so that the United States government gives virtually no economic or military aid to Pakistan now.