U.S. COURTS PAKISTAN WITH PROPOSAL TO EASE SANCTIONS.
The US is preparing to ease economic sanctions on Pakistan, a key potential ally in its war against terrorism in the wake of last week's attacks in New York and Washington, the Financial Times (p.1) reports. The proposals to ease nuclear-related sanctions on Pakistan-as well as on India-are expected to be presented to members of the foreign relations committee of Congress today.
The proposals represent a clear incentive for Pakistani cooperation with the US in dealing with Osama bin Laden, the chief suspect behind the September 11 attacks, and the Taliban regime in neighboring Afghanistan, which harbors him. In particular, the FT (p.6) notes in a separate report, the US is likely to end its policy of blocking any international financial assistance for Pakistan through the IMF and the World Bank.
Also reporting, the Guardian (UK) says US officials are drawing up plans for a major economic aid package to reward Pakistan for supporting the military operation against bin Laden and the Taliban regime. Wendy Chamberlin, the new US ambassador to Islamabad, is due to meet the biggest financial donors to Pakistan today to work out the details of an economic assistance plan, says the story, and Washington will ask donors including Britain's Department for International Development, the EU, the IMF, the ADB, the World Bank and the Japanese government to give Pakistan all the support they can for a significant new package.
"You will find that we will stand by our friends who stand by us," Chamberlin is quoted as saying. "We are currently looking at any number of ways to be responsive to Pakistan as they have been responsive to us."
In particular, notes the story, aid sources said the donors would be asked to help ease Pakistan's suffocating $37 billion debt burden. Many of those debts are due for repayment in the coming weeks and Washington now wants all countries involved to quickly sign rescheduling agreements.
Chamberlin will also ask donors to give a quick agreement for the release of the final tranche of a $596 million IMF standby loan which runs until the end of this month, the story says. Washington now wants the IMF to sign a much larger, long-term loan which has been under discussion for several months. The loan would be worth several billion dollars at a very low rate of interest.
The Washington Post (A1) adds that a presidential waiver of a law enacted by Congress to punish countries that contributed to the proliferation of nuclear weapons would also allow the US to support aid to Pakistan from the World Bank and IMF.
The Fund is prepared to go ahead with a sizable loan for Pakistan, notes the New York Times. "We have reviewed the situation and agreed" with the US "that we need to closely monitor the situation and discuss what could be done if things get worse," IMF Managing Director Horst Köhler is quoted as saying.
The Guardian adds that General Pervez Musharraf, Pakistan's military leader, was handed a further incentive to continue his cooperation yesterday when Japanese Prime Minister Junichiro Koizumi said Tokyo would provide emergency financial aid to Pakistan and India as a reward for their cooperation with the US. Japan halted economic assistance to the two countries in 1998 in protest at their nuclear weapons tests.
There is no doubt Pakistan wants a reward from the US in return for risking an Islamic backlash, the story says. Finance Minister Shaukat Aziz is quoted as saying,: "As the relationship grows, I am sure economic ties will grow, which could mean better market access, better treatment on debt rescheduling and more money."
For the past decade, says the story, investment in development has been largely ignored, and one-third of the country's 140 million people live in poverty. "This new aid could be the opportunity to breathe life into Pakistan's ailing social sectors after a decade of neglect," one European donor is quoted as saying.
U.S. ENLISTS LENDERS TO TURN DEVELOPING COUNTRIES INTO ALLIES. The Bush administration is quietly looking for ways to provide financial aid to developing countries that join its antiterrorist coalition and that might suffer economic fallout from any military action, reports the Wall Street Journal (A18). Treasury Department officials are considering how the IMF and the World Bank can help in the effort with loans to allies, and possibly by denying aid to nations that defy Washington.
Treasury, Fund and Bank officials are making internal assessments about what might be done for such frontline countries as Pakistan, Uzbekistan and Tajikistan, as well as other nations with large and potentially volatile Muslim populations such as Indonesia and the Philippines. "There's an ability to create a fund within the IMF to help countries adversely affected," an IMF official is quoted as saying.
Treasury Secretary Paul O'Neill met with IMF Managing Director Horst Köhler on Tuesday and the two men spoke about the impending financial needs of coalition partners. "We agreed there is a need for close monitoring of the situation, and also thinking what could be done if things are getting worse," Köhler said, adding that O'Neill did not request any particular pledge.
Treasury Department spokeswoman Michele Davis declined to comment on the administration's efforts to provide financial support for its coalition allies. The story notes that during the Gulf War, the US administration pushed the IMF to open a lending window to assist allies including Turkey and oil-dependent nations of Eastern Europe.
The US also is looking to the World Bank, the story says. Seeking ideas, top Treasury officials asked their staffs this week to collect examples of how the World Bank has been used during the past to rebuild countries whose economies have been devastated by war. World Bank officials have thought along similar lines. Since last week's terrorist attacks on the World Trade Center and Pentagon, World Bank President James D. Wolfensohn has held meetings with his senior aides to figure out what aid may be necessary for key nations.
It might prove more difficult for the administration to use the lending institutions to punish countries that refuse to participate in the effort to capture suspected terrorists, the story notes. Some of the most implacable US enemies-Afghanistan, Iraq and Sudan-are in arrears to the IMF and aren't eligible for loans. However, Yemen, which US officials believe could provide intelligence, receives World Bank loans.
In related news, the New York Times (B4) reports that the IMF is prepared to go ahead with a sizable loan for Pakistan and is closely monitoring the financial situation in Turkey as it seeks to counter a world economic slowdown and support frontline states in the battle against terrorists, officials said.
Fund officials often resist providing aid for political reasons, and Kohler said that the decision was not a response to last week's terrorist attacks. But the United States is the Fund's single largest shareholder, with Europe and Japan close behind, so the fund tends to make loans to support their top priorities.
Along with its sister agency, the World Bank, the IMF has far more money available-about $93 billion-than the United States or other wealthy countries to lend to poor countries and help finance its aid programs.
IMF officials acknowledge that Pakistan, which has had unstable governm ents and a deep-rooted corruption problem, has often failed to meet goals set when the IMF lends it money. Poor performance often causes the fund to reject a new round of aid.
But Kohler said today that Pakistan had recently under an existing loan packaged, making it likely that discussion about a new antipoverty loan would prove fruitful. A Pakistani delegation is expected to visit Washington to discuss the matter shortly.
Officials said it was too early to say how much money Pakistan might receive. But in 1997 Pakistan received a multiyear loan designed to alleviate poverty that totaled nearly $900 million.
More broadly, Kohler said that the Fund, which will release its detailed World Economic Outlook next week, still expected the United States economy will turn up by the end of this year. He also said he expect that the world economy will avoid slipping into recession.