“Plan C” – Pakistan turns to the IMF.

November 16, 2008

Pakistan has agreed with the International Monetary Fund (IMF) on a $7.6 billion emergency loan to stave off a balance of payments crisis. 

Shaukat Tarin, economic adviser to the prime minister, said the IMF had endorsed Pakistan’s own strategy to bring about structural adjustments. The agreement is expected to encourage other potential donors, who are gathering in Abu Dhabi on Monday for a “Friends of Pakistan” conference.

The government had long delayed announcing its plans to turn to the IMF for help and President Asif Ali Zardari said in September the country did not want to seek IMF assistance. Tarin said in October that going to the IMF was “Plan C” if other lenders failed to come through.  “If we want to go to the IMF, we can … but only as a backup,” he said.

The times are clearly changing and in the midst of a financial crisis that has swept away some of the world’s most august financial institutions, there is no shame in admitting a need for help.

For that matter, I can remember former IMF Managing Director Michel Camdessus declaring confidently at one of the annual IMF meetings I covered in Washington in the mid 1990s that Keynsianism was dead. I challenged him at the time over his certainty, but wish I could ask the same question now that western economies are spending their way out of trouble like there’s no tomorrow.

But what will it mean for Pakistan that its new government, less than a year after elections that ushered in a new civilian democracy, has had to eat its words and turn to the IMF for help?

Does it bring to Pakistan the silver lining that it offered India, which when forced to accept an IMF bailout in the early 1990s began a programme of economic reforms?  As noted in an earlier post,  India as a result began dismantling decades of licence raj and never really looked back. 

And why did Pakistan’s closest allies, including the United States, Saudi Arabia and China, let it down by leaving it to turn to the IMF for help? As discussed in an earlier post, China, with $2 trillion in foreign exchange reserves, was in a strong position to step in to head off what could turn into a deeply unpopular move.  Traditionally seen by Pakistan as its most reliable friend, China appears to have decided that an IMF programme was the best medicine.

A new beginning? Or another source of instability?

6 comments

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Saudi Arabia and China want to help Pakistan directly but they are reluctant because the most corrupt man of the country popularly known as Mr.10% is at the helm of the affairs. Hence, they think that IMF will be in a much better position to ascertain whether the money given to them is being applied towards the growth of the country or being looted and squandered away.

Posted by Sultan Ahmed | Report as abusive

Since Pakistan is already under pressure of IMF and its concerning countries for taking heavy loans from time to time, no further loan suits for it anymore.

The wise say goes thus, ‘A beggar cannot be chooser’.

Therefore, Pakistan should avoid asking for more IMF loan or from else one, rather it should try to stand on its own feet as a sort of self-help nation.

Posted by A.R.Shams | Report as abusive

No country should dole out any amount of money to this government of Pakistan .They are the most corrupt lot who are running the country.Starting with the President one of the richest(corrupted) in the country who is on record saying he paid for 260 entourage for his last visit to Saudi Arabia.His economic advisor Shaukat Tarin
sold country\’s biggest Bank for peanuts .There is a long list of the most corrupted individual which are associated with the Governmment.They all are happy with the IMF $7.6 billion payment starting in 3 years time They have 3 years to channel it to thier Bank accounts.And if the any amount fronm the Friends of Pakistan that would be like \”Icing on the Cake\”

Posted by sheriar | Report as abusive

Myra,
before IMF bailout , india had a socialist economy. everything was nationalised. i guess that’s why even partial privatisation of lot of assets help india to pay off IMF’s loan quickly.
but in those few years, according to many reduction of % of people living below poverty line at best was flat , at worst negative.

as far as i know, pakistan (except Z.Bhutto’s partial effort) never had a socialist economy. do they have a large asset to sale to pay back the money as fast as possible?

otherwise , i can only see more US control through IMF (which may be good for india)and a lot of suffering by the poor for pakistan.
also i heard the interest rate which they were going to pay will be the highest.

Posted by unknown indian | Report as abusive

Imf loans comes with stringent conditions, first they will look at Government spends, they will ask why on a revenue of $16BN, you spend $3BN for interest, $5Bn for defence,elctrical subsidy , fuel subsidy etc,kashmir subisdy.They will ask you to repriotize your spend. People of Pakistan will never question their Military or Politician for making their country into such hopeless situation by not having democracy.

Posted by Vijay | Report as abusive

China is too clever to throw money on a failed state. Pakistan is no friend or ally just a tool for China. A tool that will soon outlive its utility once its goes over the brink. China doesnt want to lose money in times of grave financial such as the one we are currently in. Too bad Pakistan, nothing personal you know, we all gotta do what is in the best interest of our countries……

Posted by A Chinese | Report as abusive