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IMF mission in Pakistan

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Pakistan had been told to take a number of measures for qualifying for a new package

From Shamim Ahmed Rizvi, Islamabad
Apr 10 - 16, 2000

A 5-member review mission of the International Monetary Fund (IMF) headed by Fund's Assistant Director for Middle East, Sena Eken, has reached Islamabad and started its talks with economic managers of Pakistan on replacing the Enhanced Structural Adjustment Facility (ESAF) with Poverty Reduction and Growth Programme (PRGP).

Under ESAF, the IMF had pledged $ 1.56 billion financial assistance in 1997. The programme was however, suspended after disbursement of only 2 installments of $ 280 million each. The third tranche was withheld when Pakistan went for Nuclear tests in May 1998. Only last month Mr. Abbas Mirakhor, IMF Director for Pakistan and Iran visited Pakistan and held lengthy discussions with the Finance Minister Shaukat Aziz on replacing ESAF with $ 2.5 billion 3 years poverty reduction and growth programme. The Finance Minister appeared fully satisfied and economic managers of Pakistan were almost certain that the new package will be signed after going through the routine procedural requirements. Pakistan was told that a review mission from IMF will visit Pakistan in the first week of April to review the overall economic situation and compile its report for IMF Board meeting where the final decision will be taken.

The 5-member mission which is likely to stay in Pakistan for about 10 days is being assisted in its task, besides the local representative of IMF, by representatives of World Bank and Asian Development Bank. Pakistan had been told to take a number of measures for qualifying for a new package and mission will review the implementation of the proposed measures. The talks would also focus on revenues to be incorporated in the next federal and provincial budgets, the taxation measures for enhanced receipts and monitoring system for the public sector development plan 2000-2001.

The official circles however, do not sound that optimistic now about PRGP, as they were in last month after the visit of IMF Director, Abbas Mirakhor, and before the visit of President Clinton. The scenario has undergone a significant change.

President Clinton voiced the hope after his meeting with Gen Pervez Musharraf that Pakistan would be able to meet "the difficult challenges" they have discussed. "If you do not, there is a danger that Pakistan may grow even more isolated, draining even more resources away from the needs of the people, moving closer to a conflict no one can win". He also said. " If you do meet these challenges, our full economic and political partnership can be restored for the benefit of the people of Pakistan".

It is not difficult to understand the implications of this statement in respect of bilateral economic assistance and multilateral aid we receive through the IMF, World Bank and the Asian Development Bank which follow largely identical policies in respect of Pakistan.

The US had suspended most of its economic aid to Pakistan in 1990 and it was further reduced in the wake of May 1998 nuclear tests. However, commodity assistance under PL 480 for sale of US wheat and soyabean oil did continue as also did the limited humanitarian aid and the funds to combat narcotics. We have to wait to see how the US uses its economic tool to make Pakistan conform to its demands in respect of CTBT, relations with India and early return to full democracy. We remain uncertain about our economic relations with the US pending finalization of latter's policy following the visit.

The outcome of the visit of President Bill Clinton is still being debated; some paint it a success while others see his speech a dressing down. Independent analysts, however, say the visit has provided a beginning, at least, to find a new common ground for bilateral relations amid the lime light of new realities.

Pakistan needs the support of the developed world, particularly the United States and Japan, to get a financing package from the International Financial Institutions (IFIs), including debt relief from the official bilateral creditors at the Paris Club level. In return, Pakistan is expected to deliver on certain strategic issues in the region.

Knowledgeable sources claim that the US President has delivered a straight forward message to show progress on all important issues, General Musharraf's admission of the facts, and his promise to engage at the highest level on the issue of non-proliferation, to respect the Line of Control, terrorism etc, is being seen a step forward to find a common ground.

Any progress on these issues could bring restoration of relations with the United States. The United States however has made clear its choice of new strategic partner in the region to foster US interests.

Washington has indicated a roadmap, which the US considers close to its regional interests. Pakistan has to carve out a well thought out plan to follow the desired benchmarks, without hurting its national interests. Analysts believe that the American economic support, in the shape of new multilateral loans and debt relief, would largely hinge on these issues, despite the fact that Pakistan has met almost all the conditionalities indicated during Mirokhor's visit for qualifying the new package.