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Bail out emergency package for Pakistan

The bail out package is most likely to be designed on the lines of Funds Standby arrangements

From Shamim Ahmed Rizvi, Islamabad
Sep 04 - 10, 2000

With every passing day indications are getting stronger that the proposed IMF package of 3 years 3 billion dollars under the poverty alleviation and growth facility (pagF) may not be available during the current year putting Pakistan in a precarious position as the present rescheduling of foreign loans will be expiring by Dec, 2000 and Pakistan needed nearly 4.5 billion dollars to meet its debt servicing liability during the year 2001. Another 1.5 billion is needed to meet the likely trade deficit.

Latest indications from IMF sources are that $ 3 billion deal may be delayed by another year and instead a bail out emergency package may be offered to save Pakistan from immediate default as about the same amount will be needed to meet the liabilities of the first quarter of the next year. Some relief in the form of rescheduling of some loans may also be provided to keep the country alive in the oxygen tent.

Mounting pressure

This short emergency bail out package is most likely to be designed on the lines of Fund's Standby arrangements. Most of the board members who belong to the highly Influential G8 states are said to have come to the conclusion that in case they waited until Pakistan signed CTBT, delivered on terrorism, resumed talks with India and restored democracy, its economy will collapse causing immense damage to the whole region. They also do not seem to feel comfortable with the thought of a nuclear country becoming an international defaulter. With this emergency treatment, pressure will be mounted for signing of CTBT and fulfilment of other conditions of the agenda. Any long term arrangement with IMF will depend on how faithfully and effectively Pakistan meets these conditions.

The seminar was organized by the Society For Citizens Rights, Islamabad and was addressed, among others, by two prominent financial managers of the country under two former political governments, Sartaj Aziz and Dr. Hafeez Pasha, two economic journalists, and a political figure-cum-lawyer, Abid Hasan Minto. The seminar was presided over by Air Marshal (Retd) Asghar Khan.

Dr. Hafeez Pasha, former adviser on finance to the Pakistan government, pointed out that there has been rapid erosion of foreign reserves in the recent past and now the foreign exchange reserves stand at $ 700 million while the dollar-rupee equity is sharply in favour of the greenback. Strangely enough, the government has not so far shown any concern about the sharp decline in the liquid foreign reserves nor it has come out with some contingency plan to meet the difficult foreign exchange situation. He pointed out that Pakistan would not be in a position to meet its obligations of repayment in January 2001 unless something special happens. However, there are certain options available to Pakistan to meet the situation. One is to go back to the IMF and other international and financial agencies and accept their conditionalities, however harsh they may be. The other option is to offer economic and political concessions including the change of stance on Kashmir, eradication of terrorism and signing of CTBT and return to democracy etc. He however said that return to democracy would not prove to be a strong lever for easing the debt burden. As an honourable nation we should not offer any political concessions. Pasha said that he was convinced of self-reliance and the only way out for Pakistan, and if the country practiced the policy of self-reliance for three years, it could be able to come out of the difficult situation being faced at the moment.

Sartaj Aziz, while narrating the history of incurring of foreign debts, said that the solution lies in adoption of a policy of self-reliance. He said there is no doubt that the situation is very serious and suggested that Pakistan with the co-operation of the poor countries and some of the developing countries which have been hit hard by the increasing foreign debts, make concerted efforts for debts, relief while impressing upon the G.8 countries not to restrict the debt relief to 41 countries and add the adversely affected developing countries to their list with the condition that the relief provided would be partially used for poverty alleviation.

Asghar Khan demanded that Pakistan, along with the other poor countries, should be provided debt relief while the country should live within its own means. He said that poor countries should make concerted effort to get their debts written off. Pakistan along with SAARC countries and the poor African countries should make all-out efforts to get debt relief without any further loss of time.

Unilateral moratorium is another option being suggested by some economists. Donor may be asked to postpone the recovery of loans for 5 years. The difference between debt rescheduling and a unilateral moratorium is that since the former is done with the consent of the international agencies, the latter plays an important role in the formulation of economic policies. Since the latter is done unilaterally by the country concerned, it then formulates its own policies. The pros of this strategy are, first, the amount of debt is maintained at the present level and does not keep escalating as in the debt rescheduling case. Second, unilateral moratorium allows the adoption of alternative policies, as these are determined by the country itself.