The International Monetary Fund yesterday ordered Pakistan to cut military spending by almost a third as fears grew that the nuclear-armed nation’s economic crisis was now so bad that its role in the war against al-Qa’ida and the Taliban was imperilled.
The secret IMF demand – one of several measures that the bankrupt country is being asked to agree to for a bailout of its tanking economy – was disclosed as President Asif Ali Zardari prepared to go cap in hand to Saudi Arabia for help.
Also yesterday, it was announced that US General David Petraeus would travel to Islamabad next week for talks.
Amid reports that General Petraeus was planning the same strategy for Pakistan and Afghanistan that he used in Iraq, it emerged that the boss of Islamabad’s spy agency, the ISI, General Ahmed Shuja Pasha, was in Washington to mend fences over his organisation’s double-dealing with the militants.
A senior military source in Islamabad told The Weekend Australian last night:
“A cut to military spending of anything like that magnitude – even 10 per cent, let alone the more than 30 per cent that is being demanded – would rip the heart out of the army and its ability to operate effectively in a situation where it is in the front line of the battle against al-Qa’ida and the Taliban … If we go, al-Qa’ida wins. Is that what the IMF wants to see?”
The country is now rated as among the worst credit risks in the world, ahead of only the Indian Ocean Seychelles islands in the Standard & Poor’s index.
The military pay cut is just a part of IMF demands.
IMF officials would also be imposed even at the provincial level to monitor tax collection.
The number of pensionable government jobs could be cut by almost half. After agreeing to the conditions, Pakistan would get $US 9.6 billion ($14.5 billion) from the IMF over three years.
Last night, Mr Zardari asked where money given to Pakistan since September 11, including a handout of $US 10 billion from the US to be used in the war against terrorism, had gone.
“We could have averted the present difficult economic situation if tens of billions of dollars received in assistance and foreign remittances during the past several years after 9/11 had been wisely spent on infrastructure development instead of importing consumer goods,” he said.
Central bank Governor Shamshad Akhtar is flying to Dubai today to hold talks with the IMF on a bailout to prevent Pakistan from defaulting on its debt, which is perceived by investors as the riskiest in the world after Argentina. IMF Managing Director Dominique Strauss-Kahn yesterday said the package was aimed at “strengthening economic stability.”
Pakistan’s possible bailout by the International Monetary Fund may not be enough to save it from a credit-rating cut, Standard & Poor’s said.
The government will seek funds from lenders such as the World Bank and the Asian Development Bank and donor nations before it signs up for an IMF loan, said Shaukat Tarin, finance adviser to the Pakistan prime minister. This year’s funding gap is estimated at as much as $4.5 billion, he added.
The nation’s foreign reserves fell $570 million in the week ended Oct. 10 and have shrunk more than 74 percent in the past year to $4.3 billion. That’s increased the risk that Pakistan will be unable to pay the $3 billion in debt-servicing costs due in the coming year.
Pakistan’s next interest payment on its dollar-denominated bonds is due in December and the government is scheduled to repay $500 million in February on a 6.75 percent note.
A decade of chatter about IMF reform has produced scant results. Now, some experts wonder whether the fund is ready to play a key role in digging out of the worst financial crisis in a generation.
The fund is near loan deals with Ukraine and with Iceland, which was the first developed country to seek its help since Britain in 1976. It’s also in talks with financially strapped Pakistan and Hungary. Experts predict several other countries in Latin America and Eastern Europe may be next in line as the credit crunch that began in the United States fans out across the globe.
Earlier this week, U.S. President George W. Bush invited leaders from the world’s 20 major economies to an emergency summit in Washington that some are billing as Bretton Woods II – a replay of the 1944 gathering at a New Hampshire lodge where leaders agreed to rebuild the global monetary system in the chaotic aftermath of the Second World War and the Great Depression. The role of the IMF, which was created at Bretton Woods, is likely to be pivotal as a new generation of leaders consider how to prevent the next crisis with an ambitious overhaul of the rules of global finance.
Source: Town 9
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