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| Pakistan looking forward to $10 bn bailout by Saudis, China |
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Sunday, August 24, 2008
Ongoing negotiations with IMF being dragged
By Ikram Hoti
ISLAMABAD: Negotiations with the IMF which commenced last week for a US$10 billion bailout package for Islamabad are expected to remain inconclusive as Pakistan is set to seek direct help from Saudi Arabia and China.
The negotiations are being held by a couple of IMF officials, who met the Pakistani economic managers in a process of charting out an expression of interest for the bailout package.
“We are making efforts to prevent the drift towards an IMF-assisted bailout that would obviously cause more difficulties as it would be governed by strings that are hard to fulfill,” said a senior Pakistani official involved in the talks.
The crisis deepened last month as the foreign exchange reserves dwindled and the rising import payments became the most difficult task for the public finance heads here. Pakistan now happens to be the only country in 2008 facing by international rating companies the threat of downgrading of its import-export balancing effort from the present B-1 status and inability to make on-time payments due in foreign exchange to international exporting companies.
A committee of experts, currently working out a bailout package and keeping a tight lid on the actual situation, is busy framing a strategy on war-footing. It is reportedly framing up a “suggestion” to the federal policymakers to approach Saudi Arabia and China for a $10 billion package split by 6-4, respectively.
Pleading anonymity, The News sources revealed that next Monday would be critical for meetings of the federal cabinet’s committee overseeing the formation of a strategy in this respect. “That is going to be the day when this country would have to decide as to how the two countries would be submitted with an agenda for loan, and on what terms,” said a senior official.
“A consensus has evolved in these meetings on averting a drift back to the IMF mechanisations. A week ago, some IMF officials did visit Islamabad to offer a package, and it was a soft mark-up deal. Its tranche-payment mechanism was attractive too, as the Fund seemed ready to release $500 million every month, which is close to what the actual requirement over the current financial year’s 12-month period would be. But the strings attached would be too harsh to meet,” said the official.
When asked to provide details on these strings and the bailout package to be split between Saudi Arabia and China, he said: “I am not supposed to hand out half-cooked measures. But the main idea is that Saudi Arabia should be offering a deferred-payment scheme for the current fiscal year on the provision of petroleum products imported from that country. It should be a 12-month scheme covered by assurances that the products would be used to keep the prices stable and no further loans would be acquired from other internal or external sources against the facility thus extended, which is not a harsh string.” A $4 billion offer is expected from China, he said and added that negotiations in this respect would be brisk as “the crunch has begun telling too adversely to sustain any further.” This money would be available in tranches of $500 million once agreed upon.
Explaining the IMF strings, he said the Fund would like Islamabad to immediately stop subsidising oil, electricity, gas and food items. “That would mean an immediate jump in the inflationary trend, which would directly be impacting the export-production lines, which is not acceptable to Pakistan,” he added. Apart from this, the IMF would also like to bind the tranche release to the reappraisal of the reforms conducted in the economic-management structure of Pakistan over the past few years.
On their part, members of the committee have been suffering from acute lack of orientation as far as identifying the actual nature and handling of the crisis is concerned. At one point, the committee was about to churn out the formula for stopping imports of non-critical items, which are, otherwise, a good source of revenue, prevent smuggling and, if banned, would help save only about $48 million in payments a month. This formula is expected to be rejected as wiser heads meet next Monday, the source added.
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