Pakistan, Seeking to Avoid Loan Default, Seeks IMF Help

By Khaleeq Ahmed

Oct. 20 (Bloomberg) — Pakistan may be forced to seek a loan from the International Monetary Fund to prevent the nation defaulting on its debt, according to a government official.

South Asia’s second-largest economy, which has seen its foreign reserves plunge more than 74 percent to about $4.3 billion in the past year, is also seeking financial support from the World Bank and the Asian Development Bank, said Shaukat Tarin, financial adviser to the prime minister. The country has $3 billion in debt-servicing costs in the coming year.

“They are going to have to bite the bullet and sign for the IMF,” said David Fernandez, the Singapore-based head of emerging markets research at JPMorgan Chase & Co. “It has to come now.”

Pakistan’s first civilian government since 1999 is facing economic turmoil after the rupee plunged to an all-time low, the current account deficit widened to a record, and inflation jumped to a 30-year high. The nation, which only came off its last IMF program in December 2004, may need as much as $4.5 billion in loans to tide over the crisis, Tarin said.

“If I don’t feel the comfort level with the multilateral agencies and our bilateral friends in three to four weeks, then I’ll have to write to the IMF,” Tarin said in an interview in Islamabad yesterday. A default is “out of the question.”

Unpopular Decision

Pakistan faces the politically unpopular decision to seek an IMF bailout after China rebuffed its neighbor’s request for cash, the New York Times reported Oct. 18. The U.S. and other nations are preoccupied with the financial crisis, and Saudi Arabia, a traditional ally, refused to offer oil concessions, the newspaper said.

The U.S. has helped Pakistan financially for its support in the global war against terrorism, providing $10 billion in funds and canceling more that $1 billion of loans. The Bush administration has urged the Pakistan government to do more to fight al-Qaeda and Taliban militants in its tribal areas, which the U.S. says the militants are using to regroup and attack the coalition forces in Afghanistan.

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