Pak turns to cash-rich China for helpOctober 16th, 2008 - 5:13 pm ICT by ANI
Beijing/Islamabad, Oct.16 (ANI): Pakistans long-deteriorating financial situation has prompted it to approach cash rich China for help in shoring up its economy.
According to a Washington Post report, With the global financial crisis draining coffers in the United States and Europe, the key U.S. ally in the war on terrorism is seeking help from an old friend newly flush with cash: China.
Pakistan President Asif Ali Zardari is in Beijing on a four-day state visit, and he is likely to seek between four to six billion dollars from China to tied over his countrys economic crisis in the short term.
Pakistan’’s bid for Chinese cash underscores the potential of Beijing’’s 1.9 trillion dollars in foreign reserves, the largest in the world, to boost its global influence.
Islamabad is now seeking as much as three billion dollars in emergency assistance from China, as well as assistance from oil-rich Gulf countries including Saudi Arabia and the United Arab Emirates, according to a senior Pakistani official.
Pakistan’’s central bank governor, Shashad Akhtar, is in Washington this week to review a draft plan for overhauling the country’’s finances with the International Monetary Fund, potentially paving the way for future aid.
U.S. military and intelligence officials fear that Pakistan’’s increasingly precarious economy will compound an already unstable political situation and undermine military cooperation.
Both al-Qaeda and the Taliban leadership are located in the rugged, economically depressed region along Pakistan’’s western border with Afghanistan.
The Bush administration and Congress have been shaping a long-term economic and military assistance package for Pakistan, but there is no indication the United States is able to step in with a short-term financial lifeline.
Pakistan is going to the Chinese now “because you go to the guys with the money,” a senior International Monetary Fund official said. “And right now, the Chinese are the ones with the money.”
Securing as much as $6 billion would buy the government the breathing room it needs, analysts say, to begin a desperately needed overhaul of its budget to sustain Pakistan’’s battered economy in the longer term.
Pakistan’’s financial problems go back at least a year, with current and past administrations borrowing from the central bank to sustain generous state subsidies on gasoline and diesel.
National reserves over the past year have fallen 67 percent to 8.3 billion dollars, leaving the country ill-prepared to deal with financial turbulence as more investors pulled out in recent weeks as the U.S. crisis spread globally.
That has fed two major fears. First, that Pakistan may not be able to secure the funds to avoid a debt default early next year. And second, that investor concern over its potential insolvency could grow into a panic in coming weeks, leading to a far broader capital pullout that could jeopardize the country’’s financial system.
Unprecedented inflation, political instability and the growing threat from Islamist insurgents have all had sharply negative affects on investor confidence, said Sakib Sherani, chief economist at ABN Amro Bank Pakistan.
To curb losses, Pakistan in recent weeks has set new rules on stock trading aimed at preventing even sharper sell-offs of Pakistani companies.
China and Pakistan have a long history of economic cooperation, based partly on decades of weapons sales, and a lifeline now, particularly so small a sum, would not be seen as unusual.
A last option might be seeking a lifeline from the IMF. (ANI)
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