Next-door rescue

Pakistan had by all accounts been keen to avoid going to the International Monetary Fund for a rescue package, perhaps more due to domestic perceptions than anything else. But its efforts to negotiate economic assistance from its traditional allies like China, the US and Saudi Arabia did not come to much, and it was announced over the weekend that Islamabad had reached an agreement on the economic package. The 7.6 billion bailout package is expected to come up for approval by the Fund8217;s Executive Board this week.

This should set the platform for Pakistan to gain the confidence of investors and other lenders. In particular, the country has of late been hit by inflation well in excess of 20 per cent; in fact, its central bank hiked interest rates just last week and the government cut fuel prices in response to a global fall in oil prices. There has also been concern that depleted reserves could lead to a default on foreign debt. The IMF package should stabilise the situation considerably. Initial reports suggest that the first tranche could be made available to Pakistan this month.

Pakistan8217;s reluctance to go to the IMF is understandable. IMF rescues, with their stringent conditionalities, have traditionally not played out well politically in borrower countries. But the IMF has been trying to make itself over as a gentler lender of last resort, and its managing director, Dominique Strauss-Kahn, hoped this weekend that the Fund8217;s package would invite other multilateral assistance. It should. It is good that India, as a stakeholder in the regional stability that would come with a more stable Pakistan economy, has supported multilateral assistance for its neighbour.