Pakistan Is Striving to Avoid IMF Aid as Economy Worsens

The Wall Street Journal - NOVEMBER 5, 2008

Zardari in New Bid for Saudi Help

By MATTHEW ROSENBERG and ZAHID HUSSAIN

ISLAMABAD, Pakistan -- In dire need of financial help to stave off an economic collapse and beat back Islamic militants, Pakistani President Asif Ali Zardari headed to Saudi Arabia Tuesday in his latest effort to plead for financial support from a long-time ally.

Mr. Zardari is trying hard to avoid seeking aid from the International Money Fund, which would impose tough conditions that could undermine his support among the poor. And he is looking to Riyadh, which supplies the bulk of Pakistan's oil, to defer billions of dollars in oil payments owed by Pakistan.

Prime Minister Yousuf Raza Gilani's top economic adviser, Shaukat Tarin, speaking from Saudi Arabia, told the Associated Press of Pakistan that "we will not require IMF support in case we succeed in getting money from Saudi Arabia."

Success is far from guaranteed, however. Mr. Zardari, widower of slain former Prime Minister Benazir Bhutto, will have to mend some fences with the Saudis if he wants them to come to his rescue.

The Saudis are upset over Mr. Zardari's treatment of opposition leader Nawaz Sharif, who spent much of his nine-year exile in Saudi Arabia before he returned to Pakistan late last year and remains close to many in the Arab kingdom, said a former Pakistani diplomat. Mr. Sharif initially was part of a governing coalition headed by Mr. Zardari's Pakistan People's Party. But Mr. Sharif pulled his party out of the government midyear after feuding with Mr. Zardari.

The Saudis also have long seen themselves as one of Pakistan's main foreign benefactors on a par with the U.S. and China. But in September they stayed away from the first meeting of the so-called Friends of Democratic Pakistan, an alliance of Pakistan's allies, after being grouped in with other Gulf countries, said a Western diplomat whose country is part of the group.

Riyadh still hasn't said if it will attend a Friends of Democratic Pakistan summit tentatively scheduled for Nov. 17 in Abu Dhabi, though a senior Pakistani official said it could be delayed.

Mr. Zardari's tricky task on his visit to Saudi Arabia is mirrored in his efforts to garner support from other allies, including the U.S., while at the same time trying to convince a domestic audience that Pakistan can get the help it needs on its own terms.

Even the purpose of the Friends of Democratic Pakistan remains in question. Pakistan's leaders have portrayed it as a donor forum, and Planning Secretary Suhail Safdar said in an interview that the government is drawing up a list of 40 to 60 infrastructure projects for the group to help fund. The projects are the kind of public works that draw votes, everything from small dams to help poor farmers to a major highway system that would stretch from the Arabian Sea to the mountainous border with China.

But the Western diplomat said funding such projects was not the intended purpose of the group, which instead was set up to help provide expertise and advice to Pakistan. U.S. Assistant Secretary of State Richard Boucher suggested as much in Pakistan on Monday, saying the group's "goal was not to throw money on the table."

Farhatullah Babar, a spokesman for Mr. Zardari, said the Friends of Democratic Pakistan are "to work out ways and means to help Pakistan overcome its problems. That does not necessarily mean giving cash. They are going to work out what they consider the best ways and means to help Pakistan." The Saudis, he added, "are one of the many Friends of Democratic Pakistan."

Mr. Boucher was in Islamabad with Gen. David Petraeus, the new chief of the U.S. Central Command. Mr. Zardari and other top officials pressed Gen. Petraeus to stop U.S. missile strikes in the rugged tribal regions that border Afghanistan and are used as a base by Taliban fighters, al Qaeda operatives and other Islamic militants. There have been at least 17 missile strikes since mid-August.

But there was little hope among Pakistani officials the Americans would heed their calls. "What can we do? We need so much help from them. We can't make them stop," said a foreign ministry official, who asked not to be identified.

Pakistan also is engaged in a delicate dance with the IMF, which Mr. Zardari has insisted is a last resort even as Pakistan bleeds hard cash. Its foreign-exchange reserves were down to $6.92 billion as of Oct. 25, with the central bank holding enough money to cover fewer than 45 days of imports.

At one point last month, the fund said that Pakistan had sought assistance, only for Pakistani officials to say the following day that they were still hoping to secure money elsewhere and hadn't formally approached the IMF over a loan.

Yet Pakistan and the IMF have continued talking, and a Pakistani official said a deal for a $9 billion loan could come as early as next week. The IMF would provide $4.5 billion immediately to keep Pakistan from defaulting on international loans, said the official.

Write to Matthew Rosenberg at matthew.rosenberg@wsj.com