After weeks of speculation, Saudi Arabia on Tuesday (Oct 23) stepped forward with a $6 billion bailout package for Pakistan's ailing economy. The package includes $3 billion balance of payments support and another $3bn in deferred payments on oil imports.
The Saudi package may provide breathing space to the government for dealing with economic challenges, but would not be enough to avoid the IMF facility. It is believed that improved foreign exchange reserves would strengthen Pakistan's negotiating position in talks with the Fund.
The Saudi financial help agreement came during a visit by Pakistan Prime Minister Imran Khan to Riyadh where he met King Salman Bin Abdul Aziz.
Khan also attended a Saudi Arabian investment conference where the new Pakistani leader launched a charm offensive targeting potential investors as Pakistan continues to seek funding to plug its deteriorating finances.
Finance Minister Umar has said the government don't want to fully rely on the IMF. He said the loan program with the IMF is almost final, but the government will have to see that the IMF does not place any "undoable conditions" for Pakistan in return.
An IMF team is set to arrive in Pakistan in early November to begin negotiations.
Pakistani media on Monday reported that the country immediately needed $12 billion to $13 billion to ease the financial crisis and retire foreign debt. Pakistan formally approached the IMF on October 12 for a bailout to tide over the economic crisis. But some tough talking by IMF Managing Director Christine Lagarde and the US on Pakistan's bailout plan, demanding absolute transparency on the country's debts, including those owned by China under the China-Pakistan Economic Corridor (CPEC) projects, has upset Islamabad.
It is not a rocket science to know why Pakistan is reluctant to go to the IMF which is a sophisticated tool to control the economy of the IMF clients and to transfer resources from the poor countries to rich countries.
American Interests and IMF Lending
To borrow Thomas Oatley and Jason Yackee, the authors of 'American Interests and IMF Lending,' the financial resources it controls allows the IMF to exert greater influence than practically any other international organization in history.
Of particular importance here is the American ability to exert influence in the decision-making process surrounding the creation of IMF conditionality agreements which are the IMF's primary policy instrument.
"Abundant case studies suggest that the US does exert influence over conditionality agreements. During the 1980s, for example, the US pressured the Fund to extend credits to Argentina (Killick, 1998, 74). In 1982, the Reagan administration pressured the IMF to extend a 3.9 billion credit to Mexico (Cohen, 1985, 722). In 1995, the Clinton Administration pressured the Fund to offer assistance to Mexico. Moreover, American politicians act as though the US exerts influence over conditionality agreements. The US Congress has passed at least 60 legislative mandates requiring the American representative at the Fund to use conditionality agreements to achieve specific American objectives," Oatley and Yackee said and added:
"While episodic evidence thus suggests that the US does exert influence over conditionality agreements, only one large study has looked for a systematic relationship between American power and interests on the one hand and IMF conditionality agreements on the other (Thacker, 1999). Examining a large sample of developing countries across time, Thacker uses American foreign policy interests to predict which governments will receive a conditionality agreement. He finds that governments that are willing to become more supportive of American foreign policy goals are more likely to receive conditionality agreements than other governments. According to Thacker, therefore, the US uses its influence in the IMF to cultivate foreign support for American foreign policy goals."