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Some special interest groups in Pakistan rejected the Kerry-Lugar bill as an affront to their
honor and interest but corporate media activists seem to care less about the onerous conditions
imposed by the IMF which translates into more misery and poverty for ordinary citizens.

In November 2008 the International Monetary Fund approved a 23-month Stand-By

Arrangement for Pakistan in an amount equivalent to US$7.6 billion to support the country¶s
economic stabilization program. The total amount of the IMF resources made available under the
arrangement equals 500 percent of the country¶s quota. The arrangement was approved by the
IMF Board under the Fund¶s fast-track Emergency Financing Mechanism procedures.

The fiscal policies of General Musharaf¶s rule (FY2007/08) had put the country at the brink of
bankruptcy. The external current account deficit had widened to a record level; net capital
inflows declined significantly, and currency depreciated substantially. A delay in the pass-
through of higher international prices to domestic consumers led to a large increase in the fiscal
deficit, and its monetization by the State Bank of Pakistan contributed to rising inflation and a
sharp decline in international reserves. Pakistan was unable to secure funds from any other
source so the IMF loan appeared to be a godsend.

IMF¶s stated objective for this arrangement was two fold: ³to restore macroeconomic stability
and confidence through a tightening of macroeconomic policies; and to ensure social stability
and adequate support for the poor and vulnerable in Pakistan.´

But this dual µobjective¶ is an oxymoron.

Like other developing countries, the government of Pakistan has been the leading source of
employment and channel for capital. But market fundamentalists define governments as
inefficient economic actors, and so prioritize reducing their economic role.

The Kerry-Lugar Bill became an issue because it was aid to Pakistani people ± directly to the
civil society and it bypassed Pakistan¶s army. It was made an issue by a handful of journalists
and dropped like hot potatoes when GHQ told them to stop. It was aid- not a loan.

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The IMF had proposed 16 conditions for financial assistance to Pakistan during the talks in
Dubai last month, and "11 of the 16 conditions have been accepted with slight changes," The
News newspaper quoted a finance official as saying.

Pakistan is lobbying for possible financial help from friendly countries and financial
institutions as it faces severe economic difficulties with plunging foreign exchange reserves and
high inflation.
Pakistan now pins its hope on possible loans from member states of Friends of Pakistan group,
which will convene a meeting later this month in the United Arab Emirates.

But Pakistan insists it will resort to IMF's help as the last option as the IMF often provides
loans with conditions attached.

Pakistani Prime Minister Yousaf Raza told media earlier that he hopes Pakistan can avoid IMF
assistance if it wins billions of dollars in aid from friendly governments.

An IMF package often involves cutting government spending, raising taxes, accelerating
privatization, increasing interest rates, etc..

According to the conditions, the Pakistan government has agreed to gradually impose the
Central Excise Duty (CED) on services and agriculture sectors at the rate of 8 to 18 percent in
place of the General Sales Tax (GST), the finance official told The News newspaper.

The Pakistani currency will also be devalued after slight changes in the discount rate and
exchange rate will be decreased officially by 6 to 7 percent, the official added.

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ù Pakistan entered into nine different Agreements with the IMF during the period 1988-
2000. There are one programs (SBA: Nov. 2000 to Sep. 2001) and the PRGF (Dec. 2001
to 2004), which were fully implemented. Although in the case of PRGF the Government
chose not to draw down the last two tranches to which they were entitled.

ù Pakistan did not accept the last of the 12 tranche PRGF program and seek any successor
arrangement. The program was discontinued by the Government of Pakistan given the
strong state of the economy and the foreign exchange reserves.

ù The major factors which contributed towards the motivation of obtaining loans from IMF
included: need to obtain financial resources for BoP problem, secure access of funds from
other IFIs and bilateral donors, to get debt relief and rescheduling in the post 1998 period.

ù During the period 1988-2000, the prolonged uses of Fund resources in Pakistan can be
characterized as less successful in achieving the desired objectives. One of the major
reasons was that the successive governments used foreign resources to fix the external
payment imbalances but they did not adopt complementary policy reform.
Macroeconomic management was not prudent which resulted in high external debts and
debt servicing problems.
ù After 2000, the Stand-by Arrangement (SBA) was fully implemented and its progress on
the poverty reduction has also been on track. This was mainly because of the
concordance between ownership and conditionality as the agenda designed by the
Government has the right mix of policy actions which can be reinforced and strengthened
by conditionality of the IMF.

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ù Although Pakistan has achieved major successes on the socio-economic front, the
progress made so far is not commensurate with the country's considerable potential.
Going forward, consistency and continuity of sound macroeconomic policies along with a
credible reform program will be an absolute necessity to realize our full potential.

ù The second-generation reforms aimed at strengthening the country¶s institutions and their
capacity to deliver basic services and investment in human development and
infrastructure will be able to steer the country on the right course.