Pakistan dismisses U.S. concerns about IMF bailout and
China
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[August 01, 2018]
By Drazen Jorgic
ISLAMABAD (Reuters) - Pakistan on Wednesday
dismissed U.S. concerns that any new International Monetary Fund bailout
for the South Asian nation would be used to repay Chinese debt as
"totally wrong".
Pakistan's economy has hit severe turbulence over the past year and most
analysts expect the nuclear-armed nation to seek a bailout, either from
the IMF or closest ally China, to avoid a currency crisis.
Beijing has pledged $57 billion in loans for Pakistan as part of China's
vast Belt and Road initiative, deepening economic and diplomatic ties
between the neighbors at a time when relations between Islamabad and
Washington are fraying over how to deal with Islamist militants waging
war in Afghanistan.
U.S. Secretary of State Mike Pompeo on Monday warned that any potential
IMF bailout for Pakistan's incoming government should not provide funds
to pay off Chinese lenders.
In response, Pakistan's finance ministry sought to de-couple the link
between any potential IMF bailout and Beijing's loans for the
China-Pakistan Economic Corridor (CPEC), which spans mostly energy and
transport infrastructure.
"First and foremost it is totally wrong to link the IMF package with
CPEC. It is affirmed that Pakistan Government is fully committed to
undertake and complete CPEC projects in their totality," the finance
ministry said in a statement.
"Third parties cannot weaken our collective resolve to make CPEC a
success story."
CPEC is billed as Pakistan's most important national project, while
Beijing has touted CPEC as the "flagship" project in the vast Belt and
Road initiative to build rail, road and maritime links across the globe.
Both countries are very sensitive of any criticism about CPEC.
The United States has been concerned that China is saddling smaller
countries with debt as a way to gain influence and control around the
globe.
Pakistan obtained a $6.7 billion IMF bailout in 2013 and near-identical
balance of payments problems pose a major headache for the incoming
government of Imran Khan, Pakistan's former cricket hero who is seeking
coalition partners to form a government.
"Make no mistake. We will be watching what the IMF does," Pompeo said.
"There's no rationale for IMF tax dollars, and associated with that
American dollars that are part of the IMF funding, for those to go to
bail out Chinese bondholders or China itself," Pompeo added.
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Pakistan's finance ministry chief Miftah Ismail speaks with a
Reuters correspondent during an interview in Islamabad, Pakistan
December 28, 2017. Picture taken December 28, 2017. REUTERS/Faisal
Mahmood
Asad Umar, widely tipped to become the new finance minister, told Reuters last
month that Khan's government would not rule out either Chinese or IMF support.
On Tuesday, Chinese Foreign Ministry spokesman Geng Shuang said the IMF had its
own standards and operating rules when cooperating with countries.
"I believe they will handle it appropriately," he told reporters, without
elaborating.
30-YEAR LOANS
Miftah Ismail, Pakistan's finance minister in the previous government until late
May, said the Chinese debt repayments were nowhere near as big as Western
nations imagine.
He told Reuters that ministry of finance calculations showed that for the next
five years, Pakistan's total annual debt repayments and profit expatriation by
Chinese companies would be below $1 billion.
"All of those things combined will not go to $1 billion up until 2023," he said.
Ismail added loans given by China to Pakistan had a 30-year length and a
five-year grace period, meaning there were no repayments for the first five
years.
The lending was a combination of zero-interest debt, concessionary and some
market rate loans, Ismail said, adding that the "weighted average" interest rate
for these loans was 2 percent
"These are not loans that will break our back," he said.
Ismail said the problems hitting Pakistan's economy were not linked to debt but
rather to current account problems, which was not China's fault.
Pakistan's finance ministry said it was engaged in "technical discussions" with
the IMF but the interim caretaker government did not have a mandate to decide on
any IMF package, which will be down to the new administration.
(Reporting by Drazen Jorgic; Editing by Nick Macfie)
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