Pakistan has no alternative to taking IMF money - adviser

KARACHI Thu Oct 30, 2008 4:56am EDT

KARACHI Oct 30 (Reuters) - Pakistan's economic troubleshooter believes that the country has no alternative to seeking money from the International Monetary Fund to cope with dwindling foreign reserves and a balance-of-payments crisis.

Pakistani officials had been in talks with the IMF in Dubai since last week and Shaukat Tarin, the prime minister's top economic adviser, told the Senate late on Wednesday the negotiations would be completed on Thursday.

"We know IMF programmes harm nations financially. But, we have no other option. Even then, we shall accept their programme on our terms," Tarn told the Senate, according to the state-run APP news agency.

"I would not like the IMF programme, if you ask me. But we are sitting on a monster, facing a trade deficit of $20 billion and current account deficit of $1.5 billion," said Tarin.

Tarin was not available for comment on Thursday.

The IMF had endorsed a financial plan drawn up by the government, he said. Pakistan needs urgent help as its foreign reserves dwindled to about six weeks of import cover.

Pakistan's economic woes began before the global financial crisis set in but analysts say the crisis has compounded Pakistan's difficulties by making donors reluctant to step in.

Pakistan has tried but failed in recent weeks to win any large financial assistance from friendly governments and other multi-lateral lenders.

Tarin told the Senate that other lenders were looking for IMF endorsement of a plan for Pakistan before stepping in.

"In this situation, even other donors would prefer that at least we show our plan to the IMF or get it approved. Everybody is looking towards its endorsement."

Central bank governor Shamshad Akhtar said in Dubai on Wednesday that an IMF deal would be announced in due course and there was "no possibility" Pakistan would default on its debt.

URGENT NEED

Pakistan's foreign exchange reserves have been dwindling by $1 billion a month and have fallen from a high of $16.5 billion in October last year, to $7.32 billion on Oct. 18, of which the central bank accounted for $4.04 billion.

The latest data will be released later on Thursday.

Tarin has said there is an urgent need for $4 billion to $5 billion to fill a financing gap. The country also needs $10 billion to $15 billion to cover a current account financing gap and undertake adjustments over the next two years.

Tarin later told the Geo News channel the country had 15 to 20 days to find cash and it was still hoping for help from friendly governments and other lenders, he said.

The Friends of Pakistan grouping of potential donors will meet in Abu Dhabi next month but officials say the meeting should not be seen as a pledging forum.

Tarin told the Newsone television channel this week that Pakistan was not specifically looking for cash commitments from the group but various forms of help including free trade agreements, securitisation of remittances and deferred payments.

An IMF package is usually contractionary and often involves cutting spending, raising taxes, accelerating privatisation, increasing interest rates, and exchange rate flexibility to correct fiscal and external imbalances and control inflation. (Additional reporting by Augustine Anthony; Editing by Jan Dahinten)

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