LAHORE, Pakistan (Reuters) - The International Monetary Fund will give Pakistan $450 million in emergency flood aid, providing some relief for a government overwhelmed by the disaster and facing renewed militant violence.
IMF Managing Director Dominique Strauss-Kahn said in Washington on Thursday that the funds would be dispersed in "coming weeks."
Strauss-Kahn said discussions with a delegation led by Pakistan's Finance Minister Abdul Hafeez Shaikh on how to "reorganize" an $11 billion IMF loan program would continue.
He said Islamabad remained committed to terms including tax and energy sector reforms.
The floods struck just as the army said it had made progress in the war against the al Qaeda-linked Sunni Taliban.
Pakistan tightened security in the eastern city of Lahore on Thursday after three bomb attacks killed 33 people and wounded 171. A new wave of violence would be especially difficult to manage given the enormity of the task of providing relief to millions of flood victims.
The IMF package had kept afloat and economy that was already fragile before the floods rampaged from the northwest to the south, damaging crops and infrastructure which Prime Minister Yusuf Raza Gilani estimated could hit $43 billion, almost one quarter of last year's gross domestic product.
The Lahore blasts which hit a Shi'ite procession on Wednesday bore all the hallmarks of pro-Taliban insurgents, who have carried out sectarian violence designed to destabilize the government.
"Security has been tightened in the city to prevent any such incident. We had called the (paramilitary) rangers after the blasts last night, and they are on high alert and can be called again any time if needed," Sajjad Bhutta, Lahore's top administration official, told Reuters.
Reflecting the growing reach of the Pakistani Taliban, U.S. prosecutors overnight charged its leader Hakimullah Mehsud in the plot that killed seven CIA employees at an American base in Afghanistan last December.
The United States also added the Pakistani Taliban to its list of foreign terrorist organizations and set rewards of up to $5 million for information leading to the capture of two of its leaders, Mehsud and Wali-ur-Rehman.
VOTE OF CONFIDENCE
Washington wants to see a stable Pakistan that can help fight militancy in Afghanistan and inside its own borders. Pakistani and U.S. officials are concerned that militant groups could seize upon the disorder caused by the floods to gain recruits.
Moody's Investors Service changed to negative from stable the outlook on the long-term local currency deposit ratings and financial strength ratings of five leading Pakistani banks, due to economic damages caused by the floods.
The rating agency says it expects economic growth to slow down and inflationary pressures to rise sharply on account of factors such as food shortages.
Analysts said the IMF decision was a vote of confidence.
"This definitely sends out a positive signal that Pakistan is still on track in terms of getting financing from multilateral donors, which it critically needs, despite the country's slippages on the fiscal side," said Asif Qureshi, director at Invisor Securities Ltd.
Millions of flood victims are still homeless and potentially fatal diseases threaten to bring a new wave of death.
Pakistan has only secured 63 percent of the $459 million in funding needed for the initial emergency aid, the U.N. said.
Red Cross workers have faced angry crowds when distributing food and other supplies to flood victims, a disturbing trend that could jeopardize operations, a senior official said in Geneva.
There was also good news from the World Bank, which has increased funding to help Pakistan cope with the floods by $100 million, to a total of $1 billion.
(Additional reporting by Faisal Aziz and Sahar Ahmed in Karachi and Chris Allbritton in Charsadda and Stephanie Nebehay in Geneva and Paul Eckert in Washington; Writing by Michael Georgy; Editing by Miral Fahmy)