Pakistan won't be going to IMF -President Zardari

By Sahar Ahmed

KARACHI, Sept 9 (Reuters) - Pakistan will not seek an assistance package from the International Monetary Fund (IMF), but will "tighten its belt", the country's new president Asif Ali Zardari said after being sworn in on Tuesday.

After nearly nine years in power, former army chief Pervez Musharraf stood down as president last month to avoid being impeached, paving the way for the widower of the assassinated two-time prime minister Benazir Bhutto to take over.

Zardari, in a joint news conference in Islamabad with Afghan President Hamid Karzai, apologised in advance for the hardships people would face as a result of the austere measures that needed to be taken.

Some bankers have said they would welcome Pakistan entering an IMF programme, as it would help restore investor confidence in a country suffering deteriorating economic fundamentals and prolonged political uncertainty.

The international bond market has already priced in a possible default.

Goodwill towards Pakistan's five-month-old civilian government, however, should translate into loans of billions of dollars needed to avoid a default early next year, analysts say.

The international community is keen to see democracy succeed in a Muslim nation that is on the frontline in the war on terrorism and whose support is crucial to the success of the NATO mission to stabilise Afghanistan.

Analysts hope the government led by Prime Minister Yousaf Raza Gilani, a Zardari nominee, will act fast to avert an economic crisis now that the presidency issue has been settled.

"Mr. Gilani and his cabinet will face up to the challenge," Zardari said.

ARTIFICIAL PROP

The Karachi Stock Exchange decided on Tuesday to keep a safety-net installed to protect share values from plunging further.

The KSE last month put a floor of 9,144 points on the index. The move will next be reviewed on Sept. 25, the KSE board said.

The index has slumped 41 percent from a peak in April and has lost close to a third of its value since the start of the year. Before topping out, the index had risen for six straight years, and was one of the top performers in Asia.

The index closed at 9,279.62, 0.18 percent lower.

Among the most active companies in dull trade on Tuesday, volume leader NIB Bank (NDIF.KA) fell 0.57 percent to 8.69 rupees, Engro Chemicals Ltd. (EGCH.KA) rose 0.31 percent to 181 rupees, while Worldcall Telecom (WCTL.KA) was flat at 7.80 rupees.

RUPEE "BOTTOMED OUT"

There are worries in the foreign exchange market about Pakistan's fast dwindling currency reserves, due to heavy outgoings for imported oil.

Total reserves stood at $8.89 billion on Sept. 3, of which just $5.5 billion was held by the central bank.

The rupee PKR=PK hit an all time low of 77.45 to the dollar on Sept. 3, but it ended flat at 76.45/55 on Tuesday, having weakened by more than 19 percent since the beginning of the year.

Acting Finance Minister Naveed Qamar told Geo News in a programme telecast on Tuesday that he thought the rupee had "bottomed out" to a large extent, and there would not be any further devaluation.

Qamar did not expect the rupee to recover to its old levels, but saw it steadying off the recent lows.

Pakistan has been running unsustainable fiscal and balance of payments deficits.

The government has vowed to slash net quarterly borrowing from the central bank to zero.

There are fears that inflation, running at almost 25 percent largely due to high global oil and food commodity prices, could be further fuelled from high monetary growth as a result of government borrowing.

(Additional reporting by Aftab Borka; writing by Simon Cameron-Moore)