Asia Crisis

Pakistan eyes $4 bln in aid as allies seek assurances

ISLAMABAD, April 15 (Reuters) - Pakistan's allies and aid donors are expected to promise about $4 billion this week but will also try to spur the nuclear-armed country to more urgent action against an increasingly formidable Islamist insurgency.

Cash-strapped Pakistan will outline its medium-term strategies to fight the insurgency and revive its economy at a Friends of Pakistan group meeting in Tokyo on Friday morning.

In the afternoon, those friends, who include the United States, Japan, China and Saudi Arabia, will join other donors to promise aid for the next two years.

"This is a whole bunch of people coming together to express support for Pakistan but concern about the direction that things are going," U.S. Senator John Kerry told reporters in Islamabad late on Tuesday.

"It's important that there be significant aid put on the table to underscore the importance of this effort. I think there will be," said Kerry, who is sponsoring a bill to triple U.S. development aid to Pakistan to $1.5 billion a year.

Pakistan is central to U.S. President Barack Obama's plan for south Asia which includes trying to stabilise Afghanistan, where Taliban militants, many operating from lawless northwest Pakistani enclaves, have thrown U.S. success into doubt.

In Pakistan, a hotchpotch of militant groups, many operating from those same enclaves on the Afghan border and looking to al Qaeda for leadership, have sown fear with regular suicide attacks and are increasingly challenging the writ of the state.

While violence has intensified, high oil and food costs battered Pakistan's economy last year and it only averted a balance of payments crisis when, in November, it secured an IMF loan package of $7.6 billion over two years.

Since then, inflation has eased from more than 25 percent and foreign reserves have climbed to $11.17 billion from $6.6 billion in November. Despite the better data, one third of Pakistan's fast-expanding population, now at 160 million, live in poverty.


Beset by economic problems, seemingly interminable political wrangling, hostility with old rival India and a population deeply suspicious of the United States, a civilian government led by President Asif Ali Zardari's party is struggling.

In Tokyo, Pakistan's allies will want to hear assurances that the government is focused on the security crisis while they aim to meet its target of $4 billion in aid to fill a financing gap over the next two years.

"Unless there is stability in Pakistan, there will not be stability in the region, including Afghanistan," a Japanese Foreign Ministry official said on Tuesday. Japan is likely to provide up to $1 billion over two years, media has reported.

"Unless Pakistan's economy stabilises, the country won't be able to take effective counter-terrorism measures, so (support) would contribute to strengthening counter-terrorism," the Japanese official said.

Pakistani Finance Ministry chief Shaukat Tarin said this week the target of $4 billion over two years was for spending on poverty alleviation, education and health. Those sectors have suffered under efforts to cut the fiscal deficit.

At the Friends meeting, Pakistan is expected to present a prioritised wish-list of projects worth $30 billion that it wants to see implemented over 10 years, including hydro dams, roads and security projects.

Pakistan's ambassador to the United States Husain Haqqani said last week his government wanted a "Marshall Plan", referring to massive U.S. spending in Europe after World War Two.

Kerry said an aid package was not going to be an automatic fix but part of an economic and security plan that needed to be put together urgently.

"A lot of time has been wasted and ground has been needlessly lost," he said. "The government has to ratchet up the urgency and ratchet up its commitment of resources.

"This is a serious moment for Pakistan ... it matters what happens here."

Editing by Jeremy Laurence