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Flood-Ridden Pakistan Ineligible For Emergency Debt Relief

Matthew Berger

WASHINGTON, Sep 2 2010 (IPS) - A loan deal between the International Monetary Fund (IMF) and flood-stricken Pakistan announced Thursday has drawn the ire of several NGOs that claim the deal represents an “inadequate” and “cynical” response to the disaster that is estimated to have affected the lives of millions.

The news of the loan follows more than a week of talks between Pakistani and IMF officials here, in which Pakistan hoped some of the terms of the 10.66 billion dollar loan granted in 2008 would be loosened in light of the floods which have left a dent in the Pakistani economy that is likely to last long after the floodwaters have receded.

Those loan terms set deficit and inflation targets Pakistan has said it will be unable to meet in a post-flood economy. The IMF, for its part, as recently as June has called for Pakistan to take stronger steps to meet those reforms.

Efforts to maintain fiscal discipline, for instance, “proved initially successful, but since June 2009, the authorities have repeatedly exceeded the quarterly budget deficit targets under the program,” an IMF statement said in June of this year. It also noted that inflation has been on the rise, reaching 13 percent in March.

But given the magnitude of the damage and suffering caused by the flood since late July, those macroeconomic and fiscal concerns should be irrelevant for the time being, some groups are saying.

“Pakistan can not be expected to service debt as it struggles to cope,” said Elizabeth Stuart, a senior policy advisor at Oxfam, a group of NGOs from three continents working worldwide to fight poverty.

“Pakistan’s resources must now be directed at recovery from this disaster, and a debt burden can not be allowed to impede recovery,” Stuart said, noting a third of Pakistan’s budget revenues are currently spent on loan repayments.

The IMF announcement Thursday includes 450 million dollars for “immediate emergency financing,” according to the Fund’s chief, Dominique Strauss- Kahn. The emergency financing should be made available later this month, thus bypassing the usual, much longer timeline for loan money to get to beneficiary countries.

But the loosening of loan terms Pakistani officials had wanted was turned down. Strauss-Kahn said the officials agreed to aim to implement the reform measures required in the loan conditions in order for the fifth review of the reform programme’s progress to take place later this year.

The completion of that review would mean an additional 1.7 billion dollars in loans for Pakistan from the IMF, in addition to the emergency assistance.

“We will stay in close contact as these efforts proceed,” Strauss-Kahn said.

Separately, the World Bank announced it was stepping up its emergency support for Pakistan to 1 billion dollars. That money would be in the form of a soft loan with no interest payments.

Pakistan’s other largest creditor, the Asian Development Bank (ADB), has already promised a 2 billion dollar emergency loan.

But Oxfam and others are calling on the country’s creditors to cancel its debt in light of the extraordinary circumstances.

The Jubilee Debt Campaign, a coalition of groups seeking cancellation of “unpayable and illegitimate developing country debts,” says, prior to the floods, Pakistan spent three times as much on debt repayment as it did on healthcare.

“To continue to force Pakistan to repay these loans, giving even more loans in the meantime and forcing the country to implement economic conditions that will make poverty even worse, is reprehensible and reckless,” said Jubilee director Nick Dearden in a statement.

The remainder of Haiti’s debt to the IMF was cancelled in July to facilitate reconstruction following the massive earthquakes that rocked the country in January. The United States, Inter-American Development Bank (IADB) and other lenders have done the same. Why would Pakistan not get the same treatment?

“Technically, the IMF cannot cancel Pakistan’s debt,” explains Stuart, since, unlike Haiti, Pakistan is not defined as a low-income country by the institution. Haiti is, so there was a clear path to relieving that debt burden.

But these technicalities “are exactly why the rules need to change,” says Stuart, in order to allow the IMF to respond adequately to exceptional circumstances like the floods. A better response, she says, would be grants – an option available for countries like Haiti but not Pakistan.

Ultimately, changing these rules will be up to the Fund’s shareholders. In that sense, she says, “It’s really about political will, as so many things are.”

As many others have, Stuart points to the fact that many more people have lost their livelihoods due to the flooding than did on account of the Haitian earthquake.

Over 17.2 million people are estimated to have lost their homes or livelihoods, with 1,600 losing their lives.

The Pakistani government estimates that the country’s inflation rate may jump to 20 percent following the destruction of crops and infrastructure by the floods. It says there has been about 1 billion dollars in damage to crops on hundreds of thousands of acres of farmland.

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