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Foreign Policy: Pakistan and the IMF

Authors: Nancy Birdsall, Milan Vaishnav, and Daniel Cutherell
November 4, 2011

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Pakistan's refusal of over $3 billion in loans from the IMF highlights the flawed U.S. strategy to use economic aid as leverage.

Several weeks ago, Pakistan indicated that it would say "thanks, but no thanks" to more than $3 billion in loans from the International Monetary Fund (IMF), as internal political issues proved stronger than the need for Pakistan to bring in much needed money. But while this incident says much about the conflict going on within Pakistan's ruling bodies, it also shines light on the flawed American strategy of trying to use economic aid to ensure better behavior from Pakistan's military and intelligence services.

For the past three years, Pakistan has had an IMF program backed by a loan of more than $11 billion. Of this, the IMF has so far released almost $8 billion in several tranches-each dependent on Pakistan's civilian government making progress on key tax and energy sector reforms. Over a year ago, as progress on those reforms stalled, Pakistan asked for -- and received -- more time to comply with promised changes and collect a final $3.6 billion tranche. But at the end of September the Minister of Finance announced that Pakistan would not continue the IMF program at all, and he has since emphasized that Pakistan would work on its own "home-grown" reform program. Though Pakistan can go back to the IMF anytime (and indeed there were rumors recently that it would), the civilian government clearly wants to avoid locking itself into another IMF program involving promises for reforms that it will not be able to fulfill.

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