No debt write-off until after IMF deal: Pakistan aide



24th September, 2001.

Pakistan has not yet formally asked for any write-off of its debts with other countries because it first has to reach a deal with the International Monetary Fund on a new program, an official at the Pakistan embassy said.

The cooperation of Pakistan with the United States in the wake of the attacks on New York and the Pentagon last week is expected to win it favorable treatment on the international financial stage, where the United States is often the most influential player.

"Pakistan hasn't asked for writing off of debt at the moment," Tanwier Agha, the economic minister at the Pakistan embassy here, said.

"So whatever happens will be within the framework of an agreement with the Paris Club which will take place after we have this Poverty Reduction and Growth Facility tied up," he added.

The Paris Club is an informal group of creditor countries that meets when an indebted country is having trouble making payments on its debt to members of the club. The debtor country then attempts to renegotiate terms of its debt.

Pakistani finance officials are expected in Washington next week for talks with the IMF.

On September 26, the Washington-based lender is tentatively scheduled to discuss the final review of Pakistan's $596 million standby loan with the IMF which is due to expire on September 30. If Pakistan passes the review, it will pave the way for the release of $130 million. Pakistan is then hoping to reach agreement on the new PRGF program.

After that, Pakistan -- which borders Afghanistan where Osama bin Laden, the prime suspect in the attacks, has lived for a number of years -- will be able to go to the Paris Club to negotiate agreements on its outstanding debt.

Negotiations with the Paris Club are conditional upon the debtor having a deal with the IMF. As part of the fund's assessment of a country's economy, it makes recommendations to the Paris Club about how much the country needs to reschedule or reduce its debt by to make it sustainable.

Pakistan has already had one agreement with the Paris Club this year in January, but that deal was tied to the expiring stand-by program so a new agreement has to be reached.

Earlier on Friday, a US diplomat said the United States will sign an agreement next Monday in Islamabad for rescheduling $600 million in Pakistani debts as part of $1.6 billion Paris Club debt being rescheduled this year.

This deal is an outstanding one already arranged in the context of the Paris Club at that January meeting.

After the Paris Club has agreed a broad set of terms for a debtor, the country must then also reach bilateral agreements with all the individual country creditors in the club.

This is because the Paris Club is informal so the broad agreement is not legally binding. The bilateral pacts are used to hammer out exact details and can often be completed several months after the initial Paris Club deal.

The $600 million deal that Pakistan will sign on Monday is the outstanding bilateral agreement with the United States left over from the original accord in January.

Under the January deal, Pakistan qualified for a rescheduling of its debt. But the heavily-indebted country is now hoping for more generous terms with the Paris Club to ease its debt payment woes in the next round of negotiations. This would probably include some debt forgiveness.

"What we'd be after is something that imparts sustainability to the debt burden and to ensure that Pakistan doesn't have to go in for repeated rescheduling," Agha said on Monday. "Up till now we have just had Houston (rescheduling) terms and Pakistan has always said its debt burden is something that is a problem."

If the majority of members of the Paris Club for Pakistan did not want to offer better terms, it could seek a bilateral deal with sympathetic countries like the United States outside the framework of the club.

But this kind of deal would require special appropriations and discussion in US Congress so it is rarely used. There is a precedence, however. In the 1990s, the United States came to an arrangement with Jordan outside the Paris Club because of that country's participation in Middle East peace talks.

At the time Jordan did have a deal with the Paris Club but the bilateral pact with the United States was more generous than the broad terms of the Paris Club agreement so the two countries left the usual negotiating parameters of the club.

The most generous debt relief terms at the Paris Club are linked to the IMF and World Bank's Heavily Indebted Poor Country (HIPC) program. But even though the economic indicators for Pakistan are comparable to those of countries in the HIPC program, the country is not seeking to join it because it cuts off access to some other types of credit.

"What I would say is that we have not sought HIPC terms," Agha said on Monday. "What we would like is a program that ensures a quick economic recovery with poverty alleviation that does not cripple Pakistan's access to other lending."