U.S. to Reward Pakistan with Billions

By Rory McCarthy, The Guardian, U.K.

Thursday September 20, 2001

Islamabad --American officials are drawing up plans for a major economic aid package to reward Pakistan for supporting a military operation against Osama bin Laden and Afghanistan's Taliban regime.

Wendy Chamberlin, the new US ambassador to Islamabad, is due to meet the biggest financial donors to Pakistan today to work out the details of an economic assistance plan.

Washington will ask donors including Britain's department for international development, the EU, the International Monetary Fund, the Asian Development Bank, the World Bank and the Japanese government to give Pakistan all the support they can for a significant new package.

"You will find that we will stand by our friends who stand by us," Ms Chamberlin said. "We are currently looking at any number of ways to be responsive to Pakistan as they have been responsive to us."

In particular the donors will be asked to help ease Pakistan's suffocating $37billion debt burden, aid sources said. Many of those debts are due for repayment in the coming weeks and Washington now wants all countries involved to quickly sign rescheduling agreements.

Ms Chamberlin will also ask donors to give a quick agreement for the release of the final tranche of a $596 millionIMF standby loan which runs until the end of this month. Washington now wants the IMF to sign a much larger, long-term loan which has been under discussion for several months.

The loan would be worth several billion dollars at a very low rate of interest.

General Pervez Musharraf, Pakistan's military leader, was handed a further incentive to continue his cooperation yesterday when the Japanese prime minister, Junichiro Koizumi, said that Tokyo will provide emergency financial aid to Pakistan and India as a reward for their cooperation with the US. Japan halted economic assistance to the two countries in 1998 in protest at their nuclear weapons tests.

"This is a new era and many new options are on the table," an American official said last night. In recent months, teams from the IMF have complained that the military regime has not done enough to improve revenue collection - only 2% of Pakistan's population pay any tax - or to reform corrupt institutions and loss-making nationalised industries.

Those complaints are now likely to be quietly forgotten.

The donors will also be told the list of demands Washington has sent to Islamabad's military regime for assistance in the hunt for Bin Laden.

General Musharraf is facing growing protests from Islamic clerics who believe that Bin Laden is being unfairly singled out and that Islamabad should support the Taliban regime against the Americans.

There is no doubt Pakistan wants a reward from the US in return for risking an Islamic backlash. Shaukat Aziz, Pakistan's finance minister and a former Citibank executive, said: "As the relationship grows, I am sure economic ties will grow, which could mean better market access, better treatment on debt rescheduling and more money."

Shortly after the Soviets invaded Afghanistan in 1979 the United States gave a $3.2bn package in return for Pakistan's support in fighting the war of resistance.

More followed but money dried up in the early 1990s as sanctions were imposed in an effort to curb Islamabad's developing nuclear programme. Action was taken again after the military coup two years ago.

In the weeks before the attacks, Washington was preparing to start lending again with a small aid package worth around $3m.

Islamabad is now hoping the sanctions can be lifted. For the past decade investment in development has been largely ignored, and one-third of the country's 140m people live in poverty.

"This new aid could be the opportunity to breathe life into Pakistan's ailing social sectors after a decade of neglect," one European donor said last night.

The Guardian, U.K.