ISLAMABAD, Pakistan, (AP) – Pakistan, the front-line state in the battle against Islamist terrorism, has won final approval for a $7.6 billion loan from the International Monetary Fund to help stave off a possible economic meltdown.
The IMF said a first installment of $3.1 billion will be transferred immediately to the nuclear-armed country, which is battling surging violence by Taliban and al-Qaeda-linked militants and is increasingly seen in the West as key to stabilizing neighboring Afghanistan.
The IMF said the Pakistani economy had been badly hit by the worsening security situation, higher oil and food import prices and the global financial and credit crisis.
“By providing large financial support to Pakistan, the IMF is sending a strong signal to the donor community about the country’s improved macroeconomic prospects,” said IMF acting Chairman Takatoshi Kato in a statement released after the decision Monday in Washington, where the fund is based.
Pakistan’s young government had been reluctant to go to the IMF but had little choice after close allies — the United States, China and Saudi Arabia — turned down pleas for significant bilateral aid.
In mid-November, the IMF announced it had reached a preliminary agreement on the deal.
Opposition and nationalist lawmakers have criticized the government for turning to the fund, saying the IMF will impose austerity measures that will hurt ordinary Pakistanis, two-thirds of whom live on $2 dollar a day or less.
“This IMF loan the government is getting is in fact poison, and the nation has been forced to drink it,” said Javed Hashmi, a senior figure in the main opposition party, told reporters.
The loan removes the most pressing risk facing the country — that it would not be able to repay dollar-denominated government bonds due to mature early next year, said Muzammil Aslam, an economist at the Pakistani securities firm KASB.
Aslam and other economists said Pakistan’s government had already made some tough decisions, such as hiking the prices of fuel and electricity.
Many Pakistani economists and commentators argued that the country had no choice but to turn to the IMF. They say it is now critical that the money is well spent — always a worry in corruption-prone and chaotic Pakistan.
The IMF said in return for the money Pakistan had agreed to phase out energy subsidies, boost taxes and implement other money saving reforms. It said the World Bank would put in place a “comprehensive” social security net to shield the poor from any cuts.
In an interview with The Associated Press earlier this month, President Asif Ali Zardari said the loan was “a difficult pill, but one has to take medicine to get better,”
The loan will immediately boost Pakistan’s foreign currency reserves, which have seen a rapid decline that has seen the value of the rupee fall some 20 percent since March, and enable it to pay off foreign-denominated debt due to mature soon.
The currency has clawed back some ground in recent weeks as it became clear that the IMF would step in.
The country is also wracked by power cuts, the costs of essential goods are soaring and the stock market has plummeted amid waning investor confidence.
Pakistan is one of a number of countries including Hungary and Ukraine that has sought IMF assistance in the wake of the global credit crunch. However, its strategic importance in the U.S.-led war against terrorism makes its financial and political stability particularly critical for the international community.
U.S. officials say that militants sheltering in its lawless northwest are behind much of the violence in Afghanistan, where a resurgent Taliban threaten the success of the U.S.-led mission there seven years after the invasion.
They also say that al-Qaeda’s leadership — including Osama bin Laden — has managed to regroup in the region, and is possibly plotting attacks on the West.
Pakistan’s army is batting militants in several parts of the northwest but some Western analysts and officials suspect elements within the security forces of sympathizing with the extremists.
Officials in Peshawar said Tuesday that gunmen kidnapped a Pakistani working on a U.S.-funded aid project in the region.
Police said the attackers seized the man from a convoy of relief vehicles in the Dir region on Monday. Other aid workers escaped after villagers fired on the attackers.
The U.N.’s World Food Program said the victim was distributing wheat and cooking oil on its behalf. WFP spokesman Amjad Jamal said the food was paid for by the U.S. government.
Jamal said it was unclear if Taliban militants were behind the kidnapping and that WFP had received no demands.