Nancy Birdsall, Milan Vaishnav, and Danny Cutherall's op-ed piece on Pakistan and the IMF was featured in Foreign Policy's AFPAK channel.
From the Article
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.
Why would Pakistan, which has benefited this past year from high agricultural prices, but nonetheless is battling serious revenue problems and rising inflation, turn down big IMF money -- and while pressing ahead with its own reform package, avoid seeming to seek a fresh new round of IMF money?
Pakistan walked away from the IMF because a weak coalition government simply could not deliver sufficiently on the reforms it had promised, despite the apparent desire of the country's economic policy team to do so. Attempts by the civilian government to lower subsidies or raise taxes have been met over the past year with street protests and threats of further upheaval, and unsurprisingly, resistance on the part of the legislature.