Taking American money

Taking money from the USA will not help Pakistan get away from the IMF

Pakistan has asked the USA formally to accord it a $10 billion stabilization fund, but it seems to be agreed by most economists that this will not act as a substitute for the IMF programme at present, and will not presumably allow it to avoid having recourse to the IMF after its current programme ends. It is perhaps no coincidence that another country with a stabilization fund is Argentina, with a $20 billion stabilization fund. Argentina is often pointed to as a country which has been unable to wean itself away from the IMFafter its December 2001 default, and which in 2022 obtained an Extended Fund Facility of $44 billion, a programme on which it still is. The credit line does not contribute to its liquidity, but shows the IMF that its money is safe. It seems that Pakistan is to get another IMF programme, for which the stabilization fund will be used to bolster its case.

It is not even clear that the USA will grant this request. Argentina is very important to it, mainly because it has been a major supporter of the USA in its own part of the world, and the US banks took a big hit when it defaulted because od the exposure they had. If Argentina defaults again, so might the USA. Also, what the stabilization fund does is offer support to bilateral trade with the country concerned: in short, the facility would be aimed at the IS development and import of rare-earth metal ores and other such mining products.

The government may also like to consider the political cost. The USA is not particularly known for being anything but transactional in its relationships with other countries, especially under President Donald Trump. What would be the political cost extracted for this concession? It would not be merely a reward for its hard work on the Iran deal, especially after that deal has collapsed. Joining the Abraham Accords? That is very much a possibility. However, the government should realise that it must not sell you a vital interest merely for money. What has been done with such sales under Zia and Musharraf? Debt traps are not designed to be escaped. And this stabilisation fund will prove no different.