Pakistan expects long-term debt relief, new aid from Japan

Asian Economic News, Nov 26, 2001

ISLAMABAD, Nov. 22 Kyodo

Pakistani Finance Minister Shaukat Aziz expressed hope Thursday that Japan will provide long-term debt relief and resume normal yen loans to Pakistan to help it deal with losses stemming from the Sept. 11 suicide attacks on the United States and the ongoing U.S.-led military campaign in Afghanistan.

In an interview with Kyodo News, Aziz said he intends to discuss bilateral economic cooperation and related issues with Japanese Foreign Minister Makiko Tanaka, who will arrive in Pakistan on Friday for a four-day visit.

Aziz visited Japan in October as a special envoy of president, Gen. Pervez Musharraf, after Pakistan joined the international coalition against terrorism. Before his visit, Japan lifted economic sanctions against Pakistan imposed after the country conducted nuclear tests in May 1998.

Aziz said Pakistan has informed the Japanese government that it will observe a moratorium on nuclear testing, was against the transfer of nuclear technology and had strict controls in place on its nuclear assets.

Pakistan is providing logistic support, sharing of intelligence and use of its airspace to the U.S.-led international coalition against terrorism.

Aziz said Pakistan's economy would pay a price for the current international situation by way of lower revenue, lower exports, lost foreign investment and a drop in investor confidence.

He estimated the country's economic losses at between $2 billion and $3 billion.

While Islamabad welcomes the measures already taken by the international community to mitigate the country's losses, it has yet to be fully compensated by its donors, he said.

The United States has committed $1 billion in emergency aid to Pakistan and Japan has announced $300 million in grant aid to offset the adverse impact of the situation on the Pakistani economy, which was already undergoing structural reforms.

Pakistan is negotiating a medium-term loan package with the International Monetary Fund (IMF) under the Poverty Reduction and Growth Facility for consideration by its board in the first week of December.

Aziz said Pakistan will hold negotiations with bilateral creditors for a long-term rescheduling of its $38 billion external debt including $6 billion owed to Japan after the approval of the IMF package.

''I think that the government of Japan realizes that an economically strong Pakistan would be able to help fight terrorism effectively. A strong Pakistan is good for the region, good for Asia, good for the world,'' he said.

Pakistan has been working on a reform program agreed on with the IMF and World Bank in 1999.

Nearly half of Pakistan's $38 billion external debt is owed to international financial institutions such as the World Bank, the Asian Development Bank and the IMF, and the remaining half to bilateral donors.

Aziz said Pakistan is requesting the bilateral donors to provide fiscal support, new aid, debt relief and access for Pakistani products to their markets.

''We are looking for responsible borrowing based on needs and not excessive borrowing because excessive borrowing has put Pakistan in economic difficulties. I will not borrow and build projects which have no economic returns,'' he said.