Atlantic Council

On December 3 the Atlantic Council, in collaboration with Asia Society Washington, hosted a panel discussion on the Pakistan economy. This event was the second in a series of events about Pakistan; the first, on October 22, dealt with civil-military relations in the country.

The head of the International Monetary Fund (IMF) has called for more funding if the organization is to play an effective role in spearheading a global recovery. Dominique Strauss-Kahn told the BBC that at least $100bn (£68bn) of extra funding was needed over the course of the next six months. This statement came after Japan announced a welcome commitment to provide $100bn to the IMF. The BBC reports:

"The number of countries having problems at the same time has dramatically increased and they come to the IMF asking for support," Mr Strauss-Kahn said. "So we need more resources." He described the Japanese prime minister's offer on Friday as a "huge step forward", saying it meant the IMF now had "enough resources to address the problem we are facing today".

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The weekend's G20 meeting brought together leading industrial powers, such as the U.S., Japan and Germany, and emerging market countries like China, India, Argentina, Brazil and others - representing 85% of the world's economy and two-thirds of its population. The communique issued after the summit stressed the International Monetary Fund's "important role in crisis response", welcomed its new short-term liquidity facility, and urged the ongoing review of its instruments and facilities to ensure flexibility.

Strauss-Kahn told correspondents that while the IMF was able to provide assistance to countries now, the real challenge would be faced six months down the line. The Japanese commitment is welcome, but more like it will be needed if the IMF is to continue to fulfill its function. And if the Japanese can commit $100bn despite facing their first recession in seven years, then what excuse do other G20 countries have?

Pakistan has agreed to the restructuring necessary to secure a large IMF loan, Reuters reports:

Pakistan has agreed with the International Monetary Fund (IMF) on a stand-by credit facility of at least $7.6 billion to stave off a balance of payments crisis, the country's top economic adviser said on Saturday.  The international community is concerned that an economic meltdown in the nuclear-armed state could play into the hands of al Qaeda and allied Islamist militant groups seeking to destabilize the Muslim nation of 170 million.

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The rupee has lost 23 percent in value against the dollar since the start of the year, and foreign investors have fled a stock market which is down around 35 percent. Stocks would have fallen further but for an artificial floor authorities placed under the Karachi market's benchmark index at the end of August, and almost certainly will fall further once the floor is removed.

On Wednesday, the IMF approved Ukraine's $16.5 billion loan after weeks of negotiation. The fund will immediately disburse $4.5 billion, Reuters said.  The loan also includes changes to Ukraine's monetary and exchange rate policies aimed at curbing the impact of the global financial crisis.

Approval of the loan in Ukraine's parliament was stalled for weeks amid paralyzing political haggling that has almost become commonplace.  The inability of Ukraine's parliament to act had led to serious speculation that the economy would enter a downward spiral.  Moreover, the hryvnia hit historic lows last week.

Financial officials from Denmark, Norway, Sweden, and Finland met in Stockholm to discuss their planned contributions of around $4 billion to Iceland's bailout package.  The meeting is a further sign that the Nordic countries are all but ready to proceed as soon as the IMF approves its own economic stabilization loan of $2 billion, which the FT says might happen as early as the end of this week.

Iceland will use the money to beef up its foreign exchange reserves with the aim of restoring confidence in its ailing currency, the króna.  The collapse of the country's banking system was ruinous, with the economy projected to contract as much as 10 percent, inflation expected to reach at least 20 percent, and benchmark interest rates at a record high of 18 percent!

The collapse even ignited debate over whether Iceland should seek EU membership.  In recent polls, public support for the idea jumped from around 50 percent before the financial crisis to about 70 percent at present.  Many Icelanders feel the effects of collapse could have been mitigated or even averted had the country been an EU member and part of the eurozone.

British PM Gordon Brown said Sunday that he expects the Saudi government to contribute to IMF bailout funds in exchange for more imput.   More generally, he believes oil-rich Gulf states should be among the major donors to the fund.  

AP business writer Jan Wardell reports that "Any funds from Gulf states are unlikely to be pledged before a meeting of G-20 nations to hammer out potential reform of the global financial system to prevent a repeat of the current crisis, scheduled for November 15 in Washington D.C."

Ukraine's parliament yesterday approved legislation that clears the way for a 16.5 billion dollar (12.8 billion euro) International Monetary Fund crisis loan, AFP reports.  The legislation creates a stabilization fund to bail out banks and other firms unable to service foreign loans, guarantees for bank deposits, and other measures insisted upon as a condition for IMF assistance.

RIA Novosti notes that IMF approved the loan, conditional on this legislation passing, last Sunday.  Ukraine has been among the countries hardest hit by the crisis, which sparked on run on their national banks, a loss of 70% of the value of its stock exchange, and a record low value for its national currency, the hryvnia, against the dollar.

The IMF is to create an emegency relief fund to help emerging economies through the current financial crisis, reports BBC. IMF officials said a maximum of around $100bn (£61bn) would be available. The Group of 24 developing countries, which includes nations from Latin America, Asia and Africa, had requested such a development earlier this month.

Nations will be able to borrow up to five times their IMF quota, which is broadly determined by size of their economy. Usually countries are only able to access three times their quota. 

The outline of a $16.5 billion IMF loan to Ukraine was released over the weekend, according to the Financial Times.  For IMF standards, the loan is large relative to Ukraine's economy, but the fund's board, which has yet to approve the package, will only consider the loan after Ukraine's parliament adopts emergency legislation to improve confidence in its financial system.

With concerns growing over the country's fragile banking system and the hyrvnia's steady decline against the dollar, the package includes measures to protect over 170 banks in Ukraine.  However, parliament still has not enacted legislation after over a week of debate, raising serious doubts about the country's economic outlook.

In recent weeks, the IMF has been in negotiations with several countries over rescue packages to counter the global financial crisis, including Iceland, Hungary, and Pakistan.  Iceland received a $2 billion loan on Friday, making it the first Western country to receive support from the fund since the UK in 1976.

Pakistan is in informal discussions with the International Monetary Fund and other bodies over a $10bn-$15bn international support package designed to stabilize its economy and avoid a balance of payments crisis, reports the Financial Times. A little over half the total would come in the form of an IMF loan. The balance would be provided by the World Bank, the Asian Development Bank and bilateral donors, potentially including Saudi Arabia. Pakistan is also seeking funds from China. Falling foreign currency reserves have shaken investor confidence in recent weeks.