Pakistan's Bid for Chinese Cash

Washington Post | Pakistan's financial problems go back at least a year, with current and past administrations borrowing from the central bank to sustain generous state subsidies on gasoline and diesel. As global oil prices surged, the government of former President Pervez Musharraf curried favor with average Pakistanis by having the state absorb the shocks. Musharraf ousted a democratically elected government in 1999 and ruled until a civilian coalition was voted into office last spring, headed by Prime Minister Yousaf Raza Gillani. The government forced Musharraf from the presidency in August, electing Zardari as his replacement in September.

U.S. military and intelligence officials fear that Pakistan's increasingly precarious economy will compound an already unstable political situation and undermine military cooperation. Both al-Qaeda and the Taliban leadership are located in the rugged, economically depressed region along Pakistan's western border with Afghanistan. The Bush administration and Congress have been shaping a long-term economic and military assistance package for Pakistan, but there is no indication the United States is able to step in with a short-term financial lifeline.

Pakistan is going to the Chinese now "because you go to the guys with the money," a senior International Monetary Fund official said. "And right now, the Chinese are the ones with the money."

Securing as much as $6 billion would buy the government the breathing room it needs, analysts say, to begin a desperately needed overhaul of its budget to sustain Pakistan's battered economy in the longer term.

Pakistan's bid for Chinese cash underscores the potential of Beijing's $1.9 trillion in foreign reserves, the largest in the world, to boost its global influence. The government is now seeking as much as $3 billion in emergency assistance from China, as well as assistance from oil-rich Gulf countries including Saudi Arabia and the United Arab Emirates, according to a senior Pakistani official. Pakistan's central bank governor, Shashad Akhtar, is in Washington this week to review a draft plan for overhauling the country's finances with the International Monetary Fund, potentially paving the way for future aid.