Sat, Sep 22, 2001 page19

• Business Focus: US dangles aid carrot in drive for retaliation

  Several countries are feeling optimistic about support from the International Monetary Fund as the US sets about boosting its anti-terrorism measures

  • BLOOMBERG
  • • 
    • 
    • 

  Pakistan is sending negotiators to Washington next week to try to secure an International Monetary Fund loan the government needs to emerge from a US$37 billion debt trap. They have reason for optimism.

  Pakistan, Turkey, Indonesia and possibly even Iran are among Muslim nations seen gaining as the US uses economic leverage to bolster diplomatic and military efforts to retaliate for the terrorism that killed thousands in New York and Washington.

  "There will be a geopolitical overlay to global economic and financial policies in the next year or so, the likes of which we haven't seen since World War II," said Charles Dallara, a former US representative on the IMF's board.

  Countries such as Pakistan and Indonesia "may now be seen through a very different prism" by the US and Europe, he said.

  The Bush administration and Congress are discussing a possible end to economic sanctions the US imposed on Pakistan in 1998 after the country carried out nuclear weapons tests, to reward the Asian nation for backing anti-terrorism efforts.

  "Clearly they've earned different treatment from us," said Senator Mitch McConnell, a Republican from Kentucky.

  Indonesia, the largest Muslim nation, yesterday was promised aid, trade and investment worth as much as US$657 million by the US after President Megawati Soekarnoputri met President George W. Bush to offer her country's support against terrorism.

  Turkey's top economic official said he expects more aid for his country, a US ally for decades.

  The US exerts influence over IMF and World Bank lending decisions because it's the largest shareholder, said Dallara, now managing director of the Institute of International Finance, a bankers' association.

  "As someone who spent five years on the IMF board, I can tell you that political pressures on IMF lending is a day-to-day matter," he said. "Rarely a week went by when I didn't get a call from the State Department, wanting to make sure I was mindful of the needs of a particular country." A Pakistani official denied his country was seeking a political payoff.

  "We're not looking for special dispensation," said Tanwir Agha, an economic minister based at the Pakistani embassy in Washington. "What we're seeking is based entirely on economic parameters." Agha and IMF officials have declined to say how much money Pakistan is seeking from the fund. The country is scheduled to receive next week a final disbursement from a $US596 million credit line it obtained last November.

  Turkey, which has amassed US$19 billion of loans from the IMF during the past two years to support efforts to cut inflation, repair its banking system and reduce government involvement in the economy, signaled it may appeal for additional support.

  "International institutions have to think through what cost this will impose on various actors in the world," Turkish Economy Minister Kemal Dervis told investors in London, referring to the political price of backing the US.

  Dervis' comments might have been disregarded before the Sept. 11 attacks, said Kasper Bartholdy, a fixed-income strategist at Credit Suisse First Boston in London.

  "Most people in the market thought we were at the end of the rope in terms of new money from the IMF," said Bartholdy, who worked for the fund from 1986 to 1991.

  "Turkey has gained huge strategic importance," he said.

  "It's no longer ridiculous to think that if there's an even bigger crises there will be more money from the IMF, or even directly the US." The IMF, with almost US$100 billion available for loans to developing countries, said it's weighing a response.

  "We are in a difficult situation," said Horst Koehler, the IMF's top official. "It would not make sense here to paint rosy pictures." Koehler said, however, he's wary of countries that try "to take advantage of a difficult situation."

  "It is premature now to announce big new programs," he said.

  "To announce now something like we stand ready with billions or further money, it would confuse people." Iran may benefit if it offers at least diplomatic support to the US, which helped freeze loans to the country by the World Bank for seven years.

  Iranian condemnation of the terrorist attacks on the US may limit resistance by the US to loans, said Mohamed Khazaee, an Iranian adviser to the World Bank's executive board.

  "The environment has changed positively, since the unfortunate incidents," he said.
• Most Popular

  • 1

    Palmeiras hopes for club cup win

  • 2

    Magnitude 6.4 earthquake hits Hualien County

  • 3

    Taiwan to see nine extended holidays in 2026

  • 4

    Hegseth outlines Chinese threat

  • 5

    Pegatron ranks last in Greenpeace report