Cash-Strapped Pakistan Turns To World For Bailout The government of Pakistan is being drained of its hard currency reserves as the value of the dollar rises. The country is seeking foreign investors for a bailout but is trying to avoid the International Monetary Fund, whose money comes with rules attached.
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Cash-Strapped Pakistan Turns To World For Bailout

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Cash-Strapped Pakistan Turns To World For Bailout

Cash-Strapped Pakistan Turns To World For Bailout

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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This is Day to Day. I'm Alex Chadwick.


And I'm Madeleine Brand. In a few minutes, we talk with African Americans about this election. What if Barack Obama wins? What if he loses?

CHADWICK: First, we're going to Pakistan. A powerful earthquake struck the southwestern part of that country, killing at least 150 people and leaving thousands homeless.

BRAND: The tragedy is only more bad news from Pakistan. It's facing its own financial crisis, fast losing its reserves of cash. The Pakistani government says its efforts to fight terrorism could be at risk unless the world comes through quickly with a big bailout.

CHADWICK: Which, normally, the world would through the International Monetary Fund. It's expected to help in situations like this. But as NPR's Tom Gjelten reports, Pakistan says that it would prefer to get help elsewhere.

TOM GJELTEN: Pakistan's financial troubles began when people there took out loans in U.S. dollars. They changed the dollars into rupees and spent them in Pakistan, but the value of the U.S. dollar has since gone up. So, when it's time to change those rupees back into dollars and pay off the loans, it costs a lot more.

The Pakistani government has been spending its own dollar reserves buying rupees in order to keep up demand for the currency. Kenneth Rogoff is a former chief economist at the International Monetary Fund.

Dr. KENNETH ROGOFF (Public Policy and Economics, Harvard University): If they allow their own currency to tank, then all these other individuals, corporations are going to be broke because they borrowed in foreign currency, their income is in domestic currency, and if the foreign currency goes way up, it makes the debt burden impossible.

GJELTEN: But a government can prop up its currency only so long. Pakistan is spending its dollar reserves at about a billion dollars a month and desperately needs a bailout. Husain Haqqani, the Pakistani Ambassador to the United States, this week asked people in the world's capitals to remember Pakistan's role in the global war on terror and come now to its rescue.

Ambassador HUSAIN HAQQANI (Pakistani Ambassador to the United States): If they can give billions, hundreds of billions of dollars in economic bailouts, then certainly, a nation that is critical to global security also deserves international assistance in terms of being able to reshape its economy and get it back on an even keel.

GJELTEN: The situation is urgent. In Islamabad yesterday, German Foreign Minister Frank-Walter Steinmeier said Pakistan needed help in the next six days. Steinmeier said it should come from the International Monetary Fund, but the IMF often insists that governments cut spending as a condition for getting help. Yesterday, the Pakistani government said it could ill afford the IMF conditions. It has sought help instead from countries such as China and Saudi Arabia that are sitting on big cash reserves of their own.

In other cases, oil-rich countries like Venezuela and Russia have stepped up to help countries in need. David Rothkopf of the Carnegie Endowment for International Peace says the rise of these new donor nations means the IMF is no longer the only place a cash-strapped country can turn.

Mr. DAVID ROTHKOPF (Visiting Scholar, Carnegie Endowment for International Peace): And since the IMF has been so insistent on tough conditions that ultimately were seen in many countries as being socially difficult, it's appealing for people to find these other sources.

GJELTEN: Rothkopf describes what's happening as a rebalancing of global soft power.

Mr. ROTHKOPF: Because the ultimate power that doesn't come at the point of a gun comes at the point of a check writer's pen, and the community of check writers is getting bigger and bigger.

GJELTEN: So, the IMF faces new competition in the bailout business, but to some extent, the fund welcomes it. Former IMF economist Kenneth Rogoff, now at Harvard University, points out that the list of countries needing billion-dollar bailouts is now so long that the IMF won't be able to help them all.

Dr. ROGOFF: If you just look at a country like Turkey or Brazil, both of whom are having difficulties, the kind of number one might need is 100 billion or more. And so, the IMF's not in a position to come in with overwhelming force. It really can't stop the panic by itself.

GJELTEN: Rogoff says addressing the global financial crisis will take cooperative, coordinated action by individual donor countries and by international institutions like the IMF. And the countries in need may not be able to pick and choose their rescuer. Neither China nor Saudi Arabia, nor any other country has yet offered Pakistan the financial help it needs. Tom Gjelten, NPR News, Washington.

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