International lenders must stop incentivizing Pakistan’s bad behavior.

The IMF and Pakistan are in talks again on another bailout package.  Pakistan is in need of a multi-billion dollar loan to, well, pay off another multi-billion dollar loan obtained from the same lender.  This time around though, the IMF appears to have made it clear to Pakistan that the “soft terms” of the bailout package will be provided only after a satisfactory review of Pakistan’s macroeconomic indicators:

The visiting IMF mission, headed by Jeffery Franks, on Wednesday communicated to Pakistan in plain words that no free lunch would be offered this time.

In talks with Finance Minister Ishaq Dar, the IMF officials clearly said soft terms for the next bailout package could only be extended after reviewing the country’s economic health and the assurance that plans of the government to stabilise the macro-economic indicators would materialise through a credible mechanism.

“If the IMF is not satisfied, then a bailout package will be offered with strict conditions,” said a senior official who was part of the negotiations with the visiting IMF mission. Pakistan and the IMF here on Wednesday initiated the crucial talks on the ailing economy and discussed the way forward keeping in view the proposed budget of the government. [The News]

To their credit, IMF’s discussions on a bailout package will no longer be only with Islamabad, but with the other four provincial governments as well.  This is especially important given the largely region-centric mandate of the May 2013 elections in Pakistan.

But at the same time, it is perplexing that much of the haggling is over the terms of the loan and not over the granting of the loan itself, which appears to be a foregone conclusion.  Surely, a country that cannot perform the fairly basic function of collecting taxes from its citizens and instead chooses to increase its (reported) defense budget by 10 per cent year-on-year, is incompetent, irresponsible or both.

And the less said about Pakistan’s benevolent financial grants to terrorist groups like the Jamaat ud-Dawa, the better.  Pakistan’s international lenders ought to reward good behavior, but not incentivize the status quo.   If the Soviet Union wasn’t too big to fail, neither is Pakistan.

DISCLAIMER: This is an archived post from the Indian National Interest blogroll. Views expressed are those of the blogger's and do not represent The Takshashila Institution’s view.