411. Telegram From the Department of State to Multiple Posts1
11930. USNATO for Coon with Christopher party. Subject: US-Pakistan Talks: Economic Assistance and Debt. Ref: State 9863.2
1. (C–Entire text).
2. The following is an expanded description of those portions of the discussions held by Pakistan Foreign Affairs Adviser Agha Shahi in Washington January 12 that dealt with economic assistance and debt.
3. The Secretary, in his opening statement, described the 400 million dollar package for which we were seeking congressional authorization to provide to Pakistan in fiscal years 80 and 81. The package includes 100 million dollars each in Economic Support Funds and FMS credits in each of these two fiscal years.
4. Shahi’s presentation on the economic side was very brief, and stressed Pakistan’s impending balance of payments crisis, the adverse impact of the increasing price of oil, and the importance in this connection of the debt issue. He argued that Pakistan’s European creditors were looking sympathetically at a possible rescheduling, but were waiting for the US to move. He hoped we could give a positive response.
5. Ambassador Henry Owen then described the US approach to Pakistan’s economic problems in somewhat greater detail. He started from the premise that the US was concerned about Pakistan’s balance of payments problems and wanted to be supportive. He said that the World Bank was encouraged by recent trends in Pakistan’s economic policies, in particular the increased emphasis on agriculture, growing realism of agricultural prices, and the reduction in the budget deficit.
6. Ambassador Owen said that we wanted to be helpful in a number of ways. First of all, in programming our Economic Support Funds, we wanted to make sure that a “good part” of this went for quick disbursing activities, such as financing fertilizer imports. In this connection, it might be possible to include in the loan agreement some understanding on fertilizer prices. Second, in resuming economic assistance, we would become fully active members of the Consortium once again. In this connection, if the World Bank felt that Pakistan’s economic [Page 928] policies justified proposing an increase in the overall level of Consortium aid to Pakistan, we would be prepared to support it.
7. The third area which we had to consider, Owen continued, was debt relief. The normal Paris Club rule, he said required two pre-conditions. First, they required “imminent default.” Our aid would probably reduce the likelihood of imminent default as usually defined by the Paris Club, i.e. a situation in which arrearages had already begun. Owen said we would consult with other countries about this connection.
8. The second pre-requisite was a stabilization agreement with the IMF. This was essential. Owen advanced the “personal” view that it might be possible for Pakistan to work out a plan under which economic reforms were phased in and the percentage of debt the creditor country rescheduled could be adjusted in parallel with these economic reforms. In response to Shahi’s contention that the IMF mission last November had made a “favorable recommendation”, Owen pointed out that this was in the context of a first tranche drawing which is often largely unconditional.3 Stabilization should be considered in the context of a longer term agreement. The IMF, he said, had to be part of a rescheduling.
9. In winding up the economic discussion, both sides agreed that it would be advisable for senior economic officials of the US and Pakistan to get together and discuss these problems. Shahi suggested that the Pakistan Finance Minister visit Washington for this purpose, and we agreed that such a visit should take place in about two weeks.
- Source: National Archives, RG 59, Central Foreign Policy File, D800026–0917. Confidential; Immediate; Exdis. Sent to Islamabad, New Delhi, Jidda, Beijing, London, Paris, Bonn, Ottawa, USNATO, and Tokyo. Drafted by Schaffer; cleared in AID, EB/IFD/OMA, and S/S–O, and by Owen; approved by Peck.↩
- See Document 410.↩
- See footnote 2, Document 393.↩