The International Monetary Fund may soon be caught in the crossfire of a fight between two of its biggest contributors, a clash that has only intensified in recent days.
The Trump administration is balking at the prospect of a major bailout loan for Pakistan, saying that much of the debt was run up by accepting billions of dollars in Chinese infrastructure investment as part of President Xi Jinping’s ambitious Belt and Road Initiative.
Islamabad sees the $57 billion China-Pakistan Economic Corridor project as critical to its economic development, and Mr. Xi reportedly sees the Pakistan project as a model for future Chinese overseas investments across Asia, Africa and Eastern Europe. With just $9 billion in foreign reserves to service mounting debts, Islamabad was widely expected to appeal to the IMF for a bailout.
Secretary of State Mike Pompeo at the recent Asian summit in Singapore unexpectedly came out strongly against any IMF aid to Pakistan to repay Chinese loans. The Trump administration has gained fresh reinforcements with a letter signed by a bipartisan group of 16 U.S. senators.
The lawmakers cite concerns that Beijing is using the Belt and Road Initiative to ensnare other countries in its web by gaining financial and political sway over strapped debtor nations such as Pakistan.
“The goal for the [Belt and Road Initiative] is the creation of an economic world order ultimately dominated by China,” the letter to Mr. Pompeo and Treasury Secretary Steven T. Mnuchin read in part. “It is imperative that the United States counters China’s attempts to hold other countries financially hostage and force ransoms that further its geostrategic goals.”
Christine Fair, associate professor for the Peace and Security Studies Program at Georgetown University, said the Trump administration is right to argue that an IMF bailout for Pakistan would have U.S. citizens indirectly helping make Chinese lenders whole.
“There’s a very real likelihood that if we do not cut [Pakistan] off at the IMF, the American taxpayer, who is the biggest contributor to the IMF, will be subsidizing Pakistan’s CPEC loans,” Ms. Fair told a Hudson Institute panel on Pakistan this week.
The IMF issue could soon prove another major irritant in U.S.-Pakistani relations, which are already strained by President Trump’s criticism of Islamabad’s efforts in the fight against terrorist groups in neighboring Afghanistan.
Pakistan is in a political transition as Prime Minister-elect Imran Khan prepares to take office, but the government has made clear its unhappiness with the Trump administration’s pressure campaign on the IMF and what it said were “one-sided, distorted” critiques of its economic relationship with China.
“China stepped forward to support Pakistan’s development at a time when foreign investment had dried up and economic activity was being crippled by energy shortages and infrastructure gaps,” the Pakistani government said in a statement Wednesday.
Asad Umar, tipped by many to be finance minister under Mr. Khan, told reporters in Islamabad this week that a decision on whether to seek IMF help would be made by the end of September. He criticized the outgoing government’s “lack of transparency” in the China-Pakistan Economic Corridor program but said the next government has no plans to cancel the Chinese relationship.
“There is no question of going back and reopening those commitments,” Mr. Umar told the Agence France-Presse news agency.
The U.S. is the largest contributor to the IMF and has just 17.68 percent of the voting rights in major decisions. China is third, just behind Japan, and controls 6.49 percent of the vote. Pakistani analysts say American opposition to the bailout would effectively kill the proposal.
The senators’ letter cites private analysts’ concerns that recipients of Belt and Road Initiative money often find themselves deeply in debt to China and forced to make painful concessions. In one oft-cited case, the government of Sri Lanka was forced to grant a Chinese-run firm a 99-year lease on the port of Hambantota when it could not repay Belt and Road loans.
Some fear Pakistan may be forced to make a similar concession on the strategic port of Gwadar on the Indian Ocean, which is being developed largely with Chinese investor money.
“Make no mistake: We will be watching what the IMF does,” Mr. Pompeo told the financial network CNBC last month. “There’s no rationale for IMF tax dollars and associated with that, American dollars that are part of the IMF funding for those to go to bail out Chinese bondholders or China itself.”
Pakistani officials argue that their indebtedness to China is much smaller than public estimates, and some analysts in Islamabad say an IMF rejection would force Pakistan to borrow directly from China, only increasing Beijing’s leverage.
“Unfortunately, there are not many countries or funding organizations that can offer Pakistan a generous financial bailout,” researcher Adnan Aamir wrote in an opinion piece Wednesday for the South China Morning Post. “Thus, Pakistan would be left with no choice but to ask for help from its all-weather friend China.”
⦁ Dan Boylan and Connor Foarde contributed to this report.