By Saeed Shah and Bill Spindle
A pile of coal at a Chinese-owned power plant in Sahiwal, Pakistan, last year.
Pakistan’s growing debt to China is emerging as a point of contention with the U.S., with Islamabad rejecting Washington’s concerns Tuesday as the South Asian nation’s incoming leaders prepare to possibly seek an international financial bailout in the coming weeks.
U.S. Secretary of State Mike Pompeo was asked on Monday about the issue of Chinese loans to Pakistan as part of China’s “Belt and Road” infrastructure program, if Pakistan approaches the International Monetary Fund for a bailout.
The U.S. is the largest shareholder and contributor to the IMF, a multilateral international organization that loans money to governments to help them manage financial difficulties.
“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—or China itself,” Mr. Pompeo said in an interview on CNBC.
IMF funds generally go directly to a country’s central bank for use in managing foreign exchange shortfalls and stabilizing government finances.
China has a $62 billion infrastructure building program for Pakistan, known as the China Pakistan Economic Corridor, of which some $19 billion, mostly in roads and power plants, is under way or completed.
“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—or China itself,” Mr. Pompeo said in an interview on CNBC.
IMF funds generally go directly to a country’s central bank for use in managing foreign exchange shortfalls and stabilizing government finances.
China has a $62 billion infrastructure building program for Pakistan, known as the China Pakistan Economic Corridor, of which some $19 billion, mostly in roads and power plants, is under way or completed.
The projects are either financed by loans from China or, in the case of power stations, an obligation to buy the electricity produced for the next 30 years at a price that covers the financing of the plants and a return on the investment.
“First and foremost it is totally wrong to link IMF package with CPEC. It is affirmed that Pakistan Government is fully committed to undertake and complete CPEC projects in their totality,” Pakistan’s Ministry of Finance said in response to Mr. Pompeo.
“First and foremost it is totally wrong to link IMF package with CPEC. It is affirmed that Pakistan Government is fully committed to undertake and complete CPEC projects in their totality,” Pakistan’s Ministry of Finance said in response to Mr. Pompeo.
“Third parties cannot weaken our collective resolve to make CPEC a success story.”
Pakistani and Chinese officials have long suspected the U.S. of trying to undermine CPEC and other Belt and Road projects, which seek to extend Beijing’s influence through economic ties.
Pakistani and Chinese officials have long suspected the U.S. of trying to undermine CPEC and other Belt and Road projects, which seek to extend Beijing’s influence through economic ties.
Pakistan is increasingly reliant on China.
While the U.S. has said it supports the Chinese program in Pakistan, it has also warned of “debt trap diplomacy” from the Belt and Road initiative more broadly.
Mr. Pompeo’s comments came after he delivered a major speech to the U.S. Chamber of Commerce that touted the U.S.’s commitment to invest heavily in Asia through U.S. companies as an answer to Belt and Road.
Mr. Pompeo stressed that U.S. investment would generate commercially profitable returns both for U.S. companies and the countries they invest in, compared with what he said were Chinese projects that are skewed toward benefiting China.
U.S. Secretary of State Mike Pompeo spoke in Washington on Monday.
Coming off an election last week won by political outsider Imran Khan, who is expected to be sworn in as prime minister within a few weeks, Pakistan faces a growing fiscal and balance-of-payments crisis and will almost certainly need a bailout from one or more countries and international financial institutions.
Mr. Pompeo’s comments came after he delivered a major speech to the U.S. Chamber of Commerce that touted the U.S.’s commitment to invest heavily in Asia through U.S. companies as an answer to Belt and Road.
Mr. Pompeo stressed that U.S. investment would generate commercially profitable returns both for U.S. companies and the countries they invest in, compared with what he said were Chinese projects that are skewed toward benefiting China.
U.S. Secretary of State Mike Pompeo spoke in Washington on Monday.
Coming off an election last week won by political outsider Imran Khan, who is expected to be sworn in as prime minister within a few weeks, Pakistan faces a growing fiscal and balance-of-payments crisis and will almost certainly need a bailout from one or more countries and international financial institutions.
The country has received more than a dozen past bailouts from the IMF.
A senior Pakistani official recently told The Wall Street Journal that the country needed a $8 billion to $10 billion bailout, adding that there are “few options” other than the IMF.
The Chinese projects are providing some infrastructure for Pakistan, particularly power plants that have helped ease shortages and allowed manufacturers to grow production.
A senior Pakistani official recently told The Wall Street Journal that the country needed a $8 billion to $10 billion bailout, adding that there are “few options” other than the IMF.
The Chinese projects are providing some infrastructure for Pakistan, particularly power plants that have helped ease shortages and allowed manufacturers to grow production.
But Pakistan has to repay the Chinese loans, the details of which haven’t been made public.
When the new Pakistani government is formed in the coming weeks, tackling the fiscal problems will be its first priority, according to economists and politicians.
When the new Pakistani government is formed in the coming weeks, tackling the fiscal problems will be its first priority, according to economists and politicians.
Asad Umar, a lawmaker just re-elected for the victorious Pakistan Tehreek-e-Insaf party who is tipped to become finance minister, has said that the government will likely need a bailout.
Possible sources of emergency funds include not only the IMF but also Saudi Arabia, which has helped Pakistan in past crises, and China, either in conjunction with the IMF or not.
Beijing has provided Pakistan with more than $3 billion in short term loans in recent months, in addition to the infrastructure funding, and some Pakistani officials have suggested that it could provide a large rescue package for the country.
Possible sources of emergency funds include not only the IMF but also Saudi Arabia, which has helped Pakistan in past crises, and China, either in conjunction with the IMF or not.
Beijing has provided Pakistan with more than $3 billion in short term loans in recent months, in addition to the infrastructure funding, and some Pakistani officials have suggested that it could provide a large rescue package for the country.
The Chinese ambassador met Mr. Khan on Monday in Islamabad.
“We will be evaluating all our options. At this stage we have not even decided to go to the IMF,” Mr. Umar said, after Mr. Pompeo’s comments.
Senior officials from Mr. Khan’s party said they are eager to maintain relations with China while rebuilding economic ties with the U.S. that have been strained in recent years.
Chinese officials said that if Pakistan chose to seek an IMF bailout, those discussions wouldn’t involve China.
“I believe IMF has its own standards and operating rules in cooperating with relevant countries,” Geng Shuang, a Chinese foreign ministry spokesman, said Tuesday when asked about Mr. Pompeo’s remarks on a potential Pakistan bailout.
“We will be evaluating all our options. At this stage we have not even decided to go to the IMF,” Mr. Umar said, after Mr. Pompeo’s comments.
Senior officials from Mr. Khan’s party said they are eager to maintain relations with China while rebuilding economic ties with the U.S. that have been strained in recent years.
Chinese officials said that if Pakistan chose to seek an IMF bailout, those discussions wouldn’t involve China.
“I believe IMF has its own standards and operating rules in cooperating with relevant countries,” Geng Shuang, a Chinese foreign ministry spokesman, said Tuesday when asked about Mr. Pompeo’s remarks on a potential Pakistan bailout.
“I believe they will properly handle the relevant issues.”
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