PAKISTAN ECONOMY PAGE

Is the PPP playing games again with the people of Pakistan a la Mr. Asif Zardari’s tactics with Mr. Sharif, or has the Pakistani government accepted the IMF deal. The IMF deal was the supposedly “Option C“. “Option A“and “Option B” were never quite explained or did not materialize. Was Mr. Asif Zardari himself fooled. Instead of going to China he was invited to the UK with promises. Then he was seduced with the lure of “Friends of Pakistan” club. By the time he went to China neither the friends of Pakistan, nor China came through.

Pakistanis are disgusted with the new government that took a full treasury of $17 Billion and growing and turned into an empty treasury within a short period of six months. Jan-March of 2008, Pakistan’s stock market was the best performing stock market in the world. In October this wasn’t so.

News stories from just a few months ago seem so far away and from a different world:

With a series of good news on all news channels, the lack of governance and an absent government led to a series of events that led to a decline.

Around June, the news media began a series of articles on a bad economy. Rupee News began sensing an orchestrated campaign against Pakistan and wrote several dozen articles on the economy.

Bringing in Mr. Dar rasied hackles in many quarter.

Rupee News and many breathed a sigh of relief when Mr. Dar resigned from the Central Government.

There were some hopes that Pakistan would be able to avoid the IMF choke hold.

Pakistan’s leaders remain deeply ambivalent about taking what many say is their only remaining option: a rescue package from the International Monetary Fund.

A day after the IMF said Pakistan had asked for help, one of the country’s top economic officials denied the government had made any such appeal. Shaukat Tarin, an economic adviser to the prime minister, said Pakistan still hoped to raise $3.5 billion to $4.5 billion from friendly governments, such as the U.S. or China, or other international financial institutions like the World Bank, but not the IMF.

“We have not formally requested the board of the IMF for a facility, as of now,” Mr. Tarin told reporters in Islamabad. “We’ll make a formal request to the board of the IMF when we believe we aren’t getting enough money from option A or B.”

An IMF official said the fund was perplexed by the remarks and didn’t understand why the Pakistanis “are backtracking.”

It is possible that Mr. Tarin’s remarks may have been technically correct and aimed at a domestic political audience deeply skeptical of engaging with the IMF.

On Wednesday, IMF Managing Director Dominique Strauss-Kahn said in a statement that “Pakistani authorities have requested discussions with the IMF on an economic program,” and that those discussions would begin in the next few days. Only at the end of those discussions would Pakistan be expected to make the kind of formal request to the IMF for a loan that Mr. Tarin was talking about. Mr. Tarin couldn’t be reached for comment.

Eswar Prasad, a former senior IMF official who teaches at Cornell University, says the IMF also may have jumped the gun with the announcement to show that it is back at the center of the action in the global financial crisis. He says Pakistani ministries, apart from the finance ministry, are balking at the idea of accepting a new set of conditions from the IMF, which would likely include reductions in food subsidies and other transfer payments.

In Pakistan, the IMF is viewed as a front for the U.S., he noted, making the politics even more complicated. “The opposition would sell it as the government giving in to U.S. economic diktats,” he said. “There would be the implication of another implicit condition — that government would have to toughen its stance against more fundamentalist elements in Pakistan.”

Mr. Prasad said that the tough Pakistani stance in negotiations also means that the government is holding out hope for a package from China, Saudi Arabia or some other developing nation with fat reserves. “Even if it’s a Faustian long-term deal with Beijing and Riyadh, they’d prefer that to the IMF,” he said.

A Pakistan finance ministry official said Pakistan’s leaders are counting on the country’s allies to come up with most of the $10 billion to $15 billion they say they need over the next two or three years, believing a front-line state in the battle against al Qaeda and the Taliban won’t be abandoned. “We cannot be allowed to fall,” said the official.

Arvind Subramaninan, a former senior IMF official who is now at the Peterson Institute for International Economics in Washington, said Thursday’s turn of events probably means that “some other donor has come up to the plate,” despite reports that China rebuffed Pakistan when President Asif Ali Zardari visited Beijing last week.

A top U.S. diplomat also warned this week that Pakistan would get no unconditional handouts.

For the IMF, a public misunderstanding with Pakistan could provide another black eye in Asia, where it can hardly afford one. After the 1997-1998 Asian financial crisis, the IMF insisted on tough conditions in exchange for bailout packages, and country after country vowed never again to work with the fund.

Ishrat Husain, a former Pakistan central bank governor, was skeptical that relying on friendly donor nations and not dealing with the IMF would work.

“I’m not sure the friends of Pakistan will give them anything unless there is an IMF agreement, because most of them are relying on the IMF’s certification that the country is on track,” he said.

The central bank said Thursday the country’s foreign exchange reserves had fallen to $7.323 billion as of Oct. 18, down from $7.749 billion a week earlier.

The central bank only has $4.037 billion of that money in its coffers, a level that would cover less than two months of imports.

Some said the declining reserves would force Pakistan to seek the IMF’s help even if Pakistan is reluctant for now. Write to Bob Davis at bob.davis@wsj.com