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U.S. Warns Against IMF Bailing Out Pakistan's Loans From China

U.S. Secretary of State Mike Pompeo

U.S. Secretary of State Mike Pompeo has warned against providing an International Monetary Fund bailout for Pakistan's new government that includes funding to pay off Chinese lenders.

In an interview with CNBC television on July 30, Pompeo said the United States looked forward to engagement with the government of Pakistan's expected new prime minister, Imran Khan, but said there is "no rationale" for a bailout that pays off Chinese loans to Pakistan.

"Make no mistake. We will be watching what the IMF does," Pompeo said. "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," Pompeo said.

The Financial Times reported on July 29 that senior Pakistani finance officials were drawing up options for Khan to seek an IMF bailout of up to $12 billion.

An IMF spokeswoman said the international lending agency has not as yet received an aid request from Pakistan nor had discussions with Pakistani officials about their intentions. Pakistan has had 14 IMF financing programs since 1980.

Pakistan is struggling to avert a currency crisis that has presented the new government with one of its biggest challenges. Many analysts expect that another IMF bailout, the second in five years, will be needed to plug an external financing gap.

Pakistan, which has taken around $5 billion in loans from China and its banks to fund major infrastructure projects, had sought another $1 billion in loans to stabilize its plummeting foreign currency reserves.

U.S. officials, including Treasury Secretary Steven Mnuchin, have criticized China's infrastructure lending to developing countries like Pakistan, arguing that it has saddled them with unsustainable debt.

The $57 billion China-Pakistan Economic Corridor, a series of port and rail improvements associated with China's One Belt One Road infrastructure push, has led to massive imports of Chinese equipment and materials, swelling Pakistan's current account deficit.

Western officials say that while Pakistan has taken on huge debts to finance the projects, China's investment has gained access for China's military to Pakistan’s Gwadar Sea Port, which is strategically placed west of India.

“We aspire to a regional order -- independent nations that can defend their people and compete fairly in the international marketplace,” Pompeo said during a speech on the Indo-Pacific region on July 30.

“We will help them. We will help them keep their people free from coercion or great power domination,” he said.

With reporting by The Washington Examiner and Reuters
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