ISLAMABAD, Pakistan — After tough negotiations, the International Monetary Fund agreed Thursday to give cash-strapped Pakistan a $596 million loan.
But the IMF imposed a number of conditions: Pakistan has to follow through on its promise to collect more taxes, clean up a corrupt tax system, reduce its budget deficit and free-float the Pakistani rupee, an IMF statement said.
Pakistan will get an immediate $193 million, which is expected to be used to make payments on its hefty $32 billion debt.
Officials here quickly praised the IMF move.
"The fund support is a significant breakthrough in our efforts to give the economy a kick start," Finance Minister Shaukat Aziz told a news conference in the federal capital, Islamabad.
The loan approval gives Pakistan its first IMF money in nearly two years. The fund stopped paying out an earlier $1.2 billion loan during ousted prime minister Nawaz Sharif's rule after his government failed to live up to the agreed terms.
A military government seized power from Sharif in October 1999. The new loan was approved after the military regime launched a massive structural reform program.
"A fundamental overhaul of the income tax system is under way," the IMF statement said. It added that Pakistan plans to institute new laws aimed at "establishing a simple income tax, based on genuine self-assessment, with minimal exemptions, and a less distorting rate structure."
Military ruler Gen. Pervez Musharraf has said it is a blight on Pakistan that only 1.2 million people in a country of 140 million pay taxes.
After seizing power, his army-led government set about trying to document the country's economy — a difficult task in a nation where business transactions are traditionally done on a cash-only basis without receipts. The army rulers also ordered businesses to pay taxes, something they resisted with a series of one-day strikes and demonstrations.
In keeping with the IMF demands, Pakistan also has gradually floated its currency, removing some restrictions on how much it can fluctuate. The rupee quickly dropped in value afterward, losing 7 percent in the first two weeks of October. The current exchange rate is 61 rupees to the U.S. dollar.
In addition to the IMF money, the government's reform plans will get help from the Asian Development Bank, World Bank, bilateral official creditors and the private sector, said the IMF statement. It offered no specific figures.
The IMF approval greatly improves Pakistan's chances of getting a restructuring agreement from the Paris Club, a group of private lenders, when it meets them in January 2001.