Saudi Arabia Agrees to Bailout Pakistan
Riyadh agreed to provide tangible assistance to Pakistan to ease its balance of payments pressure. The assistance will come in the form of deferred oil payments and cash. In addition, the Kingdom will invest some $1 billion in Pakistan’s livestock and agricultural sectors.
Pakistan, a nuclear power, is plagued by high inflation, power outages, and Islamist insurgency that threatens to destabilize the pro-U.S. government. The country is on the fringe of defaulting on its international loans, The Washington Times reported.
Aside from Saudi Arabia, Pakistan is also potentially seeking assistance from the U.S., and the World Bank and is considering, though reluctantly, a rescue package from the IMF.
This marks the second time in a decade a nuclear power has faced default on its international debt. In 1998, Russia defaulted on its Ruble bonds, which shocked the world and ultimately resulted in the New York Fed having to broker a fourteen bank syndicate in the infamous bailout of hedge fund Long-Term Capital Management. A Pakistani default will likely trigger another shock that will ripple through the already fragile global financial system.
If Saudi Arabia emerges as the main savior of Pakistan, it will be another step forward for the Kingdom, as it reaffirms its self-assertion as the leader of the Islamic Arab states. It will also likely be strengthening its alliance with a battered but still powerful player in the Middle East and Asia Minor.
Bo-yun Liu
