The United States and other western nations are preparing a new aid program for Pakistan, a critical frontline state in the war against terrorism. Because of strategic considerations, Pakistan is evolving from being almost an outcast nation - because of its nuclear program and past support for the Taleban - to a renewed beneficiary of foreign assistance.
The aid package is likely to total several billion dollars. There will be stepped up assistance from the United States with the promise of up to $700 million in cash assistance this year. There is prospect of substantial relief from Pakistan's huge foreign debt.
Pakistan estimates that the war in Afghanistan could cost its economy more than $2 billion this year alone. That includes lost trade and tourism and emergency assistance to three million refugees from Afghanistan.
Shavid Burki, a former World Bank official who briefly served as Pakistan's finance minister five years ago, the economic losses are even greater. "What's happening is a loss of confidence by people who buy goods from Pakistan for export," he says. "There's a belief that because of the war in Afghanistan that Pakistan producers won't be able to fulfill their orders on time. And therefore there has been a great deal of cancellation on the textile industry as well as software producers."
Debt relief is central to the aid program. Just servicing its debt absorbs 60 percent of Pakistan's export earnings.
The Paris Club of creditor governments could meet as early as January to reschedule up to $12 billion of Pakistan's $38 billion debt. The International Monetary Fund is preparing a $1.3 billion multi-level lending program for Pakistan.
A South Asia scholar at the Brookings Institution in Washington, Steven Cohen, welcomes the aid program, saying it provides a historic opportunity for Pakistan. "I think they're eager to work with us on this issue. They won't just simply take the money and put it in a Swiss bank and forget about it. I think we can hold them to this promise. Because this is an issue that goes beyond Afghanistan," says Mr. Cohen. "The stability of Pakistan, its integrity as a country, and its emergence as a moderate state - as opposed to being another radical state - is a matter of great importance for the United States, for China, for Russia, for India, and a number of other countries."
But there are critics of stepped-up aid for Pakistan. The country has a bad record on financial management. Corruption is a large problem. But former Finance Minister Shavid Burki says the country is often regarded as more corrupt than it actually is. "I would say that Pakistan is no more corrupt than, say, India, Indonesia, or a whole bunch of other countries," he says. "Pakistan has gained that reputation because of four administrations that came one after the other and accused the one before of a great deal of corruption. So corruption because a major issue played up by the press and by the politicians."
Pakistan's biggest creditor, Japan, remains deeply concerned about Islamabad's nuclear program and is moving more slowly than other countries to dismantle the sanctions imposed after Pakistan tested a nuclear weapon in 1998. There are also lingering concerns about the legitimacy of President Pervez Musharraf, who seized power in a military coup.
Pakistan's president says support for the anti-terror coalition is not linked to promises of new aid. Finance minister Shaukat Aziz says the president took the decision without a shopping list. There is, he says, no quid pro quo.