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FM AMCONSUL KARACHI
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RUCPDOC/DEPARTMENT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEKJCS/SECDEF WASHDC
RHEAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEAIIA/CIA WASHDC
RHMFISS/CDR USCENTCOM MACDILL AFB FL

C O N F I D E N T I A L SECTION 01 OF 02 KARACHI 000358 
 
SIPDIS 
 
E.O. 12958: DECL: 06/03/2018 
TAGS: EFIN EAGR EPET ECON PGOV PREL PK
SUBJECT: KARACHI -- SENATOR CASEY MEETING WITH STATE BANK 
GOVERNOR 
 
Classified By: Kay Anske, Consul General, 1.4 b and d 
 
¶1.  (C)  Summary:  On May 27, U.S. Senator Robert Casey (D- 
PA) and the Consul General (CG) met with State Bank of 
Pakistan (SBP) Governor Dr. Shamshad Akhtar.  Dr. Akhtar said 
that the country's economy is suffering from rising oil 
prices and suggested creation of a lending pool for 
developing countries from the revenues of the oil producing 
countries.  She said counterfeiting of the rupee in 
Afghanistan and the tribal areas has become a problem. 
According to her, political instability is behind the 
country,s capital flight and depreciating currency.  She 
moved to raise the interest rate 150 basis points (to 12 
percent) on May 23 to counter increasing inflation (including 
food prices) and shore up the rupee.  She questioned the 
ability of new Finance Minister Naveed Qamar to address the 
country,s economic problems or strengthen Pakistan,s 
macro-economic indicators.  Dr.  Akhtar said she had recently 
been told by the Finance Minister that SBP autonomy was going 
to be curtailed?.  She added that she is considering vacating 
her post before the expiration of her term in December.  End 
summary. 
 
Rising Oil Prices Concern Governor 
---------------------------------- 
 
¶2.  (C)  On May 27, U.S. Senator Robert Casey (D, PA) and the 
Consul General (CG) met with State Bank of Pakistan (SBP) 
Governor Dr. Shamshad Akhtar at her office in Karachi.  The 
Governor told the Senator that the Pakistani economy had been 
negatively impacted by the global increase in oil prices. 
This caused the country,s fiscal deficit to balloon from USD 
2 ) 3 billion to USD 10 billion. 
 
¶3.  (C)  Dr. Akhtar said that the cost of Pakistan,s oil 
imports has risen by 55 percent since oil prices began their 
upward spiral.  She warned that the resulting fiscal deficit 
has the potential to eliminate all the past achievements of 
developing countries in eliminating poverty. 
 
Assistance in Funding Fuel Purchases 
------------------------------------ 
 
¶4.  (C)  She called for IMF or World Bank financing for 
developing countries to help abate the impact of increased 
oil costs.  Dr. Akhtar also suggested that oil exporting 
countries use their increased revenues to set up a reserve 
that developing countries could borrow from, at concessional 
rates, to finance oil purchases. 
 
Counterfeiting a Growing Problem 
-------------------------------- 
 
¶5.  (C)  Dr. Akhtar said the GOP is concerned about 
widespread counterfeiting of its banknotes, which occurs 
primarily in Afghanistan and in the tribal areas of Pakistan. 
 Authorities have found a number of consignments of the fake 
currency, and the SBP has requested a Federal Investigation 
Agency (FIA) inquiry.  According to Dr. Akhtar, much of the 
counterfeiting is perpetrated by terrorists using the 
country,s porous borders to move the bogus money from India 
and Afghanistan.  She asked for the Senator,s help in 
promoting new financial crime legislation in Pakistan. 
 
Capital Flight and Currency Depreciation a Problem 
--------------------------------------------- ----- 
 
¶6.  (C)  The Governor pointed to an increase in capital 
flight from Pakistan in the wake of the Benazir Bhutto 
assassination.  She also cited Bhutto's assassination and the 
state of emergency as contributing to t