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UNCLAS SECTION 01 OF 02 ISLAMABAD 000344 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EAID EFIN ECON PGOV PREL PK
SUBJECT: DONORS AND FRIENDS:  THE WAY AHEAD 
 
¶1. (SBU)  Summary.  Given Pakistan's struggling economy and the 
urgent need for development and budgetary assistance, Mission 
recommends that we move forward as quickly as possible to facilitate 
a successful Donors' Conference, co-hosted by the World Bank, and 
now tentatively scheduled for April in Tokyo.  The "Friends of 
Democratic Pakistan" is floundering within the GOP, there is 
significant confusion about how to differentiate Friends and Donors, 
and it now appears that many countries would prefer to provide 
project rather than budgetary support at the Donors' Conference. 
 
¶2.  (SBU) Rather than split the limited resources of the donor 
community, therefore, we recommend that: (1) the Friends and the 
Donors be combined into one group;  (2) Washington approach Friends' 
capitals to seek their agreement to this merger; and (3) USAID, 
through its Competitiveness Support Fund, immediately provide the 
GOP with a much-needed consultant to prepare for Tokyo.  Based on 
informal consultations with Friends' embassies in Islamabad and Jean 
Arnault, the unannounced UN Friends Advisor, we believe that all 
parties will support efforts to merge these two initiatives and give 
Arnault a larger role in coordinating donor support.  The majority 
of players continues also to support establishment of a Border Trust 
Fund. End Summary 
 
Quick Injection of Funds Needed 
 
¶3. (SBU) The GOP has been making heroic efforts to meet the 
conditions of its Standby Arrangement with the IMF.  The IMF 
resident representative has noted that the IMF program is well 
underway.  However, the fiscal tightening is causing a significant 
slowdown in the economy.  Large scale manufacturing, for example, 
has declined by 5.6 percent in the first five months of the fiscal 
year (which ends June 30).  GOP support for development projects, 
such as U.S.-Pakistan scholarship programs, is being cut off.  It 
would be helpful if a donors' conference took place quickly in order 
to nail down the additional $4 billion the IMF has estimated that 
the GOP will need to keep budgetary stringency from having serious 
repercussions.  The IMF would prefer that this assistance take the 
form of direct budgetary support, something that many donors are 
reluctant to do, preferring to fund specific projects. 
 
"Friends" is Floundering 
 
¶4. (SBU) The Friends initiative is floundering within the GOP, which 
has repeatedly postponed the proposed experts' meetings -now 
tentatively scheduled for mid-March.  The MFA has tentatively agreed 
to move forward to invite seven additional countries - the Nordics, 
Malaysia, South Korean, and Russia  (unless the U.S. objects) but 
has not issued any invitations.  They have yet to make a formal 
announcement of Jean Arnault's appointment as UN Advisor to the 
Friends. 
 
¶5.  (SBU)  Although Salman Farouqi, the General Secretary for the 
Presidency, reportedly has taken overall control of the initiative, 
he continues to delegate coordination to the MFA, which lacks the 
power to deliver.  The MFA has suggested that Pakistan would welcome 
some much needed assistance in shaping its donor proposals. 
 
¶6.  (SBU)  To date, we are not aware that Pakistan has formally 
approached the World Bank about creating and managing a Border Trust 
Fund, and there continues to be discussion about the geographic 
scope of this Fund's activities.  Friends' embassies continue to 
support the concept in general, but they also would like clarity on 
its scope. 
 
Merge Friends and Donors 
 
¶7.  (SBU)  In trying to write project proposals, the GOP continues 
to struggle with what differentiates Friends from Donors.  At a 
meeting of Friends' members January 30 at the Embassy, there was 
also a discussion of the difficulty in distinguishing among Friends 
and "others" at a Donors' Conference, with other donors perhaps 
feeling less integral to the process. 
 
 
ISLAMABAD 00000344  002 OF 002 
 
 
¶8. (SBU)  Post understands from discussions with local World Bank 
representatives and other potential donors that many countries will 
be reluctant to provide the GOP with direct budgetary support at the 
Donors' Conference and, instead, will be looking for projects to 
fund.  Thus, the distinction between the two initiatives is becoming 
even more blurred. 
 
Longer-Term Donor Coordination 
 
¶9.  (SBU) Beyond the Donors' Conference, Post has found strong 
strong support among Friends' embassies for proposed UN Advisor Jean 
Arnault's suggestion that he focus on broader donor coordination 
around an integrated development/security policy focus.  Recognizing 
that donor support will come through a variety of bilateral and 
multilateral fora, Arnault agrees on the utility of a Trust Fund. 
 
Help Needed 
 
¶10. (SBU)  To respond to the GOP's urgent need for assistance in 
shaping its proposals for the donor community, USAID proposes that 
it immediately hire, through its Competitiveness Support Fund, one 
of several senior ex-World Bank Pakistani experts who are already in 
country.  Secondly, we can encourage the GOP to work more closely 
with the World Bank in its traditional role of macroeconomic 
coordination of donor assistance.  The visiting regional Managing 
Director recently expressed the Bank's interest in doing more to 
assist the GOP in this regard. 
 
Recommendations 
 
¶11.  (SBU) Post recommends:  (1) we combine the two initiatives and 
keep Jean Arnault as UN Advisor working via UNDP to coordinate donor 
contributions; (2) Washington approach Friends' capitals to seek 
their agreement for this proposed change; and (3) that USAID 
immediately identify and fund a consultant to help the GOP prepare 
for Tokyo, working through the Ministry of Finance and the 
Competitiveness Support Fund. 
 
 
PATTERSON