U.S. National Archives

Washington, June 9, 1971.

SUBJECT: Pakistan: Economic Aid Prospects

Over the last three weeks, we have been able to put ourselves in a reasonably good position for dealing with the situation in Pakistan. M. M. Ahmad returned from his Washington visit with an understanding of our desire to be helpful and of the need for Pakistan to come up with a credible program that we and other donors could support.
Ahmad was also fully exposed to our humanitarian concern for the millions of people affected in East Pakistan. He visited the UN Secretary General in New York before he left the U.S., and as a result of our strong initiatives, fully supported by the British and others, the Pakistan Government has requested an international relief program. UN Assistant Secretary General Kittani is now in Pakistan to work out the modalities for the relief effort under United Nations auspices.
With our encouragement, the IMF and the IBRD have sent a joint team, some of whose members are already at work in East Pakistan. After assessing the evolving circumstances on the ground, the team will seek to assist Pakistan in working out a program of measures necessary to avoid economic collapse. Such a package will undoubtedly include trade, fiscal and monetary reforms, already overdue before March 25, as well as specific new measures arising from problems caused by the civil disorder, Pakistan’s unilateral debt moratorium, the loss of East Pakistan production and exports, and the lack of business confidence in the West.
If a viable program can be worked out, it will probably include support for Pakistan in the form of an IMF drawing and regularization of the debt moratorium on a short term basis. While it is recognized that the Bank and Fund would not expect from the Consortium(2) a normal year’s aid pledge there may be an appeal for a lesser amount of special bilateral financing as part of a short term financial package to supplement an emergency Fund drawing. The Bank/Fund team will make its first, informal report to a restricted Consortium meeting in Paris on June 21.
In summary, Pakistan has been accorded a favorable opportunity to come forward with a program the Consortium and the donors can support. Indications are, however, that the Pakistan Government will have severe difficulties in formulating a credible program. The picture emerging from our reporting shows:
—a population still largely cowed and fearful of Army action: people are hesitant to return to work in government and private offices and factories. The Hindu population has suffered strong persecution, and many have fled the country. The total number of refugees in India is now over four million.
—evidence of increasingly organized and effective insurgency, including guerrilla disruption of transport and commerce, and intimidation of those who cooperate with the Martial Law Administration.
—failure so far of the political initiatives taken by President Yahya to achieve any substantial response in East Pakistan.
—a continued low level of law and order, and partial breakdown of the local government apparatus, outside of the main towns where the army has achieved some security.
—lack of effective action to deal with the food distribution problem in spite of expressions of concern from the Government in Islamabad. There is still no one in charge of this question in the East Wing, and no effective priority on the use of water transport for moving food.
—imminent food shortages in some areas. We have been pressing the Government of Pakistan to permit us to have access to the cyclone affected districts. When access is finally achieved, we may discover that some starvation will already have occurred.
As a result, the economy of East Pakistan is still stagnant. The provincial government is barely functioning. Peace and normalcy have not returned. There has been a consistent disparity between the official Pakistan Government expectations, and the facts as they emerge. The gap may be widening.
Work on humanitarian programs goes forward as the situation allows. Hopefully Mr. Kittani will establish a framework within which effective relief can be extended on a broad scale. The next major decisions on the economic program will arise in the context of the report of the IMF/IBRD team late in June. We are not sanguine, however, that a viable and soundly based economic program will emerge at that time.
John N. Irwin II

Footnotes:

2 Reference is to the Pakistan consortium; see footnote 5, Document 42.