Global Policy Forum

By Joseph Kahn

The International Monetary Fund is prepared to go ahead with a sizable loan for Pakistan and is closely monitoring the financial situation in Turkey as it seeks to counter a world economic slowdown and support front- line states in the battle against terrorism, officials said today.

"We have reviewed the situation and agreed" with the United States "that we need to closely monitor the situation and discuss what could be done if things get worse," said Horst Kí¶hler, the managing director of the Washington-based lending agency.

Fund officials often resist providing aid for political reasons, and Mr. Kí¶hler said today that the decision was not a response to last week's terrorist attacks. But the United States is the fund's single largest shareholder, with Europe and Japan close behind, so the fund tends to make loans to support their top diplomatic priorities.

Along with its sister agency, the World Bank, the I.M.F. has far more money available — about $93 billion — than the United States or other wealthy countries to lend to poor countries and help finance its aid programs.

Pakistan has become crucial to the American campaign to root out Osama bin Laden, the leading suspect is the terrorist attacks. Turkey is a NATO ally that straddles Europe and the Middle East and joined the United States during the Persian Gulf war.

I.M.F. officials acknowledge that Pakistan, which has had unstable governments and a deep-rooted corruption problem, has often failed to meet goals set when the I.M.F. lends it money. Poor performance often causes the fund to reject a new round of aid.

But Mr. Kí¶hler said today that Pakistan had recently begun performing better under an existing loan package, making it likely that discussion about a new antipoverty loan would prove fruitful. A Pakistani delegation is expected to visit Washington to discuss the matter shortly.

Officials said it was too early to say how much money Pakistan might receive. But in 1997 Pakistan received a multiyear loan designed to alleviate poverty that totaled nearly $900 million.

In recent months, Turkey has received emergency aid packages from the I.M.F. to shore up its troubled economy. Mr. Kí¶hler said that he still hoped that aid would prove sufficient, but that a recent spike in interest rates there "signals that the problem is not yet solved." He said a mission to that country would assess whether new aid was necessary.

More broadly, Mr. Kí¶hler said that the fund, which will release its detailed World Economic Outlook next week, still expects the United States economy will turn up by the end of this year. He also said he expects that the world economy will avoid slipping into recession. The fund considers overall world growth of 2.5 percent or less to be a recession.

His forecast is far more optimistic than that of many private-sector economists, many of whom say they believe that the United States has already slipped into recession and that output will decline sharply in the fourth quarter.

Allen Sinai of Decision Economics said he did not see "how you avoid the conclusion that both the United States and the world are headed for — and area probably already in — a full recession."

While he declined to provide specific projections, Mr. Kí¶hler said his optimistic forecast was based on his conclusion that the economic fundamentals in the United States and many other nations are more resilient than they have been in past crises.

Few leading economies now have large budget deficits or high inflation, for example, while most world currencies float freely, all of which the I.M.F. considers vital to sustaining economic growth.

He warned, however, that both Europe and Japan should take fresh steps to stimulate their economies and not wait for the United States to pull them out of their downturns.

Japan, Mr. Kí¶hler said, must be more aggressive about combating deflation by buying back government debt and injecting more money into the economy. He said the Japanese authorities also must demonstrate that they intend to tackle their nonperforming loan problem aggressively

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