India's Challenges in Stopping the IMF Bailout to Pakistan

Despite India's vocal objections regarding Pakistan's recent $1 billion IMF bailout, the fund's approval stems from procedural limitations and a complex geopolitical landscape, leaving India with limited means to alter outcomes.

Last week, the International Monetary Fund (IMF) granted a $1 billion bailout to Pakistan, a decision that elicited strong disapproval from India amid escalating military tensions between the two neighboring countries. Despite India's protests, the IMF board justified its approval by stating that Pakistan has shown significant progress in implementing economic reforms and recovering from financial distress.

India's objections were twofold. Firstly, the Indian government questioned the effectiveness of such bailouts, pointing to Pakistan's inconsistent track record in executing necessary reforms. More critically, India raised concerns that the funds might contribute to "state-sponsored cross-border terrorism," a claim that Pakistan has consistently denied. Delhi warned that the IMF might expose itself to "reputational risks" and compromise global values by continuing to extend financial aid to Islamabad.

Pakistan's reliance on the IMF is not new; it has sought assistance from the fund 24 times since 1958, often without making substantial governance improvements. Hussain Haqqani, a former Pakistani ambassador to the U.S., likened turning to the IMF to a patient continually visiting an ICU, indicating deeper structural issues that need resolution.

As a member of the IMF board representing only a small coalition, India’s influence is limited. The board’s voting structure, based on members' financial contributions, gives wealthier countries, primarily Western, a disproportionate amount of power. For example, while the U.S. has a voting share of 16.49%, India's stands at a mere 2.6%. Moreover, IMF rules disallow voting against proposals, compelling members to either support or abstain.

India's attempts to halt the bailout appear more as public relations efforts rather than actionable change, according to analysts who underscore the fund's procedural constraints. Additionally, any push to alter the voting structure in the IMF—a topic of discussion during India's G20 presidency—faces significant opposition and has yet to produce results.

The recent changes in IMF lending policies, particularly with the provision of a $15.6 billion loan to Ukraine amid ongoing conflict, indicate that the fund is willing to adapt its rules, undermining India's argument against the Pakistan bailout.

Experts suggest that India's grievances would be better addressed within the context of the Financial Action Task Force (FATF), which oversees matters related to combating terrorist financing. The FATF can impose restrictions on nations like Pakistan, making it harder for them to secure funding from organizations like the IMF. However, Pakistan was recently removed from the FATF's grey list, complicating India's strategy.

There is also caution regarding India’s calls for reforms in the IMF's processes and power dynamics. Some analysts warn that such changes could inadvertently enhance China's influence over India in multilateral settings, citing previous instances where China blocked funding sought by India in institutions like the Asian Development Bank due to geopolitical disputes.

In summary, while India's concerns about the IMF's bailout to Pakistan are valid, the realities of international finance and politics complicate its ability to effect change, necessitating a more strategic and nuanced approach.