In Scramble for Cash, Pakistan Turns to China's Deep Reserves

To curb losses, Pakistan in recent weeks has set new rules on stock trading aimed at preventing even sharper sell-offs of Pakistani companies. Some analysts are concerned that the new government may resort to freezing foreign capital, a measure Pakistan took in the 1990s after being slapped with global sanctions for conducting a nuclear test.

The Pakistani government is seeking to ease those fears by bolstering its central bank reserves with funds from China and Gulf states. China and Pakistan have a long history of economic cooperation, based partly on decades of weapons sales, and a lifeline now, particularly so small a sum, would not be seen as unusual. "The Pakistanis like to call the Chinese their all-weather ally, and the U.S. their fair-weather friends," said Daniel Markey, senior fellow at the Council on Foreign Relations. "This kind of loan could be seen as self-serving by the Chinese, and continue that impression."

A senior Pakistani official said the government requested in July that Saudi Arabia chip in with an "oil facility" -- or an agreement that would grant Pakistan concessionary terms and delayed payments and on roughly half the oil it imports. One reason investors are more concerned about Pakistan now is that Saudi Arabia has not yet responded.

Analysts say the Pakistanis may have better luck at a meeting early next month in the United Arab Emirates of the "Friends of Pakistan" -- a group of countries including the United States and Britain that are considered close allies. They are counting, sources close to the talks said, on countries seeing the danger of an economic collapse in Pakistan and the threat that poses to the war on terror as worth the relatively small price of financial assistance.

A last option might be seeking a lifeline from the IMF, though such an agreement is seen as politically difficult for the new government. Pakistan paid off the last of several IMF loans in 2005, with Musharraf hailing the accomplishment as a breaking of the nation's beggar's bowl. By seeking IMF help now, analysts say, the new government may find itself in the difficult position of explaining to the population why it needs to glue that bowl back together.

Pakistani officials, however, are meeting with IMF officials in Washington now, seeking their "seal of approval" on the plan to rein in runaway spending threatening to bankrupt the government. Although IMF officials say the Pakistanis are not seeking a loan, IMF approval of their economic plans could pave the way for other institutions, including the World Bank and Asian Development Banks, to offer lending. It could also make approval of an IMF loan at a later date happen faster.

"What they want is an endorsement in principle," a senior IMF official said, "something that would make financial support go more smoothly if they decide they do need to ask for it."

Correspondent Candace Rondeaux contributed to this report.