tional Monetary Fund (IMF) in 1993-94 for a structural adjustment loan to facilitate Pakistan's efforts to overhaul the economy have run into difficulties since the government has not been able to meet the conditions set out by the IMF for that purpose. In 1995, Pakistan negotiated a new a $600 million standby facility agreement whose terms and conditions were no less harsh than the earlier arrangement. The IMF, however, released its installments begrudgingly as Pakistan was not subjecting itself to the kind of fiscal discipline the IMF wanted it to observe. The harsh budget in June 1996 and another dose of strict economic steps adopted in October did not satisfy the IMF, which was not willing to release a new installment of the loan facility. Later, the interim government ( November 1996-February 1997) was able to take some steps for increasing Pakistan's foreign exchange reserves, improving financial management, and fulfilling some of the IMF conditions. As a result, the original loan of $600 million was raised to $850 million but the IMF sought categorical assurances that the terms and conditions would be met by the government. The new government, installed in mid-February 1997 after the general elections, has found itself in a difficult situation insofar as the IMF conditions was concerned. It has launched a "Debt Retirement Scheme" to raise funds for loans and interest repayments. In addition, the new government has taken a number of steps to deal with the economic predicament including the slashing of taxes, the reduction of tariffs, and the downsizing of bureaucratic machinery. It also decided in March to end the existing standby loan arrangement with the IMF and began negotiations for a new loan arrangement. The government has paid the outstanding principal and interest due in March-April and has assured that it intends to do so in the future. Pakistan is obliged to make debt repayments amounting to $3 billion by December 1997. Unless Pakistan is able to put its economic house in order, control high spending and the trade deficit, and improve its foreign exchange reserves, it faces the serious threat of becoming a loan defaulter. Defaulting would undermine its prospects for attracting investment and financial support from abroad, adversely affecting its role and position in the international system.