TOKYO – Japan promised on Thursday to pledge up to $1 billion in aid for cash-strapped Pakistan at a donors conference as allies pressed the country for commitments to fight an Islamist insurgency and implement economic reforms.

Pakistan hopes Friday's meeting of donors including Japan, the United States and the European Union will pledge $4 billion to fund efforts on poverty alleviation, education and health.

I shared my view that it will be important for the president to express Pakistan's firm resolve to carry out economic reforms and counter-terrorism measures at tomorrow's meetings, Japanese Prime Minister Taro Aso told reporters after talks with Pakistani President Asif Ali Zardari.

The international community is worried an economic meltdown in Pakistan, propped up with a $7.6 billion loan from the International Monetary Fund over two years, could fan popular support for al Qaeda and other militant groups.

Nuclear-armed Pakistan is central to U.S. President Barack Obama's plan for South Asia, which includes trying to stabilize Afghanistan where Taliban militants -- many operating from lawless enclaves in northwest Pakistan -- have thrown that effort into doubt.

An IMF official said Pakistan's economic policies were on the right track, but the global economy had worsened and the domestic political environment was a risk to the growth outlook.

The private investors and the financial market players that we often ask, they point to political uncertainty as a key factor, Adnan Mazarei, IMF assistant director for the Middle East and Central Asia department, told Reuters in an interview.

Pakistan needs to focus on controlling its budget in the near-term by tax reforms and securing revenues so authorities could then focus on longer-term issues such as reducing poverty.

It is critical that this revenue problem is addressed, with two lines under the word 'critical', he said. Otherwise, the social services that are needed will not be provided, the public investment that is needed will not be provided.

Pakistan's economy narrowly averted a balance of payments crisis in November when it secured the IMF loan package.


Pakistan, in a Friends of Pakistan ministerial meeting on Friday, is expected to present a wish-list of projects worth $30 billion that it wants to see implemented over the next 10 years.

The projects include hydro-electric dams, roads, and projects aimed at improving security in the violence-plagued northwest.

A U.N. official hoped the talks would lead to longer-term dialogue to support socio-economic development.

The Friends of Pakistan will show, through their pledges, that they are ready to stand by Pakistan in its development process, that Pakistan is not alone in its struggle, Fikret Akcura, Resident Representative for the U.N. Development Program in Pakistan, told Reuters. And hopefully this commitment will continue, that it's not short-term effort.

But EU External Relations Commissioner Benita Ferrero-Waldner said a 10-year commitment was too long for donors.

At the same time, I understand the Pakistani government wants to say, 'We have a big challenge and this challenge will not go away tomorrow or the day after tomorrow', she said.

Japanese officials have said the donors meeting could give Iran a chance to show willingness to play a more active role in stabilizing the region.

Speculation has simmered Iranian Foreign Minister Manouchehr Mottaki and U.S. special envoy Richard Holbrooke will have a chance to chat at Friday's gathering, but Mottaki shrugged off a question as to whether he would do so.

We're all here for talks on Pakistan, he told reporters. Asked about U.S. ties, he said: All things are under consideration.

Ferrero-Waldner said that Iran's participation efforts to stabilize Pakistan and Afghanistan were important both for the region and to help build trust with the international community.

There was total mistrust. And I think it is very important that this trust starts to build up with the international community as a whole and also with the United States of America and Europe, Ferrero-Waldner said.

And that would ... facilitate talks. What would the talks bring? I think it's too early to say, she said.