To quote from Pakistani editor Najam Sethi's ``incriminating'' talk in New Delhi, his country is ``well and truly bankrupt''. Consider the facts. Pakistan's foreign exchange reserves are down to less than $1 billion, its stockmarkets are touching newer depths (the already battered Karachi stock exchange has lost 15 per cent of its value after the latest Kargil misadventure) and its rupee stands sharply devalued.

To make matters worse, there is immense international pressure on the International Monetary Fund to withhold the release of a sorely needed $100 million of a $1.6 billion loan and link it to good governance -- not an easy condition in a country which nowroutinely invites the epithet ``failed state'' and which has seen all its democratic institutions relentlessly undermined.

India, on the other hand, even after the twin nuclear tests last May, can point to its more successful economic reforms and its healthy $33 billion forex reserves and speak of a stronger staying power. It would even be tempting to argue that a cash-strapped Islamabad can ill-afford a breathless arms race and the rising cost of military adventurism in and around Kashmir.

This would be naive. It is the nuclear flashpoint bogey in a volatile South Asia that is at the core of Islamabad's emerging dialogue with international monetary agencies. For decades, Pakistan was pampered by the West on account of its strategic importance; with the end of the Cold War, Islamabad's major bargaining point is What Could Be. The mullahs and the spectre of an army takeover within, alarmist hype about the wider consequences of a beleaguered, moneyless state gone rogue... this works incredibly well withWestern powers worried about doing business with a ``Talibanised'' leadership.

The Russia or North Korea analogy may be a bit extreme, but it does serve to illustrate the desperation of a country whose external debt accounts for well over half of its GDP. And in a sibling rivalry gone haywire, this can spell trouble for India. Sethi's words could well be prescient: ``If Pakistan fails as a nation-state and becomes a rogue regime, India's army will not be able to contain its disruptive and destabilising impact.''

The monetary agencies must recognise the inherent link between good governance and stability in a nuclear neighbourhood. To pander to doomsday bogeys is to be party to the gradual chipping away of social and economic institutions that are critical in a democratic society. Washington has already shifted from its traditional pro-Pak stance and has urged Islamabad to respect the LoC. This is not enough. When pressure is applied on the IMF to seek accountability before whipping out the cheque book,this accountability must include Pakistan's covert and overt escapades vis-a-vis its neighbour.