ISLAMABAD, Feb 26 (Reuters) - Pakistan's de facto finance minister, Miftah Ismail, has brushed off concerns that economic growth will suffer because of the country's re-inclusion on a terrorist financing watch list, and lashed out against the United States for seeking to "embarrass" his nation.
Washington last week persuaded member states of the Financial Action Task Force (FATF) to place Pakistan back on the "grey list" of nations with inadequate terrorist financing or money laundering controls. Pakistan was on the list for three years, until 2015.
The diplomatic setback has sparked anger in Islamabad against United States, which championed the motion against Pakistan at the FATF meeting in Paris. It represented another blow to the worsening relationship between the uneasy allies, who have long differed on how to combat Islamist militants waging war in Afghanistan.
It has also heightened concerns that Pakistan is becoming internationally isolated, and that its economy could suffer if global banking intuitions cut links with the nuclear-armed nation, or otherwise increase the cost of doing business with Pakistan.
Ismail, officially the adviser on finance, revenue and economic affairs to Prime Minister Shahid Khaqan Abbasi, led Pakistan's negotiations in Paris. He told Reuters that Washington did not seem genuinely eager to see Pakistan boost its terrorist financing regulations and was instead bent on humiliating the country.
"If the Americans were interested in working with us and improving our CTF (counter-terrorist financing) regulations, they would have taken the offer I was making them," Ismail said. "But their idea was just to embarrass Pakistan."
Diplomatic and Pakistani government sources say Pakistan fended off a U.S.-led motion on Tuesday as Turkey, China and the Gulf Cooperation Countries (GCC) countries objected to it. But in a break from tradition, the motion was brought up again on Thursday and passed as the GCC and China dropped their objections.
Ismail said that he urged the United States to allow Pakistan until June to fix any outstanding CTF issues and ceded ground in negotiations to strike a deal, but that the U.S. was determined to see Pakistan suffer.
U.S. officials say Pakistan remains weak on terrorist financing prosecutions and has not done enough to combat money-raising capabilities of Islamic charities controlled by Hafiz Saeed, whom the U.S. has designated a terrorist. The officials blame Saeed for the 2008 Mumbai attacks, which killed 166 people.
In the run up to the FATF meeting, Pakistan sought to gain favour by seizing control of parts of Saeed's Jamaat-ud-Dawa (JuD) and Falah-e-Insaniat Foundation (FIF) charities, which the United States terms "terrorist fronts" for militant group Lashkar-e-Taiba (LeT).
Saeed, who founded LeT in 1980s, denies orchestrating the Mumbai attacks.
Diplomats have cast doubt on whether the takeovers are long-lasting, or simply a short-term move to appease FATF member states and ease pressure on Pakistan.
Ismail said Pakistan's law-enforcement shortcomings are often confused for lack of desire, especially at provincial level, where police officers are poorly trained when it comes to terrorist financing legislation.
"The will is there," he added.
Ismail ruled out Pakistan's retaliating against Washington over the FATF listing. He said the country would keep working to improve its CTF capabilities and win the confidence of Britain, Germany and France, who co-sponsored the U.S. motion in Paris.
Pakistan hopes to be removed from the grey list in six to 12 months from June, when it will be officially placed on the watch list, Ismail added.
Despite rising growth on the back of improving security and China's vast infrastructure investment, Pakistan's economy has come under renewed stress during the past year.
Its foreign currency reserves are shrinking and the International Monetary Fund (IMF) has warned Pakistan's macroeconomic stability is weakening amid a ballooning current account deficit and a widening fiscal deficit.
Ismail said he did not foresee the FATF decision acting as a brake on Pakistan's economy, which, with growth above 5 percent, is expanding at its fastest pace in a decade.
"I would rather not be in the list, but I dont think it will hurt" economic growth, Ismail said, adding that ordinary Pakistanis would not see any impact from the FATF move.
He conceded, however, that being placed on the watch list did not help Pakistan's tarnished image abroad, and "doesn't help" with its efforts to attract more foreign direct investment, a major goal of the government.
But he urged foreign investors to look past the negative headlines, and pointed out that Pakistan's economy grew even during the period the country was last on the watch list. From 2012-2015, exports and foreign currency reserves expanded, while its stock market shot up by more than 200 percent, he said.
"We are focused on improving our economy and overcoming this little hiccup," he said. "We will continue on our path forward." (Reporting by Drazen Jorgic Editing by Gerry Doyle)