By Qasim Nauman and Augustine Anthony
ISLAMABAD (Reuters) - Lawmakers are ready to freeze up to $700 million in aid to Pakistan until Congress gets assurances that Islamabad is helping fight the spread of homemade bombs in the region, a move one Pakistani senator called unwise and likely to strain ties further.
Pakistan is one of the largest recipients of U.S. foreign aid and the holdup on some aid for fiscal 2012 affects only part of the civil and military assistance it gets each year.
But it could presage even greater cuts. If the proposal passes Congress as expected this week, it could delay military aid used to support Pakistani troops in counterinsurgency operations.
Calls are growing in the United States to penalize Islamabad for failing to act against militant groups and, at worst, helping them, after the secret U.S. raid on a Pakistan garrison town in which al Qaeda leader Osama bin Laden was killed in May.
Salim Saifullah, chairman of Pakistan's Senate foreign relations committee, warned that relations, which are already at a low point, could worsen further following the decision by the U.S. House of Representatives-Senate panel.
"I don't think this is a wise move. It could hurt ties. There should instead be efforts to increase cooperation. I don't see any good coming out of this," Saifullah told Reuters.
But in Washington, State Department spokeswoman Victoria Nuland said the United States and Pakistan had already been working together on the issue of homemade bombs, or improvised explosive devices.
"So if -- obviously if this legislation becomes law, we'll work with the government of Pakistan on how we can fulfill the requirements," she said.
The legislation says no more than 40 percent of the money for the Pakistani Counterinsurgency Fund could be obligated or spent in fiscal 2012 until the U.S. defense secretary reports on "a strategy to enhance Pakistani efforts to counter improvised explosive devices (IEDS)."
A congressional aide said that since some $1.1 billion was proposed to be appropriated for the fund in fiscal 2012, the measure would effectively put a hold on nearly $700 million of it. But appropriations for fiscal 2012 are not yet final, and if Congress appropriates less than that amount, then less could be held up as well.
Homemade bombs, or improvised explosive devices (IEDs), are among militants' most effective weapons against U.S. and coalition troops in Afghanistan as they struggle to fight a resurgent Taliban insurgency.
Many are made using ammonium nitrate, a common fertiliser smuggled across the border from Pakistan.
The holdup on U.S. aid was agreed as part of a defense bill that is expected to be passed this week.
The United States wants "assurances that Pakistan is countering improvised explosive devices in their country that are targeting our coalition forces," Representative Howard McKeon, the Republican chairman of the House Armed Services Committee, told reporters.
The report from the U.S. defense secretary is required to include a discussion on whether Pakistan is demonstrating commitment and making significant effort toward countering IEDs, "including efforts to attack IED networks," the legislation says.
The United States has allocated some $20 billion in security and economic aid to Pakistan since 2001, much of it in the form of reimbursements for assistance in fighting militants.
But U.S. lawmakers have expressed increasing frustration with Pakistan's efforts in the war.
There have been proposals to make economic as well as military aid to Pakistan conditional on more cooperation in fighting militants.
Pakistan's civilian leaders have warned against aid cuts, saying it would only harden public opinion against the United States.
Pakistan says it is doing all it can to fight al Qaeda and the Taliban and has lost thousands of soldiers since it joined the U.S.-led war in 2001.
Islamabad has accused NATO of killing 24 Pakistani soldiers in an air strike near the Afghan border last month and shut down supplies for foreign troops in Afghanistan in anger.
The decision to freeze aid could prompt Pakistan to harden its stance towards Washington.
"I think the Pakistan side will understand the type of signal that is coming, which shows it's not only a question of aid," former general and security analyst Talat Masood said.
"The whole attitude of the U.S. and the relationship will be affected by these measures because they know Pakistan will not be in a position to control the smuggling."
Pakistan's Foreign Ministry spokesman, Abdul Basit, also suggested pressure from the United States would hurt ties, saying Islamabad believes "in cooperative approaches."
U.S. lawmakers said many Afghan bombs are made with fertiliser smuggled by militants across the border from Pakistan into Afghanistan.
A U.S. Congressional Research Service report in October said the Pakistani factories, owned by one of the country's biggest companies, Pakarab, have been producing over 300,000 metric tonnes of ammonium nitrate per year since 2004.
The United States has urged Pakistan to regulate the distribution of ammonium nitrate to Afghanistan strictly. So far, Pakistan has produced draft legislation on the issue.
(Additional reporting by Saeed Ali Achakzai in CHAMAN and Susan Cornwell in Washington; Writing by Michael Georgy; Editing by Paul Tait and Vicki Allen)