By Augustine Anthony
SUKKUR, Pakistan (Reuters) - The United States will divert $50 million (32 million pounds) from a development package for Pakistan towards relief funds, the top U.S. aid official said on Wednesday after touring a flood victims camp supplied by a charity with suspected links to a militant group on a U.S. terrorist list.
Officials in Pakistan and its ally Washington are worried that militants could exploit the disorder caused by the floods, and the government's slow response, to gain recruits.
The United States, eager to see stability in Pakistan, a frontline state in its war against militancy, has so far been the most generous donor. It has provided 25 percent of aid commitments and contributions, the U.N. said.
"Let me be clear: This disaster represents a major logistics challenge. We are committed to supporting this significant relief effort as much as possible," U.S. Agency for International Development head Rajiv Shah told reporters.
After touring a camp for flood victims set up in a school, Shah told a news conference that $50 million would be diverted from a five-year, $7.5 billion development package for Pakistan to help the flood relief effort.
Pakistan's government has been accused of moving too slowly in the crisis and could face unrest because anger is rising. Islamic charities have moved in quickly to fill the vacuum.
The camp Shah toured is in a government school served by Falah-e-Insaniyat, a charity with suspected ties to Lashkar-e-Taiba (LeT) and its humanitarian wing Jamaat-ud-Dawa (JuD), both blacklisted by the United Nations.
Once nurtured by Pakistan's spy agency to fight India in Kashmir, LeT shares al Qaeda's concept of jihad, or holy war.
LeT was blamed for the 2008 attack in the Indian commercial capital Mumbai that killed 166 people.
Food and other logistics at the camp are provided by Western aid agencies, said an American official. A spokesman for JuD said Falah-e-Insaniyat runs the camp.
A banner, which read, "Relief Camp Falah-e-Insaniyat Foundation," hung at the entrance to the camp.
Richard Snelsire, U.S. embassy spokesman, said the camp was run by neither Jamaat-ud-Dawa nor Falah-e-Insaniyat. The latter group had distributed relief supplies independently of Western groups or USAID a couple of days prior to Shah's visit, he said.
"It wasn't a JuD camp," Snelsire said. "It was a Pakistani school and we were there to see the work we're funding to distribute food to people in need."
Western NGOs operated side-by-side with workers from the Jamaat-ud-Dawa in the 2005 earthquake in Kashmir.
"They were the ones who knew the terrain and could get supplies to the people. So there's precedents for this and I'm not surprised it happened again," said Stephen Tankel, a U.S.-based analyst who has written a book about the Lashkar-e-Taiba.
Kristalina Georgieva, the European commissioner for international cooperation, humanitarian aid and crisis response, is in Pakistan for two days and visited Nowshera, northwest of Islamabad, one of the hardest hit regions in the northwest. She downplayed any concerns over religious charities' activities.
"Yes, religious organizations are helping out people," she said at a news conference Wednesday evening. "But I haven't got anything from our partners that this growing problem with the disaster is being used for the purposes of breeding extremism."
The worst floods in decades, triggered by unusually heavy monsoon rains more than three weeks ago, have receded in some areas in the northwest and Punjab, while aid agencies now say southern Sindh province is most vulnerable to rising waters.
Pakistan's government asked the International Monetary Fund during talks in Washington this week to ease restrictions on an $11 billion loan program approved in 2008.
Pakistan can ask the Fund to adjust the program to factor in the floods' impact on the economy or opt out of it and take on emergency IMF funding for countries hit by natural disasters.
Pakistan's government had planned to invest billions of development dollars in the northwest Khyber-Pakhtunkhwa province to undermine militants who often recruit Pakistanis disillusioned with the government, Amir Haider Khan Hoti, chief provincial minister in the northwest, told Reuters.
Now it has had to suspend this year's development spending, aimed at winning public support there, and focus on flood relief.
(Additional reporting by Augustine Anthony in Sukkor; Kamran Haider, Chris Allbritton and Rebecca Conway in Islamabad; Writing by Michael Georgy; Editing by Myra MacDonald and Miral Fahmy)
