CADTM-Pakistan calls for Debt Audit Commission to dig out illegitimate loans

17 October 2011 by CADTM Pakistan

Stop debt-servicing; divert money for flood affectees & Dengue patients

Civil Society members observe Global Week of Action against Debt & IFIs

LAHORE: “Debt continues to weigh down Pakistan, preventing it from being able to break out the endless cycle of poverty and injustice.
Although Pakistan has ended SBA agreement With IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
, yet it is not out of woods. Debt scenario is getting bad to worse. The public debt has soared by a whopping Rs.120 billion just between July 1, 2011 to-date in the wake of depreciation of Pak currency against US $. The country’s public debt has risen to Rs. 11 trillion, which includes foreign debt of Rs.4500 billion ($ 60 billion) and domestic debt of Rs. 6500 billion. A comprehensive parliamentary and independent debt audit commission, with constitutional cover is need of the hour to identify the illegitimate part of the Pakistan external debt and suggest ways and means to grapple with the situation”.

These views were expressed by speakers at a demonstration, in front of Lahore Press Club, Friday (14 October 2011) jointly organized by Campaign for Abolition of Third World Debt (CADTM)-Pakistan, Women in Struggle for Empowerment (WISE) and World March of Women (WMW) Pakistan, in connection with Global Week of Action against Debt & IFIs. The participants were holding banners and placards inscribed with slogans against IFIs and their financial policies. They were chanting slogans in favour of their demands.

Speaking on the occasion, Focal person of CADTM-Pakistan, Syed Abdul Khaliq said most of the foreign loans were contracted by corrupt leadership of dictatorial regimes of Gen Ayub, Gen Yehya, Gen Zia and Gen Musharraf, who used those loans for projects which are of little benefit to ordinary people and which, in fact, served to increase corruption and improper patronage. As a result of its inability to repay the original debt, Pakistan was forced to obtain more loans and/or restructure its economy often at the expense of its own development. He demanded of the government to freeze debt servicing and divert the amount for the treatment of Dengue patients and restoration of flood affectees.

He said the country is paying $ 3 billion at average every year under debt servicing to foreign creditors. However, for FY-2010-11 the debt servicing target is much higher as of $ 5. 46 billion and ratio will further shoot up in 2014, when rescheduled loans will be back in action, amassing the external debt burden to $ 75 billion. On the other hand, the international credit ranking of Pakistan is also fast decreasing mainly because of multiple implications of the country’s involvement in US-led war on terrorism. A recent study by the IMF found that twenty-eight of the poorest nations are now at high risk of debt crisis. Pakistan is ranked on No. 5 in “cumulative probability of default” (CPD) report.”

He said, Pakistan’s external debt is estimated to be almost a third of its GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
. Although the country has low per capita income and is highly indebted, it is not eligible for the so-called Heavily Indebted Poor Country (HIPC Heavily Indebted Poor Countries
HIPC
In 1996 the IMF and the World Bank launched an initiative aimed at reducing the debt burden for some 41 heavily indebted poor countries (HIPC), whose total debts amount to about 10% of the Third World Debt. The list includes 33 countries in Sub-Saharan Africa.

The idea at the back of the initiative is as follows: a country on the HIPC list can start an SAP programme of twice three years. At the end of the first stage (first three years) IMF experts assess the ’sustainability’ of the country’s debt (from medium term projections of the country’s balance of payments and of the net present value (NPV) of debt to exports ratio.
If the country’s debt is considered “unsustainable”, it is eligible for a second stage of reforms at the end of which its debt is made ’sustainable’ (that it it is given the financial means necessary to pay back the amounts due). Three years after the beginning of the initiative, only four countries had been deemed eligible for a very slight debt relief (Uganda, Bolivia, Burkina Faso, and Mozambique). Confronted with such poor results and with the Jubilee 2000 campaign (which brought in a petition with over 17 million signatures to the G7 meeting in Cologne in June 1999), the G7 (group of 7 most industrialised countries) and international financial institutions launched an enhanced initiative: “sustainability” criteria have been revised (for instance the value of the debt must only amount to 150% of export revenues instead of 200-250% as was the case before), the second stage in the reforms is not fixed any more: an assiduous pupil can anticipate and be granted debt relief earlier, and thirdly some interim relief can be granted after the first three years of reform.

Simultaneously the IMF and the World Bank change their vocabulary : their loans, which so far had been called, “enhanced structural adjustment facilities” (ESAF), are now called “Growth and Poverty Reduction Facilities” (GPRF) while “Structural Adjustment Policies” are now called “Poverty Reduction Strategy Paper”. This paper is drafted by the country requesting assistance with the help of the IMF and the World Bank and the participation of representatives from the civil society.
This enhanced initiative has been largely publicised: the international media announced a 90%, even a 100% cancellation after the Euro-African summit in Cairo (April 2000). Yet on closer examination the HIPC initiative turns out to be yet another delusive manoeuvre which suggests but in no way implements a cancellation of the debt.

List of the 42 Heavily Indebted Poor Countries: Angola, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoro Islands, Congo, Ivory Coast, Democratic Republic of Congo, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Kenya, Laos, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nicaragua, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Vietnam, Zambia.
) initiative because it is officially classified as middle income due to relatively high levels of exports and foreign investments. Pakistan debt management capacity is already weakened to large extent, crossing the limit of debt-to-GDP ratio; 60%, set under Fiscal Responsibility and Debt Limitation Act. Thus debt is becoming the sole reason of country’s economic stability.

Talking about different options, available to Pakistan, Bushra Khaliq, Execusitive Director Women in Struggle for Empowerment (WISE) said Post-Catastrophe Initiative recommends that the International Monetary Fund (IMF)-Pakistan’s largest creditor- considers debt cancellation for poor countries in which natural disaster has created substantial balance Balance End of year statement of a company’s assets (what the company possesses) and liabilities (what it owes). In other words, the assets provide information about how the funds collected by the company have been used; and the liabilities, about the origins of those funds. of payment needs and where the resources freed up by debt relief are critical for meeting these needs. The unprecedented floods of 2010 and recent floods in Sindh have affected over 28 million people altogether and are estimated to have a long-term cost of up to USD 40 billion on the Pakistani economy. This year (2011) Pakistan will pay Rs.908.8 billion to service both domestic and external loans which is 50% of targeted revenue collection and 32.6% of the total outlay for the year.

Sara Sohail, a leader of World March of Women (WMW) Pakistan said State of Necessity which is a principle enunciated by the International Human Rights Commission, suggests that indebted countries placed in a situation that makes it impossible for them to fulfil the very basic needs of their populations (health, education, food, water, housing, etc) have a right to repudiate debts and structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

IMF : http://www.worldbank.org/
programmes. A similar position has also been taken by the UN Commission on International Law. Pakistan’s 2011 austerity budget combines drastic cuts to power and food subsidies with a massive increase in military spending and the so-called “reforms” demanded by the International Monetary Fund. The amount used to service foreign debt annually is estimated at three times the amount the government spends annually on healthcare. This in a country in which 38% of children under five are underweight, child mortality rates are among the highest in South Asia and only 54% of the population is literate.

CADTM-Pakistan member Rabbiya Bajwa said, Illegitimate Debts exist where loans have been granted to repressive regimes and/or where the money was used to fund projects which did nothing to benefit ordinary people but rather served to increase corruption and improper patronage. Debt relief has always focused on the borrower; the concept of ‘moral hazard Moral hazard The effect on a creditor’s or an economic actor’s behaviour when they are covered against a given risk. They will be more likely to take risks. Thus, for example, rescuing banks without placing any conditions enhances their moral hazard.

An argument often used by opponents of debt-cancellation. It is based on the liberal theory which considers a situation where there is a borrower and a lender as a case of asymmetrical information. Only the borrower knows whether he really intends to repay the lender. By cancelling the debt today, there would be a risk that the same facility might be extended to other debtors in future, which would increase the reticence of creditors to commit capital. They would have no other solution than to demand a higher interest rate including a risk premium. Clearly the term “moral”, here, is applied only to the creditors and the debtors are automatically suspected of “amorality”. Yet it is easily demonstrated that this “moral hazard” is a direct result of the total liberty of capital flows. It is proportionate to the opening of financial markets, as this is what multiplies the potentiality of the market contracts that are supposed to increase the welfare of humankind but actually bring an increase in risky contracts. So financiers would like to multiply the opportunities to make money without risk in a society which, we are unceasingly told, is and has to be a high-risk society… A fine contradiction.
’ is used to argue that non-payment of illegitimate debt is necessary to discipline lenders and prevent future lending to oppressive dictators.


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