Drowning in debt. IFIs should cancel all foreign debts of Pakistan owed to bilateral and multilateral creditors

19 October 2010 by Abdul Khaliq

Pakistan is facing the worst-ever natural disaster of its history. About 20 million people are displaced due to recent devastation caused by the angry floods. The communication infrastructure has been totally ruined; roads, bridges and railway tracks have been destroyed. The economic loss runs in billions of dollars. Flood-hit people are in urgent need of basic amenities; shelter, medicines, clothes, proper food and healthy environment, etc. Pakistan is in real and worst human and economic crisis.

The country’s already creaky economy has been pushed to the verge of ruin by this calamity. With foreign aid only trickling in, the impoverished country has been forced to take out further loans while pleading for outstanding ones to be restructured.

The current external debt of Pakistan stands at $ 55 billion. That figure will jump to $73 billion in 2015-16, as debts that were rescheduled after 9/11, in exchange for Pakistan’s co-operation in the war on terror, will come back into action. Besides this, Pakistan is paying over $ 3 billion on debt servicing every year on average. As for the FY 2010, this amount is $ 5. 640 billion, which Pakistan will be paying to its creditors amid 20 million people crying for most urgent basic needs; food, clothes, shelter, health and education.

Moreover, strict conditions under 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.

are adversely affecting the lives of working classes in Pakistan. These conditions include reducing budget deficits, eliminating fuel and electricity subsidies, and increasing indirect taxation.

The international institutions, including World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

and ADB, had offered $3 billion in new loans to Pakistan to withstand the disaster, rather than giving grant-aid. This will only add to Pakistan’s enormous and unsustainable debt of $ 55 billion debt.

Pakistan’s debt repayments already amount to three times what the government spends on healthcare — in a country where 38 percent of under 5-year-olds are underweight, only 54 percent of people are literate, and 60 percent live below the poverty line.

Thus, under the present circumstances, it is almost impossible for the government of Pakistan to meet basic requirements of its millions of displaced people as the international response to Pakistan is far less than the Tsunami and Haiti disasters — the world community has only provided $229 million to Pakistan so far. This translates into $16.16 for each affected Pakistani person as compared to $1,087 every affected person in Haiti and $1,249 per affected person in the Indian Ocean tsunami.

The total number of people affected by the floods (20 million) exceeds the combined total in three recent mega disasters—the Haiti earthquake, the 2004 Indian Ocean tsunami and the 2005 Kashmir earthquake.

The devastating floods hit the debt-ridden Pakistan at a time when it is already facing the music of joining US-led war on terrorism. Struck by this double penalty, the country is rendered unable to cope with this horrific calamity and its long term impacts on economy.

It is pertinent to mention that major portion of Pakistan foreign debts was obtained during the dictatorial regimes — the martial law regimes of General Ayub Khan, General Yahya Khan, General Ziaul Haq and Gen. Musharraf. About 80 percent of the total foreign debt was contracted during dictatorial and autocratic regimes.

The people of Pakistan did not benefit from the foreign loans provided to General Ziaul Haq and which were provided by Western countries only after the Soviet invasion of Afghanistan. The loans were spent on building the ’infrastructure’ for running the Afghan jihad.

In most cases, these loans were spent against the wishes of the people and benefited only a specific segment of society. This debt is illegitimate and is not binding on the people of Pakistan and the current democratically elected government has legitimate right to refuse these loans.

Where debt campaigners in Pakistan are demanding its government to refuse foreign debt payment, we urge debt campaigners to put pressures on the creditors, governments and international institutions to affect an immediate freeze on Pakistan’s debt repayments. We also urge the lenders to extend Pakistan grants, rather than loans, which are essential for Pakistan to develop the means to withstand such disasters in future.

It is nothing short of criminal that a country as poor as Pakistan is bled of resources every year to repay borrowers who extended unjust loans to that country over decades. It is vital that desperately needed emergency aid is not effectively swallowed up in debt repayments and a freeze on such payments must be called immediately.

If Pakistan is to build up the infrastructure to withstand such appalling disasters in future it must be freed from its debt trap. A debt audit is needed and those debts found to be unjust and unbeneficial must be cancelled immediately to give the country a fresh start. Most certainly supposedly anti-poverty institutions and IFIs should not be making Pakistan’s debts even worse.

This is the time that government of Pakistan and civil society organisations must come up and demand the governments and IFIs: The issue of Pakistan debt is fast gaining national and international importance. Debt campaigners are taking interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. in the debt issue of Pakistan, especially in the context flood calamity. That is why October 14 has been declared as solidarity day with Pakistan during the on-going Global Week of Action against Debts and IFIs, going to observe from 7-17 October.

Debt levels around the globe have also increased dangerously, as a result of policies designed to subsidise the wealthy and favour free flow of capital in a market that was supposed to be self-correcting. A number of other debt related issues and IFIs will be taken up during this week. Together with the food, climate, and fuel crises, the economic crisis led to massive job and wage losses, cut-backs in the provision of basic human rights to healthcare, education, housing, water, and social security, etc.

The debt campaigners in Pakistan will also be organising actions and activities to highlight the issue. The focus of anti-debt campaign is calling upon the IFIs and creditors to:

1. Cancel all foreign debts of Pakistan, owed to bilateral and multilateral creditors.

2. Immediate freeze on foreign debt repayments of Pakistan.

3. Immediate halt to 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/
program and IMF-led economic reforms

3. Ensure that emergency disaster-related assistance be in the form of grants instead of loans.

4. Lead efforts to establish up-front funding for climate change-related disaster preparation. With early warning systems, risk analysis and preparation, Pakistan could have reduced the damage caused.

The writer is Focal Person, Campaign for Abolition of Third World Debt, Pakistan (cadtm.pakistan@gmail)

Published by the pakistani newspaper The News on Sunday, on 17th Oct, 2010

Abdul Khaliq

CADTM Pakistan



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