Committee for the Abolition of Illegitimate Debt

Because of torrential rains lasting several days Pakistan is facing one of the worst predicaments in human and material terms for the last 80 years. The damage inflicted is stunning. About 22 million people are affected by the floods. Many infrastructures have been unable to withstand the onslaught of rain. Roads and harbours can no longer be used. Millions of people have had to leave their houses, and the UN estimates that there are 5 million left homeless. Makeshift refugee camps have been set up, and some 1 million people already live there in disgraceful sanitary conditions. The south of the country, and more particularly the province of Sindh, has been badly shaken by this catastrophe. Economic losses amount to billions with the farming industry severely hit, large tracts of farmland having been destroyed.

Pakistan needs help. On 20 August 2010, UN member countries committed to giving USD 200 million, but this was a mere promise, and past experience has taught us that only a limited portion will actually reach the country. The Asian Development Bank, which was to manage the consequences of the December 2004 tsunami, declared that it would lead the reconstruction effort in Pakistan and already announced a USD 2 billion loan. The World Bank World Bank
WB 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.

added a loan of USD 900 million. Deeply damaged by a natural catastrophe, Pakistan now has to face a significant increase in its debt.

While emergency aid is essential, we have to consider what is at stake in Pakistan. In August 2008 the country was close to defaulting. Compelled to accept the help of the 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 , it has received so far a total of 11.3 billion dollars in loans with particularly harsh conditionalities: the sale of a million hectares of farmland, an end to government subsidies on fuel, an increase in the price of electricity, drastic cuts in social expenditures, etc. Only the military budget has been spared. Finally this loan has made living conditions even more difficult while jeopardizing the country’s sovereignty.

Today Pakistan’s external debt amounts to 54 billion dollars with 3 billion paid back every year. This debt, which exploded after 2000, is largely odious. The former regime of General Pérez Musharraf was a strategic ally of the US in the region, particularly after 9/11. Major creditors never baulked at granting Musharraf the funds he needed to pursue his policies. In the fall of 2001 the US asked for Pakistan’s support in its war against Afghanistan. Musharraf had accepted that his country be used as a support base for US troops and those of its allies. Later the Musharraf regime contracted more debts, with the active help of the World Bank and major powers. The loans granted have no legitimacy: they were used to buttress Musharraf’s dictatorship and did not improve the living conditions of the Pakistani people. The debt contracted by this dictatorial regime is odious. Creditors were aware of the situation when they granted their loans, and given these facts it is outrageous that the Pakistani people be made to pay for the odious debt Odious Debt According to the doctrine, for a debt to be odious it must meet two conditions:
1) It must have been contracted against the interests of the Nation, or against the interests of the People, or against the interests of the State.
2) Creditors cannot prove they they were unaware of how the borrowed money would be used.

We must underline that according to the doctrine of odious debt, the nature of the borrowing regime or government does not signify, since what matters is what the debt is used for. If a democratic government gets into debt against the interests of its population, the contracted debt can be called odious if it also meets the second condition. Consequently, contrary to a misleading version of the doctrine, odious debt is not only about dictatorial regimes.

(See Éric Toussaint, The Doctrine of Odious Debt : from Alexander Sack to the CADTM).

The father of the odious debt doctrine, Alexander Nahum Sack, clearly says that odious debts can be contracted by any regular government. Sack considers that a debt that is regularly incurred by a regular government can be branded as odious if the two above-mentioned conditions are met.
He adds, “once these two points are established, the burden of proof that the funds were used for the general or special needs of the State and were not of an odious character, would be upon the creditors.”

Sack defines a regular government as follows: “By a regular government is to be understood the supreme power that effectively exists within the limits of a given territory. Whether that government be monarchical (absolute or limited) or republican; whether it functions by “the grace of God” or “the will of the people”; whether it express “the will of the people” or not, of all the people or only of some; whether it be legally established or not, etc., none of that is relevant to the problem we are concerned with.”

So clearly for Sack, all regular governments, whether despotic or democratic, in one guise or another, can incur odious debts. contracted by Musharraf.

In such circumstances outright cancellation of the debt is a minimum demand. As Ecuador did in 2007-2008, several countries have now carried out an audit of their debts in order to cancel their odious parts. Pakistan can and should follow such an example.

Another legal mechanism of non-payment should be taken into account in this country devastated by floods - namely the state of necessity. In this context it can claim that funds must be used to meet vital needs and not to repay its debt, without being sued for reneging on its commitments. The potential savings of three billions dollars could then be used for social expenditures to help the population.

It is therefore high time for the government of Pakistan to suspend payment of its external debt, to carry out an audit of the same, and to decide on a repudiation of the part of it that is odious. Far from being an end in itself, these measures should be a first step towards a radically different model of development based at long last on a guarantee of fundamental human rights.

Damien Millet is spokesperson for CADTM France (Committee for the Cancellation of the Third World Debt, www.cadtm.org), Sophie Perchellet is vice-president of CADTM France, Eric Toussaint is president of CADTM Belgique. Latest publication: La crise, quelles crises ? , CADTM/Aden/CETIM, December 2009.