Languishing in debt trap
Looking at the main statistics of our recent budget forces one to ask: For how long will we starve our children to pay our debts? The budget figures brings us to the sad realisation that Pakistan is so deeply mired that even the best economic policies would never lift us out of poverty and debt trap. We pay as much as 43.6% of our annual revenues to service the ever increasing debt. There is no end in sight to the increasing levels of unemployment, reduced government services, higher prices of food and intensified poverty caused by allocating a major chunk of our budget to debt servicing. We must look for some alternative ways to deal with the debt problem because the present prescriptions would never enable us to fully repay our debts despite draining all of our resources.
The 42 million Pakistanis struggling to survive below the poverty line mirror their lenders prosperity. We cannot pay back money that corrupt rulers borrowed and then squandered. The cost of our debt service is now more than the financial resources needed for significant human development. Our government can no more morally demand of its people privations that are incompatible with human dignity. Keeping in view the insurmountable economic problems, the public and government of Pakistan must demand that all the debt, which could not be serviced for many generations and which in real terms has already been paid should be cancelled.
The level of our debt excludes us from economic and social development. Mathematically, it is absolutely impossible to repay the debt, which continues to grow despite the fact that at an average of Rs. 225 billion (US $ 4.4b) per year, just between 1990 and 2000, Pakistan paid more than US $44 billion (@ $1 = Rs. 51) in debt service - more than the entire accumulated debt. The debt is perpetuating dependence and any attempt to increase exports to pay the debt will lead to over-exploitation of natural resources and ecological damage, and threaten the survival of future generations.
Because the face value, or official amount, of these debts will never be repaid, their true market value is only a fraction of their face value. The poor countries bilateral debts are heavily discounted, generally worth only about 10-15% of the original loan. Donor nations and lending institutions will not suffer greatly by writing off these debts, since contributions needed would be based on true market value. In effect, the lenders have been well repaid over many years of debt servicing.
Debt servicing draws away needed funds for basic social services especially health and education. In the recent budget, we could spare only 17% of the total budget for development expenditure. Only 1.2 and .6% budget is allocated for development work in NWFP and Baluchistan respectively. Due to heavy debt servicing, we could spare only 1.5% of our budget for education, health and population planning and sports and recreation. The only imperative for us is to break away from the debt cycle and work for genuine social and economic reforms. We need to campaign for: the nullification of structural adjustment loans; the abrogation of all agreements that provide for public assumption of private sector debts; the repudiation of all debts extended to puppet civil and military dictatorial regimes and lenders to be made accountable for bad debts.
During the Cold War, donor governments were often more interested in gaining allies than in whether receiving governments really served their people or whether the money went to productive purposes. Billions were lent to Pakistan for reasons the majority of our people neither knew about nor agreed with, and from which we derived no benefit. It was often wasteful misspending that left behind no productive capacity to repay the loans. Cold War collusion and corruption left behind a dreadful heritage of now unpayable debt in Pakistan and other Third World countries.
Much of Pakistan's debt is unjust because the creditors were aware of the risks attendant to the loans extended to illegitimate and anti-popular governments. One of the alternative could be to join hands with other indebted states and propose to the UN General Assembly that a joint suit be brought before the International Court of Justice at The Hague to seek a judgement on both the processes that give rise to the foreign debt of the heavily indebted, impoverished countries and the factors that caused it to grow, such as unilateral decisions by creditor countries to raise interest rates. We really need to have an international body to judge the legitimacy of debts.
Through SAPs, our government has become more accountable to the lenders than to its own people. We have been denied the right to be active participants in the decision-making process of our own development. It must not surprise anyone if we demand the unconditional, immediate and total cancellation of the debt. The creditor nations claim that they have yet to decide how much debt cancellation they can afford. Complex calculations may tell us what 'sustainability' costs; mathematical formulae may tell us what is 'unpayable'. However, justice in this case cannot be measured in income per capita or debt-to-export ratios alone. Economic justice should be predicated on concepts, which cannot be measured, such as human worth, human dignity, our right to development and the willingness to make amends.
Pakistan is economically trapped into making unending and compounding interest payments on its debts. We are asked to divert large amounts of scarce resources from health care, education and food security to debt servicing, which ensures that any real economic development will be impossible. Just imagine the level of prosperity and development if we could spend the 43% of the budget that we are forced to allocate to debt servicing. Our call for debt relief is an urgent matter of justice, not a plea for charity. For us the debt burden is both economically unsustainable and morally unacceptable.
Further, ordinary people did not benefit from many of the loans that gave rise to this debt, but, under the rules of the global economic game, they bear the principal burden of repayment, keeping both them and future generations unjustly chained in dehumanising poverty. The major source of our income is the direct and indirect taxation and surcharges, which is 85.10% of our annual income. Until one sees how foreign debt touches lives, it remains only an academic debate among economists and ministers of finance. Very few of us know that we spend three times as much servicing debt each year as we do on other development activities for our citizens. It is reliably estimated that for every dollar taken in development aid, $3 goes back to rich countries in debt-service payments.
The humble acceptance of every IMF demand is terribly traumatic to a people already limping under the crushing burden of foreign debt. Due to our privatisation drive many low-wage workers have lost their jobs. Devaluation of the national currency has made exports cheaper on the world market, unlimited foreign investment is encouraged, and tariffs and import quotas are lowered, but local producers have rapidly lost control of their own economy. IMF still demands that real wages be reduced, taxes be increased, and government spending on all other heads be reduced to increase the sum for debt servicing.
At present, there is a perverse and cruel irony in any debt relief scheme, which pushes our people even deeper into poverty. The lending and debt servicing procedures are conducive to the "economic genocide" carried out through the deliberate manipulation of market forces. When compared to genocide at various periods of colonial history (e.g. forced labour and slavery), its social impact is devastating. The application of this economic genocide in debtor countries favours the "internationalisation" of macro-economic policy under the direct control of the IMF and the World Bank acting on behalf of powerful and rich (e.g. the Paris and London Clubs, the G 7). This new form of economic and political domination subordinates and impoverishes people and governments through the seemingly neutral interplay of market forces. The Washington based international bureaucracy has been entrusted by the international creditors with the execution of a global economic design which affects the livelihood of more than 80 percent of the world's population. At no time in history, has the rich nations played such an important role in shaping the destiny of "sovereign" nations.
The IMF's standard response to the contention that external debt servicing diverts finance away from social sector spending is that this is a misleading argument, partly because highly indebted poor countries are net recipients of external finance. They receive more in grants and loans than they allocate in external debt servicing. While net external flows may be positive, the IMF appears to ignore the fact that the majority of countries like Pakistan have extremely high levels of poverty and human suffering. They will not meet, according to current trends, internationally agreed human development targets with the same debt servicing procedures in place. Aid alone, while of vital importance, has not provided and will not provide enough resources for sustainable improvements in development. Debt cancellation is certainly required.
If the IMF and World Bank are really committed to their much vaunted claims of seeing the world's poorest and indebted countries make progress in reducing poverty, they need to ensure that debt relief is provided earlier on, and deep enough, so that investments in poverty reduction, in health and in education, in rural roads and in the productive capacity of the poor, can be made.
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