Debt and challenges to South Asia

10 March 2008 by Abdul Khaliq


Debt has become the most important problem for the countries of the developing world. The nations that are the poorest in the world are also the most highly indebted. There cannot be any doubt in the minds of economists, sociologists, political scientists or the general public that debt has become a burden for the poor nations rather than the much-advertised source of financial help to these countries. Therefore, nothing is more important than the debt question.

Pakistan, India and Bangladesh are the major borrowers from International Financial institutions. These countries in South Asia contain over one-fifth of the humanity, consisting of 1.2 billion people. However, these South Asian countries spend less than five percent of its combined GNP Gross National Product
GNP
The GNP represents the wealth produced by a nation, as opposed to a given territory. It includes the revenue of citizens of the nation living abroad.
on its people, due to which growing population has become a liability rather than a precious human resource. The gigantic problem of debt needs to be understood as a common issue and therefore, addressed unitedly by the people of South Asia.

In this connection the first South Asian regional workshop on debt, organized by CADTM in January 2008 in Colombo was a right step towards right direction. It brought in together from South Asia the radical and progressive voices against debt domination at one platform. The delegated discussed in detail the impacts of indebtedness on the lives and livelihood of populations in the region along with policies of the International Financial Institutions and current state of global alternatives in South Asia.

The identification of common challenges for populations of South Asia in the larger context of indebtedness are the real threads, need to be picked up for future actions in the region. Though a long list of challenges came up after careful deliberations but vital among those may be; increasing indebtedness and process of privatization, chronic poverty, decreasing livelihood options for working classes, HR violations and abuse of political powers, corruption by governments, lack of democracy, accountability, transparency and participation, lack of people’s control over their natural resources and lack of social credibility of left groups in the region. Formation of Forum for South Asian Solidarity on Debt at the end of the workshop is definitely a potential platform to take up the challenges being faced by the people of South Asia.

Human deprivation is one of the major challenges. South Asia is the poorest region of the world, where 500 million people live in absolute poverty. According to 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.

, this region contains 40 percent of the world’s absolute poor, surviving on less than one dollar a day. Nearly two-third of the population in South Asia is deprived of basic human capabilities. Widespread human deprivation in South Asia contrasts sharply with the militarization in the region, as two of the largest armies in the world (India & Pakistan) are being maintained in South Asia. It is the only region where defense budget is continuously growing mainly due to the nuclear race. South Asian States are far below the global 20 percent targets with public spending. In Pakistan, it is only 3.2 per cent. In India - 6.8 per cent, in Sri Lanka - 8.1 per cent, in Bangladesh it is only 10 per cent.

Pakistan is a favorite debtor country of the World Bank (among the top 12). The past experiences show that even with the best planning, most of the development aid was misguided or badly implemented. Yet the loud demand for more aid continues. Squandering of money on projects was in the 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. of the ruling elite, as the interested parties used or deposited a large portion of these funds in their personal accounts. This money was meant to be invested in the uplift of the poor people and the economy, but instead it was embezzled and misappropriated by different governments in the country.

Pakistan’s ever increasing debt burden and the cost of servicing this debt is perhaps the single most important economic issue in the country today. Economic policies of the governments have failed completely to fill the gap in the trade balance Trade balance The trade balance of a country is the difference between merchandize sold (exports) and merchandize bought (imports). The resulting trade balance either shows a deficit or is in credit. , balance of payments Balance of payments A country’s balance of current payments is the result of its commercial transactions (i.e. imported and exported goods and services) and its financial exchanges with foreign countries. The balance of payments is a measure of the financial position of a country vis-à-vis the rest of the world. A country with a surplus in its current payments is a lending country for the rest of the world. On the other hand, if a country’s balance is in the red, that country will have to turn to the international lenders to meet its funding needs. , budget deficit, or resource gap over the many decades. Poverty has grown in the country during the last ten years. Pakistan is among the most illiterate countries of the world; school going children are out of school and working on road side workshops or restaurants; women participation in economic growth and decision making is very low. General health conditions of the population are very poor, so is the income generating capacity of a large number of the population. Under this back drop, high population growth rate, low economic growth rate and ever-increasing national debt are a recipe of disaster for the country’s future which seems unsustainable under the circumstances.

The most important problem faced by the people of Pakistan is theirs absolute poverty. According to the World Bank Report 2000-2001, Pakistan is among the High Indebted Countries & Low Income Nations of the World. The total external debt by the end of 2007 was US $ 40.39 billion. A bigger part of poverty in the country is due to low investments in the socio-economic uplift of the people at all levels. Poverty in the county has grown in the past decade. Its effects on the people have been devastating.

While South Asia is the most illiterate region in the world, Pakistan is among the most illiterate countries within South Asia. In a total adult population of 76 million, 49 million (almost two-third) are illiterate, of which women constitute almost 60 per cent, 37 per cent of the boys and 55 per cent of the girls in the primary school-age population are out of school. Pakistan is a nation that is spending only 2.2 percent of its budget on Education.

Pakistan external debt is increasing although it has received record aid, investments, and remittances flows in recent past specially after joining the US-led war on terrorism. The external debt has gone up to US $40.39 billion by end 2007 from $33.6 billion in 1999 despite receiving at least $10 billion in economic, military and development aid from the United States, over $6 billion in privatization proceeds, and a relief of $1.6 billion in loan write-offs by foreign governments during the last seven years.

Pakistan now ranks among the most indebted of the lowest income nations (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.
) of the world. Pakistan’s present and future debt situation is very grim, bringing an extreme pressure on the already fragile economy of the country. The new debt agreements are being signed in order to run the day to day business of the government as well as to pay back old liabilities Liabilities The part of the balance-sheet that comprises the resources available to a company (equity provided by the partners, provisions for risks and charges, debts). . The domestic debt is also on the rise. Any substantial government policy, particularly to run the economy and to service the debt is practically non-existent. As a new coalition government in Pakistan is on the cards in Pakistan but none of the mainstream political parties has showed any concern over the issue of increasing debt.

In the back drop of the prevailing scenario and keeping in view the common challenges in south Asia level a comprehensive “Freedom from Debt Domination” campaign at regional level with strong networking with international movement against debt is need of the hour.




Abdul Khaliq

CADTM Pakistan

CADTM

COMMITTEE FOR THE ABOLITION OF ILLEGITIMATE DEBT

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