Seminar on the topic of “Rising Debt of Pakistan and Role of IFIs” in Lahore on 14 Oct 09

Reckless borrowing from IMF-a perfect recipe of disaster

29 October 2009 by Abdul Khaliq

Speakers at CADTM seminar urge Pakistan to refuse payment of 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.

In connection with Global week of Action (12-18 Oct 09) against debts, Campaign for Abolition of Third World Debt (CADTM) Pakistan and Action Aid Pakistan jointly organized a seminar on the topic of “Rising Debt of Pakistan and Role of IFIs” in Lahore on 14 Oct 09 at local press club. Over 70 representatives of various civil society organizations and groups, activists, academics, students, lawyers and journalists attended the event.

Among main speakers were; Jamil Umer-a renowned left intellectual, Irfan Mufti-Secretary Pakistan Social Forum, Farooq Tariq-spokesperson LPP, Akram Rabbani-Former provincial Finance minister and PPP leader, Rabbyia Bajwa-member CADTM Pakistan and Abdul Khaliq-focal person CADTM-Pakistan. The seminar continued for 3 hours and speakers discussed at length the lending policies of the International financial institutions. mainstream electronic and print media widely covered the vent.

The following paper developed by CADTM-Pakistan along with resolution was, circulated on the occasion, widely discussed by speakers and adopted by the house.

Debt is no longer a private affair because it has a political dimension as well, which concerns all nations and societies. The indebtedness of most countries of the South is becoming all the more unbearable because the repayments and 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. payments demanded by creditors are beyond the means of poor countries and prevent all forms of development.

In fact debt crisis is very much structural, where as it had been presented by IFIs as a crisis of, mismanagement, bad governance and insolvency. Of course the indigenous factors, such as the decisions taken by national leaders, corruption etc. have played an important role in the development of this crisis. But it is above all exogenous factors, such as terms of trade, the trans-national companies, and increase of interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
, among others, which are truly responsible for triggering it.

Basically the debt serves as pretext for bleeding third world populations, by reducing social budgets, for exploiting their natural resources and for imposing on these economies measures, favorable to the creditors, reducing their sovereignty to practically nothing. Thus debt has become an instrument of re-colonization and it is not mere an economic issue rather a pure political issue and should be dealt accordingly.

The situation of Pakistan is not much different. The official external debt of Pakistan has never gone down since 1999 when the military regime of General Musharraf took over. The external debt shot up to $ 45 billion in June 2008 from $ 33.352 billion in 1999. Despite the facts that Musharraf regime received record US aid of about $ 15 billion as well as highest foreign exchange inflow in history of the country with over $ 25 billion coming through remittances of overseas Pakistanis, but the debt figures kept on soaring. Had the regime stopped borrowing, the debt would have declined to $ 23.646 billion after payment of principal amount by end 2007.

The PPP government after taking over in February 2008 obviously inherited the debt burden from Musharraf regime. To resolve prevailing economic problems it approached friendly countries like Saudi Arabia and China for financial assistance but failed to invoke their sympathy. The desperate new PPP government then decided to follow economic policies of Musharraf. So much so, now that it has gone crazy to secure more and more loans from 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.
on strict conditions.

In November 2008 it contracted $ 7.6 billion IMF package under SBA, which has been increased to $ 11.7 billion after additional loan request of $ $4 billion in August 2009. The Stand-By Arrangement calls for example, the elimination of fuel and electricity subsidies, doing away with exemptions on income and agriculture taxes, continuing privatization process and cutting social sector spending and stoppage of government financial intervention in stock markets etc.

With latest borrowing from IMF, Pakistan’s total foreign debt and 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). have now crossed the $52 billion mark, indebting every Pakistani (of 170 million population) with estimated Rs. 24412. While domestic debt had also soared to Rs.3.8 trillion. This reckless borrowing from International Monetary Fund and other multilateral international financial institutions causing huge increase in the debt burden of Pakistan to the unbearable limits. In the national budget of 2009/2010, the government have allocated an amount of Rs. 437.5 billion ($6.5 billion) for debt servicing. Another estimate says that Pakistan pays in 44 percent of all tax collections in debt servicing.

In nutshell, the purpose of funding never ever fulfilled and like other countries of the South Pakistan could not benefit from international lending. As a result the country today, with regard to social indicators, is ranking at bottom among south Asian neighbors. In this backdrop the ever-increasing national debt and poor economic policies, the reckless loans have become a perfect recipe of disaster for the country’s future, which seems unsustainable under the circumstances.

Under prevailing situation need of the hour is to put forward the demand of foreign debt cancellation for Pakistan. Instead of borrowing fresh loans or seeking grants from friends of Pakistan, Pakistan must call for the cancellation of its external debt. We understand that the call for debt cancellation is not a matter of charity towards the poor people of Pakistan. It clearly shows that debt cancellation is not about whether Pakistan can or cannot afford to pay the debts. Debt cancellation is not only an urgent issue of survival for us, but it is also fundamentally a matter of justice, and it is justice for all countries of the South.

Without this, it would be impossible to be on the path of progress. For this purpose it is imperative on the one hand is to pressurize government for stoppage of debt repayment and on the one hand demand the IFIs, other creditors to drop the debt of Pakistan.

At the end of the seminar following resolution was passed

1. Government of Pakistan must discontinue submitting at the pernicious conditions of the IMF and to take urgent measures such as a unilateral suspension of the repayment of debt – odious, illegitimate and largely immoral – in order to assign priority to the fundamental human requirements of its population.

2. The loans granted to Musharraf dictatorship have no legitimacy; it has only served to reinforce the tyranny of the General and have not improved a bit the living conditions of the Pakistani citizens... The debt contracted by this despotic regime can therefore be classified as odious.

3. The creditors who made loans to Musharraf did so in full knowledge of the facts; and under such circumstances, it is inadmissible that the Pakistani people in the future should not be forced to repay the odious debt contracted by Gen Musharraf, Gen Zia, Gen Yahya and Gen Ayub. In these conditions, a pure and simple cancellation of the debts is the least demand.

4. The fight against pauperization cannot be won until and unless reckless borrowing from IMF and other IFIs is stopped forthwith and announced the repudiation of the all illegal and odious debt.

5. The government should stop proposed leasing of state lands to Foreign and Gulf companies for corporate farming and support the demand for a program of radical agrarian reforms, the redistribution of lands among local landless peasants.

6. We should also call for introduction of a program to gradually decrease military expenditures and convert the same into social expenditure. Measures such as these would liberate several hundred billion dollars for a social development.

7. During the last 15 years Government of Pakistan has sold out 160 state owned enterprises under its privatization policy. An amount of Rs. 395.241 was earned as privatization proceeds. The Public Accounts Committee as well as apex court of the country identified number of irregularities in the process. There should be a through investigation in the entire privatization process in Pakistan.

8. There should be independent and impartial debt audit commission for inquiry into all the loan contracts made by successive regimes and governments since 1947 up till now with multi-lateral donors and International Financial Institutions.

9. Pakistan and all the countries of the South should set off another economic logic, respecting the fundamental human rights and the environment, opposed to the neo-liberal logic imposed through odious debt which they must immediately call for abolition.

10. We demand the IFIs for restitution and reparations for ecological, climate, economic, social and historical debts, on the basis of comprehensive and participatory audit.

11. The countries of the South should realize the urgent need for creation of new financial institutions and global and regional financial architecture that put people and the planet before profits and corporate power.

See photos

Abdul Khaliq

CADTM Pakistan



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