White paper for cancellation of Pakistan’s external debt

[sonicboom]

White paper for cancellation of Pakistan’s external debt

By Saad Saud


ISLAMABAD—In the wake of losses worth an estimated US$43 billion due to this summer’s floods, the Pakistani economy and its long-suffering people face the immediate prospect of famine and eventual economic implosion. While the state’s capacity to undertake meaningful relief and rehabilitation work is limited, the arguably bigger constraint is financial. Currently Pakistan owes US$55 billion to external creditors, which is equivalent to almost 32% of GDP. In fiscal year 2009-10, the government of Pakistan spent up to US$3.4 billion servicing this debt, and this figure will increase dramatically over the next few years with total external debt projected to be US$74 billion by 2014-5.

The debt burden was unsustainable even before the devastating floods – it is now likely to become untenable and suffocating. The international financial institutions (IFIs) to whom the country is primarily indebted continue to demand the execution of neo-liberal policies that are anti-poor and pro-finance capital, while the government exercises sovereignty in policymaking only in name. The IFIs and western country governments have been complicit with military dictators throughout Pakistan’s history: most of Pakistan’s debt has been contracted during the regimes of Ayub Khan, Zia-ul-Haq and Pervez Musharraf. It is therefore in the interests of democracy and the Pakistani people more generally that this form of financial imperialism be confronted and definitively repulsed.

In recent years, highly indebted countries such as Haiti have had their debt written-off in the wake of devastating natural calamities. Such actions on the part of the international community have their roots in established legal norms which emphasise the immutability of basic human rights. Post-flood Pakistan is eligible for cancellation of a substantial portion of its external debt on the same grounds as other contemporaries. Additionally much of Pakistan’s debt can be legitimately described as ‘odious’; precedents also exist for debt contracted by undemocratic rulers to be written-off rather than paid for by citizens who played no role in the decision to take on loans.

Aside from the obvious economic and social reasons for the international community to write-off Pakistan’s debt, there are also compelling political reasons for this step to be taken. First, the right-wing has historically benefited from such situations in the past (as it did during the October 2005 earthquake), and is likely to do so again. In many parts of the country, right-wing organizations are the only meaningful providers of relief and it is imperative that the state’s financial resources be augmented to ward off the threat of further social space being garnered by the former. Second, calls for the military to once again step in to the political fray have become more prominent after the floods as the media and urban middle class decry government ‘failure’. The expected economic fallouts in the medium-term will serve only to strengthen this constituency and the calls for military intervention.

Finally Pakistan’s debt crisis cannot be averted by a typical re-scheduling arrangement, as happened during the early years of Musharraf’s rule. Such arrangements serve only to delay the inevitable and in fact make the debt burden more onerous in future years. Ultimately only a debt write-off can ease the state’s fiscal burden, lead to a greater flow of resources towards flood relief and rehabilitation, and guarantee continuity in the political process. Nothing less than a complete parliamentary consensus on this urgent issue is the order of the day.

White paper for cancellation of Pakistan