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Position Paper - Campaign for Foreign Debt Relief

Position Paper - Campaign for Foreign Debt Relief

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Published by Ammar Rashid
Paper detailing the stance of the Campaign for Foreign Debt Relief, Pakistan.
Paper detailing the stance of the Campaign for Foreign Debt Relief, Pakistan.

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Published by: Ammar Rashid on Sep 06, 2010
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09/06/2010

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For every £1 the rich world gives to the developing world in aid, the developingworld still pays back £5 in debt repayments.
 Introduction
The summer of torrential floods has wreaked havoc on Pakistan’s economy, physicalinfrastructure and most of all, the country’s long-suffering people. It is conservativelyestimated that 20 million people have been directly affected and the livelihoods of countless more destroyed (17 millions acres of agricultural land). Speaking at the United Nations, the federal minister for foreign affairs claimed that total damages caused by thefloods are in excess of US$43 billion, which amounts to no less than 25% of GrossDomestic Product (GDP).International aid commitments in the aftermath of the flooding have been sluggish. It issaid that Pakistan has been hogging the limelight for so many years now that a case of ‘donor fatigue’ has set in. Nevertheless, high-powered missions of the World Bank andAsian Development Bank (ADB) have already come and gone and fresh assistance packages of worth close to US$3 billion are already being negotiated.A number of high-ranking UN functionaries have said that more money needs to come in.In fact, the reality is that the amount of money
leaving 
Pakistan has consistently exceededthat coming into the country, notwithstanding the numerous ‘assistance’ packages that aredesigned and executed by bilateral and multilateral donors. The economic policies of successive governments since the 1980s have facilitated the easy entry and exit of capitaland even when remittances have been high – as was the case in the years following theSeptember 11 attacks – a large amount of money has flowed out of the country asinvestors look for windfall gains in the stock and real estate markets before shipping out.However, the resource drain has a much longer history than 10 years – it is a structural plank of the global political economy and Pakistan’s dependency on the westerncountries. During the colonial period the political economy of the territory that is present-day Pakistan was engineered in such a way as to ensure a permanent state of productive backwardness and financial dependence on the industrialized economies of westernEurope and north America. Following the departure of the British in 1947, Pakistan’seconomic dependence grew even more acute due to its insecurity complex vis a vis Indiawhich led to the establishment of a national security state and the under-nourishment of democratic processes.In its initial years the state secured some bilateral grants which eventually gave way toloans and increasingly harsh interest obligations. However the real debt curse was to beinflicted by the multilateral aid agencies. While various governments throughout the1950s, 60s and 70s did take loans from the WB, ADB and International Monetary Fund(IMF), the policy-based lending that began with so-called ‘structural adjustment’ programmes in the 1980s has exponentially increased the debt burden. In 1970 Pakistantotal debt servicing burden as a proportion of export revenues was 7.45%, a figure which
 
went up to 35.40% by 1997.
1
 While in 1980, 62% of all lending was made in the form of grants, by 2000, grants constituted only 21% of the total.
2
  Needless to say this debt burden has been borne by the working masses in the form of subsidy cuts, regressive indirect taxes, and a general shift towards jobless growth. Whileworker’s remittances have partially offset the huge outflow of resources since the 1970s,the debt burden has risen exponentially over the past two decades.
In 1990 total externaldebt was US$21.4 billion, a figure which had risen by 2010 to a staggering US$55billion, an increase of 157%
. As a result of this growing burden, which has beenexacerbated by numerous adverse factors such as un unsustainable oil import bill, thespread of imperialist war into Pakistan, and the continuing stranglehold of anti-peopleneo-liberal policies, the Pakistani people have been plunged into economic and socialfreefall. If the debt burden continues to grow more onerous after the devastation of thissummer’s floods, the country and its people could face descent into a never-ending abyss.
The Political Context of Debt 
Debt never functions as a ‘neutral’ policy tool, and particularly not in Pakistan. The vastmajority of the country’s debt has been contracted during the illegitimate rule of militarydictators. The trend was established during the Ayub Martial Law regime. Prior to 1954(when Ayub Khan became Defence Minister), Pakistan had received virtually no foreignaid, despite its desperate appeals to the western countries. By 1968 Ayub had been in power for 10 years and was the blue-eyed boys of the western countries for his participation in anti-communist pacts; his reward was foreign aid totaling US$4.7 billion,which was equivalent to 50% of total imports and 34% of total developmentexpenditure.
3
 The rosy predictions of Pakistan being a model of third world developmentnotwithstanding, it was already apparent by this time that Pakistan was paying for the‘aid’ it was receiving: foreign sources accounted for 3.24% of total capital receipts in1955-60 and 52.57% by 1966-7.
4
 Through the 1970s foreign aid packages were sparse. However the heavens opened againfollowing the coming to power of General Zia-ul-Haq in 1977. Geo-politicalconsiderations mandated that Zia’s brutal regime be showered with dollars, even whiledemocratic norms were subverted and a large amount of money wasted on the country’scovert nuclear programme. Bilateral aid during the Zia years from the US alone totaledUS$4.2 billion. While this aid and large remittance incomes ensured some modicum of economic stability for the regime, the structural crisis of the Pakistani economy wasimpossible to ignore: net aid flows decreased substantially between 1977 and 1988 and
1
QAZI MASOOD AHMED, MOHAMMAD SABIHUDDIN BUTT, and SHAISTA ALAM, 2000,“Economic Growth, Export, and External Debt Causality: The Case of AsianCountries,”
Pakistan Development Review
39(4): 591-608.
2
Asian Development Bank, 2002, “Escaping the Debt Trap: An Assessment of Pakistan’s External Debt Sustainability,”
Working Paper No. 1
, Islamabad: PakistanResident Mission Working Paper Series
3
Irving Brecher and S.A. Abbas, 1972,
Foreign aid and industrial development inPakistan
. London: Cambridge University Press
4
Mohammad Waseem, 1994,
Politics and State in Pakistan
, Islamabad: NationalInstitute of Historical and Cultural Research.
 
with the signing of the Geneva Accords the western countries turned off the supply lineof dollars. From this point onwards the suffocating conditionality-based lending of theIFIs was to rear its ugly head.Throughout the 1990s the WB, ADB and IMF were exacting in their treatment of Pakistan. However when yet another military General deposed an elected government in1999, the international aid bandwagon yet again descended on the country. Morespecifically it was the events following the September 11, 2001 attacks that precipitated anew wave of loans. Pakistan’s role as frontline state in the so-called ‘war on terror’garnered Pervez Musharraf’s regime huge benefits. The IMF, WB and ADB together issued ‘assistance packages’ worth US$10 billion to the Musharraf dictatorship.Throughout this period the regime was lauded for ‘reviving Pakistan’s economy’ and‘good governance’. However, by 2008 inflation (including food inflation) was above20% which proved definitively that the so-called ‘economic revival’ was based on amassive financial bubble. Meanwhile external debt, which stood at approximately US$34 billion when Musharraf took power, had ballooned to US$49 billion.There can be no denying the direct correlation between Pakistan’s debt crisis and militaryrule. The complicity of international donors and power-hungry generals must beaccounted for; the Pakistani people cannot be held responsible for the decisions of generals’ to take loans and to use them as they have. But this is precisely what hashappened throughout Pakistan’s history: the burden of paying back illegitimate debt hasfallen on working people. And this burden will intensify dramatically in the wake of thefloods if the illegitimate debt acquired over the past five decades is not written-off.
The legal case and precedents
We think it is important to proceed into a discussion about the international law based justifications for debt relief with the caution expressed by Wade Mansell that ‘since the1960’s, Western institutions of law have been able indirectly to perform the miraclewhich colonialism scarcely permitted”: The miracle of enabling ‘rich, developed andoften ex-colonial states…to continue extracting wealth from the poorest countries’. Hesuggests that relations between ‘debtor’ and ‘creditor’ are aligned to systems of rules thatallow a simultaneous erasure of the social context in which loan agreements are drawn inthe first place.
 International Treaty Law:
Starting with the report of the UN’s Independent Expert on the effects of foreign debt andother related international financial obligations of States on the full enjoyment of allhuman rights, particularly economic, social and cultural rights we can begin tounderstand some of the relevant standards from within international law which bisect theissues of sovereign debt and the achievement of other obligations by state parties tointernational treaties.

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