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An overview of campaign for debt cancellation in Pakistan

(www.slettgjelda.no/no/english) Syed Abdul Khaliq

Publishing Date: September 3rd 2011

Pakistan- a country of about 180 million people is ruled, most of the time, by the IFIs-backed military dictators who directly governed the country for 32 years (during its 63 years life) with full support of the imperialist west. These dictators, during their respective tenures, not only undermined the democratic institutions in the country but also incurred heavy debt to Pakistan, with almost 80% owed to IFIs, including IMF, World Bank and Asian Development Bank. The economic priorities of these dictators have been revolving around two Ds; Defense and debt servicing

In August 2010, Pakistan faced the worst-ever natural disaster of its history. About 20 million of its population was displaced due to huge devastation caused by theunprecedented floods. Major infrastructure was totally destroyed in southern parts of the country. The economic loss was counted in billion dollars. Pakistan plunged into real and worst human and economic crisis.

It was almost impossible for the government of Pakistan to meet the basic requirements of its millions of displaced people as the international response to Pakistan was far less than the Tsunami and Haiti disasters — the world community provided only $229 million to Pakistan. This translates into $16.16 for each affected Pakistani person as compared to $1,087 every affected person in Haiti and $1,249 per affected person in the Indian Ocean tsunami.

The total number of people affected by the floods (20 million) exceeds the combined total in three recent mega disasters—the Haiti earthquake, the 2004 Indian Ocean Tsunami and the 2005 Kashmir earthquake. The devastating floods hit the debt-ridden Pakistan at a time when it is already facing the music of joining US-led war on terrorism.  Struck by this double penalty, the country was rendered unable to cope with this calamity and its long term impacts on economy.

The Anti-debt campaign

In view of the situation, soon after the super floods, the national civil society took the issue of Pakistan foreign debts and its implications on the people of Pakistan in general and flood-affected communities in particular. An alliance of social movements, trade unions and civil society organizations in the name of;Pakistan Debt Cancellation Campaign (PDCC)was launched soon after the floods.  The purpose of the PDCC was to highlight the issue of illegitimate, illegal and odious debt of Pakistan and its role in impeding the real development efforts. Over 27 organizations, mostly from flood-hit areas are member of this campaign.  With technical help of CADTM-Pakistan and support of the Oxfam Novib, the campaign soon become popular, involving the vital sections of lawyers, academia, intellectuals,  social activists and media.

A variety of activities were taken under this campaign; including, seminars, rallies, press conferences, demos, petitions, hunger strikes, with maximum participation of the flood-hit communities. Anti-debt rallies were organized in major cities of Pakistan, including Lahore, Karachi, Hyderabad, Multan and Islamabad. Public assemblies were organized in small town and villages of the flood-hit areas to articulate the debt cancellation demands of the masses. Under this campaign three-day hunger strike camp was established by the flood-hit people in front of the World Bank building in Islamabad.

Fisher folk communities, the members of the CADTM-Pakistan and activists of Save Indus Struggle in flood-hit communities have been in the forefront of the public activities. It was first time in history of country as result of our anti-debt campaign; Debt became a mainstream political issue at national level in Pakistan. National media took interest and helped popularize the issue among society and state. CADTM-Pakistan, one of the leading organizations in the campaign developed number of technical analysis around the issue of debt and IFIs. A number of its analyses were published by the local mainstream media. Our main arguments were revolving around the available legal, technical and moral grounds and justifications for the cancellation of Pakistan’s debt.

The anti-debt campaign perspective

Our perspective was to tell the world that adebt-ridden Pakistan is unable to cope with horrific calamity of floods and its long term impacts on national economy. This is the time, instead of seeking moratorium or rescheduling on debts, Pakistan must stand up and declare unilateral suspension of repayment of foreign debts, owed to IFIs, donor countries and clubs, we argued. The current external debt of Pakistan stands at $58.5 billion. That figure will jump to $73 billion in 2015-16, as debts that were rescheduled after 9/11, in exchange for Pakistan's co-operation in the "war on terror", will come back into play. Besides this, Pakistan is paying over $3 billion on debt servicing every year on average.

The debt campaigners, through mass mobilization urged the government of Pakistan to take radical stance to cope with this severe debt burden. We cited various laws, resolutions, precedents and international protocols favor Pakistan if it demands debt cancellation and dares to refuse to pay foreign debts right, especially under the critical circumstances, it was passing through.  To refuse payment of debts is not a new thing; many poor countries had already exercised this lawful right in the past, we argued.

We constantly highlighted the fact that international community led by America has cancelled debt as per a ‘humanitarian concern’ doctrine with Nigeria enjoying $18bn debt relief in 2005. Iraq received $30bn debt relief from the powerful Paris Club with 80% of its debts cancelled courtesy of US support. And the world cancelled the debt for Haiti in Jan 2010, owing to the effects of its awful earthquake. We told the IFIs and donors that Pakistan deserves equal if not preferential treatment to Nigeria and Iraq and must demand that its debts are cancelled too.

However, the reaction of the international community to the demands of the Pakistan’s civil society for cancelling its debts was pathetic and mostly based on the arguments that government of Pakistan was not interested in seeking debt relief. But these arguments lost their essence when Senate of Pakistan passed unanimous resolution, on 3rd Nov 2010, seeking writing off of Pakistan debts.  The civil society welcomed this step, however with reservation that the Pakistani Senate must demand debt cancellation instead of mere write off[i]

We also made it clear to donors that for many years Pakistan was run by undemocratic regimes kept in power with western support, including through large loans which did little for ordinary people. This reckless lending means Pakistan repays its loans at a rate of $3bn a year. Pakistan should not have to mortgage its future by being forced to borrow for relief. Need of the hour is immediate cancellation of Pakistan’s un-payable and unjust debts, and the use of grant aid, rather than loans, to help Pakistan back on its feet. Only such an approach will ensure that Pakistan is able to withstand similar natural disasters in future’.

Put the people first, not debts

Under the prevailing conditions, Pakistan must be able to mobilize all available resources toward relief and rehabilitation of the flood-hit people. Instead of sending billions in debt service out of the country, Pakistan should be able to divert those resources in recovery for its people in urgent need.  The first and foremost thing in such circumstances is the fulfillments of all fundamental human needs of the populations, hit by natural calamities and disasters.

Pertinent to mention is that government of Pakistan has decided not to take up major reconstruction and rehabilitation projects in the flood-hit areas during the current fiscal year because of a financial crunch and negligible fresh aid commitments from the international community. The entire portfolio of reconstruction and rehabilitation projects costing about $9 billion (Rs765 billion) had been set aside due to shortage of funds.

Legal arguments to strengthen Campaign

We also equipped the campaign with legal arguments in our favor. There are spaces in international laws, resolutions and protocols that can be invoked as legal justification to refuse the external debt and demand cancellation. One of these justifications is called rule of “State of Necessity”. This rule is characterized bya situation that jeopardizes the economic or political survival of a country- such as the situations which creates the factor of impossibility of fulfilling the very basic needs of the populations (health, education, food, water, housing etc).  The "State of Necessity" justifies the repudiating of debt, since it implies the establishing priorities among different obligations of the State.

A natural calamity-like the one hitting Pakistan has given birth to the very factor of “State of Necessity”. Besides this the UN Human Rights Commission has adopted numerous resolutions on the issue of debt and structural adjustment. One such resolution was adopted in 1999, asserts that “The exercise of the basic rights of the people of the debtor countries to food, housing, clothing, employment, education, health services and a healthy environment cannot be subordinated to the implementation of the structural adjustment policies, growth programs and economic reforms”.

Then there is resolution of UN commission on International Law 1980, which says, “A state cannot be expected to close its schools, hospitals and universities, abandon public services to point of chaos, simply to have money to repay its foreign debts”. The rule of “Moral Responsibility” is also worthy to mentioned. It is immoral to demand a calamity-hit poor country devote what available resources it has to repay creditors rather than satisfy fundamental needs of its people in misery. From moral point of view, the rights of creditors are insignificant in comparison with fundamental rights of populations.

More over it is nothing short of criminal that a country as poor as Pakistan is bled of resources every year to repay borrowers who extended unjust loans to the dictators of country over decades. It is vital that desperately needed emergency aid is not effectively swallowed up in debt repayments

State of Pakistan is no more able to fulfill fundamental human needs of its 20 million flood-hit population. Its people are facing worst hardships, have no access to food, clothing, shelter and medicines. Therefore, Pakistan is simply unable to repay or service its debt responsibilities. IFIs and the creditors should not expect Pakistan to continue debt repayments, leaving its people hungry, shelter less and close its schools, its hospitals, its courts and abandon the public services, creating chaos and anarchy in the communities.

Under the prevailing conditions, Pakistan must be able to mobilize all available resources toward relief and rehabilitation. Instead of sending billions in debt service out of the country, Pakistan should be able to divert those resources in recovery for its people in urgent need.  The international community should provide grant support instead of new loans that will push Pakistan further into debt trap. Early estimates suggest that Pakistan would need 10 years to rebuild and at least 43 billion.  So far, only a fraction of the needed assistance is poured in from the international community.

Debt cancellation to benefit flood-hit populations in need

Our point of view is very clear that under the current debt situation it is hard for Pakistan to continue debt servicing whilst also providing health and education to their people and upholding their human rights obligations. Pakistan's debt repayments already amount to three times what the government spends on healthcare - in a country where 46 % population is food insecure, 38% of under 5-year-olds are underweight, only 54% of people are literate, and 60% live below the poverty line.

The benefits of debt relief should necessarily be given to flood hit populations and areas. Instead of going after mega development structures, money should be allocated for social sector, like education, health, housing and most importantly livelihood/job opportunities for women and working classes of these areas.  We believe if debt relief money is properly spent with a vision to rehabilitate and empower the marginalized and working classes, the government of Pakistan would be able to rebuild and re-earn the trust of international donors and world community on the hand and be better position to combat creeping religious fanaticism in the society on the other hand.

During the current financial year (2010-2011) Pakistan is doing foreign debt servicing to the tune $ 2.9 billion. If Pakistan able to freed up mere this amount, it would help the country to rebuild major part of its social infrastructure without any external financial support.  According to CADTM team calculations, some amazing figures when we calculate this amount of $ 2.9 billion (PKR: 250 billion) and try to allocate it for Health, Education and Housing sectors. Our assessment says with this amount, Pakistan can build 2, 50,000 new 3-room houses in flood-hit areas, recruit 12.5 million nurses in hospitals, can establish 27,778 new primary schools and hire 2 lakh teachers.

Government of Pakistan perspective

Despite persistent pressure from the national civil society, the government of Pakistan has been reluctant to raise the issue of debt with IFIs and donors. It did not raise the issue of debt at Friends of Democratic Pakistan (FoDP) meeting held in Brussels in October 2010. Civil Society strongly condemned this docile attitude of the government Pakistan, which gave IFIs and donors strong justification to reject civil society’s demand for debt cancellation, terming it hue and cry. 

However, it raised the issue first time at the meeting of Inter-parliamentary union (IPU) in October last year. In response to the demand by Pakistan delegation the IPU unanimously passed the resolution, seeking debt relief to Pakistan. In sequence to the IPU resolution the Senate of Pakistan, in Nov 2010, unanimously passed the resolution, seeking debt relief to Pakistan. This was important development for the anti-debt campaign in Pakistan as well as a negation of the creditors claim that Pakistani government does not want debt relief.

On Nov 14/15 2010, rich countries, creditors and lending institutions once again got together for the third time in as many months to discuss flood-ravaged Pakistan.  As Islamabad was going to host the Pakistan Development Forum (PDF), IFIs were determined to build up further pressure on Pakistan not to deviate from neo-liberal economic reforms.

It was sad that the most important and burning question of foreign debt was nowhere on agenda of this meeting. The government was either confused or tricky on the question of foreign debt.  It was not ready to invoke the international protocols and precedents which are quite favorable to plead its case with creditors. Although government wants civil society to raise the question of debt cancellation at national and international forum but itself hesitant to plead the case of foreign debt with required level of commitment.

However, the anti-debt campaigners present at meeting, knowing well government being evasive on the debt issue, made a strong point, terming the PDF futile exercise without discussing the options of debt relief for Pakistan. As result of this intervention Pakistan’s interior minister was compelled to make statement on the floor supporting civil society demand for debt cancellation. All the mainstream national newspapers next day flashed his statement.

In fact government of Pakistan facing deadly dilemma; Its economic managers oppose debt relief request, while political forces are in favor of taking up the issue of debt with donors. The government wants debt relief but unable to afford offending the IFIs and donors. It is also combating with image problem; bad governance and corruption, which had made it defensive and evasive to debt issue.

Donors’ perspective

The donors perspective was mainly based on the premise that debt relief is inefficient way to free up financial resources for Pakistan and is not necessarily in the own interest of Pakistan.  To them providing debt relief to Pakistan would require a significant amount of funds that could otherwise be used for immediate assistance.

The second strong point presented by the donors was the position of Pakistan Finance minister, Abdul Hafeez Sheikh who opposed debt relief for Pakistan on technical grounds, fearing the proposal was not good for future investment in Pakistan. The irony of the situation is that the same finance minister was part of Senate resolution that unanimously sought debt relief for Pakistan on 3 rd November 2010. But donors ignored his position as senate member and projected his second position which was pro-donor

Another perspective presented by the creditors in response to anti-debt campaign was up gradation of Pakistan to middle income country and thus sliding from the position to claim the right to debt relief, available only to low income countries. Pertinent point to mention is that Pakistan has only become ‘middle income’ in the last year and has a GDP of just $1,000 per person. Pakistan should have been eligible for HIPC debt relief given that 60 per cent of people live below the poverty line, 54 per cent are illiterate and 32 per cent of babies are underweight.

Pakistani authorities have now requested debt relief. In November 2010, the Senate passed a resolution urging donor countries and multilateral organizations to “take swift measures such as writing off and/or rescheduling Pakistan's debt” whilst Interior Minister Rahman Malik asked for debt relief at the Pakistan Development Forum. The Wall Street Journal has reported that President Zardari has asked donors for debt cancellation.

Of course, unless the Pakistan Finance Ministry knows debt relief would be available from creditors it is unlikely to publicly ask for debt relief. The Finance Ministry fear the impact on international markets of a call for debt relief which creditors do not respond to.

But we think far from harming Pakistan’s economy, debt relief would strengthen it and, in all likelihood, bring borrowing rates down. Moreover, Pakistan would not need to borrow so much money if there were not such high rates of debt to repay.

This highly unpopular perspective of the donors was very much reflective in their response to the UN flood appeal for Pakistan. Different countries, clubs and organizations pledged aid for relief, recovery and rehabilitation of flood-hit Pakistan. So far only 56%[ii] of the total pledged amount is materialized.

If we look at the table below, it gives clear impression that flood aid pledged by rich countries is just peanuts in comparison to loans they have been offering Pakistan. It is proven fact that not all the pledges are met. Pakistan is still waiting for the materialization of some pledges made by donors after earth quake in 2005.

The lukewarm response of the donor countries to Pakistan’s floods appeal where exposes the principles of humanitarian donorship and provided enough food for thought to Pakistan government, the same time it provides Pakistan enough ground to seek debt cancellation in order to provide basic needs to hit flood hit communities. Very pathetic situation emerges when we calculate the amount pledged to floods by some donors with the amount Pakistan paid the same donors during first 9 months of last FY 2009-10. The table below speaks volumes of the situation in this regard.

(Amount in US million dollars)

 Donor Country

Debt repayments received Jul09-Mar10

Direct contribution to floods response

France

62.3

4.2

Japan

110.6

20.2

South Korea

9.7

2.2

China

52.6

17.8

Austria

4.3

8.3

Belgium

1.5

2.8

Germany

15.3

30.9

UAE

2.1

7.7

Saudi Arabia

62.3

242.2

Netherlands

3.3

13

Switzerland

1.6

8.5

Sweden

2.9

18.2

Spain

1.1

7.1

Source of information: PHF report www.pakhumanitarianforum.com.pk.  Based on figures taken from UN OCHA’s Financial Tracking Service, http://fts.unocha.org  at 24 October 2010. Includes direct contributions to the UN appeal as well as contributions made outside the appeal, plus a proportion of the amounts allocated by CERF and ECHO, based on 2010 contributions made to the CERF (http://ochaonline.un.org/cerf) and to the general budget of the EU (http://ec.europa.eu/budget). Does not include pledges.

International debt networks contribution
International debt networks and campaigners including CADTM International, Jubilee South, Jubilee Debt Campaign UK, Jubilee Debt US, Eurodad, Slug and number other international organizations, including Oxfam Novib, Oxfam GB, Avaaz, One etc launched petitions, wrote letters, organized actions in solidarity with Pakistan’s civil society campaign for debt cancellation. Many of these groups engaged in advocacy and lobbying with their respective governments, seeking debt relief for the flood-hit Pakistan. The greatest gesture of solidarity by the international debt organizations was to declare October 14, 2010 (during global week of action against IFIs) as exclusive day of solidarity with Pakistan. It was “shout out for Pakistan” day across the globe. Local civil society in Pakistan was greatly inspired from this decision.

The global debt campaigners called on their governments and international financial institutions to affect an immediate freeze on Pakistan's debt repayments, expressing fears that Pakistan's annual $3billion would dwarf current levels of emergency aid. They also expressed concern that international institutions like the World Bank had promised nearly $3 billion in new loans to Pakistan to withstand the disaster, rather than giving grant-aid. This will only add to Pakistan's enormous and unsustainable foreign debt.

Campaigners said grants, rather than loans, are essential if countries like Pakistan are ever to develop the means to withstand such disasters in future. They were of the view that "It is nothing short of criminal that a country as poor as Pakistan is bled of resources every year to repay borrowers who extended unjust loans to that country over decades. It is vital that desperately needed emergency aid is not effectively swallowed up in debt repayments and a freeze on such payments must be called immediately.

Many of these campaigners urged the international community to accept responsibility for the poverty of Pakistan. If Pakistan is to build up the infrastructure to withstand such appalling disasters in future it must be freed from its debt trap, they viewed. They supported local civil society call for audit of Pakistan debt- and those debts found to be unjust and unbeneficial must be cancelled immediately to give the country a fresh start. Most certainly supposedly anti-poverty institutions like the World Bank should not be making Pakistan's debts even worse."

Impact of floods on Pakistan debt management capacity
There is no exaggeration in saying that rising debt of Pakistan is the single major source of economic instability. When super floods struck in August 2010 Pakistan’s total external debt was standing at $58.7 billion. Pakistan is paying $ 3 billion at average every year under debt servicing to foreign creditors. However, for FY 2010 the debt servicing target is much higher of $ 5. 46billion. This ratio will further shoot up in 2014, when rescheduled loans will be back in action, amassing the debt burden to $ 75 billion. The domestic debt had also soared to Rs.3.8 trillion, which makes 52 % of the total public debt stock.

Out of total external debt Pakistan owes about 80 % is owed to multilateral institutions; including $24billion to Asian Development Bank and World Bank and $14 billion is due to a group of Western donors known as the Paris Club. And about $8 billon is due to the IMF.

With widening fiscal deficit and pressure to divert maximum resources towards the flood-hit Pakistan’s debt management capacity is weakening fast. The total debt-to-GDP ratio has crossed 61 percent in fiscal year 2009-2010, breaching the 60 percent limit set under the Fiscal Responsibility and Debt Limitation Act.  Pakistan already owed huge amount of debt to IFIs. Further loaning, without any doubt, will lead an already debt-trapped Pakistan to worst economic mess.

In such conditions, Pakistan cannot afford new loans. Instead of accepting new loan offers, the government of Pakistan should request international communities for unconditional help and grants at the same time demanding total and unconditional cancellation of its foreign debt.  Time and again, countries facing tragedies, like Pakistan’s catastrophic flooding, are forced by International Financial Institutions and donor countries to mortgage their future as they borrow for relief and recovery efforts.  Thus, the tragedy is magnified for years to come.

At a time when Pakistan needs help in this hour of need, these IFIs are offering Pakistan further loans. For instance ADB has offered $ 2 billion and World Bank $ 1 billion loan. They are increasing Pakistan debt burden to unbearable limits. We think such borrowings would simply add to the country’s long term debt burden that could hinder future development. The government of Pakistan must tell the IFIs in clear terms that it is not ready to accept loans but only grants. If Pakistan is to build up the infrastructure to withstand such appalling disasters in future it must be freed from its debt trap. A debt audit is needed - and those debts found to be unjust and unbeneficial must be cancelled immediately to give the country a fresh start.

What Pakistan need at the moment is to mobilize maximum resources for the flood-hit people. One vital way of immediate resources generation is suspension of foreign debt serving, which is $ 2.9 billion for the current year. 4-5 year suspension of debt servicing may enable Pakistan to reconstruct the flood-hit parts of the country without seeking any external support.

The Way Forward

We need a radically new way of dealing with devilish debt spiral. We need a financial system where lenders are not rewarded for making irresponsible, reckless and selfish loans and where the poorest in borrowing countries are not punished for these same loans. We need a financial system where the poorest do not go without in order to keep money flowing to the richest part of the world. We need a financial system which allows people in the developing world to hold their governments accountable for their actions, rather than having those governments instructed by IFIs and creditors in rich countries.

Altogether Pakistan forecasts to spend $2.9b servicing foreign debts in 2010-11 – more than the total amount it is seeking from international donors to support the reconstruction effort. To enable the government to direct its resources towards recovery and reconstruction, bilateral and multilateral creditors must immediately cancel Pakistan’s existing bilateral and multilateral debts, and must press for a process of rescheduling and cancellation of domestic debt.

Funds freed up from debt relief must be directed towards recovery, reconstruction and poverty reduction.  To this end, international creditors must support the Government of Pakistan to establish a transparent and accountable mechanism for spending freed-up funds.

Parliament and civil society must be genuinely involved in decision-making on spending as well as in the monitoring of expenditure, so as to ensure that the funds benefit the most vulnerable.

Creditors must ensure that debt relief not be accompanied by policy conditions that would negatively impact upon the poor, and the government must review its own budget allocations to ensure appropriate investment in recovery, reconstruction and poverty alleviation.

All of Pakistan must speak with one voice in demanding for the cancellation of its debt. A full fledge public campaign especially involving the flood hit communities be launched to pressurize the international financial institutions. Pakistani citizens in Pakistan and outside of it have a crucial ambassadorial role to play as the lead advocates of the campaign. A public relations campaign on the issue must involve all segments of Pakistani society to chalk out a way forward.

All political and social figures must make this issue the central standalone issue in all bilateral and multilateral meetings with the US and other countries and financial institutions. Such a campaign must be led by leading politicians and should enjoy broad support amongst Pakistan’s political leadership with both the government and opposition parties using all avenues available to them to argue for the immediate and timely cancelling of Pakistan’s debt.

All political forces must unite together on the issue of debt and adopt a uniform stance. All ambassadors to Pakistan must be invited by the Pakistani government and opposition parties to meetings demanding from them the cancellation of Pakistan’s debt. Those countries that have influence amongst the Paris Club and financial institutions like the IMF and World Bank like America, Britain, France, Germany to name a few must be targeted and won over by the arguments in favor of cancelling Pakistan’s immense debt burden, most of which occurred during dictatorship regimes. Such countries must be informed that Pakistan and its people cannot mortgage its future any longer on debt that denies Pakistan and her people, peace and progress.

The Pakistani media must play a key role in putting pressure on the political leadership of Pakistan to act on the issue. Electronic and print media must educate the Pakistani masses of the campaign and why it must succeed and make it the singular focus of all discussion and debate on all TV channels with dedicated time given to the campaign.

Furthermore the media must ask tough questions of the political leadership in Pakistan and foreign leaders when they visit on the cancelling debt issue and detail all progress and failure. The civil society of Pakistan is already active on the cancelling debt issue and must continue to do so.

All segments of civil society especially social movements, trade unions, struggle and NGO’s must take an active role. The sports people and celebrities who have an international following can be engaged in the Pakistan debt cancellation campaign. Only a concerted and coordinated effort involving each and every Pakistani, one and all have the potential to succeed in cancelling Pakistan’s debt.

Debt resolution mechanisms, some long term solutions

Despite strong civil society campaign for debt cancellation, the Government of Pakistan decided not to seek debt relief and chosen to comply with IMF demands and impose strict policies on the population, with slashed public spending, including reduced access to some vital public services and to social protection. While the cost for getting access to health care and education has risen. Using particularly unfair higher indirect taxes is more and more frequent. Government seems in no mood to introduce progressive taxation brining the rich into the tax net. Public corporations in the sectors open to competition have been massively privatized. The consequences of the crisis have thus been made much worse by the alleged remedies, the main aim of which is to protect the interests of capital holders.

But the people are less and less ready to bear the injustice of such reforms, which signify large scale social regression. Those who are being forced to contribute the most to enable governments to pay back creditors are wage earners, the unemployed and low-income households. Meanwhile, women are the most severely affected, since the current organization of patriarchal society and the economy is such that they bear the brunt of the disastrous consequences of make-shift, part-time, and under-paid jobs. They are also directly affected by the deterioration of public social services.

The reduction of public deficits must be brought about not through cuts in spending for social programs, but through an increase in tax revenue as a result of efficient measures against tax evasion, more taxation on capital, financial transactions, personal wealth, and higher incomes. To reduce public deficits, cuts should be made in arms spending, as well as other expenditures that are socially obnoxious and detrimental to the environment. It is by contrast essential to increase spending on social programs, if only to compensate for the consequences of the economic depression. Beyond this protective position, the current crisis should be seen as an opportunity to break away from the capitalist mindset and achieve a radical change in society. The new logic to be developed must turn away from productivism, take the environment into account, remove all forms of oppression (based on race, gender or other arbitrary criteria), and support universal access to common goods.

To achieve this goal we must build an anti-crisis front so as to bring together enough energy to create a balance of power that is favorable to the implementation of radical solutions focusing on social justice and concern for the environment.

To this end, CADTM-Pakistan and members of PDCC are of the opinion that there is need to set up an audit commission under citizen control, which should be combined with a unilateral and sovereign suspension of repayment. The aim of the audit is to cancel the illegitimate part of the public debt and to strongly reduce the remainder. A radical reduction of public debt is necessary but not sufficient in order to get Pakistan out of the crisis. It has to be complemented with significant measures in various areas.

Auditing public debt to cancel the illegitimate part

A significant part of the public debt in Pakistan is illegitimate since it results from deliberate policies by governments that have decided to systematically favor the moneyed classes to the detriment of other marginalized sections of society.  Dictators debts, donor-dictated mega faulty projects, IFIs neo-liberal conditions, Tax reductions on higher incomes, personal wealth, and the profits of private corporations have led public authorities to increase the public debt so as to compensate for the drop in government revenues. They have also raised the tax burden on low income households, that is, on the majority of the population.

Such a context clearly shows the illegitimacy of a significant part of the public debt. IMF loans were granted on conditions that run against the population’s economic and social interests. Worse yet, these conditions again favor banks and other financial institutions. They must therefore be regarded as illegitimate. Finally, in some cases governments have gone against the will of the people. Such a unilateral moratorium must be combined with the auditing of public loans (with citizen participation). The auditing should give the government and public opinion the necessary evidence and arguments to cancel/repudiate the part of the debt that has been found to be illegitimate. International law and the various national laws offer a legal basis for such a unilateral sovereign act of cancellation/repudiation. Citizen participation is an imperative condition to guarantee that an audit is objective and transparent.

Features of the proposed Debt Audit Commission

The auditing committee will include the representatives of various public bodies concerned, experts in auditing public finances, economists, jurists, constitutionalists, and representatives of social movements. This will make it possible to decide on the various responsibilities involved in the indebtedness process and to demand accountability of those responsible, whether at a national or international level. Should the current government not agree to debt auditing, a citizens auditing committee must be set up, without the government’s participation.

If the audit brings up evidence of crimes related to illegitimate debt, their perpetrators must be heavily sentenced to pay compensation and serve prison terms as befits the severity of their transgressions. Public bodies that have contracted illegitimate loans must be held accountable.

As for legitimate debt, creditors should be forced to try and reduce the principal and the interest rates, and to postpone maturity. Moreover, the amount in the state budget set aside for refunding the debt must be capped depending on the economic conditions, public bodies’ ability to repay, and the irreducible nature of spending on social programs. We must take inspiration from what was done for Germany after WWII. The 1953 London agreement on German external debt (which among other measures reduced the principal of the debt by 62%) stipulated that the debt service / annual export income ratio could not exceed 5%.  We could define a similar ratio: the amount dedicated to repaying the debt cannot exceed 5% of the State’s revenues. The citizens’ debt audit commission will also define a legal framework so as to avoid a repetition of the crisis, including the prohibition of socializing private debts, an obligation to organize a permanent audit of public debt policies, with citizen participation, the non applicability of statutory limitations to crimes related to illegitimate debt, invalidity of illegitimate debt, and so on.

Pakistan Debt Cancellation Campaign charter of demands

A charter of demands was prepared by the Pakistan Debt Cancellation Campaign in consultation with the wider sections of the local society, to present to the donors/IFIs, government of Pakistan and civil society.

 What should IFIs/donor countries do?

  • Total foreign debt cancellation, Pakistan owes both to IFIs and creditors; including multilateral and bilateral debts.
  • Immediate suspension/freeze on external debt-servicing
  • IFIs, creditors and donor countries should immediately abolish the odious debt, extended to undemocratic, dictatorial regimes in Pakistan
  • Suspension of IMF-led structural adjustment program and economic reforms
  • Extend maximum grants instead of new loans.
  • IMF should expand the criteria for the new Post-Catastrophe Debt Relief Trust Fund including the crises created by other external economic shocks, to be able to provide debt cancellation and grant-equivalent assistance in response to such crises.
  • IMF must use windfall profits from their gold sales for Pakistan’s debt cancellation.
  • Transformation of official development assistance (ODA) into grants in reparation in the light of commitment made by the industrialized countries at 1992 Rio conference.
  • The governmental aid should be enhanced and redirected to a "reparation fund".
  • IMF should expand the eligibility criteria for the Post-Castrophe Debt Relief Trust Fund so that it is a “Crisis” Debt Relief Trust Fund - available to countries facing severe natural disasters as well as other exogenous shocks.

What should Government of Pakistan do?

  • Form national debt audit commission with constitutional cover to hold inquiry into all categories of foreign debts: illegal, illegitimate odious and ecological debts.
  • All new loans contracts  be  made subject to Parliament debate and  approval 
  • Unilateral suspension of  illegitimate and Odious debt of dictators
  • The money freed up after debt cancellation should be diverted and allocated for flood hit communities, social sector and provision of social protection to the poor.
  • Explore ways and means of immediate resource generation/reallocation, like the one-time flood tax, reduction in military budget, and also long term reforms like progressive agriculture reforms and direct taxation to bring the rich into tax net.
  • Freed-up money, income-aid money to ensure allocation for reconstruction.
  • Press IMF to share the windfall profit from gold sale of 403.3 tones with disaster-hit countries like Pakistan and Haiti.
  • Place in fool proof mechanisms to ensure accountability and transparency of utilization of flood funds. It is perquisite for the government to prove its commitment with the cause it has been claiming. These kinds of much-needed measures would really helpful to make the case strong for Pakistan’s foreign debt cancellation.

What should be the basis of international financial relations?

  • That sovereign lending and borrowing must be examined from moral/ethical and political points of view, as well as from economic and legal points of view.
  • That ongoing discussion regarding the precise legal status and content of the concept of illegitimate debt should not impede further political/legal action on the issue. Although illegitimate debt might currently be considered more as a political concept than an established legal doctrine, it is nonetheless undergirded by well-established legal principles.
  • That the initiative by the Government of Norway to unilaterally and unconditionally cancel the debt claims against five developing countries arising from the ship export campaign – acknowledging its co-responsibility as lender/creditor – is a positive step forward, an important example to other lenders and a contribution to the debate on illegitimate debt
  •  That the fact that this debt cancellation pursuant to the acknowledgment of creditor co-responsibility was not counted as official development assistance (ODA), following Norway’s commendable established practice on bilateral debt cancellation, must also be underlined.
  • That the Government of Ecuador’s sovereign decision to conduct an official comprehensive audit of Ecuador’s public debt in order to assess the legality, legitimacy and impacts of these claims is a very welcome initiative and example.
  • To issue a call to other governments - both borrowers and lenders - to take similar initiatives, recognizing the contribution of such actions to advancing the discourse and response to the issues of creditor co-responsibility and illegitimate debt.
  • To particularly encourage governments of both borrower and lender countries to undertake official audits to establish the legality and legitimacy of the debts.
  • To call upon all lenders – both public and private – to accept and apply the principle of co-responsibility as a fundamental matter of justice.
  • That political and legal approaches to the challenges of illegitimate debt are not mutually exclusive, but complementary approaches. Legal actions have to be accompanied by a political strategy, and political initiatives will invariably require legal support and follow-up.
  • That civil society has an indispensable role to play in mobilizing political will and in proposing and supporting legal interventions with regard to illegitimate debt and creditor co-responsibility.


Photo #1: Families returning to their communities following the flooding in Pakistan. By Russell Watkins.

Photo #2: CADTM-Pakistan focal person abdul Khaliq speaking at Anti-debt rally in Lahore. By CADTM Pakistan.


[i] The senate of Pakistan passed a unanimous resolution on 3 Nov 2010, seeking foreign debt write off

[ii] Oxfam report” six-months into flood” resetting Pakistan’s priorities through reconstruction.

Publisert  10.08.11

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