Foreign debt: The only way out
There are spaces
in international laws that can be invoked as legal justification to
demand cancellation of debt
By Abdul Khaliq
Pakistan is facing the worst-ever natural disaster of its
history. About 20 million of its population is displaced due to recent
huge devastation caused by the angry floods. Major infrastructure is
totally destroyed in major parts of the country. The economic loss is in
billion dollars. Foreign minister has put it as not less than $43
billion. This initial estimation may go up and above $50 billion after
the final assessment report.
A debt-ridden Pakistan is totally unable to cope with
this horrific calamity and its long term impacts on economy. This is the
time, instead of seeking moratorium or rescheduling on Pakistan's debts,
Pakistan must stand up and declare unilateral suspension of repayment of
foreign debts, owed to IFIs, donor countries and clubs.
The current external debt of Pakistan stands at $55.5
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. That
means Pakistan pays Rs.710 million daily and Rs.30 million every hour to
As our present foreign debt of $ 55.5 billion will be
further increasing after latest loans from World Bank ($1 billion) and
ADB ($ 2 billion) the ratio of debt servicing will automatically up by
the same ratio. Under the prevailing critical circumstances, the
government of Pakistan should take radical stance to cope with this
severe debt burden.
Various laws, resolutions, precedents and international
protocols favour Pakistan if it demands debt cancellation and dares to
refuse to pay foreign debts right now, especially under the critical
circumstances it is passing through. To refuse payment of debts is not a
new thing; many poor countries had already exercised this lawful right
in the past.
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 by a
situation that jeopardises 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 be
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.
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.
Pakistan is no more able to fulfill fundamental human
needs of its 20 million flood-hit population. 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, shelterless and close its schools and
hospitals, etc, creating chaos and anarchy.
Under the prevailing conditions, Pakistan must be able to
mobilise all available resources towards relief and rehabilitation.
Instead of sending billions in debt service out of the country, Pakistan
should be able to divert those resources towards rehabilitation of its
people. The international community should provide grant support instead
of give 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.
The first and foremost thing in such circumstances is the
fulfillments of all fundamental human needs of the population hit by
natural calamity. So, this is high time for Pakistan to stand up to its
creditors and say a big no. Pakistan had already missed one such
opportunity in 2005 when devastating quake hit Kashmir, leaving millions
of people in misery. This time, it is a bigger calamity. We have a
number of precedents in history when democratically elected governments
in debtor countries refuse debt payments on account of "State of
Necessity". Latin American countries, including Argentine, Burkina Faso,
Peru, Mexico, Paraguay, and Ecuador took such positions in the past.
In July 1985, the government of Peru decided to limit
debt repayments to 10pc of export revenues. This led to severe
resentment of IMF and World Bank, calling Peru's banishment from
international community. Just after only three months, the situation
become normal and creditors had no choice but to add the Peru's arrears
on interest ($ 5 billion) to debt stock.
Recently, IMF had to cancel all its debt (US $ 268
million) owed by Haiti, after earthquake-hit Haiti in January 2010. The
cancellation is given via the newly established Post-Catastrophe Debt
Relief Trust Fund, which was set up for this purpose and which can now
be accessed by other indebted countries hit by disaster.
Another example is Argentine. The country went into
serious crisis after 2001 economic crisis. Though Argentine leaders had
always implemented unpopular policies dictated by IMF, it was the people
of Argentine who come on the roads in 2001 to protest debt domination.
This popular action succeeded in altering history. As a result,
country's president announced the biggest unilateral suspension of
foreign debt in history, a total of more than $80b owed to private
creditors, countries and Paris Club. Thus, Argentine demonstrated that a
country could stop debt repayments for a lengthy period of time.
Burkina Faso is another country which stood against IFIs
and refused payment of debts. In 1987, its President Thomas Sankara
announced unilateral suspension of foreign debts. He said. "The debt
cannot be repaid, firstly because if we do not pay, the creditors will
certainly not die, on the other hand if we pay, we will certainly die.
Those who have led us to debt trap have gambled as though in casino.
When they were winning there was no debate. But now when they have lost
through gambling, they demand that we repay them. No! According to rules
of the game we cannot pay and refuse to pay all foreign debts."
Pakistan's total debt-to-GDP ratio has crossed 61 percent
this fiscal year, breaching the 60 percent limit set under the Fiscal
Responsibility and Debt Limitation Act. According to WB, if debt-to-GDP
ratio exceeds the limit of 80 percent, default is sure. World Bank's
recent announcement to provide new loan to Pakistan of $900 million and
the Asian Development Bank's announcement for a $2 billion emergency
loan is highly condemnable. Pakistan already owed huge amount of about
$24 to Asian Development Bank and the World Bank. Further loaning,
without any doubt, will lead an already debt-trapped Pakistan to a worst
Instead of accepting new loan offers, the democratically
elected government of Pakistan should request communities for help and
grants at the same time demanding total and unconditional cancellation
of its foreign debt. Time and again, countries facing tragedies 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.
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. Extending loans is tantamount to further
enslaving the people of Pakistan. We want to tell WB, ADB and IMF to
please do not rub salts on the wounds of the calamity-hit, debt-ridden
people of Pakistan by extending such loans.
The government of Pakistan must realise that moratoriums
and rescheduling would not be helping it much to cope with this
extra-ordinary calamity. In view of the magnitude and degree of the
devastation, call for a total and unconditional debt cancellation is the
only way out.
If Pakistan is to re-build 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
The writer is Focal Person, Campaign for Abolition of
Third World Debt (CADTM), Pakistan.