Re: US creating problems for $4.5 billion gas project, trying to be a bullying ass
Don’t like that? Let’s go straight to the State Bank of Pakistan. Notice the big decrease in Military debt and Special US bond accounts. Additional debt was added in the Multilateral Accounts. Without US aid and US debt restructuring this would not have been possible.
http://www.sbp.org.pk/Ecodata/pakdebt.htm
Or, better stated in October of 2001, Pakistan was a basket case:
30th October, 2001.
Briefing on Pakistan’s debt sustainability
Pakistan is eligible for HIPC
Whatever we may think of her government, Pakistan’s debt - accumulated largely when foreign governments made large loans to President Zia’s regime - is not sustainable.
Pakistan’s external debt is at $31.7bn, or more than 53% of GDP, while her domestic debt at current exchange rates is a further $30bn, or 50% of GDP, meaning that total domestic and external debt exceeds GDP. Domestic debt as a proportion of GDP has been steadily increasing, from 43.5% in 1996/7 to 50% today.
Debt service in Pakistan amounts to 47% of total budgetary expenditures, and 63% of domestic revenues. In total, almost 10% of GDP goes into servicing domestic and foreign debt. This makes it the single largest item of government expenditure. Expenditures on debt servicing exceed social and poverty related expenditures by a factor of four.
In 1999, the latest date for which data is available, Pakistan owed $12.2bn to bilateral creditors, $14.2bn to multilateral creditors and the remainder to commercial creditors.
Omar Noman of the UNDP argues that: “the rapid accumulation of debt is not a result of populist civilian governments, as some allege. Since the rapid growth in debt servicing coincided with the return to democratic rule, it is sometimes mistakenly believed that civilian populism is the root cause of the profligacy. While some of the civilian leaders are far from blameless, while others were more prudent, the principal rise in debt obligations occurred under the previous military ruler, General Zia-ul-Haq. Much of the domestic debt, that has become such an onerous burden, was accumulated during the 1980s”.
Clearly Pakistan needs radical debt reduction if there is to be any hope of a return to economic stability and sustainability and social development in the country and region.
The urgent need for debt relief for Pakistan
Pakistan is not an IDA only country and therefore is not eligible for assistance under the HIPC initiative. She is formally classified as a middle income country by the World Bank, with a GDP per capita (in PPP terms) is at $1,860.
However, human development indicators in Pakistan place her at a lower level than many of the HIPCs. Adult Literacy is at only 44%, compared to 84.4% for Bolivia, and 76% of Zambia, while combined primary, secondary and tertiary enrolment is at only 43%, compared to 58% in Honduras (1998.)
There has been a sharp rise in poverty and inequality. The percentage of households under poverty nearly doubled between 1987 and 1999, rising from 17.3 % to 32.6 %. The growth in poverty was not confined to rural areas. The nerve centres of the political system – the urban areas – saw poverty rise from 14.9 % of households to over a quarter, who are unable to meet their minimum nutritional requirements.
The number of people below the official poverty line, defined by a basic minimum level of nutrition, have risen exponentially, from nearly 18 million in 1987 to 43.9 million by 1999. Just the increase in the number of the people unable to meet minimum calorie requirements (26 million) is greater than the entire population of the Nordic countries - Sweden, Denmark, Norway, Iceland and Finland. Pakistan has the sharpest rate of population increase in Asia This fact has been conceded by the IMF in a recent (October 2001) report, where they write that: its “long-term external outlook (is) unsustainable, with most debt indicators worse than for many countries supported under the HIPC initiative”.
In January 2001, Pakistan visited the Paris Club, and was offered an insignificant re-scheduling of her arrears and of ODA credits. The repayment period on ODA debt was lengthened beyond 15 years, to 20 years. $1.8 bn of the total bilateral debt of $12.2 bn was re-scheduled.
Pakistan is now seeking a further Paris Club deal, which would closely mimic ‘Naples Terms.’ This would involve cancellation of between 50% and 67% of non-ODA debt, and a rescheduling of ODA debt with a concessional interest rate at least as favourable as the rate under which the loan was originally contracted.
However, this level of relief will only be on bilateral debt; given Pakistan’s exclusion from the HIPC initiative, the Multilaterals will not be offering any relief on their debt.
We regard this as discriminatory; creditors are being treated unequally and the taxpayers of the Paris Club will take the “haircut”. Other, equally unwise multilateral and commercial creditors are not expected to share in the losses.
Inconsistency in Paris Club treatment of ‘friendly debtors’
In 1991 Egypt was rewarded for her support for western governments during the Gulf War. $21bn of her bilateral debt (i.e. about half) was treated under the Paris Club’s “Classic Terms”. According to the World Bank $10.5bn of interest was “forgiven” and $2.4bn of stock was written off.
According to the WB’s 1993 Debt Tables, Egypt’s total debt in 1991 was $41bn. In their 2001 (Global Development Finance) tables, the debt in 1991 was only $32bn; and had fallen to $30bn by 1993. So, depending on which of the WB’s own figures one believes, Egypt either got $10.5bn and $2.4bn in debt relief on the one hand; or her debt only fell after the negotiation by $2bn. The $12.9bn figure is however repeated every year (in a separate table) in all the Bank’s Debt Tables data.
All the indications are that the Paris Club is not consistent in its treatment of “friendly” debtors and that Pakistan will not be granted such generous treatment.
(Another inconsistency is creditor insistence that 11 HIPC countries should be denied debt relief, because they are engaged in conflict. These countries include Sierra Leone, Somalia, Burundi, Ethiopia etc. Pakistan is engaged in conflict on two fronts: Kashmir - and now in supporting the war in Afghanistan).
Conclusion: Pakistan needs debt relief urgently, with strong conditionalities and civil society monitoring.
There are strong indicators that the IMF will soon provide Pakistan with an additional $2bn in new loans. But new loans are not the answer. Pakistan needs debt relief on terms at least comparable to those of the HIPC countries, if there is to be any hope of a return to economic stability and sustainability in the country and region.
But, under current informal arrangements, creditors cannot write off debts in amounts sufficient to return Pakistan to sustainability. Furthermore one group of creditors (the bilaterals) cannot round up other groups (commercial and multilateral) and insist on equal treatment of all creditors - a fundamental rule in bankruptcy negotiations.
That is why we need a fair, independent, accountable and transparent insolvency process, perhaps based on Chapter 9 of the US legal code (which provides for the bankruptcy of municipalities) - to negotiate an orderly re-structuring of Pakistan’s debts.
And, there should of course be tough conditions for debt cancellation, but they should be based on the need for open, democratic and accountable government and on direct poverty reduction - not on IMF austerity programmes for liberalising the economy.
For poverty reduction to be meaningful, civil society must be involved in the process, and given the power to monitor and report back to creditors on how the money is spent. There is a Jubilee 2000 campaign in Pakistan, run by the Catholic Justice and Peace Commission. There are many other, active and lively civil society organisations and political parties. There is also a very lively and largely free press
http://www.jubileeplus.org/databank/Briefings/Pakistan301001.htm