Ali Abbas’ exclusive post for PTH
If altruism is defined as selfless concern for the welfare of others, then foreign aid can never be altruistic. Aid always serves a purpose, may it be political, diplomatic or ideological. What of debt then? The same old original sin of modern man. The reason why we will never be pure again (unless, we can transform our current loans into Islamic loans of course!).
Theoretically, a country should take a loan when a simple Cost Benefit Analysis is satisfied. This CBA can be defined as follows: if a country can take a loan to generate a particular level of GDP, the loan is beneficial if the rate of increase in GDP is more than what is returned to the lender in the form of the interest plus the principle. In the real world, development banks or IFI’s such as the IMF, the World Bank and the ADB provide loans much with the same rationale that corporate banks provide loans: to earn an interest, finance their operational costs and make a profit. It is in the interest of these IFI’s to lend to developing countries.
However, developing countries don’t always borrow money on the basis of a rigorous Cost Benefit Analysis either. Instead, these loans more often than not provide political agents with bigger pies to slice rents off, and their cronies at the banks fatter pay-checks and better promotions for ‘achieving targets’ and lending more money to poor countries. Thus, the overall state of shock when Pakistan refused the US$ 2 billion loan that the ADB was willing to provide to Pakistan.
These unprofitable loans become a problem for poor nations (read: the nation minus the economic elite, which in Pakistan’s case turn out to be the industrialists and the large landowners) which are placed under the back-breaking burden of ‘debt-servicing’. As for bilateral loans, in a situation where the borrowing country suffers from pathetic utilization rates due to poor governance and economic structures, such lending more often than not allows the lender a say in the country’s affairs by establishing a state of dependency between the two.
Recent months have seen the burgeoning middle class, those educated and enlightened vanguards of our counter-reactionary movement take to the streets in Islamabad, demanding the government to take a stand in the international arena and demand a waiver of debts that Pakistan has accumulated up till now (more than US$ 52 billion). Commendable as this may be, it’s hard to believe that much will come out of it. The government has found it hard to explain why such loans have not been utilized profitably thus far, given its corrupt governance structures, leaking coffers and high military spending. The Social Action Plan of the 1990s did not produce tangible results. By end June 2001, Pakistan’s external public sector debt, at US$32.8 billion amounted to 55% of GDP, having grown at an average annual rate of 5.4 percent throughout the ‘90s. Musharraf – trumpeting his ‘enlightened moderation’ campaign – was able to bolster the economy by easing the flow of credit, however failing to substantially industrialize the country (a key condition for making such a form of growth sustainable).
Corruption has come up as a key word with reference to Pakistan. And this is something, which we can proudly say, hasn’t been achieved – at least primarily – through the nefarious designs of our hydra-headed invisible enemy. Tales about packed foreign accounts of our national leaders, stories of inhumane and corrupt acts during the floods where embankments were breached for personal gain, and conspicuously, the revelations of how deeply embedded spot-fixing has been in cricket, our beloved sport, with the trio of Aamir, Asif and Butt ringing a death knoll for all residual strands of our integrity, corruption appears to have seeped deep into our national identity and psyche.
On the debt issue, Pakistan cannot take a morally high ground. What it can do, is to invoke the state of necessity (which international donors have already suppressed to an extent) and beg the international community to waive off its loans. But this is no less than wishful thinking.
Let’s talk in numbers. As of March 2010, loans from the Paris Club amounted to US$ 14 billion, other bilateral lenders US$ 1.8 billion and multilateral financial agencies such as the IMF, WB, ADB, Islamic Development Bank US$ 32 billion. Debt relief could and is being sought from bilateral partners, and this could also be done under the IMF and WB’s Indebted Poor Countries (HIPC) Debt Initiative and Multilateral Debt Relief Initiative (MDRI). Rehman Malik’s recent statement on our ambitions of seeking debt relief at the Pakistan Development Forum have been rebuffed by Federal Minister for Finance Dr. Hafeez Sheikh. According to him, Pakistan cannot risk turning into a pariah state by demolishing its credit ratings and its potential in global capital markets by seeking debt relief. Responsible, economically adroit states don’t take loans and beg for their waiving off.
As for bilateral loans and multilateral loans (from organizations which the US has direct influence in through core funding mechanisms), the Obama administration – especially after the midterm elections would find it hard to provide a hostile Congress with a coherent rationale for being overly generous to Pakistan. Pakistan may be a frontline state in the War on Terror, but it is not so much of a favour that the country is doing for the rest of the world, as it is an existential battle which it has to fight either way, thanks to our ultra-religious, ultra-nationalist state policies and the socio-economic marginalization of vast swathes of Pakistan during the 80s and the 90s. The Americans know that if Pakistan falls, the world will not be ‘a better place to live in’. However, they also know (from historical precedence) that the world’s seventh largest army will not let the country fall so easily. It would rather prefer a military coup and attempt to increase revenues instead of demanding a decrease in costs in the form of debt servicing. The IFI’s will not ‘altruistically’ waive the loans, as they don’t stand to gain anything by doing so. They could always point to the staggeringly low social indicators that Pakistanis should be so ashamed of, and ask the government to do its job before presenting its begging bowl to the mother hen, puppy-faced for a golden egg.
As stated, the efforts of the youth of our country, the ‘middle class’ (which is less of such a monolith, but which is considered so for practical purposes) and the educated are commendable. The walks around Islamabad and the pressure exerted by this segment of our population gives us reason to be optimistic. However, even if these loans are waived off, with the current structures in place, it won’t be long before Pakistan is once again burdened by debt. What needs to end and end fast is the obsession with contemporary, capital politics. Requiring urgent attention is not only what is politically chic but also what has been sidelined precisely to avoid the clamoring crowd.
Cuts in military spending, political dialogue and engagement with the marginalized, focused programmes for development in undeveloped, vulnerable areas with tight oversight guidelines and regulations, and most importantly, an increase in the qualitative and quantitative share of education in the budget is the need of the moment. Public expenditure on education stands at approximately 2% of GDP compared to 13.5% for defence. In this world of endogenous models where human capital and technological change provide impetus for development, the fact that almost 40% of our youth today (masking regional variations) are uneducated beyond 5th grade must precipitate as a cause for concern. Unless advocacy is not undertaken to question our structural constraints which also include a stagnant industrialization campaign, un-innovative trade and commercial planning and amnesia with regards to the concept of comparative advantage, the debt issue will linger on in the foreseeable future. The politically active, urban class of educated elites would do well to give equal weightage, if not more, to these issues as well.