“Good debt accrues assets that generate positive returns and externalities”—Anthony Scaramucci—American political consultant
Any logical person would advise someone looking for a break-through to “strike when the iron is hot”—the right (or rather ripe) time to realize an apparently unachievable objective. This could work both positively being conducive to the public at large and negatively being applicable to one or limited number of carpetbaggers. Opportunity knocks but only the wise open their doors, the fools discern only when it is too late.
This philosophy holds true for governments and nations as well. Thus those that make the best of available possibilities reach great heights like Singapore, Malaysia and South Korea but the ones overlooking big breaks coming their way for whatever reasons, are left only to suffer. Unfortunately, Pakistan falls in the second category. Many a times the country came face to face with situations that could have been beneficially exploited but those at the helm of affairs merely secured their own advantages in the name of “national interest” rather than strengthening the public or the country in the true sense of the word.
From the historical perspective, Pakistan has experienced quite an erratic political journey at the hands of capricious rulers who kept playing with the destiny of the people by either their totalitarian policies or under the pretense of representative democracies, that too eventually steering towards self-styled despotism. There came occasional splurges of development, industrialization and progress interspersed with natural calamities and wars that kept the gears of advancement moving forward and in reverse as the country put on years with the people swaying between neo-liberalism and fundamentalism, unity and ethnic/religious bias, education and ignorance, sensibility and superstition. In a nutshell, Pakistan is a country that has in a short span of life treaded on more varied paths leading in different directions than any other country in the world.
No country can run on its own. It has to be led by humans. Fortunate are those nations that boast of sincere leadership that was focused, stern and clear, helping its people to set their sails to steer towards self-reliance and establishing control over their fate. While such nations basked in the sunshine of independence and paternal rulers, Pakistanis continued to bear lashes of uncertainty, flight of capital, brain drain and above all, falling in the abysmal quicksand of external debts increasing with every change in regime causing each new-born to enter this world with its own share of debt for which it never gave the mandate to the borrowers who were either elected by its parents or came in by force.
For the purposes of development and running the government, money is required. The wheels of economy can only move smoothly when fueled by a constant supply of revenue—principally coming from tax and non-tax sectors. The simplest proposition is that when expenditure exceeds income, the difference has to be made up by borrowing which is exactly what are rulers and economic managers have been doing since long—piling up debts, both internal and external. This envisages return of borrowed funds together with mark-up, something that has never been our forte. The money borrowed is hardly used to create revenue generating assets and even where some development does take place, the same does not have sustainability, due to which these funds go to waste.
The fact that Pakistan had to turn towards the International Monetary Fund (IMF) on 22 occasions commencing from 1958, speaks volumes about the murky economic situation the country has been forced to bear. The problem is that risk factors which cause external debt crises are greater for developing countries. Among these are high inflation, relatively larger share of short term debts with high interest rates, denomination of debt in foreign currency, unsustainable debt service relative to gross national income and lack of safeguard to hold foreign exchange reserves.
To make matters worse, Pakistan got pitched in unsolicited international conflicts that drained its own resources. In addition to the wars with India in 1965 and 1971, the Afghan crisis during 1980s, inflow of refugees, the post 9/11 war on terror were various occasions when prudent leaders could have sought write-off of loans. Instead, more loans and aids were taken to add to the misery of an already flabbergasted nation suffering from natural calamities as well. While in June 2005, when a G7 package for writing off World Bank and IMF loans worth US $ 53 billion of 18 poorest countries was being brokered by Chancellor Gordon Brown, government of Pakistan stood by as a silent spectator. No effort was made at any forum to plead Pakistan’s case following this precedent.
An important matter that remains ignored by successive governments relating to international law is the legal theory of odious or illegitimate debt secured by despotic regimes that should not be enforceable. This doctrine views such debts as personal in nature. This treatise introduced in 1927 by Alexander Nahum Sack, a Russian émigré legal theorist who wrote: “When a despotic regime contracts a debt, not for the needs or in the interests of the state, but rather to strengthen itself, to suppress a popular insurrection, etc, this debt is odious for the people of the entire state. This debt does not bind the nation; it is a debt of the regime, a personal debt contracted by the ruler, and consequently it falls with the demise of the regime.” A pertinent example is of South Africa.
Although the present form of international law does not recognize this doctrine, but efforts could have been made to engage jurists to make out a case for Pakistan too where many of the debts obtained enriched the rulers but left the governments penniless.
With the corona virus spreading its vicious tentacles and reaching out to all and sundry, Pakistan should definitely consider having at least its central government total external debt of Rs. 11,202.7 billion as on January 31, 2020 [source: State Bank of Pakistan] written off. With increasing pressure on government resources to cater for its over 210 million people who are forced to observe lockdowns, with unmanageable financial crises in the event of economic halt having a direct bearing on tax revenues, mere moratoriums will not ease out the prevailing fiscal mess. The government would have to feel as light as possible in order to fight its battle with the corona virus. If this crisis has hit the developed countries so badly, how can a struggling and under-developed one be expected to handle it?
At this crucial turn in world economics, wisdom demands that lenders should review their conditionalities showing greater generosity for countries like Pakistan. After all, if this economic ‘Titanic’ is destined to sink then with it will drown both lenders and borrowers along with their precious Funds. However, hopefully if the world does emerge from this crisis successfully, all affected countries would again be hard pressed for resources for restoration of the economy. Pakistan must take advantage of the current situation making all-out efforts to have these debts written off.
The writer, lawyer and author, is an Adjunct Faculty at Lahore University of Management Sciences (LUMS)