Pakistan: Use foreign debt repayments for flood-hit communities

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[Readers can donate via the Australian trade unions' aid agency APHEDA at]
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By the Labour Relief Campaign

August 13, 2010 -- Pakistan must refuse to pay foreign debt and divert the amount to the relief and rehabilitation of flood-hit communities. Instead of begging for much-needed aid for relief and rehabilitation, Pakistan must stand up and announce the unilateral suspension of repayment of foreign debts, owed to international finance institutions (IFIs) and donor countries. Currently Pakistan is paying about US$3 billion on debt servicing every year. Pakistan's present foreign debt of $54 billion is increasing. This act alone can bring most of the much-need support for the immediate relief of the flood victims.

Pakistan is facing the worst disaster of its history. About 20 million of its population is badly affected by the recent devastation caused by angry floods. Major infrastructure is totally destroyed in large parts of the country. Besides continuous human causalities, the economic loss is in billions of dollars. The country has suffered a loss of about Rs250 billion in the agricultural and livestock sectors alone and the flood recovery costs may run into billions of dollars. Pakistan is in a real human and economic crisis. Though international donors are announcing commitments for relief and rehabilitation, these are peanuts vis-a-vis the degree of the catastrophe.

Under the prevailing critical circumstances, we have to think about coping with this severe debt. Various laws and international protocols favour Pakistan if it refuses to pay its debts right now, especially under the prevailing circumstances. To refuse payment of debts is not a new thing; many poor countries have exercised this just and lawful right in the past.

There are spaces in international law that can be invoked as legal justification to refuse the payment of external debt. One of these justifications is called "state of necessity". This rule is characterised by a situation that jeopardises economic or political survival -- such as situations which create the impossibility of fulfilling the basic needs of the population (health, education, food, water, housing etc). State of necessity justifies repudiating debt, since it implies the establishing of priorities among different obligations of the state. Therefore, a natural calamity like the one hitting Pakistan creates the "state of necessity".

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 "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."

Pakistan is not able to fulfill the fundamental human needs of 20 million flood-hit people, who have no access to food, clothing, shelter and medicines. Therefore, Pakistan is simply unable to repay or service its debt responsibilities. The IFIs and creditors should not expect Pakistan to continue debt repayments, leaving its people hungry, shelterless, without schools, hospitals, courts and public services, creating chaos and anarchy in communities.

In 2005, when devastating quake hit Kashmir, millions of people were left in misery. This time it is a more lethal calamity, and we can be silent no longer. We have number of precedents in history when debtor countries refuse debt payments on account of "state of necessity". Latin American countries including Argentina, Peru, Mexico, Paraguay and Ecuador have taken such positions in the past. Very recently, the International Monetary Fund (IMF) had to cancel debt (US$268 million) owed by Haiti, after the devastating earthquake in 2009.

The cancellation was given via the new UN-established Post-Catastrophe Debt Relief Trust Fund, which was set up for this purpose and which can now be accessed by other indebted, low-income countries hit by disasters.  Another example is Argentina. The country went into serious crisis after the 2001 economic crisis. Though Argentina's leaders had always implemented unpopular policies dictated by the IMF, it was the people of Argentina who come into the streets in 2001 to protest debt. This popular action succeeded in altering history. As a result the country's president announced the biggest unilateral suspension of foreign debt in history, a total of more than $80 billion, owed to private creditors, countries and the Paris Club. Thus Argentina demonstrated that a country could stop debt repayments for a lengthy period of time.

Burkina Faso is an African country that stood against the IFIs and refused the payment of debts. In 1987, its president, Thomas Sankara, announced unilateral suspension of foreign debt. He said:

The debt cannot be repaid, firstly because if we do not pay, the money lenders 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 current external debt liabilities stand at $54 billion. It spends $3 billion on average every year under debt servicing. With the increase of foreign debt liabilities, the ratio of debt servicing is also increasing. Pakistan's total debt-to-GDP ratio has crossed 61 per cent this fiscal year, breaching the 60 per cent limit set under the Fiscal Responsibility and Debt Limitation Act. According to  the World Bank if the debt-to-GDP ratio exceeds the limit of 80 per cent, default is sure. The major portion of Pakistan's national budget is consumed by two Ds, debt-servicing and defence. We have to review allocations against these two Ds. Under the circumstances, there is no denying the fact that Pakistan's single source of economy vulnerability is debt crisis. We do not have any other option to come out of this economic but to refuse the repayment of debt.

We are totally opposed to the cuts in the development budget which have been indicated by the prime minister several times during the last three days. We are also worried about press reports that the government wants to levy a flood tax on the people and wants to increase the rate of general sales tax. This is totally unacceptable. The government must reduce its non-developmental budget, reduce military expenditure and refuse to pay foreign debt to help the flood victims.

We also demand from the IMF, World Bank and other IFIs to unilaterally cancel the debts of Pakistan. It is time that these institutions change their usual profit-earning practices.

Our immediate demands

This is high time for the State of Pakistan to announce unilateral suspension of all external debts and divert that amount to relief and rehabilitation for the 20 milllion flood-hit people. The government should approach the Post-Catastrophe Debt Relief Trust Fund to get foreign debt liabilities cancelled. The government can also invoke the international protocol of "state of necessity", introduced by UN Human Rights Commission in 1999, to refuse the payment of debt. As government is planning to review economic priorities and budget allocations, it must take steps to reduce the military budget, cut non-development expenditures and other unnecessary spending. The amount, thus saved should be shifted to the social sector.

[Based on a oress conference addressed by  Abdul Khaliq and Farooq Tariq of the Labour Relief Campaign at Lahore Press Club. The Labour Relief Campaign is a network of eight social and political organisations in Pakistan, including National Trade Union Federation, Women Workers' Help Line, Progressive Youth Front, Labour Party Pakistan, Pakistan For Palestine, CADTM Pakistan, Labour Education Foundation and Pakistan Kissan Rabita Committee.

We appeal to our friends and organisations in Pakistan and abroad for donations of a monetary kind or in the form of drinking water, clothes (new), shoes and medicine.

[For further information please contact: Khalid Mahmood, director Labour Education Foundation, ground floor, 25-A Davis Road, Lahore, Pakistan. Email: Telephone: 0092 42 6303808, 0092 42 6315162. Fax: 0092 42 6271149. Mobile: 0092 321 9402322.

[If you wish to transfer funds, the details of the account for sending money to the LRC are: Account: Labour Education Foundation; account number: 01801876; Route: Please advise and pay to Citi Bank, New York, USA Swift CITI US 33 for onward transfer to BANK ALFALAH LTD., KARACHI, PAKISTAN A/C No. 36087144 and for final transfer to BANK ALFALAH LTD., LDA PLAZA, KASHMIR ROAD, LAHORE, PAKISTAN Swift: ALFHPKKALDA for A/C No. 01801876 OF LABOUR EDUCATION FOUNDATION.

[Readers can donate via the Australian trade unions' aid agency APHEDA at]