EDL: A TRAP OR A MISMANAGED OPTION?

SHAMSUL GHANI (feedback@pgeconomist.com)
Feb
1 - 7, 2010

Before discussing the dynamics of our national debt, particularly the external debt, I would like to remind the readers of the US strategy to economically enslave the third world countries. This strategy is not the mind product of some of the anti-US think tanks but flows direct from the pen of a US economist John Perkins, better known as Economic Hitman.

Employed as the chief economist at MAIN, he writes with reference to his trainer Claudine: "Claudine told me that there were two primary objectives of my work. First, I was to justify huge international loans that would funnel money back to MAIN and other US companies (such as Bechtel, Halliburton, Stone & Webster and Brown & Root) through massive engineering and construction projects. Second, I would work to bankrupt the countries that received those loans (after they had paid MAIN and other US contractors, of course) so that they would be forever beholden to their creditors, and so they would present easy targets when we needed favors, including military bases, UN votes, or access to oil and other natural resources.

The unspoken aspect of every one of these projects was that they were intended to create large profits for the contractors, and to make a handful of wealthy and influential families in the receiving countries very happy, while assuring the long-term financial dependence and therefore the political loyalty of governments around the world. The larger the loan the better. The fact that the debt burden placed on a country would deprive the poorest citizens of health, education and other social services for decades to come was not taken into consideration"

According to the said strategy, US employed three different tactics to achieve the desired objectives - use of economists like John Perkins, violent change of popular and economically stable governments, and where these two options are not relevant, the use of brutal military power.

When seen in the perspective of Pakistan, a lot of evidence surfaces. During July-March 2009, Pakistan's external debt servicing amounted to $5.3 billion out of which $3.65 billion were paid off and the balance was rolled over. Owing to a much higher policy rate, the domestic debt servicing is also much higher. Our public sector development program which is invariably downsized before the end of each fiscal, is hardly 30 percent of the total debt servicing. There is no doubt that the debt system is a boon for a number of wealthy and influential families and a bane for the poor masses of this country.

Our economic progress during 2003-08 remains unparalleled. During those six years, an average growth of 6.3 percent was achieved and poverty level reduced to 17.02 percent. This state of affairs did not suit the US book and our feudal lords. We all know how the political change was brought about and what economic price we had to pay for that.

Going back to the US strategy, Pakistan has been projected as a US strategic ally. We do have a good natural resource base but hardly so potential as to attract special US attention. The non-development of this resource base is plotted by the domestic vested interests rather than any conscious and compelling US effort. US is more interested in us as a second tier broker of its interests in the region. This places us in an excellent position to write our own economic history that would be least subject to US intervention, if we could manage the debt option professionally and skillfully.

Unfortunately it's not going to happen unless we do away with the feudal lords by eliminating them from our social and political ambience.

A thorough scrutiny of debt history will bring to books those wealthy and influential families who have misused the debts by siphoning them off to their foreign bank accounts instead of utilizing them for public sector programs. Stashing away of nation's wealth by the few suits the US, and therefore it is not going to help the country as a whole.

TABLE: LAST FOUR YEARS' EXTERNAL DEBT POSITION
(MILLION US$)
PARTICULARS JUN-06 JUN-07 JUN-08 JUN-09 SEP-09
Public & Publicly Guaranteed
Medium & Long term Public Debt
Paris Club 12,785 12,694 13,928 13,998 14,663
Multilateral 16,631 18,532 21,451 23,001 24,040
Euro Sukuk/Global Bonds 1,900 2,650 2,650 2,150 2,150
Others 1,033 1,209 1,305 2,310 2,315
Short Term Public Debt 169 25 713 652 589
A. Total Public Debt 32,518 35,110 40,047 42,111 43,757
B. Total Publicly Guaranteed Debt 295 239 196 156 140
1.Total Public/Publicly Guaranteed Debt; A+B 32,813 35,349 40,243 42,267 43,897
2. Banks debts - - - - 226
3. Private Non-Guaranteed debts 1,585 2,002 2,612 3,207 3,092
4.Private Non-Guaranteed Bonds - 250 275 137 137
5. IMF 1,491 1,407 1,337 5,148 6,442
6. Total (1+2+3+4+5) 35,889 39,008 44,467 50,759 53,794

Since June 08, total external debts have increased by 21 percent within a period of 15 months. According to an IMF estimate, Pakistan's external debt is likely to increase to $57.1 billion by the end of the current fiscal and to $64 billion by the end of the next fiscal. By 2015-16, the external debt is estimated to rise to $73 billion. The debt to GDP ratio is estimated to remain around 35 percent which is anyway more than the average for developing economies. The rise of external debts has been triggered by the drying up of foreign investment, massive domestic dollar outflows in the wake of political uncertainty and shrinkage in export receipts. The sustained and perked up inflow of workers' remittances has kept the economy somewhat buoyant. With the subsequent disbursement of IMF tranches, the total external debt is going to be much higher that what is shown in the table. In domestic currency terms at current value, the external debt stands at Rs.4.6 trillion. This figure when added to the domestic debt figure of Rs.4.3 trillion kisses the horrendous nine trillion rupees.

Every one of us in individual capacity owes a debt of Rs.54,500. How much of the total national debt has been spent on country projects of real economic worth and how much of it has found its way to Swiss banks is a hundred billion dollar question.