An Exercise in Analysis

By Anjum Altaf

I received the following announcement from the Pakistan Solidarity Network in connection with a teach-in planned in New York on Friday, September 17, 2010.

The Urgent Need for Solidarity With Pakistan’s Flood Victims


Even as Americans revisit the lingering destruction wrought by Hurricane Katrina, half a world away Pakistan is experiencing one of the most calamitous disasters in recent memory.

Nearly 20 million people have been directly affected. More than 8 million need urgent aid. 800,000 people are stranded. A full 14 million people across the country are now homeless. The country’s infrastructure, already in disrepair, has been simply washed away.


As with so many natural disasters we’ve seen in recent years, this tragedy too is carved out of a history of unsustainable policies. Years of neoliberal economic policies and militarism have stripped the Pakistani State of its capacity to meet the people’s needs.


Pakistan’s elites, both civilian and military, have much to answer for, but so do U.S. elites and the Obama administration, whose ratcheting up of the war on terror has made a bad situation worse. Likewise, harsh conditions attached to Pakistan’s external debt by institutions like the IMF share much of the blame for the scale of the social and economic crisis.


Meanwhile, international aid has been reluctantly offered and slow to arrive, perhaps because for years now, politicians and the media, particularly in the U.S., have encouraged a view of Pakistan as nothing but a crucible for terrorism, thus obscuring the humanity of its people. The U.S. has spent $33 billion on the recent surge in Afghanistan: nearly three times what Pakistan will need for its reconstruction, and some 165 times the amount the US has pledged for flood relief. But the American military wasted no time in exploiting the floods to airbrush its own public image in the region.


In response, progressive activists in Pakistan are launching a national campaign against the servicing of foreign debt and the squandering of enormous resources on the military.


Here in the U.S., similar awareness and activism is sorely needed. We need to hold this government and institutions like the IMF accountable for the destructive role that they continue to play in the region. Please join us to build solidarity with ordinary Pakistanis and raise badly-needed funds for grassroots flood-relief.

While the needs of the flood affected are undeniable, I feel we need to debate the analysis of the causes of Pakistan’s problems contained in this statement. I would like readers to write whether they agree with the analysis or not and give the reasons for their opinion. This is a general exercise in analysis and all readers, not just Pakistanis, should feel free to participate.

With respect to the specific campaign of the Pakistan Solidarity Network against the servicing of foreign debt, there are two references available to readers. The first is a critique of the campaign by Akbar Zaidi (A Senseless Demand) while the second is a defense by Farzana Bari (A Sensible Demand). Readers can consult these references in formulating their responses.

It is important to engage in such discussions both as pedagogical exercises in analysis and as contributions to the formulation of robust policies at the national level.


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39 Responses to “An Exercise in Analysis”

  1. Vinod Says:

    Have they really done an analysis or simply listed the causes that they think are responsible for the state of Pakistan? Is there an analaysis at all in there? Even the listing is more of blame placement rather than identifying causal chains.

    • Anjum Altaf Says:

      Vinod: I had the same reaction. The statement lists plausible causes and assigns blame. Obviously, a short statement that doubles as an announcement cannot go into the analysis but in the spirit of a teach-in, it could have put the assertions in the form of questions to be discussed at the event.

      Analysis supporting some of the positions is provided in the op-ed by Farzana Bari that I have linked in the post. Do read it and say whether you find it convincing.

  2. Hasan Abdullah Says:

    Dr. Farzana Bari is rightly supporting the progressive segment of the civil society in Pakistan, which, in order to meet the challenge posed by the aftermath of the devastating floods, is adopting the strategy of focussing on external and internal, both, dimensions.

    If one is interested in an ‘analysis’ of the Pakistani society, which is not fundamentally different from other less developed societies, then one may please read the July-August 2010 issue of “Monthly Review” dealing with “Latin America & Twenty-first century socialism: Inventing to avoid mistakes”.

    Perhaps, after all, the statement that “the only alternative to socialism is barbarism” is not wrong – especially for the less-fortunate from the less-developed areas around-the-world!

    • Anjum Altaf Says:

      Hasan: You are right to point out the two dimensions of the strategy articulated by Farzana Bari and we need to explore these further. I find the internal strategy convincing but have doubts about the external one.

      You are operating at a very macro level in presenting the contrast between socialism and capitalism. Perhaps you are right in theory although socialism in practice has not done much for the less fortunate in the developing world. The objective is social and economic justice and even within countries with capitalist systems there are great variations. The external factors are common to all the countries in South Asia. So why do we see such a stark contrast in the outcomes? We are not even venturing to countries of East Asia like Thailand, Malaysia and Indonesia that also share the same external factors. This is where we need the deeper analysis.

  3. Sohail Khan Says:

    The first 2 paras are sort of descriptions. The there are some assumed/implied links:
    Historical unsuitable policies lead to this tragedy- is that clear cut? What policies could have or could save the tragedies at this scale?

    “Pakistan’s elites, both civilian and military, have much to answer for, but so do U.S. elites and the Obama administration, whose ratcheting up of the war on terror has made a bad situation worse.” Only an assertion or is there any evidence?

    “Harsh conditions attached to Pakistan’s external debt by institutions like the IMF share much of the blame for the scale of the social and economic crisis.” Are those conditions specific to Pakistan and in what ways those are making Pakistan’s situation worse? A counter argument would be that without those debts, Pakistan could go bankrupt. That route was not taken by Pakistan. At the time of the contract- there were no floods?

    “In response, progressive activists in Pakistan are launching a national campaign against the servicing of foreign debt and the squandering of enormous resources on the military”– Would that not further isolate Pakistan from money market? Is Pakistan and its people to adopt to the life style which might arise from such actions? What are the cost and benefits of such action? Would this be a part of negotiation to get better deals or simply a breakdown of relationships? Are there any examples of such actions?

    Does IMF plays a destructive role? in all countries? and in all situations? I think one of their roles is to maintain an international monetary system. Is the suggestion that we simply get out of any international system? Are there any alternative systems, if yes, what are those?
    Refusing to pay may lead to some conflicts and may lead to softer conditions but is the time right to play this game ?

    • Anjum Altaf Says:

      Sohail: These are the very same questions that had occurred to me. I hope the proponents of the teach-in engage in a discussion so that we can resolve some of the misgivings and misperceptions. Do read the op-ed by Farzan Bari that provides the supporting logic for the positions mentioned in the announcement. Let us know if you agree with her analysis.

  4. Clarence Maloney Says:

    Pakistan needs:
    1. Land reform- how can one family hold thousands of acres nowadays and keep the laborers like serfs?
    2. Put 8% of GNP in education, to catch up with the failure in that sector since Independence- normal recommendation would be 6%, but Korea advanced best when 10% was for education
    3. Creative thought and education in the people’s languages. Look around the world- countries that developed rapidly (East Asia, East Europe) have education through basic college level in the people’s languages, and compare with Philippines, Central Asia, West Africa, etc. And Urdu is NOT the people’s language except in Karachi. Panjabi (in both countries) has more speakers than German- use it as the vehicle of modernization and creativity at all levels
    4. Good family planning services- population growth is a terrible threat for the next generation

    • Anjum Altaf Says:

      Clarence: You have pointed in the right directions. The internal factors need a lot more attention and these are what account for the big differences between countries subjected to similar external conditions. I am glad you have added the point about the relationship of creative thought to language. This is not given the attention it needs; in fact it barely registers as relevant in the reform agenda.

      The next level of analysis requires us to ask why all these measures have been ignored or neglected in Pakistan.

  5. Hasan Abdullah Says:

    I agree with Clarence Maloney that land reforms, investment in education, education through mother tongue, and population control are needed. But, the million dollar question is that how do we proceed towards achieving those goals?

    Please allow me to reproduce the second paragraph of my earlier response:

    If one is interested in an ‘analysis’ of the Pakistani society, which is not fundamentally different from other less developed societies, then one may please read the July-August 2010 issue of “Monthly Review” dealing with “Latin America & Twenty-first century socialism: Inventing to avoid mistakes”.

    I request you, with all the emphasis at my command, to read the referred issue of Monthly Review in case any serious discussion on the issue of changing the society is intended; and make the recent experiences (say during last two decades) of Latin American countries as the focal point of discussion. We, all, can be hugely educated, and benefited, by such a discussion, as it would throw light on the plausible path to the desirable progress. And, please, do not equate state capitalism (and one-party rule)with a socialist society.

    • Anjum Altaf Says:

      Hasan: Hopefully we will be able to look at the issue of Monthly Review at a later stage. Thanks for the reference. At this point we are not engaged in the visioning exercise of imagining an alternative future. Rather, it is a very narrow classroom exercise of identifying the strengths and weaknesses of an explanation that has been forwarded for Pakistan’s present predicament. What parts of the explanation can be supported with evidence and what are mere assertions? What parts of it would not stand up to the test of logic and would therefore point to strategies that could worsen the existing problems?

      While Pakistan may not be fundamentally different from most other less developed countries, there are nevertheless great variations among the set. We are interested at this time in identifying the causes of this variation. Pakistan’s case is of urgency because it is at the bottom as measured by most indicators. So, our question is how and why did things get this way? We need to answer these questions before we identify the strategies for reform.

  6. Arsalan Khan Says:

    I’m not exactly sure what the issue is with the mission statement, which is clear and concise and lays out the general parameters of a movement that aims to connect the current crisis in Pakistan to deeper structural issues in the global political economy. One of the speakers at the teach-in provided ample evidence in support of the argument that neoliberal economic policies have gutted the Pakistani state,and have therefore created conditions that make it impossible for the state to respond to the current crisis. It seems to me that debt cancellation is a fairly obvious way to open up much needed funds for rehabilitation and development. Of course, as Dr. Farzana Bari makes clear, this should be coupled with economic redistribution within Pakistan and also a push towards creating greater accountability and transparency in the government. Akbar Zaidi not only conflates “civil society” in Pakistan with NGOs that are dependent on donor funding, a point Dr. Bari rightly critiques, he also confuses IMF loans that have to be repaid with donor assistance that does not. The difference is huge because the burden of IMF loans falls squarely on the shoulders of the poor, while aid squandered and profited from by NGOs does not. There are of course many reasons to criticize NGOs, but the problems generated by them pales in comparison to the damage wrought by debt servicing in third world economies. Zaidi provides absolutely no explanation for why we can’t advocate for debt cancellation, while at the same time demanding transparency and accountability from our own government. I imagine that his reasons are those that are typical of economists; he is more committed to upholding the integrity of international financial institutions than he is to the cause of social justice.

    • Anjum Altaf Says:

      Arsalan: I am glad someone who was at the teach-in has reported back. Could you elaborate on which neo-liberal policies were discussed at the event.

      My reservations about the mission statement were the same as mentioned by Sohail Khan in his comment. Let me just mention two here:

      1. As far as I understand, the neo-liberal policies followed by Pakistan were not much different from those followed by India and countries like South Korea. So, I would like to understand how is it that the policies have gutted Pakistan but not the other countries.

      2. The IMF has been dealing with many countries besides Pakistan. So why has the impact been so severe on the latter? Have the conditions for Pakistan been especially onerous? If so, what is the evidence of the comparative terms?

      A result of these doubts is that while I agree with the internal strategy suggested by Farzana Bari, I would want more evidence before I can accept the external one.

      I would also be curious to know the specifics of the debt cancellation proposal if they were mentioned at the teach-in. Is this going to be request for a cancellation or a recommendation for a unilateral refusal to repay the loans?

      • Arsalan Khan Says:

        Anjum: I was at the teach-in, but I am not going to speak for the people there, nor do I have the quantitative data that the speaker presented in support of his argument. It was, however, clear from the data that government revenues dropped considerably from the late 1970s and early 1980s onwards, and I think he also showed data that demonstrated how the military budget skyrocketed during the same period. Also, the free-trade policies enforced by the IMF meant that the government revenues that were being generated were from consumer taxes, which we all know disproportionately impact the lower strata, as opposed to taxes on import/export and income. Again, I don’t want to speak for anyone there, so lets put aside what was actually presented at the teach-in, and focus on what we all know, which is that the IMF’s policies are by design against government spending, which they see as the easiest way to contain inflation, and in favor of “free” trade, which they believe is the engine for macro economic growth. This is true in Pakistan just as it is in other parts of the third world, so it should not surprise us that the consequence has been depleted government revenues and a diminished capacity to spend on welfare services to the poor.

        I don’t know much about South Korea, but this seems to be the example that is always brought up by people supporting free trade policies, probably because it is the only one that they can reasonably claim to be a success. But, South Korea’s success, if one can even call it that, had much to do with favorable relations with the United states, which allowed it to develop its industrial and technological base and capitalize on its geographic proximity to China. South Korea was very much on a command, government driven model of economy before structural adjustments. I disagree entirely with your point about India. I think India’s macro-economic figures mask the incredible burden that IMF policies have placed on the shoulders of the poor. I think the astronomical rate of farmer suicides in India, for example, confirms this, as does the swelling of slum populations in urban centers. As they say, numbers live better than people.

        If the conditions in Pakistan are worse, which I’m not sure that they are, then it is likely because the government revenues that are generated are siphoned off by our kleptocratic military and civilian elite. We all know about the military’s growing control over the economy, but I think what we should also consider is how the growing power of private interests like corporations, familial networks, and professional elites has in many ways engendered corruption in the government. Statistics on corruption are of course difficult to find, but anyone with any lived experience in Pakistan can tell you that high level corruption happens BETWEEN government officials and powerful private interests, so we shouldn’t see corruption as inherent in the government. These private interests are of course the ones that have been bolstered by IMF driven neo-liberal policies and by global economic integration. Ironically, they are the ones that rant the most about how the government is a criminal entity even though in many ways they are the ones that have created the situation and continue to take advantage of it.

        I am not in any meaningful sense part of the movement for debt cancellation even though I support it, so I can’t tell you much about the specifics of their strategy. I think we should request cancellation and if that fails insist that our government unilaterally refuse to repay the loans.

        • Anjum Altaf Says:

          Arsalan: In order to have a robust strategy we need to find the right balance between the internal and external causes of Pakistan’s present predicament. Towards this end, I would like to raise the following points in response to your comment:

          1. You mention that government revenues dropped sharply starting around 1980 and military expenditures skyrocketed at the same time. Clearly, no external agents can be blamed for the latter. You attribute the former to IMF dictated free-trade policies. But similar free trade policies in many other countries did not result in the same outcome. As a matter of fact external agencies have been urging Pakistani governments to increase revenue collection but the latter have repeatedly ignored such advice. You also attribute depleted revenues to diminished spending on the poor. This presumes that spending on the poor was really a high priority for governments. What is the evidence for that? If half of Pakistan’s population is still illiterate can we realistically believe that this is due to lack of revenues and can we fairly assign the responsibility to outside agencies?

          2. South Korea is not the only example that can be cited. Indonesia, Thailand and Malaysia also fall in the same category. Almost all developing countries started with state-directed economies but these ones adopted the so-called neo-liberal policies and opened up to the world economy at some point. (I wish the critics of neo-liberal policies would spell them out so that we can refer to specific policies in the arguments.) Pakistan had just as favorable relations with the US as South Korea being a member of SEATO and CENTO and the beneficiary of expert advice from universities like Harvard. But Pakistan failed to leverage the same assistance that South Korea used very effectively. Why do we attribute these different outcomes to the same external agent rather than examining the internal imperatives?

          3. There is little doubt that there is a tremendous backlog of problems in India but the Indian economy has seen a dramatic upturn since 1989 and there are presently a number of very dynamic sectors in the Indian economy. Ironically, this change was triggered by giving up state-directed planning and adopting neo-liberal policies. One should use objective indicators in the comparison of the present state of the two countries. Pakistan is still a country that the middle class wants to leave; India is a country that the middle class wants to go back to. That is a huge difference even if we argue that the burden on the poor in the two countries remains the same.

          4. Let us assume you are right about corruption being the cause of the problems in Pakistan. Once again, can we really blame outsiders for this failing? However, I am not convinced of this generalization because it is not based on any convincing evidence. Indonesia is just as corrupt as Pakistan but the outcome is vastly different. Corruption In India is of the same nature as in Pakistan. In South Korea a number of Prime Ministers have gone to jail for corruption. We should avoid such one-dimensional explanations unless the cross-country evidence is really compelling.

          5. Is there any scenario analysis of what is likely to happen if external debts are unilaterally revoked? What outcomes are likely? What would be the implications for the future prospects of the economy? How will the costs of the strategy be shared? Who is likely to get hurt the most?

          I hope we can continue this discussion.

      • Arsalan Khan Says:

        I just wanted to say one more thing about the issue of debt cancellation. We can disagree about the historical role that IMF and other international agencies have played in the creation of Pakistan’s problems, but this seems to be a rather secondary issue. It seems fairly obvious to me that debt cancellation would increase the capacity of the Pakistani government to deal with the long term political and economic impact of the floods. One does not need to agree with the historical argument to agree with this very practical point. Akbar Zaidi has tried to present a counter argument, which suggests that debt cancellation would actually be bad for Pakistan because it would let our political elites off the hook. This would only be a reasonable argument if our political elites, the ones that benefited from these loans, were solely responsible for paying them off. This is of course not true. It is the Pakistani government that bears responsibility. It also seems to me, and please tell me if I am wrong, that this forum was created to refute the “root causes” of the problem, but if people in this forum are against debt cancellation, then they, like Zaidi, should be presenting arguments for why we should repay the loans. What is the practical or moral case for repaying the loans?

        • Anjum Altaf Says:

          Arsalan: If Akbar Zaidi is arguing that we should pay the debts because that would be a punishment for the political elites then the argument is wrong. But are you not taking a very short-term view of the problem? Debt cancellation might increase the short-term capacity of GoP to deal with the floods. But what it if leads to a cessation of all other international assistance and triggers global sanctions on trade? Pakistan would not even be able to borrow in the capital markets under such a scenario.

          However, even the short-term argument may be incorrect. You are assuming that Pakistan has this huge pile of money lying around that can be diverted to flood relief if the debt is revoked. In fact, there is no such pile; Pakistan is struggling to even pay the installments on the debt. It needs its debts to be rescheduled to avoid default and is at the mercy of the goodwill of its creditors. It is not in any position to indulge in false bravado which, in any case, would not bring any immediate relief.

          In the ordinary course of events the practical and moral case for honoring voluntarily negotiated loans does not need to be made. It is the case for an extraordinary step like reneging on loans that needs to be established. The case that Farzana Bari has made is extraordinarily weak.

          That said, you are right. This forum should be best used to determine which factors, internal or external, bear the most burden in explaining the present state of affairs in Pakistan. We need to discuss what internal changes are needed that would significantly reduce our dependance on external factors.

  7. Hasan Abdullah Says:

    I endorse Mr. Arsalan Khan’s views. And, with regard to the ‘difference’, if any, between the adverse impact of neoliberal policies on India and Pakistan, perhaps one needs to take note of the difference in respective starting points and societies’ specificities.

    • Anjum Altaf Says:

      Hasan: In any analysis one must take account of different starting points and societal specificities. What are the differences between India and Pakistan that you have in mind? Do also note Arsalan’s claim that the impact of neo-liberal policies on the two countries has been quite similar – the seemingly different outcomes are illusory.

  8. Arsalan Khan Says:

    Anjum: I appreciate your thoughtful response to my comment. I also agree with your general argument that to understand the outcome of neoliberal economic policies, we need to understand the specific social, political and economic context in which they have been introduced. Unfortunately, I do not believe that economists at the IMF have ever been as sensitive to complicated internal social, political and economic realities as you are asking me to be, and this partly explains why even though the results of policies have varied somewhat across countries, they have everywhere exacerbated the conditions for the people at the bottom (low income wage labor, little or no education, low and easily trained skills), and also the people that are slightly above that. But, I agree that there have also been “winners” in this game or people that have been able to capitalize on new opportunities afforded by global economic integration. Most of the variation between countries, however, can be accounted for by understanding how many in “the middle,” (moderate level of education, skill set, or part of extended familial trade networks) have been pushed up the socio-economic ladder and how many have been pushed down. In general, I think both processes are being fueled by neoliberal policies, and some countries/regions evidence the upward push, while others evidence the downward push. But again, mostly this is happening in “the middle,” which means that people are not being pulled up from the bottom as much as there is variation in of the way people who were already well positioned have taken advantage of new opportunities. This means that the so-called growth of the middle class is not really a “growth” as such but an artifact of the focus of economists on specific “booming” industries like the Indian technology industry. I will respond to the specific points you make later.

    • Anjum Altaf Says:

      Arsalan: Thanks likewise for your considered comments. Re the economists at the IMF, my starting point is different. Given the world we live in I don’t feel it is realistic to expect anyone to be benevolent or care more for us than we do ourselves. This includes external experts as well as our aristocratic elite that relies on the privilege of birth rather than merit or competence. The operative principle is Caveat Emptor – Let the Buyer Beware. It is the responsibility of the experts negotiating on our behalf to ensure that what is being contracted is in the national interest. Since our civil society has never raised its voice against incompetence in government, I feel the onus of responsibility is on us. And if we seek the easy route of blaming others we are unlikely to make much progress.

      I would disagree that conditions for the people at the bottom have deteriorated everywhere. Over 400 million people have been lifted across the poverty line in China since 1979 and over a 100 million in India since 1989. Of course, there are other problems related to growing inequalities but these are significant numbers nevertheless. Nor should we minimize the rapid growth in the numbers of the middle class, itself related to poverty reduction, because it is middle class consumption that provides a key driver for production and therefore of employment which is the only sustainable road out of poverty.

      I am also not clear why we need to call growth illusory or an artifact. There is little dispute that the GDP of China has been growing at about 10% per year for almost 25 years and that of India by between 6% and 8% per year for about 15 years. What we can discuss is the sources of growth or the implications of growth but we cannot doubt the growth itself. When you say that the so-called growth of the middle class in India is not really growth but an artifact, it is an assertion that begs for evidence. The starting point would need to be a definition of growth itself because you seem to have in mind a definition that differs from the one in common use.

  9. Hasan Abdullah Says:

    The size of the country, its demography, balance of forces at the time of partition as also the ‘founding principles’ – in theory and practice, were fundamental differences between India and Pakistan at the time these two countries took birth. In case of India, a very fundamental manifestation of it is in the area of land reforms (however lopsided these were), and balance of power in favour of the nascent bourgeoisie, whereas in case of Pakistan, the power was alrgely concentrated in the hands of landlords and the military.

    I think that we need to discuss basic issues, and not apparent manifestations, if we desire to understand the society – in order to change it. And that is why I requested you to make the referred issue of Monthly review as the focus, because it discusses the concrete questions with real life examples of Latin American countries’ recent past.

    • Anjum Altaf Says:

      Hasan: There are countries in the world that differ in size, demography, founding principles, etc. Some are doing well, others are doing poorly. So, clearly these things cannot have a determining influence. Barring some very exceptional starting points, policies can overcome all sorts of barriers and handicaps. None of these factors has changed in China, yet its development trajectory is strikingly different after 1979. None of these factors has changed in India, yet its development trajectory is significantly different after 1989.

      For this very reason, our focus should be on policies, and, in my view, on internal policies because it is internal policies that can explain most of the variation in outcomes that we see across countries. The external factors have been much more common. And even there, it is how countries deal with the external factors that makes the difference.

      I am unable to square your insistence on the importance of differences in starting points and societal specificities with the insistence on studying Latin America. One can’t imagine two entities being more different in every respect that matters.

  10. Hasan Abdullah Says:

    In my view, the policies represent the balance of forces; and, the differences of starting points do not wholly explain the emergent realities; and, my insistence on studying developments of last two decades in Latin America is because of the general inferences that can be derived from the particular concrete experiences of these societies, and a very good article (the whole issue of Monthly Review for July-August 2010) can form the starting point of a meaningful discussion.

    • Anjum Altaf Says:

      Hasan: Could you explain how this proposition (“policies represent the balance of forces”) can be useful in real life?

  11. Hasan Abdullah Says:

    I do not think anyone would argue that, at the broad level, in a ‘democracy’, however lopsided that may be, the policies (and their implementation) are not influenced by the balance of forces. For instance, anywhere, such as in India, the neglect of the disadvantaged sections’ fundamental requirements – such as healthcare, food, shelter, civic amenities, quality education and employment – would represent the dominance of the rightwing forces.

    Sir, based on the exchanges in these columns, I tend to infer that our priorities/ approaches differ, and that is why you choose to ignore my repeated “insistence on studying developments of last two decades in Latin America [which] is because of the general inferences that can be derived from the particular concrete experiences of these societies, and a very good article (the whole issue of Monthly Review for July-August 2010) can form the starting point of a meaningful discussion”.

    And, so, good bye till the number of Latin America’s recent history comes in your priority list!

    • Anjum Altaf Says:

      Hasan: I begin to see the reason for some of our mutual incomprehension. I feel you are using the term ‘policies’ where you intend ‘outcomes.’ Clearly, the ‘neglect of disadvantaged sections’ is not a policy, it is an outcome. So, what you seem to be saying is that this outcome is the result of a balance of forces; in this case it is the dominance of rightwing forces.

      This is a little more understandable, but still not very satisfactory from my perspective. First of all, I don’t agree that the neglect of disadvantaged sections can be attributed to the dominance of rightwing forces because these sections were just as disadvantaged when leftwing or centrist forces were dominating. Second, the dominance of rightwing forces signifies an imbalance of forces not a balance. So this whole theory about outcomes being the result of a balance of forces does not seem very usable to me.

      Because we are discussing policies, it is even less useful because policies are implemented precisely to deal with problems that result from an imbalance of forces. Sometimes incorrect policies worsen the problem instead of correcting it. The entire debate about the recent global recession is centered around figuring out what was the imbalance that triggered it, what policies are needed to correct the imbalance, and what policies might exacerbate the problems. For example, there is the argument that trying to correct for the technological bubble by the policy of low interest rates gave rise to the housing bubble.

      The objective of this post was to identify the internal policies that have culminated in the current crisis situation in Pakistan. Its objective was not to prescribe an alternative future for the country. Therefore the Latin American debate was not relevant to this particular discussion. This is not to say that it is not relevant in general. If you feel there are some lessons that can be germane to South Asia, I would encourage you to draw them out or even to write them up as a separate post.

  12. Hasan Abdullah Says:

    I have written ” the policies (and their implementation)”, and I mean the same. The framing of policies and their implementation depend the balance of societal forces. However, Please excuse me, and carry on your intellectual discourse.

    IF EVER, you feel inclined to understand the basics of societal transformation in twenty-first century, PLEASE STUDY AND DISCUSS the referred issue of Monthly Review.

    Good bye and good luck.

  13. Kamran Says:

    Sorry guys, I wish to go back to basics again. We have entered in arguments for what we need to do (or we should have done) to brighten up our future. The question raised by the group’s campaign was different: Should we refuse servicing of debts and declare moratorium?

    The arguments for the support of the campaign are seriously flawed and way off the mark; at best, these are childish and sentimental. Undeniably, the humongous debt burden of Pakistan is unsustainable for the country. But Akbar Zaidi’s basic premises are correct. Let’s analyse it before offering solutions:

    1. Apart from some grants directly provided by few Governments mostly on humanitarian grounds (these are negligible these days) the development funds are provided to governments as loans from the multilateral institutional lenders who lend money for, at best, economic reasons, and at worst, for both economic and ‘political’ reasons.

    2. No one denies that the lenders have no love lost for Pakistan or for that matter for any ‘borrower’. For them it is development finance activity strictly on commercial basis.

    3. Why governments borrow money from outside? Obviously to meet the foreign currency financial resource gap, to finance their development projects for which they do not have adequate foreign currency reserves readily available. They borrow with a promise to repay over long term from the projected income stream from that particular or collectively from some other projects, exactly in the same manner as a commercial or industrial enterprise borrows from commercial banks in the local or international markets.

    4. No one is so naïve in this world to think that the international lenders are in charity business. If someone does think that way he or she will be living in a fool’s paradise and would do so at his or her own peril.

    5. If there is a sign of default on repayments or siphoning of funds rendering the project unviable, the lenders would naturally tighten the resource tap for future lending. However, this being essentially a commercial transaction, these banks are happy to continue to lend to a country or project that is a ‘good credit’ i.e. has the capacity and track record to repay their principal and interest on time. Even a junior corporate banker would tell us that as long as the money is repaid by the borrowers in time any financial institution would look other way even if part of the money was siphoned off by the owners/managers.

    6. Those having even limited knowledge of international finance know that multilateral institutional lenders like World Bank, ADB, IFC, and IMF providing specialized credit facilities operate on almost similar lines. We should not expect anything else from these institutions.

    7. We all know that for a long time Pakistan does not generate sufficient domestic resources and export income to finance even its current expenditure, not to speak of its development expenditure. It must borrow to remain as a going concern. Denied of this critical foreign capital, it will go bankrupt and would simply collapse.

    8. We also know that in societies like Pakistan industrialists and business enterprises borrow money from banking sector and siphon off a substantial part of the borrowed money to their own personal accounts. It is said that usually in Pakistan as soon as the bank loan is disbursed or the LC is opened for the import of plant, shining luxury cars for the owner’s family or managers arrive even before the machinery is shipped from the supplier. The bankers know about it and are willing to look other way as long as their pound of flesh is paid in time. Obviously, the workers do not get anything out of it and continue to slog day in and day out to make more money for the owners. Even their bodies are consumed in the process.

    9. Sometimes the stealing of funds reach to a level where the whole project or industrial concern goes bankrupt; the project faces the threat of closure, the owners clamour for loan write-offs, interest waivers, or even for fresh loans on soft terms, exert political or other pressures on banks to concede to their terms (i.e. forget about their stealing), workers are laid off, and bankers sue to take over and sell the assets to recover their loans, and definitely stop further loan disbursements.

    10. Now consider this:
    In such a situation, the commercial or industrial concern owners exhort the workers to fight for their case and directly demand from banks for write-off of their masters’ loans, waivers of the interest payments, and for providing more generous loans to the same owners and the management.

    To top it all they also demand that the banks must not put stringent conditions for monitoring of the utilization of their funds, they must not ask for the owners’ books of accounts, and must not threaten to stop disbursement of additional loans as it would tantamount to interference in the internal affairs of the industry.

    The question is: How should we resolve this dilemma? Should we or should we not support the workers’ ‘democratic and progressive’ demands because the bankers are known to be the bad and unscrupulous guys, out to make money in the world?

    11. This demand would have made some sense if the workers had been able to take over the industrial unit, had the necessary skills to manage it themselves, had done their homework right to manage the business efficiently and profitably within their own available income, without the need for loans from the banks. They would be in a much better and credible position to declare moartarioum or re-negotiate the bank loans.

    12. It is not an apology for the local or international development bankers as they are undeniably a greedy bunch of rascals. But to support the demands on behalf of the present rulers of the country who have a long shameful history of stealing foreign loan money and not delivering on the promised projects, simply adding an unbearable burden of foreign currency debt for the common men & women of this country may be arguably construed as an apology for these rulers.

    13. Neither our rulers have shown any indication that from now onwards they would be using the foreign loan funds honestly and judiciously, nor they seem to have worked out even a semblance of a workable plan for making two ends meet, should there be a complete freeze on future loan disbursements. The abrupt turning off of the tap on the foreign loan pipeline is almost certain should Pakistan seriously contemplate to stop repayment of foreign loan installments.

    14. It is one thing to raise empty and hollow slogans for ‘breaking the begging bowl’ and it is absolutely another story to actually even come nearer it. It is shameful for us to see our great lions and the foxes alike whimpering like a mouse when they come even near a mid-level international banker and functionary of a donor agency.

    15. Undoubtedly, the situation is precarious and we are faced with a precipice. Granted, we must break away from the financial bondage of a cruel neo-colonial system. But for this we must formulate our long term strategy and short term objectives for gaining true independence. Economic independences are carefully built over time. We really need to first do our home work right to put our house in order before we come out and start making outlandish claims and demands. Emotional sentiments and desire to break the bondage alone will not work.

    • Anjum Altaf Says:

      Kamran: We have to agree on what exactly are the basics? Frankly, I take the debt repudiation issue to be a distraction for the following reasons:

      First, the case for debt repudiation is not convincing. Can one voluntarily enter into legal contracts and ex-post declare them immoral? Did civil society enter a dissent at the time the loans were being contracted either that the contracts were immoral or that the contractors were not its representatives? Did civil society subsequently enter a protest against the misuse of the loans? If not, what is the ground for holding the lenders responsible?

      Second, is there a realistic chance of putting the debt repudiation initiative into action? Would the existing ruling class go along with the initiative? if not, is there a program to replace the ruling class? If so, by whom?

      Third, is there a spelling out of the likely consequences of a debt repudiation in the event it can be undertaken? If so, what are the contingency plans for dealing with the likely outcomes?

      In the absence of any discussion of points 2 and 3, it is difficult to take the proposal seriously.

      The real issue, in my view, is a diagnosis of Pakistan’s current predicament with a view to prescribing the appropriate remedy for a recovery. How do we assign the balance between external and internal causes? My concern is that we are taking the easy route by putting most of the onus on the external causes. In this discussion, it would help a lot if someone would spell out what neo-liberal policies really include; otherwise there is danger of creating a straw man.

      The point I am making is that the neo-colonial environment and neo-liberal economic policies have been common across many countries. How then does one explain the variation in their performances and the particularly poor performance of Pakistan? There was a time in the 1990s when India too had a financial crisis and was left with reserves enough for only a few weeks worth of imports. It too had to be bailed out by the IMF. But it put in place internal policies that triggered a strong recovery. It does not help to dismiss this in a cavalier fashion and say that India also has a lot of poverty. It is true that India has a lot of problems but that is a different issue. If India’s rulers have not used the growth to address poverty, we cannot deny the growth; rather, we need to examine internal policies in India that are not pro-poor. But the point remains that similar external conditions have led to very different outcomes. Therefore, we need to be circumspect in laying all the blame on external conditions.

      One should also keep in mind that Pakistan had an added special relationship with the West (SEATO, CENTO, etc.) and with China and even failed to leverage any of these for its development unlike Korea and Taiwan, for example. So, the place to start looking for failure is in Pakistan’s internal policies. And here militarism and militant religious nationalism stand out prominently. Note that civil society stood up neither against militarism nor against religious nationalism because it went along with the hostility towards India that provided the rationale for both policies. It is the poor people who are paying the price of this jingoism of Pakistan’s ruling class and civil society – literally eating the grass that all of Pakistan had promised to eat. It does not take much to guess who have been the big gainers and where the gains have gone.

      The onus of responsibility for Pakistan’s crisis lies squarely on the shoulders of its civil society. The sooner it accepts that the sooner it would be able to put together a sensible agenda for recovery.

      • Kamran Says:

        Anjum: I agree with you. The cry for debt repudiation is periodically raised by corrupt government leaders to distract people’s attention from the real issues. Unfortunately, many of our progressive friends fall headlong into the trap and and join the chorus without giving the matter a serious thought.

    • Anil Kala Says:

      I don’t understand a lot of economics but your assertion simply does not make sense.

      1. You mostly blame lenders for the fault of users.
      2. The only reason you put forward for blaming lenders is that they are greedy, which is a highly subjective qualification.
      3. What happens if Pakistan repudiates all loans? Will it be awash with funds?
      4. Will the amount available due to not paying (interest + principle installment) be enough to run the country because newer borrowing if at all possible will obviously be from free markets at astronomical interest rates and against water tight securities.

      So what is the contingency plan?

      • Anjum Altaf Says:

        Anil: Kamran has taken a position that is squarely against debt repudiation. Points 3 and 4 are also the questions he raises. My response to him was to ask if we even needed to take the issue seriously and spend time on it. In particular, I stressed the absence of any discussion of a contingency plan to deal with the fall out of a debt repudiation. In my view, this gap was enough of a disqualifier.

        However, points 1 and 2 that you raise are important ones and we should discuss them further. I have already asked the first one in my response to Kamran: What is the logic of blaming the lenders for the misdeeds of the users? Some recipients from the same lenders have used the funds well; others have used them poorly. So, where should we direct our attention to figure out the problem?

        Point 2 is the most complex in this discussion. In our economic system the onus of responsibility is always on the borrower/consumer UNLESS it can be proved that any kind of misrepresentation or deception was involved in the loans. This is clearly the situation in the case of the subprime mortgage lending in the US that has caused the recent global financial crisis.

        In the case of international lending to countries like Pakistan and India, no such deception or misrepresentation can be proved. All sides had recourse to the best expert advice in negotiating the transactions and if some countries chose not to use such expertise or to ignore it, the responsibility is squarely on their shoulders.

        My objection to these loans is not on this count. Rather, my objection is that international agencies should not have continued to lend to countries like Pakistan that had a long and very poor record of utilization because of corruption and mismanagement. Much more stringent conditions should have been imposed that would have worked, ironically, in favor of ordinary citizens. However, lending agencies, taking advantage of sovereign guarantees attached to such transactions, preferred to maximize their own volume of business at the cost of the citizens of countries like Pakistan. In effect, these wasted or siphoned off funds have been passed on as debts to the future generations of Pakistanis.

        Terrible as it is, this does not constitute defensible grounds for unilateral debt repudiation. Pakistani civil society needs to hold its governments accountable for the use of resources. At the same time, developing countries that actually own international financial institutions have to press for reform of these agencies. To cite one example, Pakistani civil society has never raised an issue over the credentials of the country’s representatives to the Boards of Directors of these institutions and governments have routinely employed them as part of their systems of patronage. Civil society loses its credibility when it fails to be actively involved in issues of governance and accountability.

  14. Hasan Abdullah Says:

    I agree with Mr. Kamran’s concluding paragraph that “… we must break away from the financial bondage of a cruel neo-colonial system. But for this we must formulate our long term strategy and short term objectives for gaining true independence. Economic independences are carefully built over time…”

    I would like to however point out that economic independence comes as an integral part of the transformation of the society. And, it is here that the experiences of the past two decades of Latin America provide gerat insight into the dynamics of progressive societal evolution.

  15. Anjum Altaf Says:

    The National Debt Cancellation Campaign is being launched formally in Islamabad. Do write in to say what you think of its logic that is partly explained in this news item:

    The national debt cancellation campaign kicks off today in Islamabad, to draw attention of the Friends of Democratic Pakistan (FoDP), also meeting in Brussels today, to highlight the fact that in its annual budget, Pakistan will spend $2.9 billion on servicing foreign debts — nearly twice the amount it has received in aid for the flood response.
    The Brussels meeting is important because the World Bank (WB) and the Asian Development Bank (ADB) have both agreed to give the first preview of the damage and needs assessment, which they have undertaken in terms of the long-term reconstruction needs for Pakistan. Oxfam that works with others to overcome poverty and sufferings will be supporting this campaign.
    Pakistan’s debt has doubled over the past four years; it currently owes $55 billion in external debts. The cost of servicing foreign debt will amount to $17 per capita; in contrast, the government has allocated just $4 per capita on health.
    Wajiha Anwar, Oxfam’s policy and advocacy coordinator says, “It’s absurd that Pakistan’s repayments on its huge foreign debts are far higher than the amount of money that is being asked for in the UN flood response appeal to help millions affected by the country’s worst flooding in its history.
    “The government is facing a terrible dilemma: funds that are desperately needed for emergency aid and reconstruction may have to be diverted to pay off historic debts. Immediate humanitarian needs should remain the priority. Donors, meeting in Brussels on Friday, should cancel Pakistan’s existing bilateral and multilateral debts so that it can invest the funds in reconstruction and poverty alleviation”.
    Wajiha says that Pakistan needs to get back on its feet. “Canceling its international debts would go a long way to help the government pursue this goal,” she adds.

  16. Arun Pillai Says:

  17. Anjum Altaf Says:

    I would ask Wajiha Anwar the following questions:

    “It’s absurd that Pakistan’s repayments on its huge foreign debts are far higher than the amount of money that is being asked for in the UN flood response appeal to help millions affected by the country’s worst flooding in its history.”

    Why is this absurd? One can say it is unfortunate. But why absurd? Is there some law that mandates that debt repayments should always be less than new money that is being asked for? And if it is indeed absurd, who is responsible for the absurdity?

    “The government is facing a terrible dilemma: funds that are desperately needed for emergency aid and reconstruction may have to be diverted to pay off historic debts.”

    What would make me believe this? When the debts were much lower, were Pakistani governments using them for the desperately needed requirements of the poor? Have Pakistani governments really ever thought of the needs of the poor as a priority posing a dilemma to the way they have used resources?

    “Canceling its international debts would go a long way to help the government pursue this goal [of getting Pakistan back on its feet].”

    Is this really the goal of the government? What evidence would you cite to convince me of this assertion?

    It would make some sense to me if the sponsors of the movement request a greater volume of assistance for the affected after providing credible assurances that the funds would be used appropriately. But to argue that debt cancellation would put Pakistan on its feet is not credible. Pakistan is not in this position because of debt. Pakistan cannot repay its debt because it is grossly mismanaged by a group that is accountable to no one.

  18. Anjum Altaf Says:

    The theme of this post is debt and in that context an interview with David Graeber should be of interest. Graeber is at Goldsmiths College, University of London, and has written a history of debt – Debt: The First 5,000 Years.

    Alex Bradshaw: Your latest book, Debt: The First 5000 Years, explores the origins of debt. What were some of the implications for communities and individuals when debt became a significant factor in people’s lives?

    David Graeber: Well, one reason I wrote this book is that debt has come to pervade every aspect of our lives. International relations are all about debt, modern nation-states run on deficit financing, and consumer debt drives the economy—yet no one has, to my knowledge, ever written a history of the phenomenon. Even though people have written histories of almost anything else you can possibly imagine.

    Graeber is also mentioned in this op-ed about the protests on Wall Street that have been ignored in the media:

  19. SouthAsian Says:

    This article presents an argument for debt refusal going as far as to call those who disagree as ‘debt moralists.’ It is worth considering though personally I am not convinced. Once one starts down this road, there is always some rationalization for the repudiation of contracts.

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