April fool

Pakistan declares bankruptcy

“Pakistan is declaring international bankruptcy and announce that it will default on all outstanding external debt,” President Asif Ali Zardari announced in an emergency address to a joint session of parliament on Sunday, 1 April, 2012.

Addressing the House in English, in an address also televised, the president spoke to a nervous assembly, “I know this appears like a difficult choice. But we have come to the conclusion that the path oft-taken is the path of greatest peril.”

Silence befell the assembly as Zardari continued, “Pakistan’s external debt has reached $62 billion. It is expected to rise to $72 billion by 2014-15. In 2010, we paid back $3.4 billion in debt servicing to the IMF. In 2012, we must pay back $1.2 billion, $2.9 billion in 2013, $4.3 billion in 2014, $2.6 billion in 2015. Pakistan’s external debt will need to increase by $20 billion in the next five years to fulfill the IMF-set requirements.”

“Pakistan does not have the choice to take more loans,” Zardari said, “Pakistan is already bankrupt and short-term funds from the IMF and international donors are not the solution. More loans mean more interest; more interest means more loans. That is the cycle that has brought our economy to collapse.”

“Between 2000 and 2010, the Pakistan government paid its foreign lenders $45.6 billion. Despite this, as the decade closed, overall debt increased by $20 billion,” Zardari said, “We expect the same to take place if the current policy continues. Pakistan can no longer afford to keep paying its loans. It is better to realise this today, rather than tomorrow.”

“The choice today is simple: to take another IMF tranche or declare bankruptcy. We choose the latter path,” Zardari told parliament members.

“Before we speak more, we must admit our errors. Pakistan joined the IMF in 1988. The ploy was set up by the military-backed caretaker government a day before Benazir Bhutto took power. But it was she that rubberstamped the first IMF tranche to Pakistan,” Zardari said.

“But we must not forget that the history of external debt goes back further. Foreign debt grew with the greatest speed in the period of military dictators. In 1978, Pakistan’s total external debt stood at $7.8 billion. At the end of the 1980s, it increased to $22 billion. At this stage, the total external debt was already 50 percent of the country’s GDP,” Zardari said.

“When the PPP government came in power in 2008, it inherited $52 billion in external debt. External debt increased by $20 billion in the Musharraf period. Our government also continued the mistake of raising the begging bowl,” Zardari said, “We took a $7.6 billion 23-month tranche from the IMF. We inherited a bankrupt economy and decided to go the route of the IMF bailout. We were wrong.”

“To those that think the current decision has come out of nowhere, they are wrong. In November 2011, we rejected a $3.6 billion tranche from the IMF,” Zardari said, “The decision is merely the culmination of the earlier decision. A complete break from our external debt is required to move forward.”

“We stand by the resolution of the UN commission on International Law 1980, which says, ‘A state cannot be expected to close its schools, hospitals and universities, abandon public services to point of chaos, simply to have money to repay its foreign debts,’” Zardari said.

“Over the past year, the Federal Board of Revenue (FBR) has called the role of the IMF ‘superimposing’ and criticised the IMF-driven tax reforms,” Zardari said, “The current government has tried to follow the tax change agreement undertaken between the Musharraf dictatorship and the IMF and World Bank in 2004. The reforms failed and the tax-to-GDP ratio began to decline since.”

“The agreement does not make sense and the FBR will now formulate its own method to expand the tax base,” Zardari said, “Debt re-servicing has become the largest chunk of the national budget. More money is returned to our external lenders than comes in.”

“For the last 20 years, the Pakistan government has followed the IMF-driven policy of feeding its people a ‘bitter pill.’ The policy has translated into increasing the cost of everyday items and utilities,” Zardari said, “The price-hike means the people of Pakistan have come on the streets against the government. In response, we have decided to take the path taken by Argentina in 2001.”

“The IMF’s pill has provided us no cure. The time has come for the people of Pakistan to swallow the more difficult pill, one that promises to treat the cancerous tumor eating at its roots,” Zardari said, “The people of Pakistan will now make the choice of declaring international bankruptcy and begin to tread on the difficult path to economic self-sustainability.”

Addressing the international community, Zardari asked, “We ask, why must the people of Pakistan pay for loans taken by usurpers? Why must the people of Pakistan be without bread to fill the coffers of the IMF?”

“We will now begin to tread the path to economic self-reliance,” Zardari said, “We hope the people of Pakistan will stand by us.”

The writer is a member of the Workers Party Pakistan and researches at the Lahore University of Management Sciences. He blogs at voiceamidstsilence.blogspot.com