In a rather ridiculous move, the country's Senate passed a unanimous resolution, urging the government to seek loan write-offs from bilateral and multilateral sources and, failing that, to request rescheduling. This, in effect, implies that the Senate has placed the onus of improving the economy on the largesse of foreigners.
It would have been more useful and more appreciated by donors and the public alike if the Senate had passed a resolution, volunteering to give up their salaries and perks and using the money so saved for reconstruction and rehabilitation of the flood-affected people. Or indeed passed a unanimous resolution, calling on the government, to begin to tax the elite with, as is well known, many of the Senators belonging to that august group.
The resolution that the Senate did pass maybe a reflection of the fact that our Senators do not understand that seeking loan write-offs or rescheduling from foreigners is not the same as compelling a local bank to write off a loan of a prominent and influential senator. Be that as it may be pertinent to determine who extends grant assistance, who extends concessional assistance (at a nominal rate of interest but the money has to be repaid) and who extends assistance at market rates
The largest single donor of grant assistance is the United States followed by Saudi Arabia and the UK. It is, therefore, little wonder that the US government is demanding improved oversight as well as improved governance that must include tax reforms envisaging the taxing of our elite. Sadly, media reports on the Pakistan Steel Mill and more recently the National Insurance Company Limited scams, implicating the highest levels of political government are hardly conducive to spreading the perception that governance is improving.
At present, all multilaterals extend concessional assistance based on a rigid performance formula that includes intangibles like governance on which Pakistan continues to perform poorly. Those who are under the impression that multilateral assistance is by and large concessional must revisit the small percentage of actual concessional lending that is extended by multilaterals. Grants too are small and are mostly for carrying out feasibility studies, which are part and parcel of a larger loan extended at LIBOR plus an additional service charge that enables the multilaterals to meet their high cost of delivery of any project - a high cost that includes their staff's business class tickets and stay in five star hotels.
Is bilateral and multilateral assistance about economic need of the debtor government. There are instances where donors extend assistance on the basis of economic need, in the aftermath of a horrendous natural or man-made disaster. Pakistan did receive around 1 billion dollars of such assistance in the aftermath of the recent floods. Other than the expenditure on relief and rescue operations provided by the United States and by other countries through the United Nations, assistance for reconstruction and rehabilitation is not even pledged as being on concessional terms, leave alone as grants by the multilaterals. While the World Bank has diverted only concessional funds implying a very low rate of return, not grant, assistance for the flood victims by the Asian Development Bank envisages diverting 2 billion dollars at market lending rate, which must raise serious questions of whether the government should continue any partnership with this bank.
In the case of sub-Sahara Africa, especially subsequent to media reports of widespread famine, the rich countries of the world extended grant assistance and wrote off loans. The World Bank too has been compelled to write off loans to the poorest nations of the world. Pakistan does not qualify as a highly indebted country eligible for loan write offs. This is in spite of the fact that the PPP led government's fourth finance minister is entirely focused on seeking foreign funding, including the tranche release from the IMF, for budgetary support.
Reports indicate that he is also insisting that the money to be released under the Kerry Lugar bill be used for budgetary support, a demand unlikely to find support in the Obama administration within the context of continuing multibillion dollar corruption scandals in this country and the transfer of those FIA officials conducting the inquiry, who have found irregularities. A total foreign indebtedness (interest plus repayment due) of 219 billion rupees in 2009-10 has been increased to 251 billion rupees by the finance minister, according to 2010-11 budget.
The question is what has the PPP government done to improve governance and thereby ensure that foreign concessional income is maximized and foreign donors lured to invest in this country. The rationale provided for requesting external assistance changed three times in less than three years of the incumbent government.
The first year of its ascent to power, the PPP government led by its then co-chairperson (who about six months later was elected as the country's president) Asif Ali Zardari requested 100 billion dollars in assistance as the democracy dividend. In those heady early days, the Friends of Democratic Pakistan (FoDP) was established, not surprisingly consisting of the same countries as well as multilaterals that were previously extending assistance to Pakistan under the Paris Club banner. It was a disappointing year as the world polity failed to meet the expectations of the PPP government that was led by a relative novice in the area of international politics. The pledges made at the Tokyo FoDP meeting in April 2009 where the country was represented by none other than the President himself were 5.2 billion dollars - or about 5 percent of President Zardari's original demand.
Thence came the mantra that Pakistan must be supported to ensure that fundamentalist groups like Taliban and al-Qaeda were not successful in recruiting from underdeveloped areas where unemployment was very high - areas which were in Khyber Pakhtunkhwa, Balochistan and last but not least southern Punjab.
Request for assistance for developing civilian areas was distinct from what was regarded as US-Nato commitment to the Pakistan military, in terms of reimbursement of funds for fighting the war on terror under the Coalition Support Fund; and included in this is the recent 2 billion dollars extended to the Pakistan military subsequent to the ending of the third US-Pakistan strategic dialogue.
Project specific non-military assistance has, in recent weeks, been the subject of considerable confusion, courtesy the Minister of State for Economic Affairs Hina Rabbani Khar. She announced a change in the government strategy new aid for flood victims or no thank you is her mantra which she has already repeated twice. According to reports, bilateral donors are confused as this stance reflects two disturbing facts. First that the government inexplicably has not changed its pre-flood priorities in spite of the massive damage and, second, increasing foreign indebtedness no doubt to balance its books through employing a strategy that is unlikely to fool anyone.
The third and most recent mantra of the PPP government give us humanitarian aid for the flood victims. Humanitarian aid is defined as material or logistical assistance provided for humanitarian purposes, typically in response to a humanitarian crisis. Its primary objective is to save lives, alleviate suffering, and maintain dignity. It is, therefore, distinguished from development aid, which seeks to address the underlying socio-economic factors, which incidentally may have exacerbated the crisis or emergency. The government of Pakistan defines humanitarian aid not only as rescue and relief efforts while the floods were ravaging this country but also as reconstruction and rehabilitation efforts that would be required in the wake of the destruction wrought by the floods.
While no donor, bilateral or multilateral, has denied the extent of the damage, yet they have suggested that the government divert pre-flood pledged assistance towards rescue and relief as well as reconstruction and rehabilitation. This, according to Hina Rabbani Khar last week, is not acceptable to the Pakistan government. Or in other words, there will be no diversion of pre-flood assistance to cater to the needs of the flood victims and the associated devastation in infrastructure facilities. Only new assistance would be used for such a purpose. This kind of an approach again fails to take note of a fact that is obvious even to a ten-year-old that spending priorities must change given greater need unless, of course, additional resources can be generated through own efforts and/or indeed through a handout from adults. The only argument that can be used to make some sense out of Khar's challenge to the donors is if the additional money would be in the form of grants that do not have to be repaid. And that is not likely.
The irony is that the government can generate its own funds to meet the post flood requirements through taxing the elite and reducing its profligacy and corruption. That unfortunately is still not on the table.
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