In July 1973, the Marcos regime in Philippines approved the construction of the Bataan nuclear power plant. The plant was financed through loans and the contract for constructing it was awarded to America’s Westinghouse Electric. The company had earned the contract not because of their professional excellence but due to President Marcos’s personal ties to them. The entire project cost over $2billion. However, the goal of generating more than 600MW of electricity through this plant remained a farfetched dream. Corruption and poor feasibility had failed the entire scheme. The plant could not generate a single megawatt. Yet, in the process Philippines incurred a debt which had to be repaid by the ordinary Filipinos who had no role whatsoever in the entire scam. This is how nations are enslaved by debt.
Debt can destroy a country’s economy without firing a single bullet and enslave its people without ever binding them in shackles. Banks, multinational corporations (MNCs) and international financial institutions are the principal architects of this kind of slavery. Donors such as IMF and the World Bank provide economic aid to corrupt regimes in poor countries, for projects that are unviable and bound to fail. Moreover, the process for awarding contracts to carry out these projects is cleverly engineered, so that MNCs owned by developed countries receive them. These companies then hire local labour at extremely low wages and force them to work in severe and harsh conditions while their foreign CEOs and staff along, with the local ruling elite pockets most of the money. In this way, all the aid received by poor countries is channelled back to the rich ones. Besides, as the projects for which aid is provided are infeasible, therefore, they fail to generate the kind of profits which had been initially promised, leaving the recipient country hard-pressed to repay its debt.
Loans provided by IMF and World Bank are also conditioned with ‘structural adjustment’ i.e. changes in the recipient country’s governance system. Privatisation is one of the preconditions because through privatisation MNCs are able to control a country’s resources which puts them in the position to influence domestic as well as foreign policy. Reducing government spending is another precondition. Governments are forced to reduce subsidies which results in inflation and increased poverty. This is called ‘belt-tightening’. The ordinary poverty-stricken masses are its greatest victims. Moreover, debt repayment absorbs most of the government budget, leaving little economic resources available for development and public welfare. Thus, structural adjustment enables foreign governments and institutions to control the economy of a country, in order to repay a debt the poor people had never asked for.
Debt can destroy a country’s economy without firing a single bullet, and enslave its people without ever binding them in shackles
The moment a country defaults on its debt, its creditors- mostly powerful countries such as the United States who own MNCs, and dominate international financial institutions, jump in to demand complete subservience and loyalty in international politics. It is a perfect trap for keeping a country in perpetual poverty and economic servitude, besides allowing powerful countries to exploit a nation’s resources, and advance their strategic interests; by using debt as a coercive tool of diplomacy.
The recent statement of US Secretary of State Mike Pompeo, with regards to an IMF bailout package for Pakistan needs to be read in this context. Pakistan’s external debt has increased to more than $90 billion. This marks a rise of more than 50 percent since 2013. Debt repayment is becoming a major challenge. The rupee has depreciated heavily against the dollar. The country needs an urgent injection of aid in order to heal its ailing economy. The incoming government may seek an IMF bailout package for this purpose. However, as Pakistan appears to be on the brink of an economic disaster, Pompeo has issued a stern warning to IMF against providing any aid to the country. Since the US is a major donor of the IMF, Secretary Pompeo has cautioned that American dollars cannot be allowed to return the Chinese loans, that Islamabad has borrowed for financing China Pakistan Economic Corridor (CPEC). Evidently, America is likely to use its leverage in the global institution to deny Pakistan any aid from IMF until Washington is able to achieve ‘obedience’ from Islamabad on strategic issues such as Afghanistan and China. This is how a country’s sovereignty is held hostage to debt.
In the preface to his book Confessions of an Economic Hit Man, John Perkins writes, “I am certain that when enough of us become aware of how we are being exploited by the economic engine that creates an insatiable appetite for the world’s resources, and results in systems that foster slavery, we will no longer tolerate it.” Now with a new government about to take charge in Pakistan, an opportunity beckons the nation to break away from the shackles of servitude once and for all through sound policies based on national interest.
The writer is an independent researcher in public policy and international relations. He can be reached at [email protected]
Published in Daily Times, August 10th 2018.