Calls for debt cancellation for Pakistan

This aerial view shows a flooded residential area after heavy monsoon rains in Balochistan province on August 29, 2022. — AFP

The demand for compensation and cancellation of debt is not just. Pakistan But in light of the Global South the flood A skeptical view is being met that these proposals are impractical. For scholars, activists and policymakers, these doubts are – or should be – almost irrelevant. Goals are attainable and we must allow ourselves to pursue ambitions that may never be fully achieved. Science and politics are like that. However, the issue of compensation and debt cancellation is not just a moral issue. This is a practical economic matter.

As a Keynesian, the current conundrum reminds me of Keynes’ frustrations with the Paris Peace Conference and the Treaty of Versailles at the end of World War I. His frustrations were both moral and economic and the two were intertwined. The moral despair was that the treaty was crushing an already defeated enemy. The economic disappointment was that in doing so it did not adequately address the large, complex web of debt in which the Allied Powers were entangled. Consider the current issue through this lens: morally, recall that the Global South has been crushed twice. First, directly crushed by imperial and colonial powers (see the work of Atsa Patnaik). At other times, the Global South is being crushed by the disproportionate impact of industrialized countries on the global natural environment. So reparations are, in effect, debts owed to the global South.

On the practical economic side of things, it is a real question whether the debt-ridden Global South can transition to a greener economy while also preparing for more climate change-related disasters that are too late to prevent. has been done, but whose effects can still be mitigated. . In the case of Pakistan in particular, this debt – “paper shackles”, as Keynes might call it – will keep us trapped. Keynes argued that the Allied Powers’ debts to each other would bind them and prevent them from doing what needed to be done to rebuild after the war. Now the same applies. It’s stressful work to do. This will not be possible until countries like Pakistan, which are struggling to survive, can get more than breathing space. They need a tank full of oxygen and dry land to grow.

A degree of economic stability can be achieved through a transformation of capitalism that puts it on a path where it no longer pushes the natural environment. Will change come at the cost of progress? It doesn’t have to, if we’re smart about how we move to a cleaner economy. But if it comes down to it, maybe we can consider it a trade-off to maintain our lives for a while without growth. This could be another one of those infamous ‘difficult decisions’. Perhaps this is an opportunity to focus on the distributional side of things, rather than the size of the relative share of the pie.

The conservative forces in the system – the financial and political institutions – who want to see the system continue as it is nationally and globally have some food for thought. They may want to consider the consequences of failure to adapt to systemic, financial and worsening climate change pressures. They must ask themselves whether they would prefer to change the system or sit on top of it while it explodes into a cavern of ecological foundations. They should also ask whether it would not be practical to curb revolutionary fervor through proactive systemic reforms and concessions. A revolution is more of a crisis than a solution, and we already have enough crises.

To this end, it is useful to remember that redistributive justice at the international level is related to issues at the national level: you cannot advocate global redistribution when you are in the midst of a national crisis for a government. Gas guzzlers are buying vehicles, as the Punjab government has been doing. Debt cancellation is a political project that requires credibility and valuable political capital. We are struggling on this front. As Benazir Shah reports, there is a feeling among economists that it is not clear who makes decisions about the economy. We are not supported externally due to lack of credibility due to neglect of internal distributive justice and absence of internal order. Goodwill is good for international aid, but it is not the same thing as persuasive power that can lead to debt cancellation.

Whether the case for compensation or debt cancellation is sufficiently stated and followed may depend on whether policymakers concern themselves with justice. For him to face a discomfort about what he calls the truth – no easy thing in the post-truth fake news world we live in. But these are the demands of the hour, and policymakers need to step up. They have a duty not to take the debt for granted. Envisioning a world beyond the stress of debt is crucial. If we are prevented from making the case, we will never be able to mobilize the intellectual, political and economic capital to address the climate crisis, which is the most pressing of the many crises of our time. .

The author is an economist. He tweets @khand154.

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