Calls for debt cancellation for Pakistan

Calls for reparations and debt cancellation not just for Pakistan but for the Global South in light of the floods are being met with a sceptical view that these proposals are impractical. For scholars, activists and policymakers, this scepticism is – or should be – almost irrelevant. The goals are worth pursuing and we must allow ourselves to pursue ambitions which may never be fully realized. That is how science and politics are done. Nevertheless, the case for reparations and debt cancellation is not just a moral case. It is a practical economic case.

As a Keynesian, the present conundrum reminds me of Keynes’s frustrations about the events of the Paris Peace Conference at the end of World War I and the Treaty of Versaille. His frustrations were both moral and economic, and both were related. The moral frustration was that the treaty was crushing an already beaten enemy. The economic frustration was that in doing so it didn’t sufficiently address the massive, convoluted net of debt in which the Allied powers had become entangled. Consider the present problem through this lens: on the moral side, recall that the Global South has been crushed twice over. First, crushed directly by the imperial and colonial powers (See Utsa Patnaik’s work). The second time around, the Global South is getting crushed by the industrialized countries’ disproportionate impact on the global natural environment. So the reparations are in fact, debts owed to the global south.

On the practical economic side of things, there is a real question whether a debt-ridden Global South can transition to a greener economy while also preparing for further climate change related disasters which it is too late to prevent, but whose impact could still be mitigated. In Pakistan’s case especially, this debt – “paper shackles”, as Keynes might call it – will keep us stuck. Keynes’ argument was that the debts of the Allied powers to each other would keep them tied up and prevent them from doing the work that needed to be done to rebuild after the war. The same applies now. There is pressing work to be done. This work will not be done until countries like Pakistan struggling to stay afloat can get far more than just some breathing room. They need a tank full of oxygen and dry ground to stand on.

A degree of economic stability might be achieved through a transformation of capitalism which sets it on a path where it doesn’t keep on pummeling the natural environment. Will the transformation come at the cost of growth? It doesn’t have to, if we are smart about how we transition to a cleaner economy. But if it comes down to that perhaps we might consider it a bargain to let go of growth for some time and keep our lives. This may be another one of those infamous ‘difficult decisions’. Perhaps this may be a chance to pay attention to the distribution side of things, about relative shares of the pie rather than the size of it.

Conservative forces in the system – financial and political establishments – who would like to see the system continue as is, both nationally and globally, have some thinking to do. Perhaps they would like to consider the consequences of a failure to adapt to pressures on the system, financial as well as those concerning a worsening climate change situation. They should ask themselves whether they would rather change the system or sit atop while it implodes as the environmental foundations cave in. They should also ask if it would not be pragmatic to stave off revolutionary fervour through active systemic reform and concessions. Revolution is its own sort of crisis rather than a remedy and we have enough crises piling on already.

To that end, it will be helpful to remember that redistributive justice at the international stage is related to national-level problems: you cannot advocate for global redistribution while you’re buying gas guzzler vehicles for the government in the middle of a national crisis, as the Punjab government has been doing. Debt cancellations are a political project requiring credibility and precious political capital. We struggle on that front. As reported by Benazir Shah, the sense among economists is that it is not clear who makes the decisions regarding the economy. We are not helped externally by a lack of credibility stemming from neglect of internal distributive justice and the absence of a semblance of internal order. Goodwill for international aid is good, but it isn’t quite the same thing as persuasive power which may lead to debt cancellation.

Whether or not a case for reparations or debt cancellation is sufficiently articulated and pursued may come down to whether or not policymakers concern themselves with justice. That would require concerning themselves with an inconvenience called the truth – not an easy thing in the post-truth fake news world we live in. But such are the demands of the moment, and policymakers need to step up. It is incumbent upon them to not just take debt for granted. It is crucial to imagine a world beyond the strain of debt. If we are dissuaded from making the case, we will never be able to mobilize the intellectual, political and economic capital to pursue solutions to the climate crisis, arguably the most pressing of the many crises of the day.

The writer is an economist. He tweets @khand154