Dr Shahida Wizarat
President Independent Economists and Policy Practitioners
In a conference on financial economics in Europe in the aftermath of the financial crisis of 2008-9 a financial economics expert expressed an alarming view. He stated that injecting billions of $s, €s and £s in the afflicted economies will at the most keep these economies in the ICU. But there will be opportunities a few years down the road, for which they should wait. In the question answer session I asked the expert what would happen to countries that don’t have these huge cash reserves, and are therefore unable to keep their economies in the ICU? Will these economies be facing a meltdown? And the melting of these economies will be the opportunities to rich countries that he was referring to? To this he gave a brief but somewhat evasive answer that ‘yes you are right’. My being right means that the vast majority of Third World countries that don’t have vast amounts of cash will face an economic collapse, which will provide opportunities to western economies to get out of their economic malaise !!
The decolonization process that started in the aftermath of the Second World War led to the birth of several countries that were colonies to colonial powers. The bipolar world order ensured that these countries could develop their economies as a proof of the success of the capitalist model. But with the demise of the Soviet Union, the western world embarked on militarist adventures, albeit under altruistic cloaks, be it to teach Saddam Hussain a few lessons in the First Gulf War, hunt for Al Qaida in Afghanistan, find Weapons of Mass Destruction in Iraq in the Second Gulf War, Libya, etc. But behind the smokescreen of altruistic motives, the loot and plunder of the natural resources of these countries continued blatantly and unashamedly! The gory scenes of the robbing of Iraq’s gold reserves from Iraq’s Central Bank by US troops, the positioning of Daish in areas rich in oil in Iraq and Libya and their sale to the US at nominal rates, the taking out of lithium and uranium in Afghanistan by NATO forces and their transportation to occupation forces countries shows that colonialism is back with its ugly face and manifestations.
While some countries are using privatization and liberalization policies successfully to increase their growth rates, reduce the skewness in the distribution of income and poverty, etc. China is a perfect example of a country that has used these policies successfully to do all of the above, but as pointed out by Stiglitz in “Globalization and Its Discontents” China used its own discretion in deciding which policies to follow and which to avoid. It did not allow outsiders including the International Financial Institutions to meddle in its affairs. Moreover, there is zero tolerance for white collar corruption by public office holders in China and good governance has resulted in successful outcomes in China.
But countries rich in natural resources pursuing liberalization and privatization policies apparently independent are in the neocolonial mode. The outflow of their capital, natural resources, profits and royalties by the Transnational Corporations depend on whether their governments are able to recoup the benefits from these policies or the benefits flow out to rich countries. This depends on whether governments in these countries are installed by former colonial powers and their surrogates, strength of their institutions, maturity of the system, white collar corruption, etc. These factors determine the magnitude of the outflow of their resources, capital outflows, control over their economies by foreigners, etc.
Pakistan is a country that has more than 20 crore population, is militarily strong, is a nuclear power, but has very weak institutions. Its governments and policies are made abroad. Almost all its important ministers are occupied by foreigners or dual nationality holders. Even small countries try to protect their strategic interests while privatizing and liberalizing. But Pakistan does not bother about protecting its strategic interests, which is somewhat puzzling. The reason why Pakistan does not protect its strategic interests is because its economic managers are mostly US citizens, while some are U.K. citizens, some dual nationals and others working for big powers for money. All are welcome in the corridors of power. So they try to protect the strategic interests of their own countries, instead of Pakistan. That is why when a certain percentage of OGDC shares were being privatized under the PMLN government, bureaucrats in the Ministry of Petroleum were pressuring everyone to ensure that OGDC shares were sold to US companies. That is why Pakistani governments take care of the interests of creditors at the expense of the Pakistani population. I evaluated the performance of the present government in terms of 16 indicators of performance and found that the government performed well only on two indicators i.e. Tax/GDP and debt servicing/GDP. All the indicators which would improve the wellbeing of the people of Pakistan, the government did not perform. The PTI Government is only collecting taxes and transferring them out of the country to service debts to ensure the stability of the international financial system.
Earlier Pakistan was in the western bloc countries. But its interests have moved closer towards regional countries, while India has moved closer towards western bloc countries. This means that countries which are now our adversaries have their citizens sitting on strategic positions in the corridors of power in Pakistan. The decisions they are taking for Pakistan will be in harmony with the agendas their countries might have drawn up for Pakistan. With the growing military might, the nuclear power status, the possession of tactical nuclear weapons make it less likely that outside powers will try to take on Pakistan militarily. It is more likely that the element of national power that is more vulnerable and likely to come under attack is the economy. The fallout from the economic blow will then reverberate to the rest of the sectors.
That is why even in the presence of better alternatives, Pakistan is taken to the IMF. The havoc the IMF conditionalities have played on growth, income distribution, poverty, promoting social strife, increasing crimes and political chaos in the 1990s, and now, convince me and other independent economists and policy makers that the main objective of Pakistan’s economic managers is to prevent Pakistan’s take off and unleash difficulties on the Pakistani people. And although these policies have brought nothing but economic difficulties, deindustrialization and chaos the economic managers have pursued more of the same. And using the same failed policies and expecting different results has been described by Einstein as a sign of insanity. The same economic managers formulated our liberalization policies resulting in the most liberal foreign exchange regime in the world. For example, financial liberalization policies formulated for Pakistan have resulted in the easy outflow of capital that can destabilize the economy but make genuine payments very difficult and cumbersome. These alien economic managers are issuing bonds and pledging them against Pakistan’s strategic assets, highways and dams. They are formulating rules for the sale of these bonds and the penalties in case of default for bonds that are pledged against our strategic assets. And bearing in mind the judgement by the Isle of Man judge Anthony Evans in the NAB versus Broadsheet case and ICSID’s arbitration in the TCC versus Government of Baluchistan case is laden with very dangerous consequences!!
The recession plaguing rich saturated economies as a result of the capitalist crisis has resulted in the formulation of very unethical and cruel policies to expand economic activities in rich countries, which have been well articulated in the permanent war economy by Ed Sard (1944) and the permanent arms economy by Kidron (1967). The decline in economic activity in these countries follows escalation of conflict somewhere, causing death and destruction in some part of the world, leading to purchase of arms and economic expansion in rich countries.
Moreover, liberalization and privatization policies have been used to increase the outflow of capital from poor countries to the developed economies. But as of late, new and innovative ideas at increasing the inflow of resources to rich countries have evolved. Western countries speak out very loudly against money laundering, but if their economies are benefitting from the transfer of this laundered money, actions to prevent this money laundering are not visible. They are also using their institutions like the judiciary, international financial institutions and their planted moles in governments in poor countries to increase the outflow of capital and other resources from poor countries to their economies.
The recent seizure of £28 mn by an Isle of Man court has raised a lot of questions about the integrity and competence of NAB, those running the NAB and the country, Jerry James, Mousavi and the Judge Anthony Evans. The original contract was between NAB and Trouvons, a Colorado based company which had expertise in the business. And when Trouvons was replaced by Broadsheet, a company established with Mousavi and his partner contributing $100 each only, and no tangible assets, no experience and business activity, why NAB and those awarding the contract found it acceptable? And that Anthony Evans completely ignored these facts is also quite astonishing. And the fact that the company was supposed to get 20% from the looted money it returned to Pakistan. And that it was not able to help in the repatriation of looted Pakistani assets but was awarded its full payment, in spite the fact that his erstwhile partner had received Rs 65 mn from the Government of Pakistan earlier. This total disregard on the part of Justice Anthony Evans makes a case for achieving British government’s strategic objectives in the case.
The British judicial system might have been an honest source of dispensing justice to the British people. But over the years there has been a lot of deterioration and institutional decay in Britain. I remember a story I read in the Financial Times a few years back, which I narrated to the outgoing and incoming British Deputy High Commissioners at a function in Karachi. The case was of a young Hindu boy who was first converted to Islam and then sent on a mission to wage a war in some Muslim country. He had a terrorism related charge and the first thing the judge should have done was to confiscate his passport. But the judge ordered confiscation of passport only after he had left Britain to wage a war in another Muslim country in the Middle East. Similarly, I also quoted the case of James Mclintock who was first arrested in Pakistan in 2001 waging a war against the state of Pakistan. He was apprehended by the authorities in Pakistan and handed over to the British authorities. But in 2004 he was able to return to Pakistan. This shows that his passport was not confiscated by the judge in whose court he appeared, that is why he was able to travel again. I doubt if British institutions have become so dysfunctional. I think British judiciary has learnt to accommodate strategic British interests while dispensing justice!
It find it very reassuring to note that leading US economist Professor Jefferey Sachs’ stance with regard to the ICSID’s arbitration in the TCC versus the Government of Baluchistan case is close to my analysis. The professor writes and I quote: “Thanks to the World Bank’s flawed and corrupt investment arbitration process, the rich are making a fortune at the expense of poor countries. The latest shakedown is a $5.9 billion award against the Pakistan government in favor of two global mining companies for an illegal project that was never approved or carried out.”
Sachs states that there was no agreement between the Government of Balochistan and TCC on the actual project, the arbitrators therefore did not have the basis to determine the royalties, corporate taxes, the land area, environmental standards and other provisions that the two would have arrived at had the agreement been drawn up.
The learned professor goes on to state that the ICSID panel arbitrarily made the assumption that TCC would have been allowed 1,000 square kilometers to mine, although the laws forbade that such a large area be given for a mining license. The arbitrators also assumed that TCC would have received a tax holiday for 15 years, even though the company was given no such assurance.
About the ICSID ruling Sachs says and I quote:
“The arbitration ruling is utterly capricious. An illegal project, declared null and void by Pakistan’s Supreme Court and never pursued, was found by the World Bank’s arbitration panel to be worth more than $4 billion to TCC’s owners, who had paid $167 million for it in 2006. Moreover, the tribunal declared that Pakistan must compensate TCC in full, with back interest, and cover its legal fees, raising the bill to $5.9 billion, or roughly 2% of Pakistan’s GDP. It is more than twice Pakistan’s entire public spending on health care for 200 million people, in a country where 7% of children die before their fifth birthday. For many Pakistanis, the World Bank’s arbitration ruling is a death sentence.”
And Jeffrey Sachs points out and I quote:
“The ICSID is not an honest broker. One of the tribunal members in the TCC case is using the same expert put forward by TCC for another case in which the arbitrator is acting as counsel! When challenged about this obvious conflict of interest, the arbitrator refused to step down and the ICSID proceeded as if all were normal.”
I find my stance vindicated by Professor Jeffery Sachs analysis of ICSID’s arbitration between the TCC and the Government of Balochistan. I am not hurling baseless accusations against Justice Anthony Evans and the ICSID just because I am a Pakistani. The important point is that we both working independently and without having read each other’s articles reached the same conclusion which reflects objectivity and transparency in our analyses.
The present Government of Pakistan has an ambitious privatization program including the privatization of many strategic entities including the Pakistan Steel Mill, PIA, and several oil and gas entities. The Roosevelt Hotel was drawing a lot of interest from western buyers and some Pakistani lawyers were getting expressions of interests from foreigners for the purchase of Roosevelt hotel. The World Bank has tried to throw its weight behind the privatization of PIA at a throw away price by snatching its prize asset, which puts ICSID’s arbitration into total disrepute. It shows that the International Financial Institutions (IFI) instead of being organizations to promote economic development in Third World countries have become institutions for their impoverishment and underdevelopment!
The World Bank had played the same dubious role in getting the contract drawn up between the Government of Pakistan and the IPPs. I remember a seminar organized by the World Bank at the National Institute of Management (formerly NIPA) in the early 1990s in which all the stake holders were present. At that time the World Bank was pushing for a hefty rate of return to the IPPs. I was the only participant in the seminar to ask the World Bank why they were pushing for a fat return to the IPPs when they believe in the free market. If you believe in the free market you should let the forces of demand and supply determine the return to the IPPs. I, therefore, stated that the World Bank doesn’t subscribe to any ideology. If free market can assure fat profits to western investors then the World Bank believes in the free market. But if free market does not assure fat returns, then the World Bank believes in market interventions. Many Pakistani World Bank employees later told me that they thought I had raised a very relevant point.
Going back to the novel ideas of sucking Pakistan and other Third World countries of their resources so that rich countries can make a fortune, we need to understand their methodology. First they install their touts in Third World countries, which is very easy in a country like Pakistan where most of those in the corridors of power are foreign or dual nationals, touts or predators. They draw agreements with western companies for power, extraction of natural resources, repatriation of their looted assets abroad, etc. The legal paper work is also handled by foreign experts or local predators or touts. They deliberately leave loopholes in the agreements. The noncompliance or the loophole makes the case of the Third World country weak. The foreign company then knocks on the door of a court in a rich country and gets a favorable award. The foreign or dual nationals sitting in the government will naturally abide by the orders of the government of which he is a national. This is the conflict of interests, i.e. those governing Third World countries are citizens of countries that have got used to loot and plunder of countries in the Third World. That $5.9 billion awarded by ICSID to TCC and more than £28 mn awarded by Anthony Evans to Broadsheet are reminiscent of the colonial transfers from undivided India to Britain to the tune of £50 billion annually in colonial times.
There are unconfirmed reports that the £28 mm were actually paid by the GOP itself to Broadsheet. And while the Government is paying such huge amounts which in the words of Professor Sachs amounts to a “death sentence” against the people of Pakistan, it does not have the money to pay pensions to the old and widows in KPK. Taking away the right of pension by people who have contributed this over their life times and will spend it on food and medicines in old age, is what a colonial power would do after conquering a territory. It also lends support to opposition parties allegations that foreign funding to PTI has been by countries that are enemies of Pakistan. Because the vengeance with which the PTI is attacking the interests of the people of Pakistan shows that the enemies of Pakistan are guiding the PTI. To deprive the people of their basic necessities like food and medicines might also have very dangerous consequences, for it might encourage younger members of the family to resort to terrorism!
How can we stop, what Jeffrey Sachs has very aptly described as Pakistan’s ‘mugging’?
First, foreign and dual nationals or Pakistanis working for other countries and companies should not be allowed to hold public offices.
Second, the people of Pakistan have the right to know the names of all the civil and military leaders who played a role in the award of contracts to Broadsheet, TCC and all the various companies, the legal experts, technocrats, bureaucrats, etc., who played a role in the award and execution of contracts to them. Since Pakistani laws are unable to nab white collar crimes, laws need to be changed. If legislation is not possible immediately then Presidential Ordinances need to be issued.
Third, all those who are responsible for causing these losses to Pakistan need to be penalized, irrespective of whether it was on account of corruption or incompetence. The punishments spelt out in the Presidential ordinance need to be applied irrespective of ethnic, sectarian, civil or military affiliations. Tolerance towards crimes amounts to complicity and all those found complicit also need to be dealt with strongly.
Fourth, the government should challenge the awards by ICSID and the Isle of Man court. Government and the opposition parties should not be allowed to politicize the issue.
Fifth, governments of the companies involved i.e. Britain, USA, Australia, Chile, etc, World Bank should be communicated in clear and firm language that Pakistan will not tolerate this mugging. And if they don’t pay heed all the companies from these countries and the World Bank would be black listed and debarred from doing business in Pakistan.
Sixth, enough is enough needs to be communicated to powers that have become used to living off other countries through outflow of resources from Third World countries whether it is through privatization, liberalization, cheating or fraudulent arbitrations!
Seventh, the issue of Green bonds or other bonds which use Pakistan’s strategic assets such as dams, highways, etc., as collaterals should not be allowed, in view of the recent happenings of forcibly taking over these, if and when the strategic agendas so warrant.
Eighth, our very liberal foreign exchange regime needs to be tightened to preempt the outflow of capital to other countries that have got used to living beyond their means through mugging of poor countries!
And finally, while Pakistan is militarily strong it is not using its strength to protect its economic interests. During Britain’s negotiations with the EU on BREXIT, when there was a deadlock over fishing rights, Boris Johnson threatened to send nuclear submarines to warn his otherwise strategic partners of British sovereignty in the area, and soon afterwards they were able to reach agreement. But Pakistan keeps strengthening its strategic power, but leaves its economic interests totally unprotected at the mercy of aliens, touts, national and international muggers!
Email address: firstname.lastname@example.org
Kidron, Michael (1967), Permanent Arms Economy, internet,
Sachs, Jeffrey, (2019), How World Bank Arbitrators Mugged Pakistan, Project-Syndicate.org
Sard, Ed (1944), Permanent War Economy, internet.
Stiglitz, Joseph, (2002), Globalization and Its Discontents, W.W. Norton and Company.