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The Public Accounts Committee (PAC) of the National Assembly is reported (Dawn July 8) to be examining the finance and appropriations accounts of the government for the year 2000-01.
Its chairman has directed the ministries and various other divisions to strengthen internal financial controls.
Internal financial control means the management of public finance in accordance with the accepted principles, which if not honoured, the result is financial loss.
According to the SBP report 2000-01, the (non-sovereign) loan liability to end of June 30, 2001 was Rs3,932 billion (Rs1,708-billion domestic and Rs2.224 billion foreign loans).
Its employment, vide finance accounts for 'the year 2000-01 is represented by: (i) Rs138 billion capital outlay; (ii) Rs191 billion lent to corporations; (iii) Rs209 billion to provinces, (iv) Rs384 billion lent to autonomous bodies and others; (v) Rs60 billion excess of current liabilities over current assets; (iv) Rs3,070" billion financial loss.
The financial loss of Rs3,070 billion consists of Rs1,770 billion on account of revaluation of foreign loans as a result of devaluation of the Rupee and Rs1.300 billion due to payment of interest on debt from loans.
The constitution is what it is and it is the duty of the government to ensure compliance of its provisions. The act of devaluation as well as the payment of interest on debt from loans, both are in contravention of the provisions of the Constitution explained as below:
DEVALUATION: The International Monetary Fund (IMF) was established in 1945 and was admired for its humane approach to international trade. It was seen as a genuine friend of the under-privileged and exploited developing world.
In Article 23(4) of the SBP Order, 1948 the value of Pakistan rupee was fixed equal to the weight measuring 0.268601 grams of fine gold for one rupee. (This value of the rupee was enacted under Section (2) of Article 30 of the SBP Act. 1956).
Upon admission to the membership of the IMF on July 11, 1950, the initial par value of the Pakistan rupee equal to the weight measuring 0.268601 grams of fine gold for one rupee or Rs3.30852 per US dollar was accepted by the IMF.
The IMF works under the control of the Central Bank of America (CBA). The Central Bank of America, purchased almost all the gold mined from the world gold market. As the sole monopolist in gold, it controls the price of gold in the world gold market.
Under the above agreement, the value per rupee was fixed equal to the weight measuring 0.268601 grams of fine gold i.e. Rs3.72 per gram. The rate of exchange between the rupee and the US dollar was fixed at Rs3.30852 per US Dollar. Thus, the value per US dollar works out at equal to the weight measuring 0.888672 grams of fine gold i.e. US dollars 31.90 per ounce.
The CBA with little regard for any principles of justice and fair play entered into an unfair practice of creating artificial money out of nothing. This made the real money issued against the reserves of gold insignificant.
Accordingly the value of the US dollar went down in proportion to the quantity of artificial money in the total money. (Under sub-section (5) to Section 8 of the Article I of the Constitution of the United States, the Congress have the power to regulate the value of dollar).
Assuming the price of gold at US dollars 3-14 per ounce as on 30th June, 2001, the US dollar stood devalued upto 89.84 per cent. In order to transfer the loss in the value of the US dollar to other currencies, the IMF came forward with its own agenda of imposing the conditionality of devaluation with each loan.
The IMF, primarily was responsible to secure monetary stability in the currencies of the member countries by keeping the value of US dollar equal to the weight measuring 0.888672 grams of fine gold per US dollar. Instead, the IMF destabilized the currencies of the member countries by imposing the conditionality of devaluation with each loan.
Since December 1958 each and every lending programme as supported by the IMF had been subject to the devaluation of the rupee. On December 81, 1958 the rupee was devalued by 30.52 per cent.
On May 11, 1972 it was devalued further by 41.78 per cent. With reference to the market price of gold as on 30th June, 2001 the rupee had been devalued further by 27.09 per cent. (The market price of gold is assumed at Rs613 per gram).
By virtue of Article 25 of the Constitution, the value of the rupee equal to the weight measuring 0.268601 grams of fine gold for one rupee, enjoys the protection of law. Despite this protection, the rupee had been devalued upto 99.39 per cent, thereby, contradicting the wisdom of the Constitution under the conditionality of the IMF.
Constitutionalism, whose hallmark is socio-economic justice, equity and fairness for the benefit of all alike, is ignored due to the faltering financial system and the bad accounting imposed by the IMF and resources were wasted on a massive scale.
The wastage of resources deprived the masses from the fruits of socio-economic justice. By adherence to the principles of the Constitution, can we not only attain economic prosperity but can also get rid of the wastefulness of resources.
Devaluation is a creative device which: (i) transfers resources to multinational lenders; (ii) facilitates flight of capital; (iii) pushes up the debt obligations to unmanageable limits; (iv) does irreversible damage to monetary, credit and financial systems; (v) exploits the masses economically and keeps them impoverished; (vi) threatens the very survival of the country.
It is a device to make a nation bankrupt financially and morally. Thus, through the creative device of devaluation, the IMF made Pakistan a heavily indebted poor country.
BORROWING POWER: Vide Article 160(2)(c) of the Constitution, it is the duty of the National Finance Commission (NFC) to make recommendations to the President as to the exercise by the federal government of the borrowing powers conferred by the Constitution.
According to this provision of the Constitution, the authority to' exercise borrowing powers granted by the Constitution originates from the recommendations of the NFC as notified in the award.
The commission exercises technical control over borrowings by recommending the quantum of the debt to be contracted and the sources which should be tapped for the defined re-productive projects. It also has the power to recommend that the particular sources should not be exploited.
Financial management has to be conducted with great sincerity, integrity, imagination, skill and care. A prudent limit or amount of borrowing for countries is that the borrower can generate, with the help of borrowed funds, additional income adequate for repayment and interest without any new burden and yet get a net increase in net income. Net increase in income means improved standard of living of the people and per capita income.
The Article 166 of the Constitution says: "The executive authority of the Federation extends to borrowing upon the security of the Federal Consolidated Fund within such limits, if any, as may from time to time be fixed by an Act of the Majlis-e-Shoora (Parliament) and to the giving of guarantees within such limits, if any, as may be so fixed".
The word. "extends" means, to assess: to estimate; to calculate:" Thus, executives authority is limited to assess the amount of loan money required for a financial year.
The legislatures on their part are free to accept the amount so assessed or may reduce it or may reject it, The actual borrowing, however, shall be carried out by the executives, with in such limits as are fixed by an Act of Parliament.
The assessment of loans originates from the requirement of "other expenditure" as estimated under Article 80(2)(b) of the Constitution. To lend money which has already been borrowed constitutes on-lend. On-lend is not the expenditure. To borrow so as to pay off an old loan is refund.
Refund is not the expenditure. The term borrow as defined under Article 260 includes the raising of money by the grant of annuities and loans shall be construed accordingly, while debt includes any liability in respect of any obligations to repay capital sums by way of annuities. Thus, interest on debt can not be paid from loans. Therefore, loans can not be raised for: (i) on lending of loans to corporations, autonomous bodies, provinces etc; ii. repayment of debt; and (ii). payment of interest on debt.
The item 10 to the Federal Legislative List Part I reads: "Public debt of the Federation including the borrowing of money on the security of the Federal Consolidated Fund; foreign loans and foreign aid".
Under the Article 166 the raising of money from within the country under the Act of Parliament, constitutes public debt, With the use of semicolon before the words" foreign loans and foreign aid", the federation, accordingly is authorized to stand in opposition to foreign loans and foreign aid as semicolon is used when there is balance or contrast between what is said in a pair of clauses. Thus, foreign loans and foreign aid, both have been kept out of account from the federal consolidated fund.
The government accounts are kept in single entry system and on cash basis. Expenditure classification vide Article 80(2) of the Constitution is regulated with reference to the source of funds as under:
Charged expenditure is financed from fees received against services rendered or income earned from the employment of loans. Expenditure on revenue account is financed from the net proceeds of taxes and other taxes.
Other expenditure is financed from loans raised from within the country subject to the condition that each and every loan is amortised through the creation of a sinking fund. Thus, the Constitution permits the raising of loans only from within the country for reproductive projects.
The pole-star in the construction of a constitution is the intention of its makers. The rule of construction is, "to intend the legislature to have meant what they have actually expressed".
Therefore, if the meaning of the language used in the constitution is unambiguous and is in accord with justice and convenience, it is self-executing. It matters not in such a case, whatever the consequences may be.
A reproductive project is one which not only bears the cost of interest on capital employed on it, but also contributes towards the repayment or amortisation of capital.
Article 81 (c) of the Constitution bears out that the repayment of capital sums by way of annuities or the wiping out the capital through the creation of sinking funds constitutes debt servicing.
Under the annuity system, the instalment for the repayment of capital consists of principal as well as interest. The same is the case with the sinking funds instalment.
In both cases, the instalments are paid out of the income earned from the employment of capital on reproductive assets. The Constitution, accordingly, imposed the expenditure on debt-servicing as a pecuniary charge on an income.
Tax is an imposition. Loan is a liability. Both do not form part of earned income'. Thus, the Constitution does not authorise to meet the expenditure on debt - servicing either out of tax revenue or from loans raised.
The provisions of the Constitution are not mathematical formulae having their essence in form, they are living institutions. Their significance is vital not formal.
The federal government exercises unique and unlimited powers to borrow without at all being bothered about the productivity of the uses to which borrowed resources are applied.
Borrowings are made without the recommendations of the NFC and without the Act of Parliament. Expenditures are incurred without regard to the sources of funds. No accounting is done for identifying the liabilities created by lending of loans to corporations and autonomous bodies at a rate of interest lower than the borrowing rate of interest.
Loans are not amortised. Old loans are paid from the proceeds of new loans. Interest on debt is paid from loans. This practice has plunged the nation into the huge indebtedness.
The lofty structure of the present-day capitalist financial system stands on four pillars of oppression. These pillars of oppression are in the form of debt, devaluation, interest and stock exchange. The IMF is the hub and centre of capitalism. This structure was erected to make Keynesian concept of "autonomous investment" useless.
Debt is an instrument of divine punishment. Devaluation is a manifestation of financial terrorism. Interest on debt is a serious crime against humanity. Stock exchange is a modem place for gambling.
Illiteracy, unemployment, poverty and others socio-economic ills, all are the result of wasting away (Rs3,070 billion) of borrowed money into losses. These losses made Pakistan's survival dependent upon foreign loans.
