Three Essays on Debt (W-60)

Three Essays on Debt (W-60)

Publication details

  • Thursday | 01 Mar, 2001
  • Shahrukh Rafi Khan, Kaiser Bengali, Asad Sayeed
  • Working Papers
Download File

Asad Sayeed, Kaiser Bengali and Shahrukh Rafi Khan 2001 Abstract The Working Paper is a collection of three separate essays on how to deal with Pakistan’s debt crisis. Sayeed suggests that the real solution rests in making realistic foreign policy changes which will provide Pakistan with the breathing space it needs to make the needed short and medium term structural changes. They include seriously addressing defense and non-development expenditures, which are needed to resolve the debt crisis. Bengali argues that the military government bears the substantial responsibility for the onset and perpetuation of the debt crisis and hence going back to and staying with political governments is necessary for seriously addressing these crises. Khan views “debt” to represent the “soft budget constraint”, a concept that Janos Karnoi used to explain the inefficiency of Eastern and Central European firms. Thus, as long as the Pakistani government has an ability to turn to donors, it has less incentive to make the hard decisions or structural changes needed to resolve the debt crisis. In this regard, Khan recommends “cold turkey”, a tried and tested method for breaking with addiction.