Should multilateral funding agencies provide financial support to regimes that lack electoral legitimacy?

Safeguarding the integrity of electoral processes stands as a cornerstone in upholding the tenets of democracy and ensuring that government equitably serves the interests of all citizens. Across various areas of policymaking— be it fiscal policy, foreign affairs, national security, or an array of governmental undertakings— the legitimacy of actions depends upon their origin and execution being sanctioned by the populace through their representatives elected by transparent and impartial elections. The rallying cry “No Taxation Without Representation,” resonates through the ages, echoing the struggles of American colonists in the 18th century. Their resistance against taxation imposed by the British Parliament without their consent exemplifies a fundamental demand for recognition of natural rights, which catalyzed a representative democracy founded on principles of popular sovereignty in America.

Congressman Greg Cesar’s letter to President Joe Biden and Secretary Anthony Blinken embodies the spirit of the American Founding, echoing concerns regarding the integrity of the February 8 Pakistan elections that have been marred by widespread allegations of rigging. His call, supported by over 30 congressional peers, underscores the imperative of a comprehensive investigation into alleged election irregularities. Similarly, the Pakistan Tehreek e Insaaf (PTI), in their letter to the International Monetary Fund (IMF), calls upon the institution to support the carrying out of an independent audit of the election, underlining the hazards inherent in “a government without legitimate representation, when imposed upon a country, carries no moral authority to govern, and, in particular, to carry out taxation measures.” The stated intent of the letters is to affirm support for an institutional framework that ensures a fair electoral process.

The importance of consent, accountability and justice in governance resonates across disciplines, drawing insights from economics, philosophy, and political theory. Economists have long recognized the crucial link between taxation, representation, and economic prosperity. Adam Smith, in “The Wealth of Nations,” emphasized the need for consent in taxation, arguing that individuals should contribute to the support of the government in proportion to their abilities while warning against the harmful effects of taxation devoid of representation, which distorts incentives and fractures the social compact between citizens and their government. John Stuart Mill further elucidated this concept in “On Liberty,” emphasizing the importance of democratic accountability in taxation. He argued that unjust taxation could lead to tyranny and oppression, highlighting the essential role of representation in safeguarding individual liberties and promoting economic freedom. 

Providing financial support to regimes that lack electoral legitimacy may burden developing countries with ‘odious debt.’

Javed Hassan

The sanctity of elections assumes central importance within this framework, serving as a prerequisite for ensuring that taxation policies reflect the collective will of the populace. Free and fair elections facilitate the expression of citizen preferences and the subsequent accountability of elected officials. Absent such democratic mechanisms, the bedrock principle of “No Taxation Without Representation” loses its essence, depriving citizens of their basic right to shape governance and hold their representatives to account.

Joseph Schumpeter, in his seminal 1942 work “Capitalism, Socialism, and Democracy,” underscores the centrality of elections in legitimizing governmental authority and upholding popular sovereignty. More recently, William Easterly, the former economist at the World Bank, has expanded upon these foundational ideas, emphasizing the nexus between inclusive governance and economic development. He has highlighted how democracy empowers individuals to make choices and holds governments accountable for providing essential services, which are crucial for development. These works underscore the transformative potential of participatory decision-making processes.

Providing financial support to regimes that lack electoral legitimacy may also burden developing countries with ‘odious debt,’ whereupon it is argued that the state should not be held liable for external debt deemed to have been taken without either the consent of legitimate representatives or used for the benefit of the populace. 

While multilateral lending agencies, such as the Bretton Woods institutions, avoid overt political conditionality within their mandate, their programs frequently entail austerity measures and burdensome taxes on citizens. These actions can exacerbate grievances in the absence of democratic legitimacy and run the risk of encountering resistance and instability. Consequently, the implementation of essential reforms is hindered, ultimately undermining the success of financial assistance packages.

The governing bodies of multilateral agencies should therefore consider integrating principles of representative legitimacy into their governance frameworks. Doing so would not only uphold democratic norms and safeguard the rights of citizens but also, importantly, boost the prospect of ‘ownership’ by the borrowing countries. From the lending agencies’ perspective, it would strengthen the programs’ efficacy in achieving people-centric and sustainable economic development objectives.

– Javed Hassan has worked in senior executive positions both in the profit and non-profit sector in Pakistan and internationally. He’s an investment banker by training.

Twitter: @javedhassan