Monday, October 24, 2005

100% Debt Relief: The Answer for Africa?


Who couldn’t agree with British Prime Minister Tony Blair and rock stars Bono and Geldolf that something has to be done about poverty and underdevelopment in Africa? A quick fix of debt relief and more foreign aid would make everyone feel better. But in this feel-good age, jumping on the debt relief and foreign aid bandstand to assuage Western guilt and right some historical wrongs is not the silver bullet for Africa the recent superstar hype promises.
Africa does not simply need another quick fix of more money and debt relief – it needs to enter the twenty-first century. There is an important jump in logic here: debt relief does not ensure better governance, accountability, transparency, a better standard of living, or more effective use of foreign aid. The track record suggests that it does the opposite: it allows less than democratic leaders to co-opt opposition, beef up militaries and Swiss Bank accounts, and court thoughts of being President-for-Life.
The celebrated Columbia University economist, Jeffrey Sachs, may insist that Africa’s problems are mainly due to economics, but this ignores the more serious political causes: bad government.
Africa is the only continent in the world to have become poorer since independence – even though Africa has received over $568 billion from 1960 to 2003 (in today’s dollars) to end poverty. Where has this money gone? Not in education, health care or infrastructural development – often more simply into unmarked Swiss bank accounts of self-described Presidents-for-life. One governance expert for the African Union contended that billions of dollars leave the continent each year for secret bank accounts in the West – with capital flight estimated to have reached $148 billion since the end of colonialism to 2003.
Some may argue that this is too pessimistic of an analysis – blaming Africa for all its woes and absolving the West of its responsibility in perpetuating the problem. But by forgiving debts and giving more foreign aid, we would simply be perpetuating the problems of the past. Africans are not stupid, untalented people – they are some of the most resourceful people in the world. Africa is not resource poor – it is simply poorly resource managed. Many Africans will tell you that what Africa needs is the promotion of trade not aid. Africa wants to be an equal partner, not a pathetic poor cousin to the rest of the world.
The late Albert Mukong, a respected Cameroonian human rights octogenarian activist once asked me, “Why do you people in the West continue to give money to our bad leaders?” “Why do you help keep them in power?” It may not the West’s responsibility to make African leaders accountable to their people -- only the African people themselves can make their leaders accountable. However, the West must do its best not to help keep corrupt, repressive leaders in power by funding them with more foreign aid, or relieving them of any responsibility for repaying debts that they may have incurred or former dictators before them.
Instead of giving African leaders a carte blanche, more effort needs to be made by foreign governments, international institutions, the African Union, and current African governments to freeze and recoup the assets of former dictators and their families that stole from their own people and to punish those that continue to rob the children of their future.
The G8 have proposed to immediately forgive the debts of 18 countries, 14 of which are African (Benin, Burkina Faso, Ethiopia, Ghana, Madagascar, Mali, Mauritania, Mozambique, Niger, Rwanda, Senegal, Tanzania, Uganda and Zambia). These countries have successfully completed the Highly Indebted Poor Countries (HIPC) initiative. This would free these African countries of an estimated $16.7 billion they owe international lenders, specifically the International Monetary Fund, the World Bank and the African Development Bank. Nine other countries in Africa will be eligible for debt relief under the HIPC initiative in 12-18 months, including Cameroon, Chad, Democratic Republic of Congo, Gambia, Guinea, Guinea Bissau, Malawi, Sao Tome, Sierra Leone.
None of these countries are not democratic powerhouses. According to Freedom House (a non-profit organization that measures the level of freedom in the world by examining civil liberties and political rights) five of these countries are ranked “free” (Benin, Ghana, Mali, Sao Tome and Principle, and Senegal), five are ranked “not free” (Chad, Mauritania, Rwanda, Cameroon and the Democratic Republic of Congo) with the rest “partly free”. More disturbingly, most of these countries are at the bottom of Transparency International (a German-based non-governmental organization that ranks perceptions of corruption within various countries) list. So when push comes to shove, who will the leaders be accountable to? Certainly not their own people.
Consider one case study: Cameroon, in line for HIPC initiative relief in 12-18 months, has been lead by President Paul Biya for 23 years (1982-present). He was re-elected for another 7- year term in the 2004 presidential elections, which were fraught with voter irregularities and fraud. Cameroon also has the dubious distinction of being ranked the most corrupt country in the world two years in a row (1998, 1999) by Transparency International. Torture is widespread and systematic in Cameroon with government repression of minorities commonplace. Cameroon continues to suffer from high levels of corruption. Debt relief will simply further entrench this leader like other African leaders in line for one-hundred percent debt relief.
The U.S. Millennium Challenge Corporation established by the Bush administration, although off to a shaky start, has the right idea about what is necessary for sustainable poverty alleviation and development, namely good governance, with a focus on anti-corruption efforts, economic freedom, and investment in the African people through increased commitments to education and health care. Unless African leaders are held accountable for spending, there is no guarantee that any debt relief or aid will go to the neediest.
Do Africans a favor – not by dumping more aid into the pockets of their corrupt leaders – but by refusing to keep them in power by stocking their Swiss bank accounts. Fighting for more debt relief and foreign aid for Africa might make you feel better, but it won’t help the poorest of the poor. For that, accountable, representative and honest government needs to be promoted in Africa.

Below, we have 2 guest bloggers, Ron A., and Ashley I, who have some other suggestions about 100% debt relief. Dr. D.

Proponents of 100% debt relief for African countries have capitalized upon the massive public support for such a program which promises to facilitate economic growth and development in 3rd World countries by simply erasing the countries foreign debt. The rational underlying this call for total debt relief is that eradicating the debt of these impoverished countries will enable their governments to allocate a greater portion of their federal budget towards social welfare programs and the establishment of political and economic infrastructure which can attract foreign investment, thereby helping to foster economic growth. While ideally 100 % debt relief could provide African Governments with the necessary revenue to enact social and economic programs designed to facilitate growth, the persistence of structural and environmental obstacles which have impeded economic growth in the past remain likely to undermine opportunities for growth in the future. Total debt relief for African countries is not sufficient in and of itself to engender economic growth without accompanying changes in the political culture of African society.
One of the main problems associated with granting complete debt forgiveness to African countries is that it completely ignores one of the fundamental realities of governance on the continent; corruption. Studies have shown that approximately $148 billion, a figure equivalent to 25% of the continents annual GDP, are wasted on corrupt activities by African governments each year. Thus, the ultimate result of any program of debt forgiveness without conditionalties attached only serves to increase the funds available to these corrupt regimes. Until this culture of corruption is eradicated from the African continent, the effectiveness of any relief package is going to be undermined.
Many of the social and economic programs enacted will not be based upon the perceived benefits they will provide to the developmental process, but to the degree to which they solidify entrenched patron-client networks and develop new such networks. Not to mention the portion of the funds which will go to lining the leaders own pocket. One of the main arguments supporting multilateral debt relief is that since multilateral debt (which includes debt to IMF, WB, African Development Bank, etc) is generally financed on time, each dollar saved through forgiveness programs will be available for the government to use on welfare and development programs. However, believing that this will actually happen naively ignores the degree to which corruption dominates the political culture of the African continent.
Another argument commonly made in opposition to calls for total debt relief is that doing so creates a moral hazard. According to this line of reasoning, debt forgiveness is harmful because it sets a bad precedent which discourages creditors from lending to these countries again in the future. It also leaves the debtor country with the impression that any future money which the country borrows will not have to be paid back in full, thereby discouraging debtor countries from showing any degree of fiscal restraint. This is a particularly relevant point given the corrupt nature of many African regimes. The leaders of many African countries more are likely to divert the money which was intended for debt servicing through illegal channels than towards positive social and economic programs.
Moreover, based upon the socio-economic history of many of these African countries, it is safe to assume, even in a best-case scenario, that at least some of these countries are going to need additional funding in the future. If these countries prove unable to maintain a sense of credibility with the international lending community, these funds are unlikely to be made available in the future. African countries need to demonstrate to investors that they are capable of handling their own economic crisis' without depending upon third parties to bail them out.
Any program of 100% debt relief not only decreases the likelihood that such funding will be made available in the future, it also runs the risk of decreasing the actual amount of funds that are available. If lending institutions forgive the debts of third world countries, they are not only going to be less inclined to make future funds available to these countries, they are going to be less able to do so. Without the inflow of funds from debtor countries, multilateral credit institutions are not going to be able to make future loans available, either to African countries or to underdeveloped countries in other regions of the world.
Thus, when some underdeveloped county, or group of countries, runs into some sort of financial crisis, they are not going to have anyone to bail them out. The IMF and WB have enacted the HIPC program as means of reducing debt burdens to sustainable levels. These levels must remain sustainable not only so that debtor countries can afford to service these debts, but also so that lending institutions can continue to grant additional loans in the future.
The notion of 100% debt relief for Africa carries wide popular appeal because in principle, it sounds like a fair path to economic development. Apologists for colonial/neo-colonial exploitation of Africa see debt forgiveness as a way by which they can both clear their own conscience and help to pave the way for real economic growth on the African continent. However, a program of total debt forgiveness has unseen implications which make other alternative paths to African development far more attractive. Foremost of these would be the removal of subsides and external tariffs for agricultural goods among industrialized countries. Studies have suggested that the removal of government support/protection for agricultural goods among the developed countries would make a more significant impact on African development than all of the current aid programs combined. Reducing obstacles to trade makes more economic sense than a program of complete debt forgiveness. It provides African Governments with the ability to alleviate foreign debt through mechanisms that exist within the structure of the world economy, thereby maintaining, and actually improving their financial credibility and investors confidence, without incurring the risks of moral hazard or those associated with providing significant new funds to corrupt regimes.

Ron A.

Related Links:
http://www.imf.org/external/np/exr/ib/2001/071001.htm
http://www.globalpolicy.org/socecon/develop/debt/2005/0708downside.htm
http://www.africafocus.org/docs05/dbt0501b.php



100% Debt Relief the Answer? NO!

Canceling the debt of underdeveloped and impoverished countries would only be a temporary solution to the problems that are plaguing Africa, because the 100% debt relief initiative does not address the root causes of the continent‚s problems. This summer, people from all around the world gathered together at the Live 8 concerts in hopes of reliving experiences from “the day that rock 'n' roll changed the world” 20 years earlier. The original Live Aid concert, in July 1985, brought artists together for two huge concerts in Philadelphia and London with a goal to rally worldwide attention, and gain support for African countries suffering from poverty and famine. Similarly, this year‚s Live 8 concert was also aimed at mobilizing concern for Africa, but endorsed a very different agenda than the first concert by shining light on the root causes of the continent‚s poverty, rather than asking for donations to alleviate it.
I n addition, it was no coincidence that this year‚s Live 8 concert was held just days before the leaders of the industrialized world met at the G8 summit in Scotland. The reason for the date of the concert was to promote the ”historic” change being made to the global agenda, 100% debt relief for Highly Indebted Poor Countries (HIPC) that qualify for debt cancellation. Under HIPC, countries that want these levels of debt cancellation are required to execute six years of structural adjustments. Unfortunately, in order to qualify for debt relief under HIPC, countries often have to do some things that are very harmful to them. For example, in order to gain HIPC status, Mozambique privatized its water system just as the World Bank had ordered. One year later, floods devastated the country and the French Firm, Saur, pulled out of the 15-year contract that it had entered into a year earlier. Much of the country was left beneath water, at an enormous cost. The World Bank also pushed Mozambique to raise user charges for health care. If people don‚t pay, they don‚t get service. This shows how dangerous liberal economics can be, and in this case, even fatal.
The G8 agreement enforces liberalization and privatization by saying that developing countries must combat corruption, increase growth and expansion in their private sectors, attract investment and eliminate barriers to both foreign and domestic private investment. Forcing countries to adopt a liberal economics system is as burdensome and difficult as it would be for them to have to pay back the debt that the agreement relieves them of. Subjecting these developing countries‚ fundamental services to the harshness of market forces will have very severe costs and consequences. In these countries, where people live on $1.00 a day or less, they cannot afford to pay what a commercial business would demand for these services.
While African countries should not be forced to partake in the international market, they should be given direct investments from the West to build hospitals and schools, and to construct industries. Handouts will not benefit Africa in the long run. In order to further development and end its poverty and misery, Africa will need true investments and substantial education. By benefiting businesses within Africa, they will cause industrial revolutions, growth in employment and an increase in revenues. By creating employment opportunities in Africa, rather than giving cash, the states and the citizens of underdeveloped countries are “being taught to fish” and with these new institutions they “will never go hungry”. G8 leaders need to review the 100% debt relief agreement and their trade policies and reconsider them so that they will produce business growth in Africa.
Debt and poverty is not the only issue troubling Africa. Solution to Africa‚s problems, as can be seen by looking at Ethiopia‚s grim record of human rights violations (the 1985 Live Aid concert raised over $100 million for the famine stricken country). G8 leaders should place just as much time and energy addressing human rights abuses as they are in their efforts to fight the countries‚ poverty and to cancel their debts. These human rights abuses account for a great deal of the miseries that plague the continent of Africa.
Granting African countries 100% debt relief would only solve the countries‚ problems for a temporary amount of time, if at all. In some cases, this initiative will even be damaging to the countries that strive to make themselves eligible for debt relief. G8 leaders need to reconstruct their plan in a way that addresses the root causes of the continent‚s poverty and misery in order to bring about its development and happiness.

Ashley L.

LINKS:
http://www.globalpolicy.org/socecon/develop/debt/2005/0708downside.htm
http://www.globalpolicy.org/socecon/develop/debt/2005/0704tyrrany.htm
http://news.bbc.co.uk/1/hi/talking_point/4617397.stm