Debt relief will be a central issue when the G8 leaders gather in Edinburgh in July. Demba Moussa Dembele of the African Forum on Alternatives says that we should not trust their rhetoric
Every G7 or G8 summit has been punctuated by statements on “debt relief”. They all turned out to be broken promises. The statement on debt issued in London on 5 February this year by G7 finance ministers dashed hopes and expectations raised by an impassioned plea made by Nelson Mandela to the same ministers the day before. Yet, chancellor Gordon Brown hailed the statement as “a breakthrough” and said, “It is the richest countries hearing the voices of the poor.”
When one reads between the lines, one finds nothing new in the London statement. It repeated the same platitudes heard many times before — promises of “debt relief”, but on a “case by case” basis and with strings attached in the form of the usual conditionalities.
For instance, the statement says that to qualify, a country must have “sound, accountable and transparent institutions”. We all know what this means — a state and public institutions able to implement neo-liberal policies.
The London statement is likely to be one more item on the already long list of empty promises and failed “debt relief” plans. The approach to the debt crisis has always followed a pattern of cynicism and broken pledges, including the Heavily Indebted Poor Countries (HIPC) Initiative.
In the late 1970s and early 1980s, a large part of African countries’ debt was owed to bilateral creditors — one government with another. That debt mostly served the economic, political and strategic interests of Western countries, especially during the Cold War period.
The early treatment of the bilateral debt crisis was through debt rescheduling within the Paris Club, the forum for “creditor” governments. However, this “debt relief” mechanism contributed to worsening the crisis because it only postponed debt payments while adding to the debt burden, with penalties on the rescheduled portion.
As a result, the debt of most African countries continued to pile up, with a growing part in the form of accumulated arrears, which averaged 10 percent of exports in the 1980s and 27 percent in the 1990s, compared to 1.5 percent in the 1970s.
These arrears were an illustration of the growing inability of African countries to service their debt. It was that realisation, combined with the worsening economic and social crisis brought about by structural adjustment programmes (SAPs), that led bilateral creditors to contemplate some kind of debt write off, beginning with the Toronto Plan, proposed in 1988 during the G7 Summit in Canada.
Ever since, African countries have seen a string of initiatives aimed at “solving” their debt crisis. Among these are the London or “enhanced” Toronto Terms (1991), the Naples Terms (1994), the Lyon Terms (1996) and the Cologne Terms (1999). But none of these plans provided a solution.
The failure of the bilateral initiatives to solve the crisis led to a shift in focus towards the issue of multilateral debt — principally debts owed towards international institutions. This shift stemmed from the realisation that multilateral debt had risen dramatically as a result of the worsening economic and social crisis during the peak of structural adjustment programmes, from the mid-1980s onward.
During that period, the share of Sub-Saharan Africa’s debt owed to the World Bank increased from 5 percent in 1980 to 25 percent in 1990 and to nearly 40 percent in 2000.
For many countries, especially, the “poorest” ones, which bore the brunt of SAPs, the World Bank has become the largest “creditor”. It is in light of this change in the structure of Africa’s debt and in response to growing and intense pressure from debt campaigners in the Jubilee movement that the HIPC Initiative was launched in September 1996.
After the first three years of implementation, there was a realisation that the initiative was going nowhere.
Accordingly, it was “enhanced” in September 1999, by introducing more flexibile eligibility criteria, which allowed it to admit more countries. But now, it is widely acknowledged that this initiative has also failed to deliver.
First, to be eligible, a country has to have a track record of “successful implementation” of IMF/World Bank-sponsored policies.
Second, using debt ratios, which have little to do with indebted countries’ development needs and ability to service their debts, the World Bank and IMF have excluded many countries much deserving of “debt relief”.
Nigeria is one of the most blatant examples. In 2004, Nigeria’s debt service was estimated at $1.4 billion — more than the combined spending on education and health!
Third, the initiative aims to bring debt to a “sustainable” level. This “sustainability” is based on future export revenues, themselves depending on the behaviour of commodity prices, which constitute the bulk of African countries’ exports. But the Bank’s “debt sustainability analysis” was so flawed that most of its projections fell flat.
Finally, reaching the “completion point” is contingent upon implementing structural reforms and privatisation of public assets. The difficulty in fulfilling these reforms has often led countries to fall “off-track”, having their programmes suspended by the IMF and the World Bank.
But even more damaging, these reforms tend to aggravate poverty and negate the stated objective of “poverty reduction”. Two examples show this.
In Mali, the World Bank forced the government to let the producers and management of the state-owned cotton processing company “freely” negotiate the producer price of cotton. After they had reached an agreement to fix the price at CFA210 (Communaute Financiere Africaine francs), which was below the actual cost of production, the Bank said it was “too high” and that the price had to be renegotiated!
It imposed a price in the range of CFA60-175 for the next three years, to the dismay of producers, who felt let down by their own government. Many say that the future of cotton production is bleak. How can this contribute to “poverty reduction” in Mali?
The second example is the forced privatisation of the Senegalese peanut-processing company Sonacos. This is an example of what the Bank calls “completion point triggers”, that is the conditions to be fulfilled by Senegal before reaching the point for debt relief.
Even the chairman of the privatisation committee admitted that the World Bank had pressured them to reach a deal at any cost. In an interview with a local newspaper, Mamadou Cissokho, the leader of the main peasant organisation, said that “the privatisation of Sonacos is a declaration of war against the interest of the Senegalese peasants”. How can this privatisation contribute to “poverty reduction” in Senegal?
The HIPC Initiative is not concerned with achieving a lasting solution to the debt crisis, but with extracting as much as possible from indebted countries while increasing the IMF and World Bank meddling in those countries’ affairs. This happens via the crippling economics and now political conditionalities, known as “good governance”.
The emphasis on “good governance” and especially on “corruption” tends to mislead world public opinion. It puts the responsibility for the failure of structural adjustment programmes and their disastrous effects on the shoulders of “corrupt”, “inefficient”, “predatory” states.
This is consistent with the IMF and the World Banks’ attempts to mask their overwhelming responsibility in the abject poverty affecting most of the developing world.
None of the debt plans have addressed the root causes of the debt crisis and the power imbalance between indebted countries and “creditors”. African civil society organisations have demanded a just and lasting solution to the debt crisis. It is vital that its historical origins are examined and the structural factors behind its worsening are exposed.
It is a truism to say that debt is a legacy of colonisation and imperialist domination. Debt has been used to promote Western countries’ economic, financial, political and strategic interests. This was done in many ways, in particular by using pro-Western dictatorships during the Cold War period.
The loans given to these regimes were used for their own purposes and for the repression and even murder of their own citizens, with the complicity of bilateral and multilateral creditors.
Moreover, a greater part of that debt was looted by these dictators and kept in Western banks.
That debt is odious and illegitimate. Accordingly, the African people don’t owe that debt and so-called “creditors” have no right to claim it.
On the other hand, what Africa really “owed” has been paid many times over. This is best illustrated by the Nigerian example. President Obasanjo was recently quoted as saying: “Nigeria’s original debt stock of about $10 billion had been paid twice over if one included the penalty for not paying and...penalty for the penalty. This is ridiculous... The debt that is being held against us is unpayable and unsustainable if we really want to have an equitable world.”
How about the rest of Africa? According to a United Nations study, between 1970 and 2002, Africa as a whole had transferred $550 billion to pay back loans estimated at $540 billion. Yet, it continues to “owe” nearly $300 billion. Sub-Saharan Africa, for its part, had reimbursed $268 billion for loans estimated at $294 billion, but remains saddled with a debt of $210 billion.
The authors of the study observed that “discounting interest and interest on arrears, further payment of outstanding debt would represent a reverse transfer of resources”.
It is Western countries, their financial institutions, their multinational corporations and multilateral institutions that owe an immeasurable debt for the crimes of slavery, genocide, ecological destruction, colonisation and structural adjustment. Therefore, it is the West that must pay reparations, even though no amount of money will ever pay for these crimes.
Our fundamental demand is outright and unconditional cancellation of all Africa’s debt and reparations for its peoples. To achieve this objective, we propose the following measures:
If Western countries and multilateral institutions are serious about “debt relief” and “poverty reduction”, they have a golden opportunity to prove it by accepting this cancellation.
Based on the conclusions and recommendations of that Commission, a determination will be made on whether to resume debt payments, at what conditions, or to cancel the debt altogether.
a) West Germany’s debt was reduced by half
b) The balance was rescheduled on a long-term basis and at fixed interest rates
c) The debt service was limited at 3.5 percent of annual export earnings
d) Debt service was levied only in case of a trade surplus. With that deal, the debt service was down to about 2 percent of export revenues. Three years later West Germany had virtually repaid all of its debts. Why not propose a similar deal to African non-HIPCs?
If Tony Blair and the other G7 leaders really want to “make poverty history” they need not look far — they should follow the above steps. Africa does not need charity and handouts, but justice and fairness.
If the above measures were to be implemented, Africa would be able to finance its own development.
African leaders should not have any illusions about Tony Blair’s “Marshall Plan” or about any other plan concocted by other G7 leaders. No country or institution will ever “develop” Africa. If development has to come, it will not be from external forces, however well-intentioned, but from the African people.
The African Forum on Alternatives is based in Dakar, Senegal email@example.com
A longer version of this article first appeared in Pambazuka News, a free weekly electronic forum for social justice in Africa. Go to www.pambazuka.org