African debt: Reinforcing the can't pay, won't pay argument

Dakar- Senegal (PANA) -- By asking African countries to ignore debts owed western creditors, American economics professor Jeffrey Sachs is reinforcing a position that may sound unpopular to the creditors, but which deserves closer attention given the failure of all efforts so far to get the debtors to pay.
Speaking at the ongoing African Union (AU) Summit in Addis Ababa, Ethiopia in his capacity as economic adviser to UN Secretary General Kofi Annan, Sachs, who is of the Centre for International Development at Harvard University affirmed that the debts were "unaffordable.
" He maintained that repaying them would prevent Africa from meeting the all-important 2000 Millennium Development Goals (MDGs) of halving poverty and spurring economic growth by 2025.
Sachs is treading a familiar tuff.
As chair of a 19-member international Commission on "Microeconomics and Health Investing in Health of Development" set up by erstwhile WHO director general Gro Harlem Brundtland, the Harvard professor and his team had also recommended debt forgiveness to free resources for investment in health and other social sectors.
Africa is by no means outright poor, given its abundant human and natural resources, which have been largely mismanaged by corrupt and dictatorial administrations since independence.
But it is equally true that most of the continent's debt was incurred in dubious circumstances and benefited just a handful of people in unpopular governments.
Apart from the debt cancellation, Sachs argues that development assistance to Africa should be doubled.
Emira Woods of the US-based Institute for Policy Studies takes the argument even further.
In a recent media interview she said "the amount of flows out of Africa in terms of debt service and debt repayments far outweigh any kind of aid, including humanitarian assistance.
" Quoting senior US officials as calling the debt of Iraq under Saddam Hussein as "odious and illegitimate," Woods said the same argument holds for Africa and urged creditors including the US to "take immediate steps to cancel Africa's odious and illegitimate debt.
" Another problem is that the complex and complicated formula applied by creditors in the calculation of debts has rather seen the principal tripling because of interest payment or "penalty" for default.
Nigerian President Olusegun Obasanjo captured the African dilemma in a recent speech to mark his country's fourth anniversary of democratic governance, when he offered to resign if that would make creditors cancel Nigeria's external debt.
He was alluding to the fact that while Africa's call for debt forgiveness had fallen on deaf ears, the same creditors have been quick to cancel much of the 120 billion dollars owed by Iraq.
"If the debt of Iraq can be written off after the downfall of Saddam Hussein, we don't want the downfall of anyone in Nigeria before you (creditors) write off our debt.
But if a downfall of someone is what it takes, I volunteer to step down if our debt will be written off," the Nigerian leader declared.
Obasanjo also pointed out that whereas Nigeria had borrowed only 10 billion dollars, penalty for non-repayment has seen its debt portfolio balloon to the current 32 billion dollars and still growing.
Whereas the World Bank estimates that 66 percent of Nigeria's estimated 130 million population live on less than one dollar per day, the country this year set aside 1.
4 billion dollars, more than its combined budget for health and education, for debt serving.
The story is similar or even worse in other African countries with Malawi, despite being near famine spending some 60 million dollars in debt repayment a year.
According to statistics by the Jubilee Debt Campaign (JDC), of the 319 billion dollars owed by Africa in 1999, the continent paid 40 million dollars per day or 14 billion dollars per year in debt repayment.
Only a mere 15 percent of unpayable debt, it said, has been cancelled and for every one dollar of aid received by developing countries, they spent about 13 dollars to repay debts.
The sum total is that poor counties, wracked by conflicts, hunger, disease and low life expectancy compounded by the debt burden, cannot spend much money on healthcare and education.
The result? Some 19,000 children die each day in Sub-Saharan Africa, according to the UN.
Pointing out the ignominies of the debt problem, Jubilee USA Network notes that very little of the money borrowed benefited the poor.
The bulk went into arms purchase, often "to shore up oppressive regimes," or were invested in elephant projects.
"All too often, the money found its way into private bank accounts.
The poor were the losers," the pressure group added.
Now caught in a vicious circle, developing countries, which were encouraged by the West to grow cash crops, saw the prices of their raw materials dwindling, while interest rates began to rise along with oil prices, forcing the poor countries to borrow even more to pay off previous loans.
Meanwhile, the World Bank and International Monetary Fund (IMF), under the control of the creditor countries were on hand to lend more, although their loans only added to the debt burden and often came with tough conditions including the infamous Structural Adjustment Programmes (SAPs), which ensured that poor countries were steeped in debt.
This, along with other factors have made Africa the only part of the developing world no better off than it was 25 years ago with per capita income now estimated at 200 dollars lower than in 1974.
To address the debt crisis, the two Bretton Woods Institutions, in 1996 came up with the so-called Heavily Indebted Poor Countries (HIPC) initiative.
Some 42 countries were identified for possible relief, and 23 of the 27 that have qualified for debt relief under the initiative are in Africa.
But critics say under the tortuous and complicated scheme originally conceived to relieve 100 billion dollars of debt for countries that have sound government, only 31 billion dollars has been cancelled.
Anti-debt cancellation lobby may argue that a bad precedent would be set by allowing debtors to escape debt repayment.
But the bitter truth is that the debts now constitute a huge barrier to Africa's socio-economic growth and development, such that even raising development assistance without cancelling the debts would take many poor countries no where.
Widening the prosperity gap between North and South defeats the much-touted shift in development paradigm for a healthier and more prosperous world.
Sachs and other anti-debt campaigners have thrown the gauntlet.
The challenge is now that of debtor countries in Africa and other parts of the world to seize the momentum, by binding together to keep the pressure until the debt burden is lifted on their people.

06 july 2004 20:47:00




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