Uses and Abuses of African Debt
No phenomenon lasting for a decade deserves to be labelled a 'crisis'. lt has thus become acutely embarrassing to speak in 1992 of the third-world debt 'crisis'. Certainly a chronic condition; arguably a cancer; some even say a conspiracy but a crisis, no.
The longevity of Africa's debt is particularly worrisome. It is also bizarre. There seem no valid economic reasons whatever for the rich world to have made Africa drag its debt burden so far, for so long. One can, perhaps, understand
why the banks are prolonging the agony in Latin America: they still have some $250 billion in shaky loans outstanding there. (1) Banks spent the eighties disengaging from the southern hemisphere, off-loading a significant portion of their dubious debt onto public institutions. diluting their portfolios, cashing in debt against tangible foreign assets ('debt-for-equity' swaps) and generally finding their way out of the Latin American woods that they entered with such enthusiasm in
the 1970s. Meanwhile, however, they have made so many other stupid loans (for instance, to the US energy or property development sectors) that one can see why they are trying to squeeze every last penny out of the likes of Argentina, Mexico, or Brazil.
But Africa? What logic can there be for grinding down a whole continent in the name of an insignificant debt? Before proceeding further, we'll specify which 'Africa' we're talking about. The whole of the African continent owes its public and private creditors $283 billion, but a large chunk of that ($119 billion or 42 percent) has been lent to North African countries, including heavies like Egypt, Algeria, and Morocco. The debt of Egypt alone amounts to about one-sixth of the African continent's entire debt burden - at least it did until Mr Mubarak received spectacular debt relief as a reward for fighting on the 'right' side in the Gulf War. To say, 'Thanks, Hosni', the United States reduced Egypt's debt stock in one grand gesture from $51.2 to $39.9 billion, a drop of 24 percent, and one that no other third-world country has come close to meriting.
Since lumping North Africa with the rest of the continent badly skews reality, we will deal from now on only with Sub-Saharan Africa (SSA), whose debt, at the end of 1990, amounted to $164 billion. A mere $28 billion (17 percent) of that sum was owed to private banks, nearly all of them European. This relatively small exposure was, furthermore, concentrated in just a handful of countries (Nigeria and Cote d'lvoire stand out). In other words, 83 percent of Sub-Saharan Africa's total debt and virtually all the debt of the very poorest SSA countries owed to public sources: either to OECD country governments or to multilateral agencies like the World Bank and the International Monetary Fund (IMF).
Herein lies the mystery: $136 billion worth of debts reimbursable to public lending sources represents a crushing load for Africa, but for the said public lending sources the same $136 billion is, frankly, peanuts. Yet these agencies have kept a strict watch on Africa, holding its figurative and collective nose to the grindstone. Those who say offhandedly that the level of Africa's debt doesn't really matter because Africa isn't paying back anyway have not looked seriously at the figures. Since 1982, the continent has been bled dry in order to reimburse its wealthy northern creditors.
Between the beginning of 1982 and the end of 1991, every month, for one hundred and twenty months, SSA somehow scraped together an average of nearly a billion dollars for purposes of debt service. In 1990 and 1991, for example, total service payments (interest and principal represented a shade over 7 percent of total outstanding debt. Latin America provides a more usurious rate of return, true, and for northern governments and multilateral institutions 7 percent may not he the most lucrative imaginable return on capital, but for the world's poorest continent, it's not bad. The question most people would ask, hearing yet another report of hunger in Africa, is why such countries should be required to provide a return on capital at all.
In addition, most normal people would assume that in exchange for this Herculean effort, the continent had at least reaped a substantial reward. Unfortunately, this is not the case. 'Herculean' is also the wrong adjective to describe the effort, better labelled 'Sisyphean'. In spite of a decade of sacrifices, in spite of well over one hundred billion dollars sent northward in debt service alone, by the end of 1990 Sub-Saharan Africa's debt had more than doubled. From $77 billion in 1982, it had risen to $164 billion, an increase of 113 percent.
Seen from the African point of view, then, debt is ever more intolerable. Yet seen from a global perspective, SSA's debt can only be called insignificant We can measure its importance in a variety of ways. For example, in 1990, Africa's share of total third-world debt was only 11 percent We will abstain from comparing Sub-Saharan African debt to the total public debt of the United States so as not to provoke hilarity among the readers of serious publication. Taking different yardstick, Africa's debt accumulated over many years amounts to only 16 percent of the losses sustained (at least on paper) in a single afternoon of October 1987 when world stock markets crashed. lt also represents less than 5 percent of the total annual sales of the world's top two hundred transnational corporations.
In other words, Africa's debt is so modest as to be no threat to anyone except to Africans. Even in the most unlikely event that all forty-three SSA countries suddenly and collectively decided to stop servicing their debt, the world financial system would just keep trundling along, its computer screens registering scarcely a blip.
The Trinidad Terms: Poor Relief
Because Africa's debt is minuscule by global standards, because it is mostly owed to public creditors, because it causes such obvious hardship, you might think that it would be particularly amenable to a political solution. You would be wrong. At the end of 1991, the United Nations' optimistically titled publication Africa Recovery wanly reported, under the headline Donors stalled on 'Trinidad' relief, that, (D)iscussions under way for over a year among Western creditors offer only the prospect of a watered-down version of the so-called 'Trinidad' proposals which (...) would significantly help a number of African countries. (2)
The wine being thus 'watered down' was pretty insipid to begin with. The 'Trinidad Terms', as first proposed by British Prime Minister john Major, could at best reduce Africa's debt by $34 billion (if all low-income African countries were to be made eligible for relief, which is highly unlikely). These 'terms' would probably touch only $18 billion of SSA's total debt - this, in any case, is the amount being 'watered down'. Even if the higher figure were lopped off the total, it could change little or nothing with regard to the actual payments required. This may sound odd, but is easily explained. Today, although making unprecedented sacrifices including the literal starvation of millions of its people, Africa as a whole is still paying only about half of the debt service theoretically due. If the stock of debt were to be reduced only marginally, that is, by much less than half, this could serve mainly to free up cash for increasing other interest payments.
The 'Trinidad Terms' follow the 'Toronto Terms', which follow... - well, never mind, since no proposal to reduce African debt has ever made much headway. Under the 'Toronto Terms', the most debt-distressed countries, after protracted negotiations, finally obtained agreements saving them all of one hundred million dollars annually in actual cash outflow. Even
these minor savings were painfully arrived at, because each of the debtors had to negotiate separately with the so-called 'Paris Club', which represents all the creditors. Not only must the debtor face thegang of its creditors alone; it is also subjected to what one well-placed observer has called the Paris Club's arcane protocols and procedures which are profoundly inimical to the interests of debtors or indeed to the achievement of sensibly negotiated outcomes - this from a man who until recently had spent most of his career as a high-ranking official at the World Bank! ((3)
If we keep on going at this rate, the World Bank estimates that Africa's actual annual cash savings in debt service could reach a breathtaking $310 million by the year 2000. (4) Every summer when the G7 - the group of seven richest states - are about to hold their annual jamboree summit, there is a flurry of rumours that African debt
will at last be seriously dealt with. just as regularly, nothing happens and everyone goes home. The United States is invariably singled out as the chief stonewaller: the US Treasury takes a hardline on debt - anybody's debt - with the possible exception of its own. The only hopeful sign for Africa so far on this front is that in 1991, the United Kingdom for the first time broke free of the U. S. iron debt-management grip, announcing that it would apply the Trinidad terms by itself even if nobody else did. This could be a valuable precedent for other European countries, which have, to date, shown a remarkable unity in their craven deferral to their American partner.
Reimbursement of Africa's debt has led to unimaginable human suffering. African economies have been wrenched by 'structural adjustment' measures dictated by the World Bank and the International Monetary Fund. Thirty of the forty-three SSA countries have in place formal adjustment agreements with the Fund, while most of the others have instituted policies so close to the usual IMF prescriptions as to be undistinguishable. The purpose of structural adjustment is to generate 'surplus' cash so that debt can be serviced. lt is not an exaggeration to state that the IMF and the Bank now act as collection agencies for the creditor countries.
The effects of their policies are well known. In all these countries, real wages have plummeted by anything from 30 to - in extreme cases - 90 percent. Most people don't have paid jobs anyway and rely heavily on the so-called 'informal sector' - about 60 percent of the urban work force is not 'employed' by anyone. Rural-urban migrants gravitate to the 'informal sector?' as well in an attempt to make ends meet, but as the International Labor Organization has pointed out, (T)he informal sector is a
labour sponge with a finite capacity of absorption. (5)
Under structural adjustment programs, admittedly bloated public administrations have also massively sacked personnel, adding to the ranks of the unemployed. Public investment has virtually ceased. Hospitals and schools are dilapidated, without drugs or books. The social gains of the sixties and seventies, where they existed, have been eroded or destroyed. For example, the number of children enrolled in primary school increased dramatically in the 1970s, but declined from 1980 onward. Women have, as elsewhere, borne much of the brunt of adjustment, and their workload has increased.
One positive point: UNICEF has made considerable progress in vaccinating African children and is not averse to pointing out that a greater proportion of children has been immunized against preventable diseases in parts of Africa than in the Bronx. But this does not mean that the vaccinated children are healthier. The World Food Program reports that malnutrition now strikes about 40 percent of African children compared to 25 percent in 1985. Recent harvests have been good in most of Africa, but production still does not keep pace with population growth.
In 1986, 46 percent of all World Food Programs (WFP) emergency food aid operations were destined for Africa; in 1990, 85 percent of them were. The WFP estimated that in 1991, at least thirty million Africans required emergency food aid. Overall food import needs are projected at thirty to forty million tons by the year 2000 at prices no one can foresee today. So structural dependency on food aid will continue. Today, three-quarters of all food aid to Africa is in the form of wheat, which cannot be grown in Africa. A lot of it is sold on ordinary rnarkets at ordinary prices, with the 'counterpart funds' of these sales supposedly benefiting the hungry. Sometimes they may, but meanwhile people with purchasing power acquire a taste for bread and other wheat products, driving imports up further. (6)
Raw Materials and Trade
Poverty, hunger, illness, illiteracy - the litany is familiar. Nor is Africa's plight improved by the maintenance of costly military machines or by leaders whose priorities include the purchase of multiple mansions abroad or the construction of outsized replicas of Saint Peter's and four story statues of themselves at home. Whatever indicator one cares to choose, the African disaster of the past decade is, or should be, obvious to all. That the debt crisis has been a major factor compounding this disaster should be equally obvious.
So the crucial question really is, Why does the 'crisis' endure and the cancer fester? Why do creditors continue to demand their pound of flesh? At first glance, the situation is indeed wholly confounding - Africa can't afford to pay, and the West doesn't need the money. So why the unremitting bloodletting? Creditors have major responsibility for the impasse, but in their
own way, so have the debtors.
One reason the cancer is metastasizing is that African governments have never seriously sought to unite under a single debt-negotiating banner although they have had every reason to do so - and this is what bodies like the Organization of African Unity are supposed to be for. This inability to arrive at a common stance has made it even easier for creditors to isolate and browbeat individual debtors when they take the Paris Club witness stand. (Note, however, that this incapacity to unify is not peculiar to Africa. Latin American debtors owe three times as much as Africans and are far fewer in number, but they too have
remained divided and therefore conquered).
The consequences of this failure are grave and have proved that disunity is a luxury Africa can ill afford. Many African governments still appear to be under the illusion that their countries are more important in the world scheme of things than they are. They also seem to believe that their legitimate concerns are genuinely taken into consideration by the industrialized countries. Sadly, neither is true. Yet many Africans, when told this bluntly by people who are basically on their side, still protest vehemently, insisting that they are important because the rich world cannot do without their raw materials and their cheap labor.
This view may have been valid in the 1960s, but the world of the 1990s is a very different place. Naturally, those who run this world are interested in safeguarding whatever parts of Africa contain strategic materials unobtainable elsewhere, but these parts make up an astonishingly small portion of the continent. The overwhelming majority of African countries rely for their foreign exchange earnings on run-of-the-mill commodities, increasingly produced in Latin America and especiallyAsia as well, and often obtainable with less fuss and bother than in Africa.
Prices for these raw materials have lately dropped to the lowest levels on record since the 1930s. Many respected authorities, including the World Bank, have claimed to see light at the end of the tunnel, repeatedly announcing that the commodities situation is about to take a turn for the better. All the figures belie this optimism. 1990 was a bad year, 1991 was dire. Of fourteen commodities monitored by the United Nations in 1991, only one iron ore showed a modest gain in price. Sugar, in perpetual doldrums, fell by a further 27 percent, bauxite and groundnuts by nearly 20. Coffee and cocoa, traditionally two of Africa's most important exports, seem destined to remain on the down escalator their prices have been in continual decline for five and seven years, respectively.
International officials must, in a sense, voice optimism, because the whole point of the structural adjustment programs they have devised is to improve countries' export earnings. Without exports there's no hard currency, and without hard currency there's no debt service. Thus the best efforts of the Fund and the Bank are concentrated on what economists call 'tradeables' - anything you can sell abroad - while 'non-tradeables' are neglected. Non-tradeables aren't just whatever local people eat, live in and so on, but are roads and public transport, sewage and water systems, schools and hospitals and anything else that, by definition cannot be uprooted and exchanged for dollars, francs, etc.
The Export-led Deadend
The export-led strategy in Africa is, however, a dismal failure. According to TNI's report, Short Changed: Africa And World Trade, by Michael Barratt Brown and Pauline Tiffen. (7) Africa simply cannot hope to emerge from the current crisis so long as it continues to rely on exports of traditional products. The TNI research team looked at all the usual factors determining demand but also interviewed commodity traders, promising them anonymity. These traders, who are the actual purchasers of African raw materials, paint a gloomy picture indeed. With the single exception of tea, TNI found that the present practices and future intentions of these purchasers are highly unfavourable to Africa.
This is all the more serious because trade is, on the whole, thriving. GATT (the General Agreement on Tariffs and Trade) labelled the 1980s 'a dynamic decade for world trade'. Perhaps so, but during this dynamic decade, Africa's trade of goods and services regularly declined - the only region in the world where this was the case. Asia's annual trade growth, in contrast, was
close to 8 percent. (8) Where would Africa have been if the 1980s had been a period of world trade recession?
Probably so low as to be statistically insignificant. By 1989, Africa's share of world trade was already down to a mere 2.5 percent. Roughly 60 percent of even that tiny figure can be ascribed to trade transactions carried out by South Africa and the North African countries, which GATT lumps in the 'Africa' totals. (9) This means that the whole of the rest of Africa currently represents no more than 1.5 percent of world trade. One can almost hear the sound of Sub-Saharan Africa sliding off the world map. As for the presumed advantages of cheap African labour, international business seems unimpressed. lt is investing little in the continent and is sometimes withdrawing altogether. In 1982, private sources invested a total of $2.2 billion in Africa. Though not a princely sum as these figures go, it turned out to be the best one of the decade and was followed by
two years of disinvestment. By the end of the eighties, the annual inflow of investment had crept back up to about a billion dollars, but this was still only 3 percent of total annual private investment in 'developing countries'. Again, Asia took the lion's share. (10)
Africans themselves seem to have little confidence in the economies of their own countries, structural adjustment or no structural adjustment. Although the Bank and the Fund always claim that their programs will reverse the trend, the OECD (under?) estimates flight capital from the region at some $40 billion. To date, wealthy Africans show no signs of bringing their money home. (11)
Only foreign Non-Governmental Organizations (NCOS) have taken pity on Africa. They have increased their contributions from six hundred million dollars at the outset of the 1980s to a billion dollars at the end of the decade. Their grants now equal total private investment. Today, Africa has to count more on aid and less on trade.
Events in Eastern Europe haven't helped. Although one cannot make the case - at least not yet - that aid to the former Eastern bloc has 'diverted' funds from Africa, as many African leaders claim it has, it is true that Sub-Saharan Africa [is] the only major developing region not to have experienced an increase in overall financial flows, according to the OECD. In 1990, the United States increased its aid to SSA (to $985 million) and so did France (to $4.4 billion), but Germany, Italy, and the United Kingdom all reduced theirs. (12)
In calculations of available aid, people sometimes forget that the former USSR and Eastern Europe used to be donors themselves, modest ones, perhaps, but donors all the same. They gave significant amounts of aid to Ethiopia, Angola, and Mozambique. In a not atypical year before the demise of the communist bloc, Tanzania received $21 million from the USSR while Zambia and Sudan had all their outstanding debt to Eastern bloc countries rescheduled on highly favourable terms. (13)
There could be a hidden advantage for Africa in the liberalization of Eastern Europe if these countries begin to consume significant quantities of African products. When the Berlin Wall was first breached, Western Europeans sat spellbound watching television pictures of East Germans devouring bananas as if they were nectar and ambrosia. But these economies won't be genuinely affluent for several years at best and, meanwhile the cheap and highly skilled workers and the astonishing investment opportunities in the former communist countries are likely to make investment in Africa appear even less attractive, if not
The Grand Experiment
Thus one important reason that Sub-Saharan Africa's debt crisis has dragged on and on is simply that Africa hasn't the economic voice to make itself heard or the commercial clout to make its presence felt. Economically and commercially, it occupies too little space to force the world system to take much notice of its problems. Africa's potential was indeed enormous, as many African leaders never tire of pointing out But the real questions remain: Who needs this potential? For what? And when?
Another answer to the enigma of enduring debt is a political and ideological one. The debtors' collective failure to confront the creditors has given the latter an unprecedented opportunity to carry out the most enormous, ideologically driven economic experiment ever devised in history. On behalf of the creditors, the Terrible Twins of Bretton Woods- the Fund and the World Bank are forcibly applying orthodox, neoclassical, unfettered market economy doctrine to most of the southern hemisphere and to the African continent in particular.
The existence of significant debts, or in the case of small and weak countries, even of insignificant ones, provides outsiders with huge leverage over economic and political management. Governments have no choice but to give up much of their sovereignty to their creditors and their creditors' proxies. These 'lenders of last resort' hold the keys of the entire world
economic and financial system and are thus in a position to make offers impossible to refuse.
lt's not that all the measures the Twins impose are, in and of themselves, harmful. No reasonable person denies that some form of 'structural adjustment' is necessary in Africa and elsewhere. Except for the United States, which is privileged to print and mint the world's standard unit of account, countries cannot live beyond their means forever any more than individuals or families can. The problem with adjustment as now practised, however, is the simultaneous and dogmatic application of an identical model to dozens of countries at once. Every country must devalue its currency (thus largely cancelling out the supposed benefits of devaluation, since everyone's goods become cheaper on world markets at once). Everyone must attempt to export the same limited range of raw materials or slightly more sophisticated products to shrinking markets.
No one denies either that the state probably has no place in the direct production of goods and that markets should be allowed to do what they do well What they do not do well is protect the weaker and more vulnerable members of society. Adjustment measures theoretically designed to help, say, small farmers and food production in Africa turn out on closer inspection to have the opposite effect. As the International Labour Organization points out:
One of the reasons for the growing extent of malnutrition in Sub-Saharan Africa is related to the policy of price liberalization for agricultural commodities (... ) an improved pricing policy does not automatically alleviate rural poverty. The majority of farmers in the region cultivate small plots of land and do not produce sufficient marketable surplus to benefit from higher producer prices. In some cases, food-deficit farmers may actually become worse off. (14)
But such measures are part of the economic canon, and damn the consequences. The whole continent has become a laboratory for an experiment en grandeur nature.
Although the near-universal imposition of the free market model is, from the creditors' point of view, a major achievement, politically, too, the debt crisis has its uses. One need not subscribe to conspiracy theory to recognize the political advantages that debt has conferred on the creditors. Although these creditors almost certainly did not plan on these advantages when
the debt crisis first began to assume major importance, this does not mean that they are now prepared to throw them away.
The Power of Debt
Debt is used as a weapon of what 1 have called elsewhere 'Financial Low Intensity Conflict,' or FLIC, a new kind of warfare far better adapted to the late twentieth century than traditional forms of warfare like invasion and occupation. (15) These more 'primitive' techniques, unless they are exceptionally quick and 'clean', as in the Gulf War, are no longer accepted by most Western public opinion.
Nor can 'primitive' warfare achieve the aims of today's sophisticated aggressor. What, after all, is the objective of war? As Karl von Clausewitz put it in his classic work On War, War is an act of violence whose goal is to force the adversary to do our will. Debt provides a powerful lever for forcing the third-world 'adversary' to submit to the will of the creditors. We have already mentioned several of the advantages they may find in maintaining the debt burden.
They can obtain raw materials on the cheapest possible terms. As noted above, dozens of debtor countries are competing to unload primary commodities. Glut and structurally depressed prices result as the debtors' attempt to export even more in the vain hope of at least keeping revenues stable. The system is self-perpetuating. Northern industry benefits, although the savings are rarely passed on to the consumer.
Through debt-for-equity swaps, one can take over assets and infrastructure, although this technique has rarely been applied in Africa because the continent offers few attractive targets for takeover. On the other hand, there are obvious financial advantages in continuing to receive interest payments.
Financial low-intensity conflict is also preferable to more naked intervention because it is so low profile. Most people in the creditor countries know little and care less about third-world debt lt seems boring and gets no television coverage. The connections between debt and marginally 'sexier' subjects - epidemics, food crises, and the like - are almost never made.
Debtors dependent on the good will of creditors are also unlikely to challenge the-dominant or new, if you will, world order. The decade of crisis has put a stop to whatever attempts the South once made to obtain collective advantages through the United Nations and other forums. The 'Group of 77' leads a nominal existence. Gone are the demands for a New International
Economic Order, for binding codes of conduct for transnational corporations, or transfers of technology under favourable terms. The only items on the North-South agenda are privatization, competitiveness, and structural adjustment This change of vocabulary in the discourse of international relations reflects one of most important and least noticed phenomena of recent years. Debt makes
debtors timid and creditors bold.
The Weakened State
The not-so-subtle formulae for making the third world shut up and abandon its longstanding demands are accompanied by a de facto assault on the very notion of the state. The ascendancy of the World Bank and the IMF includes a substitution of their own power for the traditional powers of the state. Among the prerogatives now being dictated from outside are:
- Control over the currency. Indebted countries must devalue when instructed to do so. This is supposed to make exports more competitive, but the effects are often negligible because so many countries are devaluing at once.
- The fixing of macro-economic policy. The framework is set by the structural adjusters; only the details are left to the government.
- The choices of foreign policy. The classic case is the carrot/stick approach applied to Egypt during the Gulf War.
- The 'monopoly of legitimate violence'. At the Bank Fund annual meeting in Bangkok in October 1991, the managing director of the Fund, Michel Camdessus, for the first time made clear that his institution would henceforward look much more closely at the military expenditures of its 'clients'. In his view the cessation of cold war hostilities made such expenditures obsolete. While we may
welcome any measures leading to disarmament anywhere, the ability to make war and peace and to defend itself have always been essential to the nature of the state.
The indebted state is thus left with its judicial functions and above all, the maintenance of internal public order. This is one crucial state function the creditors want nothing to do with., Austerity measures - particularly the doubling or tripling of prices for basic staples - have led to riots in over two dozen debtor countries and have caused at least four thousand deaths with many thousands more wounded or detained. (16) Outside managers do not want to be seen as involved, much less as interfering in such circumstances and leave local police forces to put down rioters. Thus the real causes of the protests may never become visible to the outside world.
Just as the state is undermined, so are those parts of the United Nations system that could be most useful to the debtor countries. The Bank and the Fund have much more influence over, say, health and education than the World Health Organization and UNESCO.
Is the Worst Inevitable?
How - if at all - might Africa escape debt bondage and begin to emerge from the depths? Here we enter the realm of utopia. Realpolitik seems to militate almost entirely against an equitable solution for Africa, and only the extremely guarded optimism of the French belief that the worst is not always certain can be of some comfort.
Assuming the worst indeed isn't absolutely certain, what should Africa aim for? African leaders should make clear to anyone who will listen that the continent simply cannot survive, much less develop, on the basis of 'exported growth'. The needs of Africans must come before those of outsiders, who, in any event, are buying fewer and fewer African products.
The Economic Commission for Africa has published a detailed diagnosis, analysis, and economic plan, which is at once more logical and more humane than the Bank Fund austerity scenario. Titled The African Alternative Framework to Structural Adjustment Programmes for Socio-Economic Recovery and Transformation, it provides the necessary macro-economic guidelines. (17)
It is, however, important to recall that pure and simple debt cancellation could lead to cutting Africa out of the world system altogether, and that African leaders should beware any Greeks bearing gifts of this kind. Debt relief must be linked to a coherent development plan, including much greater popular participation and genuine democracy. Unless African nations, singly or jointly, can propose a plan bold enough to capture the imagination and the attention of the industrialized countries' governments and citizens, they will be forgotten in the New World Order.
Africa's leadership must above all give their creditors credible guarantees that African peoples will be full partners in the enterprise. If the leaders promise that freedom of association and popular organizations will be encouraged and nurtured, that human and democratic rights will be fully respected, then they can propose a solution to debt, based on a new social contract. The creditors, who claim that democracy is all-important, would look foolish and hypocritical if they refused to listen.
Sub-Saharan Africa should propose to stop paying debt service to public creditors (83 percent of the total) in hard currency. They should contract to pay in local currency over a long period and to put their payments into national or regional development funds whose purpose would be threefold.
- First, such funds would provide financing to popular organizations for their own projects and for which they were prepared to supply the labour (building schools or clinics, improving village water supply, feeder roads, and so on).
- Second, such funds would provide a basis for revolving credit funds granting small loans to farmers and would-be entrepreneurs. An excellent model for this kind of popular credit scheme is the Grameen Bank of Bangladesh, where repayment rates run over 99 percent. Participants are given training in basic numeracy and accounting and they must also adhere to certain basic development principles. The African traditional 'tontine' (common fund) provides a similar model where social pressure to reimburse is strong because the existence of the group depends on it.
- Third, such funds would provide wages for workers engaged in environmental rehabilitation and renewal. Ecological destruction in Africa is widespread and growing. So long as people cannot be paid to plant trees, build terraces, shore up dunes, and so forth, the destruction will spread, because people are too busy surviving to be able to work without pay.
For the creditors, such a scheme would be equivalent to debt cancellation, but would keep Africa inside the system. Creditor countries, through their aid programs, should 'anchor' such funds with hard currency and should monitor the agreements so that inflation does not ensue from injection of too much local currency into the system. 'In-kind' payments could. he
accepted as well For example, X trees planted, Y schools built, could lead to Z dollars of debt forgiveness.
Such a plan would have many advantages. It would free hard-currency export earnings for more useful purposes than debt service and would simultaneously reduce the pressures to export, thus gradually allowing commodity prices to rise. Since a substantial part of the hard currency thus freed would be used to purchase products from northern industries, creditors would receive much the same income as before. But instead of sterile inflows to governments and multilateral agencies, the money would create some jobs in the North and Africans would get something in exchange for it The continent would then participate in the world trading system as a partner, not a beggar. Popular energies for genuine development would be mobilized, making thousands of communities and individuals more self reliant. Environmental ruin could be halted and reversed.
At present, genuine political will to cure the debt cancer is lacking on both sides and imagination is at an even lower ebb. If at least a few African leaders had the courage to declare publicly that they are, given the means, prepared to share full responsibility for development with their own civil societies, we could move into a new phase. If they are not, and we do not, then the 1990s risk being for Africa not just another lost decade, but a deadly one.
1. Unless otherwise noted, all debt figures are derived directly or calculated from OECD, Financing External Debt of Developing Countries 1990 Survey, OECD, Paris 1991. I prefer this source to the World Bank's better known World Debt Tables because the OECD relies on creditors' reports, not on the debtor reporting system of the Bank. Rightly or wrong, I believe that creditors are more likely to report accurately how much they are owed and what service payments they have received than debtors are to say how much they owe and what they have paid. The OECD's figures also include short-term debt whereas the Bank's do not; short-term debt usually represents at least 15 percent of a country's total obligations. The OECD and the Bank keep promising to harmonize their debt reporting systems and their figures; for example, the OECD estimates total third-world debt at $ 1450 billion, the Bank at only $ 1300 billion. This would greatly facilitate the task of the researcher, but so far it hasn't happened.
2. Africa Recovery, United Nations, December 1991, p. 3.
3. Percy S. Mistry, African Debt Revisited: Procrastination or Progress? Forum on Debt and Development (FONDAD), The Hague, 1991, paragraph 4.10.
4. ibid., paragraphs 4.16 and 7.09.
5. International Labour Organization, African Employment Report 1988 Jobs and Skills program, p. 34.
6. World Food Programme Journal No. 19, January-March 1992 and Solagral, Courrier de la Planète No. 4, February 1992, passim.
7. Michael Barratt Brown & Pauline Tiffen, Short Changed: Africa and World Trade, London, Pluto/TNI, 1992.
8. GATT, International Trade 89-90 Vol. I, p. 15 and chart 5, p. 19.
9. GATT, ibid. Vol. II, Table III.39 and (calculated from) Table III.43.
10. OECD, op. cit., Table III.6.
11. Africa Recovery, op. cit., Note 2, p. 9.
12. Ibid., pp. 8-9.
13. OECD, Development Cooperation 1987 Report, Paris 1988, section on CMEA Countries, from p. 153.
14. International Labour Organization, African Employment Report 1988 Jobs and Skills program, p. 37.
15. Susan George, A Fate Worse Than Debt (New York: Grove Press, 1988).
16. The Franco-Peruvian researcher Denis Sulmont has made a tally of these riots and their consequences, relying mostly on Western press sources for the number of casualties. It is thus entirely possible that these figures are underestimates.
17. ECA, AAF-SAP, E/ECA/CM.15/6/Rev.3, United Nations, 1989.
Dissent, Summer 1992, Reprinted as: TNIdeas, November 1992<>