Rethinking Debt

01 October 1995

Contribution to the North South Roundtable on Moving Africa into the 21st Century: An Agenda for Renewal
Johannesburg, 15-18 October 1995

This paper is important for students of debt because it shows, I hope, that debt has little to do with economics and everything to do with politics. I looked at the strenuous efforts of African countries to obtain debt relief from the "Paris Club" and the meagre results they got for their pains. The North-South Roundtable, chaired by the late and much regretted Mahbub-ul-Haq and brilliantly organised by his wife Khadidja ["Bani"] can be perhaps described as a "progressive Establishment" body, bringing together people of some influence, particularly in the UN system. This study was published in a shorter version in Development, the journal of the Society for International Development with headquarters in Rome.

A Methodological Preface

Before proceeding to the arguments of this paper, it is important to point out the methodological pitfalls obstructing the path of anyone attempting to 'rethink debt'. Only two serious sources of LDC debt data exist: these are the World Bank and the OECD. Some swear by the Bank and its 'Debtor Reporting System'; others believe there is more truth in OECD figures which rely on creditors, not debtors, for data. I have long subscribed to the latter view. There can be substantial differences in their numbers. For example, the Bank's estimate of total debt in 1994 is $1.945 billion; OECD's is $1.687 billion. The two institutions have been promising for years to harmonise their systems but to date haven't done so. (1)

The Bank further has a tendency to shift its goalposts so that attempts to trace the evolution of debt in a given group of countries can be extremely discouraging for 'rethinking' purposes. For example, the comparison made below between 'low income Africa' debt of $29 billion in 1985 and 'Sub-Saharan Africa' (SSA) debt of $210 billion in the mid-1990s is necessarily off - although I can't say by how much - because by 1995, the category 'low-income Africa' had disappeared from the Bank's lexicon.

Just to fog the issue further, the OECD places SSA debt in 1994 at $163, not $210 billion. The discrepancy with the Bank's much higher figure can mostly be explained by the Bank's inclusion of arrears on both interest and principle in the total debt stock. This is, of course, consistent with its refusal to let debtors off the hook on their arrears and its 'no-rescheduling' policy. Whatever the statistical snares, however, and whichever source you prefer, the order of magnitude of the Bank's error in its 1986 prediction of future Sub-Saharan African debt, described more fully below, is apparent: this debt has more than doubled in the past decade.

False Prophecies

In its 1986 World Development Report, the World Bank confidently predicted that, a decade later, total debt of all developing countries would amount, at worst, to $864 billion. These countries were also said to have a sporting chance (in the 'low-case scenario') of a 1995 debt burden totalling a mere $561 billion. The Bank also declared that by 1995, 'low-income Africa' could expect to owe its creditors no more than it had owed them in 1985, namely $29 billion. (2)

The Bank's 1986 crystal ball was more than slightly flawed: by 1994, according to its own figures, the total external debt of all developing countries was fast approaching the $2 trillion mark ($1.945 to be precise). This figure amounted to two and a quarter times the Bank's highest 1986 estimate; almost three and half times its lowest one. (3) Its calculations for the world's poorest continent were even further off. By 1994, SSA debt was nowhere near $29 billion but more than seven times as much: it had skyrocketed to over $210 billion.

The Bank's army of economists was also dead wrong about other matters of grave and continuing concern to its developing country clients, particularly in Africa. Throughout the 1980s and at least until 1991, the Bank consistently and hugely overestimated the capacity of these countries to attract fresh capital and foreign investment, their probable growth rates, and the prices they could expect to obtain for their commodities.

Commodity prices, in particular, have a direct bearing on the ongoing debt crisis, since creditors accept only hard currency in payment of debt service and hard currency must be earned through exports (or through tourism and emigrant worker remittances). Little export diversification has occurred since the early 1980s when Sub-Saharan Africa as a whole relied on raw materials for more than 80 percent of its hard-currency revenues. Some individual countries are virtually 100 percent dependent on them. The Bank's mistaken forecasts in this area further hindered its client countries from escaping the debt crisis. (4)

In spite of constant errors throughout the 1980s, the Bank continued to preach optimism when, in 1991, it projected likely commodity prices for 1993. By the time 1993 rolled around, it had become clear that the Bank was wrong again: commodity prices for producers were catastrophically lower than it had declared they would be only two years earlier. (5)

The Bank also mistook the very nature of the debt crisis and has since admitted as much, albeit in a backhanded way. In 1992, the Bank's then Chief Economist, Lawrence Summers, and the head of its Debt and International Finance Division, Massood Ahmed, wrote a joint article in the Bank/IMF magazine Finance and Development. Entitled 'A Tenth Anniversary Report on the Debt Crisis', their piece lists, 'in a spirit of humility', ten key lessons to be drawn from the mistakes made in dealing with debt. One of these was 'Treating the debt crisis purely as a liquidity problem [which] delayed the search for a stable and real solution'. According to the authors,

This lesson is well learned now, but the cost of delay has been to put development on hold for a decade in many of these countries. A lesson for the future is the importance of acknowledging reality sooner. (6)

These top Bank officials do not name their employer or any other guilty parties, simply attributing this error of judgment to 'many observers'. One cannot, however, escape noticing the Bank's own contribution to what Summers and Ahmad call 'putting development on hold for a decade', or, as others have termed it, the 'Lost Decade'. This is the closest the Bank has come to 'acknowledging the (political) reality' of the debt crisis.

This short demonstration is not intended to point accusing fingers, however much one might wish to make the Bank accountable for its mistakes. One could make a roughly similar case for the International Monetary Fund. The point is, rather, that the official institutions charged with managing the debt crisis and, if possible, alleviating its effects in the poorest developing countries, have proven themselves unable to foresee or analyze, much less to improve or remedy the situation. Why did these institutions fail to help their clients plan for an ongoing, chronic and 'unsustainable' debt burden - which has nonetheless had to be sustained - as a permanent fact of national life?

Explanations of Failure

Two hypotheses come to mind. The first is that the Bank (or the Fund) simply didn't (and perhaps still doesn't) know what it was doing and didn't take seriously the impact of its policies on its poorer borrowers. If this is the case, one should conclude that hundreds of highly trained economists have been vastly overpaid for a decade or more; or simply that they were not instructed to put the welfare of the Bank's clients uppermost in their minds.

This view is supported by a recent Bank Policy Research Working Paper on commodity exports. It does not require a Ph.D in economics to comprehend that an oversupply of commodities on world markets will inevitably depress prices for all individual country producers. This oversupply - stemming from the export of identical or similar products by a number of producers - is what the Bank's economists call the 'adding-up problem'. The author of the Bank's Working Paper notes that in order to 'maximise welfare', one must first decide for which group one seeks to maximise it, since this decision will determine one's policy recommendations. He says that 'economists inside and outside the World Bank...have argued that the relevant reference group should be the world as a whole'.

The World Bank [is] concerned with promoting development and growth in the developing world (or some region thereof). Presumably, then, [its] concern would be with LDC welfare (or regional welfare) rather than with world welfare. If so, free trade would not be optimal for commodities with an adding-up problem. Under free trade, the increases in output would lead to a deterioration in the terms of trade, with the benefits going to the rich consuming countries and the losses imposed upon the poorer producing countries... the World Bank has generally advocated free trade for the exports of these commodities. This might seem consistent with maximising world welfare, but not with maximising welfare of developing or producing countries... (7)

Through its structural adjustment programmes, the Bank, like the Fund, has consistently 'advocated free trade', insisting particularly on competitive devaluations which are supposed to increase market share by making one's products cheaper; as well as the dismantling of export/import restrictions, taxes, quotas and the like.

The second hypothesis for institutional failure to alleviate the debt crisis is this: for close on 15 years, official bodies have adamantly refused to acknowledge (at least in public) the obvious: Debt has relatively little to do with economics and finance and can only be understood as a political phenomenon.

The conclusions of the above-mentioned Bank Policy Research Paper on commodities are also perfectly compatible with this hypothesis: If the Bank's objective has indeed been to 'maximise world welfare', this could only occur at the expense of poorer countries and regions. In that case, one should conclude that it was never intended that raw-material producing countries should be able to extricate themselves from the debt crisis through their own efforts. The benefits were, rather, intended to flow to the 'rich consuming countries' (which is to say to the Transnational Corporations that actually purchase the raw materials, without necessarily passing advantageously lower prices on to the consumer).

It is thus not especially surprising that Sub-Saharan Africa's debt has reached 255 percent of its export earnings. Although the Bank has, in recent years, refrained from lending to countries for expanding production of certain commodities; its insistence on 'export-led growth' has virtually ensured 'unsustainability' in Africa - since the Bank has itself declared that any debt-to-export earnings ratio greater than 200 percent is 'unsustainable'. (8)

I believe that the goal of market integration for all countries through free trade and structural adjustment has been the overarching political objective, superseding all other concerns.

Is This Crisis "Over"?

A widespread perception exists that the debt crisis is somehow 'over'. This attitude pervades official discourse and, all too often, the discourse of the Non-Governmental Organisations which have by and large given up working on the question. As for the official mainstream, increased foreign direct or portfolio investment is supposed to have come to the debtors' rescue. What is the reality? Is there any point in 'rethinking debt'? Should we just assume that business-as-usual will take care of any residual problems and let the financial experts get on with it? Or is debt quietly spearheading a profound political change, even a restructuring of the world?

At first glance, it seems almost absurd to affirm that chronic debt is only superficially related to economics and finance and is far more connected to concerns of politics and strategic power. After all, prodigious amounts of time, energy and manpower have been devoted to Paris Club and London Club negotiations and reschedulings; to designing and implementing Baker or Brady Plans; to inventing a new IMF Facility virtually every year; to devising Trinidad or Toronto or Houston or Naples or other major G7-city 'terms', 'enhanced' or otherwise, at regular intervals. The past decade has spawned a dizzying array of financial debt-reduction instruments: debt-for-equity or debt-for-nature swaps, buybacks, 'securitisations', variously labelled bonds ('par', 'discount', 'front-loaded interest reduction') and many, many more. (9)

It would be a waste of time to describe this veritable minestrone of instruments in detail because - as we shall shortly see - none of them has made much difference. As a result of these complex money manoeuvres, however, a mountain of data has accumulated and the time has come to ascertain whether this mountain has given birth to a mouse or to some other sort of animal. What we know for sure is that none of the fancy financial footwork has resulted in improving the actual debt situation for low-income borrowers, particularly African countries; that neither the time, the energy nor the manpower devoted to them has diminished the debt burden - quite the contrary.

Let us therefore look at the figures concerning the impact of a decade or more of debt management on the fortunes of Sub-Saharan Africa and see if they hold any clues. All figures are derived from the World Bank's 1994-95 World Debt Tables. (10)

Agreements [of which forgiven] incl. interest: 1986-1993
in $$millions


No. of debt

Restructuring total debt

Rescheduled total debt

Stocks 1986

Stocks 1993

























Centr. Afr. Rep.


















Cote d'Ivoire






Equ. Guinea










































































38.343 (11)










Sierra Leone
































655 (12)






















Total excl. Nigeria






Total incl. Nigeria






What lessons can we draw from these figures for 31 representative Sub-Saharan African countries? First and most obvious, the total debt of these countries increased by almost two-thirds between 1986 and 1993 (excluding Nigeria: with Nigeria included, by more than half). Whatever the hopes invested and the haggling involved in the 156 official debt agreements listed by the Bank (a total which does not include bilateral negotiations or nine further agreements signed by some of these countries between January and September 1994); they did nothing to prevent the increase of the total burden. Had we compared figures for the total debt of these countries in 1980 and 1993, the increase would have been well over a hundred percent for the decade and a half. Despite the number of deals signed, every single country on the list was deeper in debt in 1993 than it had been eight years earlier.

Indebted countries have no choice but to participate in the money manoeuvres; each one, alone, must face the clubs of creditors across the table, purportedly seeking a solution. Borrowing countries are obliged to invest scarce and skilled manpower in these exercises and the time devoted to them must be subtracted from other pursuits. In the end, they collectively achieved reschedulings or cancellation of $34 billion worth of debt (plus another $38 billion for Nigeria alone). Perhaps it was worth it, since one can certainly argue that the increase in the total debt burden would have been even greater than two-thirds without these negotiations. So far, however, the mountain has brought forth a mouse.

The popular perception - in so far as one exists - is that 'debt restructuring' somehow equals 'debt forgiveness'. The figures in brackets above show that this is rarely the case: of the $34 billion rescheduled or cancelled, only $7 billion - barely 20 percent of the total amount rescheduled - was actually written off. In other words, the remaining $27 billion is still on the books and is still due to the creditors, on softer or more stretched out terms, perhaps, but due all the same. The debt actually cancelled came to barely 8 percent of the total stock of debt held by these countries in 1986 and to a piddling 5 percent (4.8%) of that held in 1993. This game hardly seems worth the candle.

What is the game about?

Not worth the candle, that is, if one is reasoning from the side of the debtors and assuming that the game is actually about debt, rescheduling, or money manoeuvres of whatever sort. What the game does do, on the other hand, is keep the governments of these countries in thrall to the international system and its designated agents - principally the Bank and the Fund on behalf of the G7. All of them have had to restructure their economies according to macro-economic doctrine devised in Washington by these quasi-religious bodies. (13) States have been weakened to the point that they no longer control their currency, the nature of their civil services, their pricing policies or any number of other normal government attributes.

The World Bank now directly or indirectly controls 75 percent of all capital flows and debt relief to Africa, 'a fact that the Bank is uncomfortable about' if we are to believe its Vice-President for Africa. (14) Outsiders have nonetheless taken control over most policy instruments as well as most policies. And, as I once heard an African minister put it, in exactly these terms, 'TINA', which stands for There Is No Alternative.

What the game further does is to ensure that regular payments will continue to be made and that the fiction of a reimbursable debt will consequently be maintained. Average debt service over the past eight years for all developing countries has come to $155 billion (there is, for once, remarkable agreement on this point between the Bank and the OECD which puts it at $156 billion). Sub-Saharan Africa's share of that total has been around $10 billion a year, or six and a half percent of the total. In today's world financial system, virtually no one would notice if $10 billion went unpaid. Nor would they notice much if Africa's debt were entirely wiped out in one fell swoop. However much Africa might benefit from genuine relief, the international system as presently constituted is unlikely to provide it, since the power of tutelage would fall away with it.

People often ask why, if the situation is so bad for Africans and so humiliating for its leadership, there is no revolt, no common effort to throw off the debt yoke. I have no specific, documented answers for Africa, but I will hazard a guess. Structural adjustment has been a widespread disaster, yes, but not for everyone. In most countries, opportunities for the enrichment of the few have been substantial. Privatisations, mass unemployment and deeply depressed wages have played into the hands of elites. Nor do governments want to be held responsible for turning off the tap for the few flows that remain - and individual government dignitaries remain in power at the pleasure of their tutors. (15)

So what to do? If the Creditors plus the Elites plus the Bretton Woods Institutions are on the whole happy with the status quo; if political power more or less depends on maintaining it, there does indeed seem little room for manoeuvre.

Ways Forward?

Still, some constructive possibilities remain. There are still some African patriots and visionaries who are looking to the state of the continent as a whole, not to personal enrichment or power, and who have not given up. They still have allies. Here are some things they might, together, try.

  • Dust off and try to re-launch the Alternative African Framework to Structural Adjustment Programmes - AAF-SAP - prepared in 1989 under the auspices of the Economic Commission for Africa and the direction of Professor Adedeji. This document was the product of the collective thinking of several dozen distinguished economists, mostly Africans, and it contains perfectly valid proposals. It should be firmly placed on the desk of the Bank's new President, James Wolfensohn.
  • Keep insisting on the need for the Bretton Woods twins to make some serious efforts themselves. The IMF's huge gold hoard and the Bank's copious cash reserves should be fair game for debt buy-backs and write-offs. There is considerable support for this position in the North, even among conservatives.
  • Keep harping as well on the BWI 'no rescheduling' policy which is theoretically extremely weak. The Bank always argues that it can't forgive any loans because this would become known, its credit rating would drop and thus it would need to borrow at higher rates and pass those rates on to its own borrowers. This is nonsense. The Bank's credit rating is based on the fact that 90 percent of the subscribed capital of its major owners is on call. It would be virtually unaffected if it wrote off some LLDC debt, particularly that of the poorest African countries. Roughly $50 billion of Africa's debt is now owed to multilaterals, so this is not a trivial point.
  • Stop arguing, however, about the pernicious effects of Structural Adjustment. They are pernicious, of course, but the argument for and against SAPs is basically theological, like one between a believer and an atheist. No amount of case material will convince those in a position to impose their dogma that the other side is talking sense and besides, the Bank/Fund have invested their reputations in SAPs so the symbolic stakes are high. Try to let them off the hook gracefully (a lot of them recognise in private that SAPs haven't worked) and save your breath for other, less futile battles. For example,
  • Use 'boomerang' arguments with the creditors. Debt is contributing heavily to environmental destruction and loss of bio-diversity; to the production and use of drugs; to the creation of conflict and consequent refugee populations; to the propagation of disease. It causes loss of employment and migratory pressures in the North and it is also enlisting taxpayers there to bail out the creditors. The creditors have absolutely no long-term interest in keeping the debt game going but not all of them understand how much it costs them. These impacts have been fully documented and continue to amplify. (16)
  • Use any and all loopholes to resist 'free', that is, deregulated, trade. Protect African farmers in particular. The continent's food situation is already drastic enough without wiping out any more producers. Africans cannot compete with producers in Iowa or East Anglia who are, in addition, subsidised. Remember, if worse comes to worst, the Boston Tea Party.
  • In a general way and whatever Africans are obliged to sell off in the mad rush for hard currency to service debts, they should hang on by all available means to their bio-diversity. The 20th century has been geological, fossil-fuel based; the 21st will be biological. Future sources of food and medicine are being wiped out at alarming rates. Whoever holds them will the real superpowers of the future. Africa will not succeed by trying to move into the 21st century via the 19th but only through leapfrogging the unnecessary stage of development in which the West is now largely mired. Pristine environments, solar energy, plants and animals are real capital and should be treasured and 'exploited', in the non-exploitative sense of the word.


Debt lies at the nexus of a strategic, worldwide reconfiguration of power. Over the past decade, this so-called crisis has provided unprecedented advantages both for national elites in the South and for the more powerful countries of the North. It has accelerated transfers of wealth from the poor to the rich both within and between countries. It has entrenched the power and legitimacy of the Bretton Woods Institutions. It has downgraded and diminished the importance of the State and the ability of governments to govern; as well as the overall influence and negotiating capacity of the 'third world', the 'non-aligned', the 'G77'. It has, finally, consolidated an historic cultural shift towards the tyranny of the 'free' market.

There is no doubt whatsoever that most of us, most of Africa, would have been inestimably better off without it so there is no point in trying to find a silver lining nor in mouthing clichés about danger and opportunity lying in crises. Still, there are avenues to be explored. Paradoxically, Africans should take comfort in the fact that their continent is no longer as strategically important as it once was and that their debt is, by all modern measurements, insignificant. The creditors may not be open to moral arguments, but if Africans speak with one voice, they may, perhaps, convince them that their interest lies in severing the debt noose.


1. The Bank's data are annually consigned to its World Debt Tables in hard copy or diskette, whose two volumes, including detailed country data, are thorough but extremely costly (about $220). OECD's data are (generally) published annually in Financing and External Debt of Developing Countries at about a tenth the price of the Bank's. Both contain analytical material in addition to their tables. I am extremely grateful to Jane. Saint-Sernin and Anne Gordon of OECD for making several sets of tables available to me prior to their publication in the FEDDC 1994 Survey. My advice, although I will not entirely follow it in this paper, would be to stick with one source or the other in order to make one's own work internally consistent - otherwise, one is likely to be driven crazy by the difficulties of comparison.
2. World Bank, World Development Report 1986, pp. 55-58 and Table 3.4, p.56.
3. World Bank, World Debt Tables 1994-1995, Summary Table, p.192.
4. For details and sources see Susan George and Fabrizio Sabelli, Faith and Credit: the World Bank's Secular Empire, chapter IV, 'False Prophecies', Penguin, London 1994.
5. The Bank's 1991 predictions for 1993 were off by 47% on coffee, 56% on cocoa, 74% on sugar, 30% on coconut oil, 35% on rubber, 39% on tin, 52% on lead, 34% on aluminum, 37% on zinc. Copper, silver and petroleum were forecasted more or less correctly; palm oil alone did better than the Bank said it would, by about 15%.
For details on sources of the Bank's projections and actual commodity prices, see S. George and F. Sabelli, op. cit. notes 13 and 14 to chapter IV.
6. Masood Ahmed and Lawrence Summers, 'A Tenth Anniversary Report on the Debt Crisis', Finance and Development, September 1992, p.2.
7. Maurice Schiff, Commodity Exports and the Adding-Up Problem in Developing Countries; World Bank, International Economics Department, International Trade Division, Policy Research Working Paper no.1338, August 1994, pp. 8-9.
8. Christina Katsouris and Nii K. Bentsi-Enchili, 'Africa under pressure from falling aid, rising debt', Africa Recovery, United Nations, Vol. 9 No. 1, June 1995, p.1.
9. See World Bank, World Debt Tables 1992-93, Box 3.4 'Debt- Reduction Instruments', p. 54 and the 1994-95 edition of the Tables, pp.27-34.
10. The number of debt-restructuring agreements is derived by adding the number for each country in Tables A2.9 ('Multilateral debt relief agreements with official creditors') and A2.10 ('Multilateral debt relief agreements with commercial banks'), both for January 1980-September 1994 (World Debt Tables 1994-95 Vol. I). These would seem to underestimate reality, probably because they do not capture bilateral restructurings. The total amount restructured/forgiven is added up from section 7 ('Debt Restructuring'); total debt in 1986 and 1993 is from category 1 ('Summary Debt Data') in Volume II which contains individual country tables.
11. Includes $4.2 billion of reduction through buybacks, etc., a negligible category for nearly all other African countries.
12. Including $151m in buybacks.
13. This is at any rate my thesis in Faith and Credit: the World Bank's Secular Empire (with Fabrizio Sabelli, Penguin 1994) which compares the Bank to the medieval Catholic Church or a centralised, Leninist-type political party.
14. Edward Jaycox at a recent conference in Nairobi, as reported by Salim Lone, 'African debate on reforms shifting focus', Africa Recovery, United Nations, Vol.9 no.1, June 1995, p.9.
15. Tales abound of this or that African minister being dismissed for opposing one or another aspect of the national SAP.
16. For supporting data and arguments, see Susan George (with Transnational Institute research team), The Debt Boomerang, Pluto Press, London, 1992 and in several other languages.