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Africa: Multilateral Debt, BFW Alert
Date Distributed (ymd): 960306
BREAD FOR THE WORLD ACTION ALERT
FEBRUARY 5, 1996
Bread for the World National Office, 1100 Wayne Avenue, Suite 1000, Silver Spring, MD 20910, Phone: 301-608-2400, Fax: 301-608-2401, E-mail: bread@igc.org.
EASING AFRICA'S DEBT BURDEN
I. Issue
Enormous foreign debt has had a devastating impact on the development of most African countries in the last decade. Twenty-five of the world's poorest countries in Africa owe enormous debts, primarily to foreign governments and to international lending institutions such as the World Bank and the International Monetary Fund (IMF). Much of the debt was acquired by corrupt, undemocratic governments and originally used to purchase military weapons or finance wasteful or ineffective projects. Now, instead of investing in food production, health care, housing and education, African countries must make huge debt payments.
The international response to Africa's huge debt burden has been inadequate. But in June 1995, there was a breakthrough when political leaders from industrialized nations called for a new debt reduction strategy for the world's poorest nations. In response, the World Bank and IMF are discussing a proposal that would ease the foreign debt burden of the world's poorest countries.
The proposal recognizes the extent of the problem and acknowledges that both creditors and debtors share responsibility. The proposal would create a new fund, the Multilateral Debt Facility (MDF), to help poor countries reduce billions of dollars in debts they owe to the World Bank, IMF and other international institutions. More important, administrators of the MDF would also assess a country's total debt and coordinate its reduction with governments and private creditors.
But the MDF faces several obstacles. First, the IMF, unrealistically projecting strong economic growth and the steady flow of foreign aid, questions the need for a new solution. Second, there is controversy regarding debtor countries' eligibility for debt relief through the MDF. The World Bank and IMF want it tied to structural adjustment policies that have not worked very well in Africa. Bread for the World favors conditions that require debtor nations to demonstrate commitment to development and poverty reduction. Additionally, Bread for the World supports funding the MDF through existing reserves of the World Bank and IMF, without diverting available resources from development aid. Poor countries in Africa need both debt reduction and aid in order to escape the cycle of poverty and indebtedness.
II. Action
Write to Treasury Secretary Robert Rubin, the U.S. representative on World Bank and IMF policy committees. Commend him for his support of a comprehensive solution to the debt problems of the poorest countries in Africa. Urge him to press the World Bank and IMF to ensure that:
* funding for debt reduction comes from existing reserves of the World Bank and IMF, NOT diverted from development aid;
* the borrowing government's commitment to poverty reduction be a major condition for reducing its debt; and
* total debt is addressed and reduced to manageable levels in the near future.
III. Write
Robert Rubin, Secretary of the Treasury, 15th and Pennsylvania Avenue NW, Washington, DC 20220 Fax: 202-622-2599
Send copies to:
James Wolfensohn, World Bank President, World Bank, 1818 H Street NW, Washington, DC 20433 Fax: 202-477-1305
and
Michel Camdessus, IMF Managing Director, International Monetary Fund, 700 19th Street NW, Washington, DC 20431 Fax: 202-623-4661
Also send a copy to: Bread for the World, Issues Department
IV. Background
Poor countries in Africa are saddled with heavy debts, many of which were unjustly accrued. Since the debt crisis in the early 1980s, Northern creditors have responded by restructuring loans and providing new loans to service debts. With new loans, stringent policies enforced by the IMF and World Bank require governments to cut social spending programs and reduce government subsidies. Poor people, particularly women and children, pay the heaviest price for the debt burden. For many poor countries, this approach has resulted only in increasing debt.
In 1982, Sub-Saharan Africa's total debt was $80 billion. Despite endless rounds of rescheduling, it rose to $210 billion in 1994. Africa's debt to the World Bank, IMF and other multilateral institutions has increasingly become problematic, since countries are obligated to pay this debt first. Repayments to the multilateral institutions are now equivalent to more than half of the World Bank's new loans. Thus, aid intended for development is used for debt payments. Even so, Africa has only been able to pay half the principal and interest owed to creditors since the mid-1980s. Meanwhile, dependence on aid is reinforced, and the indebted country continues in perpetual indebtedness.
The debt burden has had a significant impact on poor people in Africa. The $13 billion annually repaid by African governments to Northern creditors represents more than double their spending on health and primary education combined. Each year, the government of Uganda spends approximately $2.50 per capita on health, compared with $30 per capita on debt payments. In addition, Africa's unsustainable debt burden has deterred private and foreign investment.
The proposed MDF offers an important opportunity to address this problem, if it is appropriately financed, linked to poverty reduction and requires the participation of all multilateral institutions, including the IMF.
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For additional information on this issue contact either Bread for the World in Washington or, in Toronto, the Inter-Church Coalition on Africa (iccaf@web.apc.org). See also the document "Multilateral Debt Reduction: A Proposed Framework," from the Inter-Church Coalition on Africa, 129 St. Clair Ave. W. Toronto, ON M4V 1N5, Tel: 416 927 1124 Fax: 416 927 7554, E-mail: iccaf@web.apc.org, which was reposted by APIC on January 26 in two parts. It is available by Web or Gopher at the following URLs:
<URL=gopher://gopher.igc.apc.org:7040/00/docs96/debt9601.1> <URL=gopher://gopher.igc.apc.org:7040/00/docs96/debt9601.2>
These and other documents on Web or Gopher sites can also be retrieved via e-mail by using the WebMail server (for instructions send a message "help" to webmail@www.ucc.ie) or the Agora server (for instructions send a message "help" to agora@kamakura.mss.co.jp).
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Message-Id: <199603061533.HAA11775@igc3.igc.apc.org> From: "APIC" <apic@igc.apc.org> Date: Wed, 6 Mar 1996 10:28:15 -0500 Subject: Africa: Multilateral Debt, BFW Alert
Editor: aadinar@sas.upenn.edu