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Southern Africa: Apartheid Debt
Date distributed (ymd): 980727
Document reposted by APIC
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Region: Southern Africa
Issue Areas: +political/rights+ +economy/development+
+security/peace+
Summary Contents:
This posting contains a briefing "The Debt of Apartheid"
and excerpts from a report entitled Paying for Apartheid
Twice, from Action for Southern Africa (ACTSA) and
the World Development Movement (WDM). The documents
are in aid of a campaign to urge the cancellation of
UKP28 billion in apartheid-caused debt owed by the
countries of southern Africa.
Printed versions of the briefing (50p each; 30p each for 10 or more and the report (UKP1 each) are availablefrom ACTSA, 28 Penton St., London N1 9SA, UK (Tel: 171-833-3133; fax: 171- 837-3001; e-mail: actsa@geo2.poptel.org.uk).The full text of both documents will be available on the Africa Policy Web Site (http://www.africapolicy.org/docs98/debt9807.htm).
For additional on-line references on African debt, see http://www.africapolicy.org/action/debt.htm
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Action for Southern Africa
Action for Southern Africa (ACTSA) campaigns for the international support vital to fulfil the hopes of change in Southern Africa. Formed in 1994, it is the successor to the Anti-Apartheid Movement.
ACTSA lobbies decision-makers in Britain and Europe to win better policies for all the countries of Southern Africa. It keeps the concerns of the region in the public and political spotlight. It builds links between people here and in Southern Africa
World Development Movement
The World Development Movement is the UK's leading organisation campaigning to improve the lives of the world's poorest people. Through our national network of members and local groups, WDM tackles issues including multinational companies, debt, the arms trade and aid.
WDM is not a charity. We do not give aid. But our campaigns do change the policies of governments and companies which keep people poor.
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THE DEBT OF APARTHEID
When Nelson Mandela walked out of prison, rich countries and banks handed him and the people of Southern Africa a bill for UKP28 billion.
Apartheid wrought destruction across Southern Africa.Now it is time to rebuild.But the financial institutions and countries which lent during the apartheid war are demanding repayment.The victims of apartheid are being asked to pay again.
Paying twice for apartheid
The apartheid regime not only oppressed its own people, but waged a full-scale war against Mozambique and Angola, made raids into all the neighbouring states, and imposed an economic blockade on Lesotho, Botswana, Zambia, Zimbabwe and Malawi.
The suffering was immense. This was a war against ordinary people, in which schools and health posts were primary targets and civilians were massacred on buses and trains. At least two million Mozambicans and Angolans died in the war South Africa waged against them; millions more had to flee their homes.
The people of Southern Africa paid a terrible price in blood and suffering. A whole generation never went to school because of apartheid. Mothers and children died because the apartheid state destroyed health centres in Mozambique, or never built them in South Africa itself.
Apartheid is ended,but the people of the region cannot celebrate, because they are being asked to pay again.
Making Mozambique poor
Apartheid helped to make Mozambique the poorest country in the world. South Africa's apartheid war cost Mozambique more than UKP11 billion in damage and lost production. In an attempt to smash Mozambique's economy, South Africa, and the Renamo proxy army it backed, targeted sugar mills, tea-processing factories, sawmills, and mines, which were blown up, burned or ransacked. Half of all hospitals and schools were destroyed or closed.
Faced with a sudden loss of income and the need to protect its people, Mozambique had to borrow for projects including railways, electricity lines, and a major textile mill. Many of these were later destroyed in South African attacks.
Mozambique borrowed UKP4.5 billion because of apartheid. International agencies like the IMF and the World Bank, as well as rich countries' governments, have agreed to write off some of Mozambique's debt. But they still insist Mozambique pays back much of the debt.
Mozambique has been forced to delay universal primary education until 2010 because it has to repay the apartheid-caused debt.
Attacking transport
The bridge over the Zambezi River is one of the longest in Africa and once carried the railway from Malawi to the port of Beira in Mozambique. South African-backed forces blew up the bridge, as well as many smaller ones and also destroyed 30 miles of railway line near Inhaminga in Mozambique. Five years after the end of the war, this railway is still closed; Mozambique has no money to repair it.
South Africa cut both of Malawi's links to the sea, so that goods had to travel an extra thousand miles, via South Africa. The cost to Malawi was catastrophic. As well as human suffering, Malawi had to borrow more than UKP700 million to pay the extra costs of having to feed its people.One rail link to the sea has been reopened.But Malawi is being forced to repay the apartheid-caused debt before it can spend money on rebuilding.
Malawi was not the only country that was blockaded. Angola, Zimbabwe, Zambia, Tanzania, Botswana and Lesotho have all suffered at the hand of apartheid. Their apartheid-caused debt exceeds UKP11 billion.
Handing Mandela a bill
When Nelson Mandela walked out of prison, the international banks handed him a bill for UKP11.3 billion.In 1996, South Africa paid an incredible UKP2,300 million in interest and debt repayments.This money was taken away from reconstruction. It was enough to give free health care to the entire population, build 300,000 new homes, and have money left over to build schools.
According to international law if a loan is "used against the interests of the local populace" then it is "odious" and need not be repaid.In 1973 the United Nations began to describe apartheid as a crime against humanity. Nevertheless, the international financial community continued to make loans. The Archbishop of Cape Town has said that South Africa's debt "should be declared odious and written off".
After other wars
Angola, Mozambique, Tanzania and Zambia have had some debt cancelled under a new initiative called the Highly Indebted Poor Country Initiative (HIPC). But in practice the actual amount they have to pay is the same as before - at least one fifth of what they earn.After World War I, the victorious powers demanded that Germany make reparation payments of less than 15% of its earnings.This was seen as too much and as an important cause of World War II.After World War II Germany was asked to pay only 3.5 per cent of its earnings, whilst Britain had to pay 4 per cent.
It was argued that it was better to spend money rebuilding rather than on debt payments. But now the international community wants Southern Africa to make massive debt repayments instead of rebuilding.Today Mozambique and Malawi are being asked to pay 23 per cent of their earnings - five times as much as Britain and Germany.
Break the chains of debt
The poor of Southern Africa are saddled with UKP28 billion in apartheid-caused debt. This is UKP210 for every woman, man and child in the region.
Whilst this seems a lot to cancel, in fact it is only two thirds the amount that the UK, Germany, Italy and Spain plan to spend on buying new fighter planes.
Southern Africa's debt burden is taking funds away from schools and clinics. It is making it harder for the countries of the region to work together to overcome the legacies of apartheid.
The people of Southern Africa fought for decades to end apartheid; millions died or were made homeless. Apartheid has ended and the people of Southern Africa want to rebuild. Instead, we are asking the victims to pay again.
Apartheid Debtmillion UKPoundsDebt payments as% of total trade earnings
Angola 6,432 17
Botswana 152 5
Lesotho 91 6
Malawi 724 21
Mozambique 4,545 42
Swaziland 0 3
Tanzania 492 23
Zambia 1,905 25
Zimbabwe 2,273 24
sub-total 16,614
South Africa 11,345 12
Total 27,959
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PAYING FOR APARTHEID TWICE (excerpts only)
Introduction
...
This report estimates "apartheid-caused debt" at UKP28 billion. That is the UKP11 billion that South Africa borrowed to maintain apartheid, and the UKP17 billion that the neighbouring states borrowed because of apartheid destabilisation and aggression. This is 74% of the present regional debt of UKP38 billion.
...
After the Second World War, the United States allowed Britain to repay debt at a very low rate so that it could rebuild. In 1953, the victorious allies met in London to cancel most of Germany's debt, so that it could rebuild. Now the nations of Southern Africa want to rebuild a post-apartheid society, but the creditors of today are not willing to offer them the space Britain received from the US and the Allies gave to Germany. Instead they are demanding that the states of Southern Africa pay three to five times the level that Britain or Germany paid after World War II.
1. What is 'apartheid-caused debt'?
In this report, we first define "apartheid-caused debt", looking separately at South Africa and at the neighbouring states, and then we argue the case for cancelling this debt.
We group two very different kinds of loans into what we define as "apartheid-caused debt". This framework forms the basis for the estimated figures we set out below.
The debt of Southern Africa
The apartheid regime defended itself not only by oppressing its own people, but by suppressing the people of the neighbouring states as well. It waged a full-scale war against Mozambique and Angola, made raids into all the neighbouring states, and imposed an economic blockade on Lesotho, Botswana, Zambia, Zimbabwe and Malawi.
... the neighbouring states had to take out loans as a result of South African destabilisation. These were largely loans made by governments and by international financial agencies such as the World Bank. They were often "concessional" loans with low interest rates; ...
Nevertheless, the cost of destabilisation was so great that loan repayments now account for a substantial expenditure - more than is spent on health and education in many of these countries. The repayment of these loans is now delaying reconstruction after the apartheid war. ...
The debt of South Africa
White South Africa took loans from international private banks to fund apartheid, because by the 1980s governments and the international financial agencies refused to lend. These private lenders took a risk in lending to the white regime when it was already a pariah state. These are also "apartheid-caused debts".
We argue below that in international law, the new government of Nelson Mandela is not liable for these "odious debts" and that the international community should say that South Africa need not pay them.
It is not straightforward to define the precise amount of "apartheid-caused debt", in part because of what financial analysts call "fungibility" - the fact that money lent for one purpose, in practice frees up funds for other purposes.
Thus banks did not lend money to apartheid South Africa overtly to allow it to wage war on its neighbours, but money loaned to South Africa to build dams and power stations released other money which could then be used by the military - and the banks that refused to impose financial sanctions knowingly colluded in this. Similarly, the World Bank did not lend money to Mozambique so it could defend itself against apartheid, but those loans were essential to keep Mozambique alive under the apartheid onslaught.
Creditors are not demanding that money be taken away from health and education to repay the debts - but they know that social services are such a large part of government spending that debt service requires cuts in these services.
This is the essence of "fungibility" of money. Loans are labelled in ways that avoid reference to "unacceptable" expenditures. We pretend that debt repayments come from a different pocket than social spending, and thus do not demand health spending cuts. But in reality, it is all money going into and out of government budgets.
In the appendix, we show how we estimated "apartheid-caused debt" and the related cost of destabilisation. In summary, these costs are:
Cost of destabilisation million UK Pounds Apartheid
Debt million UK Pounds
Angola 22,727 6,432
Botswana 379 152
Lesotho 227 91
Malawi 1,629 724
Mozambique 11,364 4,545
Swaziland 152 0
Tanzania 985 492
Zambia 3,788 1,905
Zimbabwe 6,061 2,273
sub-total 47,311 16,614
South Africa 11,345
Total 47,311 27,959
...
3. South Africa's 'odious debt'
...
This concept of "odious debt" has a long history, arising initially from the United States' capture of Cuba from Spain in 1898. Spain demanded that the US pay Cuba's debts, and the US refused on the grounds that the debt had been "imposed upon the people of Cuba without their consent and by force of arms." Furthermore, the US argued that in such circumstances "the creditors, from the beginning, took the chances of the investment." The concept of "odious debt" was upheld and formally entered international law in the 1923 judgment of US Chief Justice Taft in the case of Great Britain vs Costa Rica.
South Africa is a prime example of a country that has had governments that systematically oppressed the majority of its people. In 1973 the United Nations began to describe apartheid as a crime against humanity. Nevertheless, the international financial community, aided and abetted by the National Party government, continued to make loans to Pretoria, particularly in the 1980s, for which the new government is now held responsible. ...
The Archbishop of Cape Town, the Most Reverend Njongonkulu Ndungane, speaking at Southwark Cathedral on 24 April 1997 noted that "as we approach the new millennium, the time has come to invoke the Doctrine of Odious Debt. ... In the case of South Africa, its foreign and domestic debt was incurred, by and large, under the apartheid regime, and should ... be declared odious and written off."
South Africa's foreign debt
... The World Bank estimates that when the new government took over in 1994, it inherited a debt of UKP11 billion. ... Most of the debt is in the form of bonds and other marketable foreign debt, particularly syndicated loans denominated in dollars or ECUs and issued by European and US banks in the early 1980s. There are no outstanding loans to international financial agencies (IMF and World Bank) which predate the release of Nelson Mandela.
4. Why debt should be cancelled
We have argued that the apartheid-caused debt is odious and should therefore be cancelled. It should also be cancelled because it is siphoning off much needed resources. Nelson Mandela has promised that South Africa will pay its debts. Mozambique continues to pay its debts, even though debt service means that it has been forced to cut its education budget. Southern Africa made UKP3.8 billion in debt service payments in 1996, which is more than the region spent on health.
The Southern African Development Community (SADC) Executive Secretary, Kaire Mbuende said recently: "There is no good reason why the debt of these states should not be written off. ... "Mbuende said repeated debt rescheduling had failed to help SADC countries because it: "pushes them even deeper into debt ..."
After other wars
Under the World Bank/IMF HIPC Initiative, poor countries are expected to make debt repayments equivalent to 20% of their export earnings. Mozambique will pay 17 per cent in 1998, falling to 13 per cent in 2000 under the new agreement. South Africa paid 12 per cent in 1996. This is a much higher level than was expected of war-torn Europe.
After World War I, the victorious powers demanded that Germany make reparations payments of less than 15% of its exports , and this was considered so excessive that it restricted Germany's post-war rebuilding and was seen as an important cause of World War II. This view was accepted by the allies who negotiated a new debt repayment agreement with the then new Federal Germany in London in 1953; this required Germany to pay only 3.5% of exports. Similarly, in order to allow Britain to rebuild, in 1945 the United States agreed that British debt repayments should be limited to 4% of exports.
In both cases, it was argued that Europeans needed to spend money on post-war reconstruction rather than debt repayments. Yet now the international community wants Southern Africa to make massive debt repayments instead of rebuilding. Why should Mozambique, Malawi, or South Africa be asked to pay 12 to 20 per cent when Britain and Germany only had to pay four per cent? ...
If Southern Africa is to be peaceful and prosperous, and also a growing trading partner with Europe, it should spend its money to rebuild, and not to pay debt service. As Europe learned, this is an investment in preventing war. ...
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From: apic@igc.org Message-Id: <199807271615.JAA17844@igc3.igc.apc.org> Date: Mon, 27 Jul 1998 12:14:26 -0500 Subject: Southern Africa: Apartheid Debt
Editor: Ali B. Ali-Dinar
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