Africa: Who Owes Whom?, 02/08/04

Africa: Who Owes Whom?

AfricaFocus Bulletin
Feb 8, 2004 (040208)
(Reposted from sources cited below)

Editor's Note

Rich-country finance ministers meeting in Florida this weekend focused on the sinking dollar and rising U.S. debt, cautioning against excessive volatility in currency markets. They also called for more reductions in the debt burdens of Iraq and Afghanistan, and warned debt-strapped Argentina to comply with International Monetary Fund policies. Africa's debt, estimated at more than $300 billion, was not on the agenda.

Nevertheless, debt cancellation campaigners are noting that President Bush's rationale for cancelling Iraq's debt - with new measures currently on the fast track - uses arguments that can be easily applied to Africa as well. The legacy of debt Mobutu Sese Seko left in the Congo, for example, is surely as dubious as the debt Saddam Hussein left in Iraq. Yet the political will is lacking to acknowledge African foreign debts as both unsustainable burdens and in large part illegitimate.

This issue of AfricaFocus Bulletin contains (1) a brief excerpt from a news report on the consequences of the debt crisis for Zambia, and (2) recent material from the American Friends Service Committee and the Jubilee USA Network, both engaged in campaigns this year to bring the debt issue to wider public attention in the US. Both groups stress that full cancellation is justified not only because the debt overhang cripples African responses to HIV/AIDS and other urgent demands, but also because much of the debt is "odious debt." In fact, if the true balance of "who owes whom" were to be acknowledged, payments would be flowing in the other direction - as reparations and as the fair contribution of rich countries to redress global inequalities.

Additional links to other sources on debt cancellation are included at the end of the issue.

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Govt Fails to Deploy Over 9,000 Teachers

The Post (Lusaka), Jan 31, 2004

[Excerpts; for full report see:
http://allafrica.com/stories/200402010095.html]

The government has failed to deploy more than 9,000 trained teachers to schools around the country because of World Bank and International Monetary Fund (IMF) budget conditionalities.

Explaining the failure by the government to employ teachers trained in 2002 and 2003, education minister Andrew Mulenga yesterday disclosed that the problem was not about lack of resources but the conditions given by the two institutions for the government not to spend more than 8 per cent of Zambia's gross domestic product (GDP) on wages in the budget.

"Those are the instructions given to government," he said.

Mulenga said of the required 58,000 teachers across the country, there were only close to 50,000 at the moment.

He said because of the ceiling point put to the government by the World Bank and the IMF, the government had failed to put on government payroll the 9,000 trained teachers "who are currently languishing".

Mulenga said to employ the 9,000 teachers, the government would spend about K76 billion, which would go against the ceiling point given by the World Bank and IMF. ...

On the logic for donors to keep rehabilitating schools and purchasing desks for schools which had no teachers, Mulenga said it was difficult because donors decide on what projects they want to support.

He said he would equally prefer that more teachers are recruited as opposed to have more desks in schools without teachers.

...

[In another news report last week, US Ambassador to Zambia Martin Brennan said that the U.S. would write off $500 million of Zambia's debt, but only after Zambia had satisfied IMF/World Bank conditions for debt reduction which it failed to meet in 2003. See: http://allafrica.com/stories/printable/200402050370.html]

Africa's Debt - Who Owes Whom?

American Friends Service Committee (Philadelphia)

February 5, 2004

[excerpts; for full text see
http://allafrica.com/stories/200402050793.html; For additional information, contact the American Friends Service Committee (AFSC) at (312) 427-2533, or visit http://www.afsc.org/africa-debt The AFSC is organizing its Africa Peace Tour for the spring in Virginia, Georgia, Louisiana, and Alabama. See http://allafrica.com/stories/200402080003.html]

Africa is center stage in the struggle for human and economic rights. It is home to the world's gravest health crises - including the HIV/AIDS pandemic and chronic famine. Even though Africa has only 5 percent of the developing world's income, it carries about two thirds of the debt - over $300 billion. Because of this, the average African country spends three times more of its scarce resources on repaying debt than it does on providing basic services. In addressing Africa's struggle for relief from its onerous external debt, advocates of global justice have raised a critical question: Who owes whom?

"It is unacceptable to spend more on debt servicing to wealthy nations and institutions than on basic social services when millions of people lack access to primary education, preventative health care, adequate food and safe drinking water" Countess said. "It is not just morally wrong, it is also poor economics."

On the eve of Black history month, Wednesday, January 28 at 2:00 at the Rayburn House Congressional Office in Washington DC, the American Friends Service Committee, an international social justice organization, launched its Life over Debt campaign to have Africa's debt cancelled.

The Life over Debt campaign reaches out to local U.S. communities

• especially minority communities - to build understanding of the dilemmas Africa faces and highlight shared experience and common ground. Through building a caring and active constituency the campaign sets out to increase Americans commitment to helping address the Africa debt crisis.

That is why on the eve of, and during Black History Month we called for not just reflecting on Africa in terms of the history for the African Diaspora, but also for Africans in Africa today. Given the potential for history to influence or control the perception of the world, it is important to reflect on how the past injustices have impacted the current debt crisis.

Current World Bank and International Monetary Fund debt relief initiatives do not adequately address Africa's debt crisis. Not only is relief insufficient for countries included, but also, there are countries excluded from the program that have legitimate cases for debt cancellation. To demonstrate this, the Life over Debt campaign focuses on five Sub-Sahara African countries with very different cases for debt cancellation.

[see case study below on the Democratic Republic of Congo. For similar short fliers on Uganda, Mozambique, Angola, and South Africa, and additional resources, see the AFSC website.]

...

American Friends Service Committee http://www.afsc.org/africa-debt/congo.htm

The Democratic Republic of Congo and Debt

By William Minter, Editor, Africa Focus Bulletin

In 2003 the World Bank and the International Monetary Fund (IMF) announced $10 billion in "debt relief" for the Democratic Republic of Congo. According to their calculations, this would reduce the country's foreign debt by approximately 80 percent. The offer came, however, with a full set of complicated conditions and deadlines.

Even if all of the conditions are met, full relief would not be delivered until sometime in 2006. After that, Congo would still owe over $2 billion to foreign creditors. The largest creditors are the Bank and Fund themselves, plus the U.S., France, and Belgium.

Yet the Congo, of all countries, has one of the strongest cases for full cancellation of debt and indeed for reparations from the lenders. This giant country of 55 million people at the heart of Africa is emerging from a war featuring wholesale robbery of the country's mineral wealth by a host of external as well as internal culprits. The wealth of former dictator Mobutu Sese Seko, subsidized for decades by Congo's creditors, has disappeared into foreign banks with few traces. And those are only the most recent phases in a century of predation.

No reckoning of who owes whom can rightly ignore this history. The Congo is a classic case of "odious debt" and of historical crimes still awaiting acknowledgment and reparations.

A Century of Predation

Before colonial conquest, the area now in the Congo was one of the regions of Africa most devastated by the slave trade. In the European scramble for Africa, the King of Belgium took the Congo as his private property, with the full complicity of major powers including the United States. The atrocities then, as recently recalled in Adam Hochschild's book King Leopold's Ghost, were among the worst of the nineteenth century. During the two decades of his reign, millions of Congolese were slaughtered or mutilated for failure to meet rubber production quotas. A worldwide campaign of exposure ended Leopold's personal empire, but forced labor continued under Belgian colonial rule.

After Congo's independence in 1960, the U.S. intervened to orchestrate the murder of the country's first elected leader, Patrice Lumumba-a crime never officially acknowledged by the U.S. government. He was replaced with CIA client Joseph Mobutu (later Mobutu Sese Seko), who ruled from 1965 until he fled into exile in 1997. Mobutu repeatedly played the Cold War card to gain more Western support. He siphoned off billions in personal wealth while the country's economy and social services decayed.

Odious Debt

Creditors often argue against debt cancellation by saying that if this were done future borrowers would also expect not to pay. Of course, we all agree that under normal circumstances everyone should pay their debts. But why should Congo's people suffer for cynical deals made between lenders and a former dictator? Nobody should expect such loans to be repaid.

In fact, those debts were illegal to start with, under the legal principle of odious debt. This doctrine regards debts as illegitimate when the creditor is aware that loans to governments are made without the consent of the people and not spent in their interests. The U.S. was the first to use this doctrine. After conquering Cuba in 1898, it repudiated Cuban debts to former colonial power Spain because the loans never had the consent of the people. More recently, the U.S. is now using the same argument for Iraq.

The U.S. and other lenders knew full well that their loans were personal bribes to Mobutu. They knew the Congolese people never consented or received benefits. Indeed, in 1978 the IMF appointed its own man-German banker Erwin Blumenthal-to run Congo's central bank. After two years he resigned with a scathing report, saying there was "no chance, I repeat no chance, that [Congo's] creditors will ever recover their loans."

Congo's foreign debt then stood at $5 billion. In the 1980s, after Blumenthal left, the World Bank, IMF, and Western governments lent Mobutu almost $5 billion more. In a case like this, it is the creditors, not the people, who should take the losses.

Who Owes Whom: A Balance Sheet

Business as Usual

"Most Congolese lack basic social services. High morbidity, mortality, and HIV rates combined with low access to education and services, attest to a catastrophic humanitarian crisis." That's how the UN summarizes its humanitarian appeal for Congo for 2004. The World Bank itself notes that at least one million Congolese are living with HIV/AIDS. Meanwhile, thirty-seven percent of the population have no access at all to formal health care.

Jubilee Research estimates spending needed to meet minimum development goals in the Congo at about $2.4 billion a year. Yet the government's projected revenues (including "aid") are less than $500 million a year. It is in this context that the World Bank uses the carrot of partial debt relief to enforce its control over the country's economic policies.

The Bottom Line

Congo's people both need and deserve support to consolidate peace, construct democracy, save lives, and rebuild their country. Creditors like the World Bank and the U.S. government should not be using old and illegitimate debts to drain more money from the country and impose outside control on economic policy.

Instead, these creditors should be compensating Congo for past damages and contributing their fair share to build a world free of poverty. The need and the obligation are clear. What is lacking is the political will.

Jubilee USA Network

Status of Debt in Africa: 2004

http://www.jubileeusa.org/learn_more/africadebt_2004.pdf

In a world where AIDS is claiming more than 8,000 lives a day, and literacy rates are falling, the most impoverished nations are siphoning desperately needed resources for health care and education to continue to pay the wealthiest nations and institutions service on a debt that they have already paid three times over. African nations are at the epicenter of both the debt and the AIDS crises, facing drought and famine and recovering from regional conflict. Despite this reality, African nations are paying more in debt service to the United States and other creditors than they receive in aid, new loans, or investment. The President's AIDS initiative provides a perfect example of this reality. The fourteen countries eligible for funding to fight AIDS, mostly African, will receive $2.4 billion dollars in 2004; the same fourteen nations will pay and estimated $9.1 billion in debt service this year.

Jubilee USA Network calls for debt cancellation for impoverished nations as one means for our government to more cooperatively engage with developing nations. Debt cancellation can be a tool towards right relationships between nations, setting a precedent for more collaborative and responsible U.S. foreign and economic policy towards developing nations.

When a nation has more access to its resources as a result of initial debt relief won by the international Jubilee movement, there have been dramatic results. Health and education spending in eligible countries increased by 40-90%. However, debt relief under the Heavily Indebted Poor Country (HIPC) initiative has been partial, heavily conditioned and for only a select number of countries. Without full debt cancellation for all African nations, we risk continuing alienation of the most impoverished countries from the global economic community breaking down international relations.

The Debt Crisis in Africa

• Today Africa s external debt stands at $333 billion. African nations pay $1.51 in debt service for every $1 received in aid.
  
  
• African nations have paid their debt three times over in the past ten years alone, yet African nations are three times as indebted as they were ten years ago.
  
  
• All African countries are paying more on debt service than on health care for their people, regardless of initial and insufficient debt relief. The average spending per person on debt service is $14 per person while the average spending on health is less than $5 per person.
  
  
• If governments invested in human development rather than debt payments, an estimated three million children would live beyond their fifth birthday and a million cases of malnutrition would be avoided.
  
  
  

How much debt was supposed to be canceled?

• At the G7 summit in Cologne, G7 leaders committed themselves to canceling $100 billion of the debts of the 42 poor countries included within HIPC. Of this total, $50 billion was to be provided through the HIPC initiative itself; $30 billion from traditional debt relief such as that provided through the Paris Club; and $20 billion from cancellation of aid debts by bilateral creditor countries.

*According to the initial schedule, 19 out of the 38 countries deemed to need debt relief under the HIPC initiative should have received initial debt relief by the end of 2002. Total debt relief for these countries, and traditional relief for other countries, should by now have amounted to $68 billion.

• In 2003, the Presidents 2004 budget request included a request for $375 million for bilateral debt cancellation for the Democratic Republic of Congo (DRC) and to meet remaining commitments to the HIPC Trust Fund. The final appropriations for debt relief totaled $95 million, $75 million of which was allocated to the HIPC trust fund.
  
  
• Also in 2003, the President of the United States signed into law a debt relief provision as a part of the Global AIDS bill. If implemented this legislation would double the amount of debt relief provided to date. According to the provision, debt relief under this initiative must not be conditioned on structural adjustment programs that would require nations to charge user fees for health and education, privatize water, or any condition that would negatively impact the environment or workers rights. This legislation has yet to be implemented.
  
  
• In 2004, the President s 2005 budget request includes $200 million for debt relief initiatives, $75 million to go towards the pledge of $150 million to cover the shortfall in financing HIPC, $105 million to pay for part of the bi-lateral reduction of the DRC debt and $20 million for a debt to nature swap that will benefit six countries (Bangladesh, Belize, El Salvador, Peru, the Philippines and Panama).

How much has actually been cancelled?

• In 2000 and 2001, Congress provided $769 million to leverage $40 billion of debt cancellation for the HIPC countries. The money from the US and other bilateral donors and creditors is deposited into the HIPC Trust Fund, which is administered by the IMF and World Bank.
  
  
• To date, the average debt service for 27 HIPC countries as a whole has fallen by almost $1 billion a year since 2000, reducing payments by about 1/3.
  
  
• 8 countries, which have reached Completion Point, have received partial cancellation in their stock of debts under the enhanced HIPC initiative, receiving total relief of over $17 billion. A further $17 billion has been cancelled through so-called traditional mechanisms for debt cancellation, while approximately $1.5 billion has been cancelled under the original HIPC initiative (HIPC I 1996- 1999)

How has debt relief money been spent in 10 African HIPC countries?

• Education spending had risen from only $929 million in 1998 to $1306 million in 2002
  
  
• Health spending had risen from $466 million to $796 million
  
  
• Over the same period there had been no increase in spending on the military
  
  
• In Mozambique, savings from reduced debt service payments had been used to increase education spending from 12% to 20 h of the recurrent budget which has resulted in an improvement in educational indicators, such as literacy rates
  
  
• In Uganda, debt relief played a key role in the government s success in reducing HIV infection rates by 40%

What more needs to be done?

• Only 34 countries in Africa will see some of their debts reduced. Countries like Namibia, Botswana, Nigeria, Morocco and Kenya will not see any debt relief at all. No African nation has been offered full debt cancellation.
  
  
• The debt relief promised to date is partial and the HIPC initiative has failed to bring countries to sustainable levels of debt. All of these efforts fall far short of the definitive debt cancellation that is so urgently needed.
  
  
• Many countries have yet to see the debt relief promised as they struggle to implement World Bank and IMF economic austerity measures like privatization of water and further budget cuts.

In 2004, Jubilee USA Network calls for 100% cancellation of the external debt of deeply indebted and impoverished African nations without harmful structural adjustment programs.

In addition and while legislation for full debt cancellation is pending, Jubilee USA Network calls on the US to implement the debt relief provision signed into law in 2003 that would double the amount of debt relief awarded to date and make strides to address harmful structural adjustment programs.

Additional Sources on Debt Cancellation

1. Recent Issues of AfricaFocus Bulletin

Senegal

Debt and Destruction (Nov 4, 2003) http://www.africafocus.org/docs03/sen0311.php

Africa

Debt and Deception (Nov 4, 2003) http://www.africafocus.org/docs03/hipc0311.php

Africa

Debt Meeting Consensus (Nov 25, 2003) http://www.africafocus.org/docs03/debt0311.php

2. Odious Debts

http://www.jubileeiraq.org and

http://www.odiousdebts.org

3. Jubilee Debt Campaign http://www.jubileedebtcampaign.org.uk
   
   
4. Jubilee Research (UK) http://www.jubileeresearch.org
   
   
   

Africa: Who Owes Whom?

Page Editor: Ali B. Ali-Dinar, Ph.D.