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Note: This document is from the archive of the Africa Policy E-Journal, published by the Africa Policy Information Center (APIC) from 1995 to 2001 and by Africa Action from 2001 to 2003. APIC was merged into Africa Action in 2001. Please note that many outdated links in this archived document may not work.

Africa: Debt Background Paper

Africa: Debt Background Paper
Date distributed (ymd): 990315
APIC Document

+++++++++++++++++++++Document Profile+++++++++++++++++++++

Region: Continent-Wide
Issue Areas: +economy/development+
Summary Contents:
This posting contains an announcement and excerpts from APIC's most recent background paper: Africa's Debt, now available for sale.

+++++++++++++++++end profile++++++++++++++++++++++++++++++

Now available: Africa's Debt (APIC Background Paper 12)

This attractively designed and printed 8-page 8 1/2" x 11" background paper is designed as a concise readable overview of the issues and accessible source of data, as a supplement to other resources on Africa's debt provided by the Jubilee 2000 campaigns, Oxfam International, Eurodad, and others. An ideal educational resource for activists involved in debt cancellation campaigns.

Available at $4 each, $3.20 each for 20 or more. Add 15% for postage and handling. Order by sending a check or money order to APIC, 110 Maryland Ave. NE, #509, Washington, DC 20002, or by sending your Visa or MC credit card number and expiration date by fax to 202-546-1545 or by e-mail to

This posting contains the overview essay from the Background Paper, and the Selected Resources listing. The published paper also contains four short country case studies illustrating different themes (Cameroon: Debt and Environment, Zambia's External Debt: Zambian Churches Speak, Ghana: Debt Overhang: A Drag on Development, and Mozambique: Debt Relief Package Falls Short). It also contains tables and graphs portraying "Africa's Debt in Numbers," with basic data for each African country organized by region and summary totals for Africa's regions and the continent as a whole; as well as "Africa's Debt: Compared to What?," comparing debt totals to other statistics such as Bill Gates' net worth and consumer spending in the U.S. and Europe.

Note: This background paper is part of a program of public education funded by the Carnegie Corporation of New York and The Ford Foundation.


Africa's debt burdens, says Jesse Jackson, "are the new economy's chains of slavery" (Los Angeles Times, 9/29/98). The All Africa Conference of Churches, which groups more than 150 denominations from around the continent, calls the debt "a new form of slavery as vicious as the slave trade." The imagery invoking these historical crimes against Africa is powerful. Yet it is still hard for many of us to see the connections between human suffering and the seemingly impersonal workings of the international economy.

Nevertheless, the comparison with the slave trade is more than a dramatic metaphor. Historical studies such as Joseph Miller's Way of Death, recounting the Angolan slave trade, remind us that debt was one of the driving forces behind the deadly commerce. Trade goods supplied on credit, including guns, had to be paid for. Often the only profitable commodity accepted in return was human beings. Intermediaries in the trade -- coastal merchants, chiefs, ship owners, plantation owners -- were enmeshed in a chain of debt. At the far end were financiers in distant European capitals, remote from the human cost of paying these debts.

Similarly, when debt repayment is considered exclusively in economic terms, other consequences are ignored. Africa's debt is so large in comparison to the continent's income that it cannot be repaid. But as long as it is not cancelled, the constant pressure to pay it off is unrelenting. "Must we starve our children to pay our debts?" asks former Tanzanian President Julius Nyerere. When debt payments come first, with macro-economic adjustments policies imposed by creditors, health and education budgets are squeezed to the bone. So are other long-term investments necessary for development. Most ominously, international efforts to address the debt burden offer no exit strategy for most indebted African countries.

Among churches, non-governmental organizations and many governments, an international consensus is building in favor of massive and dramatic debt cancellation, as an indispensable step for addressing Africa's other problems. Without such action, prospects for economic growth as well as human development will be crippled. Yet international financial institutions and developed country governments are still trying to resist this conclusion.

How much is too much?

Debt, of course, is not Africa's only problem. Nor are all countries in the same situation. But 33 of the 41 countries identified by the World Bank as "Heavily Indebted Poor Countries" (HIPC) are in Africa. Even North African countries, none of which is labelled a HIPC country, are using almost one-fourth of export earnings to pay off debts.

How much debt is too much? For an individual, debt is financially "unsustainable" when it is impossible to keep up with the payments. Debt is morally "unsustainable" when keeping up with payments takes money about from the basic necessities of life. A business is "dangerously overextended" when paying off the debt rules out making investments to keep the business competitive in the future. The solution provided by law for extreme cases is bankruptcy. Individuals or businesses are given the opportunity to start again with a clean slate.

In all these cases, the criteria are not the size of the debt as such, but how it compares to available income and the choices that must be made to pay it off. When one's creditors are in charge and making those decisions, that is debt bondage. Economic history provides many examples, from the farmer whose entire crop is obligated to pay off the bank to the mineworker deeply in debt to the company store.

African countries owing money to foreign creditors, including banks, governments and multilateral institutions, can only pay off the debt with earnings in foreign currency. That is, they must use money from exports, from aid, or from new foreign loans. Ethiopia's debt of $10 billion ($179 a person) at the end of 1996 may not seem like much compared, for example, to the $11 billion Europe spent on ice cream in 1997. But it was almost thirteen times the amount the country earned in exports in 1996. Ethiopia used the equivalent of 45 percent of its $783 million in export earnings on debt payments. Even after such a crushing payout, Ethiopia's debt is still unbearable.

Or consider the trade-offs with investments in health care. In 1998, seventy percent of the world's new AIDS infections were in Sub-Saharan Africa. So were four-fifths of all deaths from AIDS that year. Yet among all African countries only South Africa is spending more on health care than on debt service. For most African countries, the entire annual health budget is less than $10 a person. Health care, moreover, is only one of the urgent needs requiring investment.

Development aid, which has been in steep decline in recent years, does not make up the gap. In 1996, sub-Saharan African countries were paying out $1.30 on debt service for every $1 received in grant aid from donors.

The causes of debt

There are many reasons for the debt crisis, both political and economic. During the Cold War, corrupt African leaders were often able to gain financing from major powers anxious to retain their loyalty. The creditors received what they paid for -- support in the Cold War. Yet the debt burden remained for future generations to pay. In its last 15 years of defending white-minority rule, the apartheid regime in South Africa accumulated more than $18 billion in debt, while its regional war forced its neighbors to incur more than $26 billion in debt. Yet investors say "responsibility" in paying these debts must take priority over redressing racial inequalities and rebuilding from war.

In the 1960s and 1970s, international lenders readily pushed a high volume of loans on many African states. Neither the lenders nor the borrowers anticipated how high the cost of repyament would rise. For African countries with agricultural exports, both unpredictable prices and natural disasters increased vulnerability to debt, just as for farmers anywhere in the world. World oil price hikes in 1972 and 1979 dramatically raised the cost of imports. Even countries that exported oil and other minerals faced boom and bust cycles that raised the odds of incurring unsustainable debt. When interest rates skyrocketed in the 1980s, interest payments jumped. Trying to pay off more debt with less income allowed unpaid debt to mushroom. With all these factors at work, the impact of every additional mistake in economic policy was multiplied.

The HIPC Initiative

In 1996 the World Bank, the International Monetary Fund, and major creditor nations recognized the seriousness of the crisis by launching the HIPC (Heavily Indebted Poor Countries) initiative. The initiative was a significant step in that it recognized the impossibility of resolving the crisis just by postponing payments ("rescheduling"). Some debt, creditors acknowledged, would have to be cancelled, including debt owed to the multilateral institutions themselves (almost one-third of Africa's debt). Creditors agreed that, in principle, as much as 80 percent of external debt could be cancelled.

The unanswered questions, however, were under what conditions, how much, how fast and who would pay for it. Typically, the international financial institutions imposed rigd economic adjustment programs as a condition for participation in HIPC. By September 1998, only eight countries, including five in Africa, had qualified for debt relief packages adding up to about $6.5 billion. Uganda was the only African country that had actually reached the "completion point," receiving about $650 million in debt reduction. To supplement World Bank and IMF funds, 15 donor countries (not including the U.S.) had paid or pledged about $300 million for the initiative by late 1998.

These sums don't even come close to meeting African needs for debt cancellation. The paltry results strengthened the case of debt campaigners arguing that only massive debt cancellation could have a significant effect. The HIPC costs also look small in comparison to the $23 billion bailout package the IMF arranged for Russia in September 1998 or the $3.6 billion banks came up with to rescue the speculative Long-Term Capital Management Fund that same month.

From debt to sustainability

To decide which countries are eligible for debt relief under HIPC, and to evaluate how much needs to be done, international agencies calculate ratios of debt to exports and of debt service to exports. Debt is normally considered "sustainable" if its discounted value (the total reduced by whatever portion is only being paid at lower-than-market rates) is less than two to two-and-a-half times annual exports, and if the payments on principle and interest ("debt service") are in the range of 20 to 25 percent of exports. These calculations are intended to estimate the maximum debt that the country is capable of carrying without falling behind on its payments.

These criteria only take into account what is practical in terms of paying back the loans, and does not consider the broader economic or human context. Sustainability, debt campaigners argue, should be defined not in narrow accounting terms, but in terms of what is needed for development. Then countries desperately in need of capital to invest in their human and physical resources would not have to spend one-third of their income, or even more, in paying back debt. After World War II, British repayments to the U.S. were capped at a 4 percent debt-service-to-export ratio, and in 1953 defeated Germany was allowed to limit its payments to only 3.5 percent.

The decision whether to cancel debt and how much debt to cancel is as much political as economic. In the 1960s Western countries capped Indonesia's repayments at 6 percent to reward the Suharto regime for the overthrow of its leftist predecessor. After the 1991 Gulf War, the U.S. forgave $7 billion in military debts owed by Egypt. Rolling back Africa's current debt would not be an impossible burden for creditors, who have taken losses in other parts of the world in the past by writing off unpayable debts at deep discounts.

The argument that such write-offs would foster financial irresponsibility by debtors does not hold up. On the contrary, they are necessary for countries to take responsibility for the use of future resources. The conditions of debt cancellation should be determined with the participation of civil society and elected governments in the affected states rather than imposed unilaterally by the lenders. The terms should be exposed to public scrutiny both in debtor and creditor countries. With open debate, it is possible to build in protection against corruption and guarantees that funds freed up will be used for productive purposes.

If the political will is there, the details can be worked out. First of all, however, the political pressure to act must grow. As the Washington Post noted in an editorial in early 1998, action on African debt relief "will be closely watched as a measure of whether the rich world's latest initiative toward Africa is rhetoric or reality." At the end of the year, rhetoric still prevailed over action.

Selected Resources: Groups and Documents

The number of groups working to reduce the debt burden on African countries, including the Jubilee 2000 campaigns and other non-governmental coalitions, is growing rapidly. New reports, statements, and public education resources for different audiences appear frequently. At the time this paper is written, most of the African groups involved do not have web sites, but contact information for groups in addition to those noted below is available on the Jubilee 2000 UK and USA sites. Many groups, but not all, have access to e-mail.

The following are starting points for additional resources, primarily on-line. For additional updated information, see the Africa Policy debt action page

Organizations with Extensive Information On-Line

European Network on Debt and Development (EURODAD)
Rue Dejoncker 46, B-1060 Brussels, Belgium; Tel: 32-2-543-9060; Fax: 32-2-544-0559; E-mail:
A coalition of European non-governmental organizations. Web site is a good source both for general background and for role of European countries in particular.

Jubilee 2000/UK
P.O. Box 100, London SE1 7RT, UK;
Tel: 44-171-401-9999; Fax: 44-171-401-3999; E-mail:
A coalition of 80 organizations in the UK. Web site includes much analysis and background as well as campaign information.

Jubilee 2000/USA
222 East Capitol Street, NE; Washington DC 20003-1036, USA; Tel: 1-202-783-3566; Fax: 1-202-546-4468; E-mail:
A rapidly growing coalition of US groups. Website and activities focus on grassroots mobilization. A push for congressional legislation is planned for 1999.

Oxfam International Oxfam International Advocacy Office,
733 15th St., NW, Suite 340,
Washington DC 20005 USA;
Tel: 1-202-393-1426; Fax: 1-202-783-5547 Email:
The Oxfam alliance of ten international aid agencies provides well-researched position papers which call for debt reduction within the context of a broader understanding of development issues.

Other Key International Contacts

"Putting Life before Debt" Call for debt cancellation from international coalition of 162 Catholic agencies

Canadian Ecumencial Jubilee Initiative
Puts debt cancellation in the context of broader issues of economic justice.

Selected Africa Campaigns Contacts

African Forum and Network on Debt and Development (AFRODAD) P.O. Box MR 38, Marlborough, Harare, Zimbabwe; Tel: 263-4-702093; Fax: 263-4-702143;

Jubilee 2000 Afrika Campaign
c/o Affiong Southey, Campaign Secretariat, PO Box 1938 Community One, Tema Greater Accra Region, Ghana; Tel: 233-21-776678; Fax: 233-27-551939. Or external liaison
c/o Jubilee 2000/UK (

Mozambican Debt Group
Avenida A. Sekou Toure, 1957, C.P. 2223, Maputo, Mozambique; Tel: 258-1-430486; Fax: 258-1-423140;

Jubilee 2000 South Africa and
Apartheid-Caused Debt Campaign
c/o AIDC
P. O. Box 1139, Woodstock 7925, South Africa Tel: 27-21-6851565/6; Fax: 27-21-6851645; E-mail:

Uganda Debt Network
P.O Box 21509, Kampala, Uganda;
E-mail: (attn: Uganda Debt Network)

More information on the HIPC Initiative

World Bank HIPC Page

IMF Brief HIPC Statement

IMF HIPC Pamphlet

HIPC in a Nutshell (Eurodad)

This material is produced and distributed by the Africa Policy Information Center (APIC). APIC's primary objective is to widen the policy debate in the United States around African issues and the U.S. role in Africa, by providing accessible policy-relevant information and analysis usable by a wide range of groups and individuals.

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