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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 apic@igc.org.
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
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
(http://www.africapolicy.org/action/debt.htm).
Organizations with Extensive Information On-Line
European Network on Debt and Development (EURODAD)
http://www.oneworld.org/eurodad
Rue Dejoncker 46, B-1060 Brussels, Belgium;
Tel: 32-2-543-9060; Fax: 32-2-544-0559;
E-mail: eurodad@agoranet.be
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
http://www.jubilee2000uk.org
P.O. Box 100, London SE1 7RT, UK;
Tel: 44-171-401-9999; Fax: 44-171-401-3999;
E-mail: mail@jubilee2000uk.org
A coalition of 80 organizations in the UK. Web site includes
much analysis and background as well as campaign information.
Jubilee 2000/USA
http://www.j2000usa.org
222 East Capitol Street, NE; Washington DC 20003-1036, USA;
Tel: 1-202-783-3566; Fax: 1-202-546-4468;
E-mail: coord@j2000usa.org.
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
http://www.oxfam.org.uk/policy/papers/lpapers.htm
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: oxfamintdc@igc.org.
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"
http://www.cidse.be/pubs/finaldebteng.html
Call for debt cancellation from international coalition of 162
Catholic agencies
Canadian Ecumencial Jubilee Initiative
http://www.web.net/~jubilee
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;
E-mail: afrodad@samara.co.zw
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 (afrika@jubilee2000uk.org)
Mozambican Debt Group
Avenida A. Sekou Toure, 1957, C.P. 2223, Maputo, Mozambique;
Tel: 258-1-430486; Fax: 258-1-423140;
E-mail: divida@zebra.uem.mz
Jubilee 2000 South Africa and
Apartheid-Caused Debt Campaign
c/o AIDC
http://aidc.org.za
P. O. Box 1139, Woodstock 7925, South Africa
Tel: 27-21-6851565/6; Fax: 27-21-6851645;
E-mail: aidc@iafrica.com
Uganda Debt Network
P.O Box 21509, Kampala, Uganda;
E-mail: dua@starcom.co.ug (attn: Uganda Debt Network)
More information on the HIPC Initiative
World Bank HIPC Page
http://www.worldbank.org/html/extdr/hipc.htm
IMF Brief HIPC Statement
http://www.imf.org/external/np/hipc/hipc.htm
IMF HIPC Pamphlet
http://www.imf.org/external/pubs/ft/pam/pam51/contents.htm
HIPC in a Nutshell (Eurodad)
http://www.oneworld.org/eurodad/hipcnut.htm
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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