Debt: Euphemism for Failure

Published on 14th June 2005

Many members of the international community funding the World Bank are taking a critical look at the effectiveness of its traditional ways of doing business. There is little to show from past lending to the poor except for a heavy debt burden. The record is a dismal one: standards of living are declining. Two thirds of World Bank’s projects in the poorest countries have fallen short of benefits. After $ 40 billion of resources transfers, the ten largest recipients of World Bank aid have seen their per capita income rise a negligible 0.2% p.a over the past 30 years. 42 nations concentrated in Sub-Saharan Africa are desperately poor and growing poorer. Their 700 million citizens who live on less than $1 per day have suffered a 25% decline in per capita income since 1980.  Indebtednesses is accumulating to unsustainable levels. In 1996, when collective debt mounted to $200 billion, a Heavily Indebted Poor Country (HIPC) initiative pointed out that there was no hope for repay.

Lending continues to be the mantra of the International Development Association (IDA). Its $142 billion in loans since inception has failed to exit countries from poverty. The IDA extends 40 year loans with a 10% grace period that carry an interest rate of
0.75% but these loans are seldom repaid. The Meltzer Commission (2000) suggests that there be an end to traditional loans, to impoverished nations that cannot repay the money. It suggests that outright grants be provided for the basic improvements in living standards and infrastructure. The commission recommends that output be measured and pay be made only for performance instead of blindly disbursing the money.

“Do we really owe them this money? When they initiate projects in our nations, they lump onto themselves huge salaries and allowances in the name of expertise. This money never trickles down to us!” laments a University Don in Nigeria. A community worker in Namibia opines that governments must show themselves accountable and pay the debts. “Today, Africa’s development plans are drawn thousand of miles away in corridors of the IMF and World Bank,” the late Josephat Karanja (Member of Parliament, Kenya).

 

Can Africa’s long term thinking business people stand up to be counted?


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