Agreement on debt relief was reached before the G-8 Summit where about $45 billion was provided to 18 poor countries, 14 of which are African and which also met the World Bank’s Highly Indebted Poor County (HIPC) criteria. This was a major disappointment to anti-poverty campaigners, such as Jubilee 2000, who had demanded total and unconditional debt relief. But is half a loaf better than nothing?
The issue of debt relief is complex and emotional since not all African countries are in the same boat. Some African countries carry what is known in literature as \"odious debt\" - that is, foreign debt incurred by a brutally repressive and illegitimate regime to oppress and exploit its people. Demanding repayment of such debts, according to international legal experts, is immoral. The people, who derived no benefits from loans by a tyrannical regime to brutalize them, are being asked to repay the debt. Even debt forgiveness carries the \"odious\" or offensive notion that it is rather the people - the victims of abuse and brutality - who are being \"forgiven\" of their \"sins.\" South Africa falls in this category. Much of its current $45.5 billion foreign debt is \"odious,\" contracted by the erstwhile apartheid regime to suppress black aspirations for freedom. Should the black majority be held liable to repay the old \"apartheid debt?\"
A similar case can be made for Zaire (now Congo). When Mobutu Sese Seko fled Zaire in May 1997, he left behind a $14 billion national debt. The Congolese people now have to start from scratch, 39 years of their sovereign existence gone down to the drain. And they must be saddled with a debt from which they derived no benefit; none whatsoever? The looting of the country\'s resources by Mobutu was known around the world. Yet, foreign creditors continued to loan him money. While Zairians among the poorest in the world were struggling to meet their basic needs, Mobutu, who himself bragged to be among the richest built mansions and hotels in France, Spain, South Africa, Morocco, Senegal, Togo, Ivory Coast and stashed billions of dollars in the Swiss bank. In his 32 years in power, he ran Zaire like his personal fiefdom, without any regard whatsoever for the 45 million citizens of the country.
Similar but less compelling cases can be made for Somalia, Rwanda, Burundi, Liberia, Sierra Leone, Ivory Coast and Togo. The people of these countries should be repudiating their foreign debts, not asking for debt relief. Debt relief is requested on legitimate debt and odious debt is repudiated.
Nigeria falls in a separate category, where its oil wealth was subjected to grotesque mismanagement and kamikaze plunder. In addition, its string of military rulers borrowed recklessly to splurge on imports and grandiose, prestigious projects - show capital, highway flyovers, and mansions. In fact, so greedy and crooked were the bandits that Nigeria doesn’t know exactly how much it owes: $32 or $35 billion.
Kenya is another African country, where the ruling vampire elites carted the entire treasury away. According to the Canadian newspaper, National Post (July 4, 2005), \"During his 24 years in power, Daniel arap Moi’s government embezzled and stole an estimated $3 billion to $ billion . . . The country’s Central Bank was looted, money was stolen by making fictitious payments on foreign debt, kickbacks were collected on all public contracts and when that didn’t supply enough cash, politicians awarded themselves phony contracts . . . a report by Kenya’s recently created Anti-Corruption Commission estimates that up to $3 billion of the missing money is still stashed overseas. It notes that the outstanding loot equals roughly half of Kenya’s annual economic output or half of its foreign debt. If applied to legitimate government expenditures, it would be enough to provide every child in Kenya with a free education for the next decade\" (p.A10).
Let’s not mention Equatorial Guinea, Gabon, Chad, and Cameroon, where the oil wealth is the personal property of the head of state. Equatorial Guinea earns $5 billion-plus a year in oil revenue but its president, Teodoro Obiang Nguema, declared it a \"state secret\" but manages to shuffle it into secret bank accounts overseas. Meanwhile, nearly half of all children under the age of five in Equatorial Guinea are malnourished, and even major cities lack clean water and basic sanitation.
So what do you do in each of these cases: Grant total and unconditional debt relief? In Nigeria’s case, debt cancellation would simply reward reckless and irresponsible borrowing behavior in the past. Worse, the looters such as the General Abachas, Babangidas and others, who ought to be in jail, would not only be gallivanting all over the place but also have access to their loot for use in causing political mayhem. Babangida is plotting to succeed Obasanjo. The cheek of it.
Why should Nigeria be granted debt relief and not Malawi or Zambia? Or Botswana which managed its economy well? What criteria were employed to determine which African qualified for debt relief or not?
Naturally, this has fueled speculation that the criteria applied were subjective. Western donors and creditors played \"favorites,\" which gets us back to square one: What may be in the interest of the West may not be in Africa’s interest. A cynic may claim that debt relief simply helps the creditor institutions to \"clean up their books,\" because they know those debts can’t be repaid. So let’s call a spade a spade.
Further, it may be in the interest of the West to grant Nigeria some \"token\" debt relief - about $18 billion if it meets certain conditions. Nigeria is the world’s sixth largest oil producer and the West needs Nigeria’s sweet crude oil. But granting Nigeria debt relief sends a terrible message to the rest of Africa. It is akin to writing off the credit card debt of a drunken sailor and allowing him to keep the same credit cards.
In a Testimony before the U.S. House Sub-Committee on Africa on April 13, 1999, I laid down African.-not Western - conditions for debt relief:
1. There should be a full public accounting of who took what external loan for what purpose before any debt relief is granted. The African people want to know what the external loans, contracted on their behalf, were used for and from which derived no benefits and why should they be held liable to repay them.
2. Debt relief should be linked to the repatriation of the loot African leaders have hoarded in foreign banks abroad. According to Nigerian President Olusegun Obasanjo, corrupt African leaders have stolen at least $140 billion (£95 billion) from their people since independence. The World Bank estimates that 40 per cent of wealth created in Africa is invested outside the continent. Even the African Union, in a stunning report last August, claimed that Africa loses an estimated $148 billion annually to corruption - or 25 percent of the continent\'s Gross Domestic Product (GDP). Most Africans know that if this loot was repatriated to their respective countries, it would wipe out their countries foreign debts. Indeed, this may be the case for such countries as Algeria, Angola, Cote d\'Ivoire, Kenya, Nigeria, and Zimbabwe.
3. Debt relief should be restricted to only those African countries that are democratic. Out of the 54 African countries, only 16 are democratic: Benin, Botswana, Cape Verde Islands, Ghana, Kenya, Madagascar, Malawi, Mali, Mauritius, Namibia, Nigeria, Sao Tome and Principe, Senegal, Seychelles, South Africa and Zambia. The idea is that a democratically elected head of state is more likely to be held accountable for misuse of foreign loans. If a democratic criterion cannot be used then debt relief should not be extended to any African country, whose leader has been in power for more than 10 years. After more than ten years in office, these leaders lose touch with the people and tend to regard their countries as their own personal property.
Even then, it should be remembered that debt relief does not eliminate aid dependency. In fact, it may rather aggravate it.
Despite popular misconceptions to the contrary, foreign aid is not \"free\" but a \"soft loan\" from Western governments granted on concessional terms. For example, suppose Nigeria needs $400 million to build a dam to generate hydro-electricity. It may approach Chase-Manhattan, a private U.S. commercial bank, for a loan. Because of Nigeria’s credit history, Chase-Manhattan may grant this loan at, say, 15 percent interest rate for 5 years. Nigeria may regard these terms as \"exorbitant\" and approach US AID for \"aid.\" US AID may determine that Nigeria is a \"strategic\" partner in the war on terror and an oil producer too. It may grant Nigeria $400 million credit facility at 2 percent rate of interest for 20 years with a 5 year grace period. This \"aid\" is simply a \"soft loan\" and differs from a normal commercial loan in three respects: lower interest rate, longer term to maturity and a grace period. Regardless, foreign aid is a loan that must be paid back and 80 percent of Africa’s foreign debt represent such soft loans from Western governments and international financial institutions.
In the 1970s and 1980s, such foreign aid was \"project-specific\"; in other words, given to finance certain particular projects, such as building a dam. Beginning in the 1990s, however, foreign aid was given for \"general budget support\" because of the \"flexibility\"
it afforded recipient governments in designing their development budgets. But that made African governments more dependent on aid.
Tax or revenue bases in Africa are generally small because of the level of poverty. Government expenditures, on the other hand, have careened out of control. They are a huge black hole (pun intended) of vanishing tax receipts, extra-budgetary expenditure items, perks and off-budget \"presidential privy accounts,\" redolent with graft, patronage and waste. Over the past few decades, state bureaucracies have swollen, packed with political supporters. Back in 1996, 20 percent of Ghana\'s public sector workforce was declared redundant by the Secretary of Finance and Guinea’s 50,000 civil servants were consuming 51 percent of the nation\'s wealth. In Kenya, civil service salaries take up half the budget; in Uganda, it is 40 percent. Zimbabwe has 54 ministers; Uganda with a population of 35 million has 70, while Ghana, with a population of 22 million, has 88 ministers and deputy ministers. With bloated bureaucracies, soaring expenditures and narrow tax bases, budget deficits have soared.
These deficits covered with World Bank loans and foreign aid (Ghana’s budget is about 60 percent aid-financed and Uganda’s is 52 percent). If the aid is insufficient, the rest of the budget shortfall is financed by printing money. Even when aid is available for \"budgetary support\", there is no guarantee that it will be used productively to generate a return to repay the soft loan. It could well be \"consumed\" when it pays for the salaries of civil servants. Writing off Uganda’s debt does not eliminate the 52 percent aid dependency and if it is not eliminated, Uganda will still have to borrow in the future to cover the budgetary shortfall. Thus, another foreign debt will be accumulated. Neither is there any guarantee that if debt relief is granted, the resources saved will be devoted to education or health care for the people. Indeed, when the World Bank canceled $650 million of Uganda’s debt in 1999, the first item President Yoweri Museveni purchased was a new presidential jet! In 2003, some 30,000 ghost names were discovered on the payroll of the Ministry of Education, costing the government $1.2 million a month in salaries heisted by living workers. When Ghana demanded foreign aid to purge the payroll of these ghost names, Japan coughed up $5 million. The reform process has stalled through vexatious chicanery, willful deception, and vaunted acrobatics.