A. Toronto, Naples, Lyon, Cologne and London: G7 leaders and the debt trip to nowhere

The statement on debt issued on February 5, 2005 by G 7 Finance Ministers after their meeting in London dashed hopes and expectations raised by an impassioned plea made by Nelson Mandela to the same Ministers the day before. Yet, Mr. Gordon Brown, the British Chancellor of the Exchequer, hailed the statement as “a breakthrough” and said that “it is the richest countries hearing the voices of the poor.”

However, when one reads carefully between the lines, one finds nothing new in the London statement. Indeed, it repeated the same platitudes heard many times before: promises of “debt relief”, but on a case per case basis and with strings attached in the form of the usual conditionalities. For instance, the statement says that to qualify, a country must have “sound, accountable and transparent institutions.” We all know what this means: a State and public institutions able to implement neoliberal policies. This is more explicit in the statement’s insistence on fighting corruption described as a “significant barrier to growth, private sector development, investment and poverty reduction”. The reference to “poverty reduction” is a window dressing meant to mask the real objective pursued by those policies.

In the end, the London statement clearly demonstrated that the “creditors” are not yet ready to unconditionally cancel an odious, illegitimate and immoral debt that has been transformed into an instrument of domination, control and plunder of indebted countries’ resources, especially in Africa. Otherwise, one cannot understand why the G 7 countries refuse to cancel a debt which actually has been paid many times over, and which will not cost them a dime, just a few weeks after the same countries had agreed to cancel a significant portion of the Iraqi debt. Once again, the London meeting turned out to be a missed opportunity by the richest nations to write off the debt burden of the poorest nations in the world in the name of justice.

A long list of failed “debt relief” plans

The London statement is likely to be one more item on the already long list of empty promises and failed “debt relief” plans. Indeed, as far as Africa is concerned, the approach to its debt crisis has always followed a pattern of cynicism and broken pledges, including the Heavily Indebted Poor Countries (HIPC) Initiative.

Bilateral Initiatives

In the late 1970s and early 1980s, a large part of African countries’ debt was owed to bilateral creditors. That debt mostly served the economic, political and strategic interests of Western countries, especially during the Cold War period. The early treatment of the bilateral debt crisis was through debt rescheduling within the Paris Club. However, this “debt relief” mechanism contributed to worsening the crisis because it only postponed debt payments while adding to the debt burden with penalties on the rescheduled portion. As a result, the debt of most African countries continued to pile up, with a growing part in the form of accumulated arrears, which averaged 10% of exports in the 1980s and 27% in the 1990s, compared to 1.5% in the 1970s.

These arrears were an illustration of the growing inability of African countries to service their debt. It is that realization, combined with the worsening economic and social crisis brought about by structural adjustment programs, that led bilateral creditors to contemplate some kind of debt write off, beginning with the Toronto Plan, proposed in 1988 during the G 7 Summit in Canada. Ever since, African countries have seen a string of proposals, plans and initiatives, all aimed at “solving” its debt crisis. Indeed, since the Toronto Summit, each G 7 Summit has been punctuated by statements on “debt relief” but they all turned out to be broken promises and failed plans. From Toronto (1998) to the latest London statement by G7 Finance Ministers (February 5, 2005), several other proposals have been put forward by industrialized countries. Among these are the London or “enhanced” Toronto Terms (1991), the Naples Terms (1994), the Lyon Terms (1996) and the Cologne Terms (1999). But none of these Plans provided a real solution to the debt crisis.

The HIPC Initiative.

The failure of the bilateral initiatives to solve the crisis was due in part to their exclusive focus on bilateral debt, up until 1996. The shift began with the Lyon Terms, which brought into the picture multilateral debt. This shift stemmed from the realization that multilateral debt had risen dramatically as a result of the worsening economic and social crisis during the peak of structural adjustment programs, from the mid-1980s onward. During that period, the share of the World Bank in Sub-Saharan Africa’s debt increased from 5% in 1980 to 25% in 1990 and to nearly 40% in 2000. For many countries, especially, the “poorest” ones, which bore the brunt of SAPs, the Bank has become the largest “creditor”. It is in light of this change in the structure of Africa’s debt and in response to growing and intense pressure from debt campaigners in the Jubilee movement that the Heavily Indebted Poor Countries (HIPC) Initiative was launched in September 1996.

After the first three years of implementation, there was a realization that the Initiative was going nowhere. Accordingly, it was “enhanced” in September 1999, by introducing more flexibility in the eligibility criteria, which allowed it to admit more countries. However, a new conditionality was introduced by the IMF and World Bank in the form of the Poverty Reduction Strategy Paper (PRSP), which each country should submit before being accepted. To give an air of seriousness, the IMF’s Enhanced Structural Adjustment Facility (ESAF) was renamed “Poverty Reduction and Growth Facility” (PRGF), but with the same macroeconomic framework that underpinned the notorious structural adjustment policies.

But now, it is widely acknowledged that the Initiative has failed to deliver. The proposals put forward by the United Kingdom and the United States are an implicit recognition of that failure, which stems from the Initiatives major flaws. First, to be eligible, a country has to have a track record of “successful implementation” of IMF/World Bank-sponsored policies. That is, in the same failed and discredited policies responsible for the abject poverty affecting African countries. Second, using debt ratios, which have little to do with indebted countries’ development needs and ability to service their debts, the Bank and Fund have excluded many countries, much deserving of “debt relief”. In Africa, the Nigerian case is the most blatant example, as President Obasanjo himself has repeatedly indicated. For instance, in 2004, Nigeria’s debt service was estimated at $1.4 billion, more than the combined spending on education and health!

Third, the Initiative aims to bring debt to a level deemed “sustainable” by the Fund and the Bank. This “sustainability” is based on future export revenues, themselves depending on the behavior of commodity prices, which constitute the bulk of African countries’ exports. But as it turned out, the Bank’s “debt sustainability analysis” was so flawed that most of its projections fell flat, leading creditors to scramble for additional funding for “Completion Point” countries (topping-up).

Finally, reaching the “Completion Point” is contingent upon implementing structural reforms, such as trade and investment liberalization, deregulation, a further erosion of national sovereignty and privatization of public assets. The difficulty in fulfilling these reforms has often led several countries to fall “off-track”, that is, the suspension of their programs, by the IMF and the World Bank. But even more damaging to these institutions, these reforms tend to aggravate poverty and negate the stated objective of the PRSP: “poverty reduction”. Two examples illustrate this.

In Mali, the Bank forced the government to let producers and the management of the cotton-processing company (CMDT) “freely” negotiate the producer price of cotton. After they had reached an agreement to fix the price at CFA 210, which was below the actual cost of production, the Bank said it was “too high” and that the price had to be renegotiated! It imposed a price in the range of CFA 60-175 for the next three years, to the dismay of producers, who felt let down by their own government. Many producers say that the future of cotton production, which occupies more than three million people, is bleak. How can this contribute to “poverty reduction” in Mali?

The second example is the forced privatization of the Senegalese peanut-processing company SONACOS, last year. This privatization was one of what the Bank calls “completion point triggers”, that is, the conditions to be fulfilled by Senegal before reaching the “Completion Point”. Even the Chairman of the Committee in charge of the privatization admitted during a press conference that the Bank had pressured them to reach a deal with the bidder, at any cost. However, feeling that this is a very controversial and bad deal, the government said that it was a “provisional” deal, which could eventually be reversed if the bidder did not meet some of the conditions it has put forward. In any event, Senegalese peanut producers and SONACOS employees have all stated that the deal was against their interests. In an interview to a local newspaper, on February 15, 2005, Mamadou Cissokho, the leader of the leading peasant organization, CNCR, said that “the privatization of SONACOS is a declaration of war against the interest of the Senegalese peasants.” How can this privatization contribute to “poverty reduction” in Senegal?

Similar examples can be found in other African countries. They belie the objectives of the PRSP, which in reality stands for “public relations strategy paper”, according to many critics! This explains, inter alia, why five years on, the “enhanced” HIPC Initiative has not delivered. The debt crisis lingers on and even keeps worsening. As indicated above, the HIPC Initiative has nothing to do with achieving a lasting solution to the debt crisis, but with extracting as much as possible from indebted countries while increasing the IMF and World Bank meddling in those countries’ affairs via the crippling economic, financial and now political conditionalities, known as “good governance”.

For instance, according to UNCTAD, between 1997 and 2001, several African countries that had programs with the Fund and the Bank had each been imposed an average of 114 conditionalities, 75% of which were “good governance”-related! The new crusade at the World Bank seems to be the fight against “corruption” as if it had just “discovered” corruption. The fact of the matter is that the emphasis on “good governance” and especially on “corruption” tends to mislead world public opinion and put the responsibility for the failure of structural adjustment programs and their disastrous effects on the shoulders of “corrupt”, “inefficient”, “predatory” States. This is consistent with their attempts to mask their overwhelming responsibility in the abject poverty affecting most of the developing world, in particular the so-called “HIPCs”. In conclusion, the HIPC Initiative will never solve the debt crisis, nor will the PRSPs “reduce” poverty.

African civil society analysis of the debt issue

The reason lies in the fact that the Initiative, like all previous or current initiatives from “creditors, does not address the root causes of the debt crisis and the power imbalance between indebted countries and “creditors”. Long ago, African civil society organizations, engaged in the debt campaign, have said time and again that to find a just and lasting solution to the debt crisis, it is indispensable to examine its historical origins and analyze the structural factors behind its worsening.

It is a truism to say that debt is a legacy of colonization and imperialist domination. As an instrument of domination and plunder, debt has been used to promote Western countries’ economic, financial, political and strategic interests. This was done in many ways, in particular by using pro-Western dictatorial and corrupt regimes during the Cold War period, in the name of anti-communism. The loans given to these regimes were used for their own purposes and interests and for the repression and even murder of their own citizens, with the complicity of bilateral and multilateral creditors. Moreover, a greater part of that debt was looted by these dictators and kept in Western banks.

That debt is odious and illegitimate. This is the case of the overwhelming part of Africa’s debt, as well as of other Southern countries’ debt. Accordingly, the African people don’t owe that debt and so-called “creditors” have no right to claim it.

On the other hand, what Africa really “owed” has been paid many times over. This is best illustrated by the Nigerian example. President Obsanjo was recently quoted as saying:

“Nigeria’s original debt stock of about $10 billion had been paid twice over if one included the penalty for not paying and…penalty for the penalty. This is ridiculous…the debt that is being held against us [Nigeria] is unpayable and unsustainable if we really want to have an equitable world.”

How about the rest of Africa? According to the UNCTAD study, between 1970 and 2002, Africa as a whole had transferred $550 billion to pay back loans estimated at $540 billion. Yet, it continues to “owe” nearly 300 billion. Sub-Saharan Africa, for its part, had reimbursed $268 billion for loans estimated at $294 billion, but remains saddled with a debt of $210 billion. The authors of the study observed that “discounting interest and interest on arrears, further payment of outstanding debt would represent a reverse transfer of resources.” (page 9).

It is Western countries, their financial institutions, their multinational corporations and multilateral institutions that owe an immeasurable debt for the crimes of slavery, genocide, ecological destruction, colonization and structural adjustment. Therefore, it is the West that must pay reparations, even though no amount of money will ever pay for these crimes.

The way forward

From the above analysis, our fundamental demand is outright and unconditional cancellation of all Africa’s debt and reparations for its peoples. To achieve this fundamental objective, we propose the following measures:

1) Immediate and unconditional cancellation of HIPCs’ Debt

There is now a general consensus that the debt of the poorest countries must be canceled. And the sooner, the better. In light of this, we reiterate our call for the immediate and unconditional cancellation of all multilateral debts owed to the IMF and World Bank. Since the HIPC Initiative is not an adequate mechanism, we recommend that this cancellation by financed by these institutions’ own resources, which are more than enough to cover all costs associated with debt cancellation. If Western countries and multilateral institutions are serious about “debt relief” and “poverty reduction”, they have a golden opportunity to prove it by accepting this cancellation, which should release funds that will contribute to achieving at least some of the Millennium Development Goals.

2) Moratorium on debt service

On the other hand, these countries and institutions should accept a moratorium on debt payments for all African non-HIPCs, as they did for the tsunami-stricken countries. This will be the second step in the right direction. It goes without saying that the moratorium is without arrears, that is, during that period, indebted countries will use all the savings to their benefit.

3) World Commission on Debt

Once the moratorium is under way, the United Nations should set up an independent World Commission on Debt. This body, composed of eminent persons, trusted by both Western and indebted countries, should have as its mission to assess the development needs of indebted countries and whether these needs are compatible with further debt payments. Based on the conclusions and recommendations of that Commission, a determination will be made on whether to resume debt payments, at what conditions, or to cancel the debt altogether. The other task of the Commission should be to propose new lending mechanisms in order to avoid future debt crises.

4) Take example on the 1953 London Agreement on West German debt

The fourth step in the right direction is to take example on the West German example, more than 50 years ago. In February 1953, the then West Germany and its main creditors reached an agreement in London, whereby:

1) West Germany’s debt was reduced by half
2) The balance was rescheduled on a long-term basis and at fixed interest rates
3) The debt service was limited at 3.5% of annual export earnings
4) Debt service was levied only in case of a trade surplus

With that deal, the debt service was down to about 2% of export revenues three years later and by the early 1960s, West Germany had virtually paid back all of its debts. So, why not propose a similar deal to African non-HIPCs?

5) End all IMF and World Bank conditionalities

Another step in the right direction would be to end all IMF and World Bank conditionalities. As is widely acknowledged now, these policies have worsened Africa’s economic and social crisis and contributed to the debt overhang. Unless they are eliminated, they will more than offset any gains coming from the moratorium. The removal of these conditionalities is a prerequisite for effective poverty eradication through genuine people-centered development strategies.

6) Stop the EPAs

The Economic Partnership Agreements (EPAs) that the European Union (EU) wants to impose on African countries will be as devastating as the first generation of the now discredited and failed structural adjustment programs. Therefore, a lasting solution to Africa’s debt requires postponing indefinitely negotiations on the EPAs and their rejection by African countries. A further trade liberalization as contemplated by the EPAs will wipe out any remaining industrial infrastructure, worsen capital flight and aggravate capital shortage by spiriting away Africa’s own savings.

7) Cooperation in the repatriation of stolen wealth

Tony Blair and his counterparts can do a great service to the African people by sincerely cooperating with African governments and civil society organizations who are calling for the speedy repatriation of the stolen wealth kept in Western banks and the punishment of all those who collaborated in this loot. This operation, if successfully conducted, could provide hundreds of billions of dollars to be invested in Africa’s human development, thus greatly reducing the need for African governments to engage in a “race to the bottom” in order to “attract” foreign direct investments.

Conclusion

If Tony Blair and the other G 7 leaders are really serious about a “Marshall Plan for Africa” or want to “make poverty history” they need not look far: they should follow the above steps. Africa does not need charity and handouts, but justice and fairness. If the above measures were to be implemented, Africa would be able to finance its own development. African leaders should not have any illusions about Tony Blair’s “Marshall Plan” or about any other Plan concocted by other G7 leaders. No country or institution will ever “develop” Africa. If development has to come, it will not be from external forces, however well-intentioned, but from the African people.

* Demba Moussa Dembele is with the African Forum on Alternatives, Dakar, Senegal. ([email protected]; [email][email protected])

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