The world's richest countries also known as the G8 met in Gleneagles , UK , on early July of

African leaders diappointed at G-8 performance on debt relief

this year. At the top of the agenda for the meeting was debt relief to the world's Heavily Indebted Poor Countries or HIPC. The   HIPC initiative was proposed by the World Bank and IMF and agreed to by governments around the world in the fall of 1996.  According to its founders, HIPC is a comprehensive approach to reduce the external debt of the world's poorest, most heavily indebted countries, and represents an important step forward in placing debt relief within an overall framework of poverty reduction. To put it bluntly, HPIC initiative is the process by which the IMF and The World Bank determine whether or not a poor country qualifies for financial help. It has strong support from G8 countries and has been the basis on which leaders at the G8 submit decided which poor countries get assistance. We will take a look at how HPIC works and examine how the debt relief package out of the submit stacks up against Africa 's debt burden.

How Does the HPIC Work?           

According to the IMF, to be considered for HIPC Initiative assistance, a country must:

•  Face an unsustainable debt burden, beyond traditionally available debt-relief mechanisms;

•  Establish a track record of reform and sound policies through IMF- and World Bank-supported programs; and

•  Have developed a Poverty Reduction Strategy Paper (PRSP) through a broad-based participatory process (an interim strategy is sufficient to begin the process).

The first step is to carry out a debt sustainability analysis to determine the debt relief needs of the country. This is called “ Decision Point ”. Once the country reaches its decision point, it may receive some interim relief.   However, to qualify for full debt relief, it must establish a further track record of good performance under IMF- and World Bank-supported programs. If the country succeeds to establish such record it reaches “ Completion Point ”, the final stage in which all the political and economic reform conditions are met to the satisfaction of the IMF and the World Bank.

  Winners and Losers

At the end of the G8 submit, leaders of wealthy nations agreed to cancel the debts of 18 HIPC member countries that passed the ‘completion points' requirements. Fourteen of the 18 countries that will become debt free are in Africa , as shown in Figure 1. They are Benin , Burkina Faso , Ethiopia , Ghana , Madagascar , Mali , Mauritania , Mozambique , Niger , Rwanda , Senegal , Tanzania , Uganda and Zambia . Under this agreement, some $40 billion of debt will be cancelled and will apply to obligations owed to the IMF, the World Bank and the African Development Bank.   Debt relief will be extended to additional countries as they reach completion point. Nine more countries are expected to qualify by the end of 2006. The soon-to-be-winners category includes Cameroon , Chad , Congo , Gambia , Guinea , Guinea-Bissau , Malawi , Sao Tome and Principe , and Sierra Leone . See Figure 1.
It is important to point out that the debt cancellation does NOT apply to loans obtained through bilateral agreements, which involves usually with another country or financial institution. So with all the hype about being winners, the above countries are not completely debt free. In fact, they will continue to make payments toward their bilateral loans most of which are owed, ironically, to G8 countries. It is because of this irony that many critics of the debt relief package labeled it as a half-hearted effort at best.

Who are the losers? For the purpose of this article, losers are African nations that carry unsustainable debts ( IMF Poverty Reduction and Growth Facility (PRGF ) yet did not qualify for debt relief because they failed to implement necessary economic and political reforms. The IMF believes poverty is not a problem in Northern Africa and is not an issue of concern   in   South Africa , Botswana , Namibia , Gabon , and Equatorial Guinea . That leaves the rest of Sub Sahara nations in loser category.

Figure 1. Countries eligible for G8's debt relief package announced in Scotland , UK .

Source: Christian Science Monitor, July 2005.

  Africa 's Debt Burden: What Does the Debt Relief Mean?                

As impressive as $40 billion debt relief is, it amounts to less than one-sixth of Africa 's   $295 billion debt in the year 2002.   To put the burden of Africa 's debt in prospective, consider this: according to United Nations Conference on Trade and Development ( UNTAD) between 1970 and 2002, Africa received US $540 billion in loan. In the same period, Africa paid $550 billion in principle and interest. Yet, debt payment still goes on sacrificing the health and the education of its people, as well as any prospect of economic recovery and growth. See tables 1 and 2.

Table 1.   Africa 's Debts 1970-2002

  Source: United Nations Conference on Trade and Development (UNTAD, World Bank

Table 2.   History of Africa 's Debts

Source: United Nations Conference on Trade and Development (UNTAD).

Few observations stand out from the data in the above tables and Figures 2 and 3:

• G8's debt cancellation amounts to less than one-sixth of Africa 's   $295 billion debt in 2002.

• Over the last 20 years Africa 's debt increased by over 670%.
• Africa paid back more than it originally borrowed, but still owes half as much.
• During 80s for every dollar borrowed, Africa paid   $2.04 in interest and principal.
• The debt of Africa 's sub Sahara region as a percentage of the Gross Domestic Product (GDP) increased from 17% in the 70s to over 63% in 2002. In other words, for every dollar earned 63 cents were owed to someone else.

Figure 2 Africa 's debt in Billion of US Dollars 1970-2002

Figure 3. History of Africa 's Debt Burden Since 1970

Given the gravity of Africa 's debt situation, why aren't the wealthy nations doing more?   Or more importantly, what is the best approach in dealing with poverty in Africa ? There are those who believe that throwing money at Africa without proper accountability will only lead more to waste and corruption by African governments. This group believes that any form of aid, except disaster relief, has to be strictly tied to the performance of African governments in terms of good governance and poverty reduction programs. Such performance can be monitored and measured through programs such as the

IMF HIPC Initiative. The world's wealthiest nations support this approach. Simon Maxwell of Overseas Development Institute ( ODI ) in U.K described the delicate balance to consider in the implementation this approach. He wrote:

“My word of caution is that good governance should continue to be a criterion. Countries that slip backwards should not receive automatic debt relief or budget support. On the other hand, decisions about when to suspend aid should be transparent and independently monitored. Rich countries should not be allowed to make life and death decisions about who does or does not receive aid. Poor countries that depend on aid are entitled to argue their case before an independent tribunal, and need a right of appeal.”

While tying aid and debt relief to good governance has wide support around the world, many people believe that that unjust international trade rules for developing countries, particularly in Africa prevent them from growing out of poverty. In this context Gordon Brown , Britain 's Chancellor of the Exchequer, in delivering a UNICEF UK lecture said:

“Unfair trade rules not only prevent poor people from throwing off the shackles of poverty, but shackle poor people and poor communities still further.  ...  Think of the Cameroonian farmer whose bananas cannot be sold to European consumers because he is denied access to our markets, even though his products are better than ours.  Think of the Mozambican sugar producer who cannot compete with European sugar beet farmers because the subsidies the Europeans receive enable them to sell more expensive goods at a cheaper price.  Think of the Ghanaian cocoa producers who cannot process their beans themselves because tariffs mean it is cheaper to process them in Europe .”

Vicente Gomez Gutierrez, small-scale Mexican farmer and an advocate of Trade Justice Movement (TJM) captured headlines across the world with this sincere quote:

“Our hope is nothing more than this – to be able to sell our crops for a reasonable price so that we have enough to eat. We don't ask for anything else.”

Regardless of one's stance on the debate of poverty in Africa and what causes it, the fact is that the international donor community is in full agreement and determined to hold African governments accountable for how they govern their nations in exchange for financial aid. Yet, for all their demands on poor African nations, rich countries are the ones who put Africa on the path to poverty by exploiting its resources excessively during the colonial era, and nowadays prevent Africa 's economies to grow by crafting unfair trade practices and policies.

However, as much as it is painful to put up with the hypocrisy of wealthy nations, Africans must not over look the fact that much of Africa 's misery is home grown. Human rights violations, corruption and wasting meager resources are rampant across the continent. The truth is African leaders do more harm to their people physically and economically than anybody else from outside. Any attempt from outside or within to put pressure on these corrupt leaders and make them accountable is a step forward in dealing with poverty in the region.

Accountability, however, must not be a one-way street. Whether or not rich countries take this upon themselves and follow through with their promise remains to be seen.

Omar M. Abdi Hashi  

Software Engineer
Virginia,
USA

E-mail: oabusa@verizon.net

Omar M. Hashi writes on special topics of interest for WardheerNews

Copyright © 2005 Wardheernews.com