AFRICA: World Bank Debt Initiative ‘Just More Of The Same’

By Lahai J. Samboma Reprint | | Print |

LONDON, Mar 23 1996 (IPS) - A former African economics minister is calling for an international inquiry to be instituted to decide whether the billions of dollars of African debt owed to international creditors should be repaid at all.

Speaking to IPS after the ‘new’ initiative on African debt announced last weekend by the World Bank, Dr Abdulrahman Mohamed Babu said that both multilateral and bilateral creditors were only interested in “getting their money back”.

“I had decided to give them the benefit of the doubt, hoping that they would come up with something new,” said Babu, a former Tanzanian economics minister and commentator who now teaches at the University of London.

“But what they have come up with is just more of the same,” he said. “This has not come as a surprise because all they really want is to get their money back. The only solution to this debt crisis is to set up an inquiry to establish whether we really have an obligation to pay these debts.”

The so-called new initiative on debt by the World Bank, announced in Washington, also failed to impress many London-based development experts, who variously described it as “grossly insufficient” and as “too little, too late”.

While the Bank acknowledges that African debt, estimated at 300 billion dollars, and those of other severely-indebted countries represent an “unsustainable burden,” its proposals fail to answer the urgent appeals of African governments and sympathetic NGOs.

The Bank says the plan is about debt relief, not cancellation. Debt relief would be available to eligible countries through rescheduling by the Paris Club of bilateral creditors of up to 90 percent of their debt stocks, against the current 67 percent.

In what some analysts read as an attempt to preempt criticism of its failure to address multilateral debt, the Bank has floated the idea of a special trust fund into which multilateral institutions and bilateral creditors would contribute and which would be used to pre-pay or service a portion of countries’ multilateral debts.

Described by the Bank as a “comprehensive approach to the debt problem which takes multilateral, bilateral and commercial debt into consideration,” the plan sets a threshold of debt sustainability of 20-25 percent for the debt service-exports ratio and a debt-exports ratio of between 200 and 250 percent.

The strategy would only apply to countries that strictly abide by the Bank and IMF-imposed Structural Adjustment Programmes (SAPs) over a benchmark six-year period. This would lead to a “comprehensive treatment of its debts,” says the Bank, without defining the word ‘treatment’.

Countries eligible to participate in this “new debt reduction strategy” are Burundi, Guinea Bissau, Mozambique, Nicaragua, Sao Tome-Principe, Sudan, Zaire and Zambia. Others which could qualify are Bolivia, Cameroon, Congo, Cote d’Ivoire, Ethiopia, Guyana, Madagascar, Myanmar, Niger, Rwanda, Tanzania and Uganda.

It is not surprising that the Bank’s proposals have come under such sustained criticism. Analysts say they hardly amount to a dent in the entrenched positions of Africa’s international creditors, whose inflexibility has become legion.

“Though at times it may look as though progress is being made, the fact is that too little is being done,” says Dinesh Dhodia, chief economist at the Commonwealth secretariat in London, “and it is being done too late.”

African governments and international NGOs have long campaigned for the World Bank and the IMF, to forgo their ‘preferred creditor status’ and reduce the debilitating burden of debt servicing and repayments on African governments.

Twenty-five percent of African debt is owed to multilateral creditors and about 30 percent to the Paris Club of bilateral creditors, while just over 15 percent is commercial debt. The rest is made up of principal and interest arrears.

The United Nations maintains that these figures disguise the fact debts to multilateral institutions account for over 40 percent of the debts of at least 24 countries in the region.

Though the proportion owed to bilateral creditors is marginally higher than that owed to multilaterals such as the Bank and the Fund, campaigners say the inflexibility of the latter — it can block access to other sources of credits if their arrears are not cleared — has hobbled the development prospects of Africa.

Under SAPs, African countries are diverting vital resources from health and education to repay Bank and IMF debts, leaving little scope for the development of Africa’s human resources on which the future of the region depends.

The British development NGO Oxfam estimates that the region is presently diverting eight billion dollars of bilateral credits to service debts owed to the multilateral lenders. The latest Bank initiative, argues Kevin Watkins, Oxfam’s senior policy adviser, will only serve to aggravate the problems of the region.

“What the Bank have proposed is grossly insufficient,” said Watkins. “This, I believe, is due to pressure from the IMF, who don’t want to accept that multilateral debt is the main problem, because they want to resist pressure to sell their gold stocks to deal with the problem.”

“This is a shock, in the sense that I had been expecting shame and remorse from people who are contributing to the tragedy that is Africa,” said Baffour Ankoma, deputy editor of the London- based New African magazine. “We will fight them till the end.”

Watkins also condemns the Bank’s attempt to “diminish the scale of the problem” by limiting the number of countries it feels are eligible, or will become eligible, for debt relief. At least 40 countries, he claims, should be eligible for assistance.

But Watkins concedes that it represents a landmark in the sense that for the first time — through its ‘special trust fund’, which remains to be costed — the Bank has accepted that some action is necessary on the multilateral debt front.

The United Nations announced last Friday its own 25 billion dollar initiative for Africa, to go on health, education and other social programmes and also on conflict resolution.

“The reason the U.N. have come up with this plan is because they realise that the response of the World Bank is totally inadequate and that continuing servicing of their debts will leave no resources for health, education and so-called luxuries like conflict prevention”‘ said Babu.

“This is why I believe that we need a public inquiry on the debt. Also all of us know that many of these debts were contracted by unaccountable and corrupt governments. Why did they loan them the money. What is there on the ground to show for these debts?”