G8 SUMMIT: Debt Cancellation No Panacea for Benin – Analysts

By Ali Idrissou-Toure Reprint | | Print |

Ali Idrissou-Toure

COTONOU, Jul 7 2005 (IPS) - Some may see it as a just reward for years of fiscal discipline. For others, it is a gesture that will ultimately do little to address poverty in Benin. What there is no disputing, is that the debt relief given to Benin last month by the Group of Eight (G8) is as much a source of controversy as satisfaction.

The West African country is among 18 chosen to benefit from a debt forgiveness package amounting to 40 billion dollars. The deal was crafted under intense global pressure for the G8 (comprising the world’s eight leading industrialized nations) to take steps towards poverty reduction in Africa – this ahead of the group’s annual summit, currently underway in the Scottish town of Gleneagles. Fourteen of the 18 countries included in the package are in Africa.

According to government sources in Benin, more than 800 million dollars owed by the country to the World Bank, International Monetary Fund (IMF) and African Development Bank has been cancelled under the G8 proposal. This figure amounts to just over 63 percent of the country’s total foreign debt.

As with the other 17 states named by the G8, Benin’s selection derives from its adherence to the World Bank’s Heavily Indebted Poor Countries Initiative – perhaps better known by its acronym, HIPC.

This programme was introduced after it became clear that the debt burden of poor countries such as Benin had become unsustainable – even after the application of rigorous economic policies put forward by the World Bank and IMF during the 1980s and 1990s.

Thanks to HIPC, a certain amount of debt relief has already been awarded to Benin – almost 90 percent of which was allocated to health and education in the 2004 budget.

This included 5.6 million dollars for subsidizing primary school fees, particularly for girls. Under the Millennium Development Goals (MDGs), agreed on by world leaders at the United Nations Millennium Summit in 2000, developing countries aim to achieve universal primary education by 2015.

Government figures also show that 2.4 million dollars of money that might otherwise have been spent on debt repayments was allocated to malaria and AIDS programmes in the 2004 budget. The MDGs – which tackle key aspects of poverty and under-development – call for the spread of malaria, AIDS and other serious illnesses to have been reversed by 2015.

In terms of the G8 deal, “The beneficiary countries will still need to find the resources necessary to pay their debts,” says Yaya Orou-Guidou, an economist based in Cotonou, Benin’s financial capital. “But, they (the resources) will no longer be paid to the creditors but used to fight poverty, and build schools, hospitals, and health centres.”

According to government economist Alidou Adebi, it appears that money that would previously have been spent on debt relief is now to be paid into a special fund; officials and donors will then decide jointly how this fund should be spent. Calls have also been made for parliament, local government and civil society to have a voice in the allocation of monies freed up by debt forgiveness.

However, Adebi warns that “Debt relief does not necessarily translate into a reduction in poverty.”

“If Benin struggles to pay its debt service and be solvent, it does not – on the other hand – have enough means to insure investments, for which it needs foreign resources. The latter unfortunately come in dribs and drabs,” he notes.

In 1970, the UN proposed that wealthy countries should spend 0.7 percent of their gross national product on aid to developing nations. To date, only five states have managed to attain this goal: Denmark, Luxembourg, the Netherlands, Norway and Sweden.

The Gleneagles summit is considering a proposal by British Prime Minister Tony Blair for wealthy nations to double their collective aid to Africa to 50 billion dollars by 2010.

For his part, Orou-Guidou believes Benin will need to start processing the raw materials it produces if it is to escape the poverty trap.

“A prime material kept in Africa for processing in our factories is one less thing for Western factories to earn money on,” he notes. But, if “we content ourselves with selling our agricultural or mining products in their raw states, they will always feed Western factories which provide jobs for (the West’s) own people.”

Benin currently produces about 350,000 tonnes of cotton seed every year, practically all of which is sent abroad for processing. Cotton production in the country has also been undermined by the subsidies the United States gives to its own cotton farmers.

“If our products commanded a price dictated by their true value, we could very well go without aid. But…are we ourselves trying to exit this vicious cycle?” asks Orou-Guidou.