DEVELOPMENT BULLETIN-AFRICA: Little Enthusiasm for Debt Initiative

By IPS Correspondents Reprint | | Print |

Melvis Dzisah

ABIDJAN, May 30 1998 (IPS) - There were few plaudits for an initiative aimed at easing the burden of Heavily Indebted Poor Countries (HIPC) when it came up for discussion at the African Development Bank (AfDB)’s Board of Governors meeting that ended here Friday.

Some delegates welcomed the HIPC Debt Initiative, but with caution. Others charged that it would not have been necessary had structural adjustment programmes the Bretton Woods institutions imposed in Africa not gone wrong, thus imiting the continent’s ability to service a debt estimated at 315.2 billion dollars.

The initiative, approved in 1996 by the governing bodies of the World Bank and the International Monetary Fund (IMF), seeks to reduce the debts of eligible countries to sustainable levels i.e. to amounts that governments would be able to service.

However, eligibility for debt forgiveness under the HIPC is linked to potential beneficiaries implementing economic reforms to the satisfaction of the Bretton Woods institutions and other creditors.

According to K.Y.Amoako, Executive Secretary of the U.N. Economic Commission for Africa (ECA), “there is the danger that if HIPC is implemented without due flexibility, it will end up like the mountain that gave birth to a mouse.”

“Maintaining the right perspective will be fundamental to the success of the Initiative,” he said.

Amoako was worried about the length of the work-out period (the time it takes for countries to actually benefit from the initiative) which in some cases could be as long as six years, and about creditors’ commitment to adequate amounts of financing.

Part of the problem lies with the fact that a country cannot receive debt relief unless all creditors linked in the initiative — its bilateral lenders (known collectively as the Paris Club, the IMF the World Bank and other multilateral lending agencies — agree to foot their share of the bill.

Mozambique is a case in point. Its bilateral creditors held up its application for debt relief for nearly a year in a dispute over their share of the bill and, in the end, the World Bank had to find 100 million dollars to cover the Paris Club shortfall.

The debt initiative was roundly criticised at the may 27-29 AfDB meeting by Nigeria’s Finance Minister, Chief Anthony Ani, who doubted it “would ever enable beneficiaries to overcome their present economic woes because, invariably, it is not going to help economic development in the countries concerned”.

He suggested that instead of the HIPC initiative, those who are actually interested in helping poor countries overcome their economic woes should invest heavily in them, which would create jobs and generate revenue from which they could recover their loans.

“Most of these countries like Liberia, Democratic Republic of Congo, have proven natural resources which, when invested in, could enable both creditors and debtors to overcome their problems,” Ani pointed out. “Why not do this instead of HIPCs?”

However, the AFDB, which is contributing between 180 million and 230 million UA (one UA = 1.34925 USD) to the HIPC initiative, said it would help restore the confidence of investors and promote growth opportunities in beneficiary countries, thereby facilitating private capital inflows.

Harvard University Professor of Economics Jeffery Sachs was sceptical. He felt all attempts by the World Bank and the International Monetary Fund (IMF) to promote economic growth on the continent were useless.

“I believe we are at the end of World Bank, IMF structural adjustment in Africa — or I believe we should be because despite immense refrm efforts by African governments over the past 20 years, actual performance of African economies has been dangerously poor,” he said.

There are some basic flaws in World Bank-IMF adjustment programmes, he added, like international financial institutions pushing good governance through complex loan conditions that have caused the de-legitimization of government in Africa.

Loan conditionalities have not been working, he argued, charging that the average World Bank and IMF programmes carried 117 conditions, “which partly reflect the Bretton Woods institutions’ need to create jobs in Washington”.

According to Sachs, dirct conflicts between policy advice given to countries and strategies needed to promote growth were suffocating economic development in Africa and elsewhere.

His statements drew a sharp response from Jean-Louis Sarbib, the World Bank’s vice-president for Africa. “It may have been a very entertaining talk,” retorted Sarbib, who accused Sachs of misreading the data on African economies. “We made lots of mistakes, but we are making progress on regional programmes,” he said. “I have been working on this continent for years.

But Sachs insisted that Bretton Woods’ programmes had not succeeded in diversifying Africa’s productive base and promoting its exports. “It is absurd,” he said, “that no sub-Saharan African country aside from Mauritius is a significant exporter of clothing and textiles.”