An Ebola treatment centre in Kenema, Sierra Leone, on the day of a visit from Anthony Banbury, Special Representative of the Secretary-General and Head of the UN Mission for Ebola Emergency Response (UNMEER). Credit: UN Photo/Ari Gaitanis

By Carey L. Biron
WASHINGTON, Nov 13 2014 (IPS)

The United States proposed Tuesday that the international community write off 100 million dollars in debt owed by West African countries hit hardest by the current Ebola outbreak. The money would be re-invested in health and other public programming.

U.S. Treasury Secretary Jack Lew will be detailing the proposal later this week to a summit of finance ministers from the Group of 20 (G20) industrialised countries. If the idea gains traction among G20 states, that support should be enough to approve the measure through the International Monetary Fund (IMF), where the United States is the largest voting member."The plan is for that money to be re-invested in social infrastructure, including hospitals and schools … to deal with the short-term problem of Ebola but also the long-term failure of the health systems that allowed for this outbreak.” -- Jubilee USA’s executive director Eric LeCompte

“The International Monetary Fund has already played a critical role as a first responder, providing economic support to countries hardest hit by Ebola,” Lew said in a statement to IPS.

“Today we are asking the IMF to expand that support by providing debt relief for Sierra Leone, Liberia and Guinea. IMF debt relief will promote economic sustainability in the worst hit countries by freeing up resources for both immediate needs and longer-term recovery efforts.”

These three countries together owe the IMF some 370 million dollars, according to the U.S. Treasury, with 55 million dollars due in the coming two years. Yet there are already widespread fears over the devastating financial ramifications of Ebola on Guinea, Liberia and Sierra Leone, in addition to the epidemic’s horrendous social impact.

Last month, the World Health Organisation warned that the virus now threatens “potential state failure” in these countries. The World Bank, meanwhile, estimates that the virus, which has already killed more than 5,000 people and infected more than 14,000, could cost West African countries some 33 billion dollars in gross domestic product.

Of course, much of the multilateral machinery is often too cumbersome to respond to a fast-moving viral outbreak. Yet there is reason to believe that the U.S. plan could have both immediate and long-term impacts.

That’s because the plan would see the IMF tap a unique fund set up in the aftermath of the 2010 Haiti earthquake, which facilitated the cancellation of nearly 270 million dollars of Haitian debt to the IMF. Called the Post-Catastrophe Debt Relief (PCDR) Trust, it is aimed specifically at responding to major natural disasters in the world’s poorest countries.

Originally, the PCDR Trust was capitalised with more than 420 million dollars. Today, a U.S. Treasury spokesperson told IPS, the trust has some 150 million dollars in it – money that would be available almost immediately.

“Our proposal is for the IMF to provide debt relief for these Ebola-affected nations from this trust,” the spokesperson said. “The U.S. would like to see around 100 million dollars put toward this effort, however the precise amount will need to be determined in consultations with the IMF and its membership.”

The IMF, meanwhile, says it is preparing to consider the proposal. In September the Washington-based agency made available 130 million dollars in immediate support to Guinea, Liberia and Sierra Leone.

“We are very glad that some donors have expressed an interest in increasing support for the Ebola-affected countries. We are reaching out to all donors to see how we might be able to take this forward … using all the tools available to us,” an IMF spokesperson told IPS.

“[Debt relief] decisions are made according to the merits of the particular case and this would be approached in the same way. We would expect the Board to be briefed soon on this topic.”

Ebola’s “natural disaster”

For development and anti-poverty advocates, debt obligations on the part of poor countries constitute a key obstacle to a government’s ability to respond to critical social needs, both in the short and long term.

In the West African epicentre of the current Ebola outbreak, many analysts have held chronic low national health spending directly responsible for allowing the epidemic to spiral out of control. And when looking at feeble public sector spending, it is impossible not to take into account often crushing debt burdens.

For instance, Guinea spent a little more than 100 million dollars on public health in 2012 but paid nearly 150 million dollars that same year on internationally held debt, according to World Bank figures provided by Jubilee USA, an anti-debt advocacy network that has spearheaded the push for the United States to make the current proposal.

“As bad as Ebola has been, some of these countries have far greater challenges with deaths from malaria than from Ebola,” Eric LeCompte, Jubilee USA’s executive director, told IPS.

“The amount is incredibly important because it cancels a significant portion of the debt completely. And the plan is for that money to be re-invested in social infrastructure, including hospitals and schools … to deal with the short-term problem of Ebola but also the long-term failure of the health systems that allowed for this outbreak.”

LeCompte was also involved in the creation of the Post-Catastrophe Debt Relief Trust, in the aftermath of the Haitian earthquake. His office has advocated for the fund’s monies to be used since then – for instance, to react to flooding in Pakistan and Typhoon Haiyan in the Philippines.

But he says these and other proposals have been rejected by the IMF’s membership, on the rationale that these countries were developed enough to be able to mobilise financing in other ways. (The IMF says PCDR funds are for response to “the most catastrophic of natural disasters” in “low-income countries”, when a third of a country’s population has been affected and a quarter of its production capacity destroyed.)

Not only are Guinea, Liberia and Sierra Leone among the poorest countries in the world, but the Ebola outbreak there has a potentially direct impact on the rest of the globe.

“This is a very clear opportunity to point to the 150 million dollars left in that fund and to note that Ebola is every bit the same as the Haitian earthquake in terms of being a regional calamity,” LeCompte says.

“The difference is that this is also a long-term investment in the very problems that allow Ebola to spread. So we’d be not only addressing the current issue, but also the next disease outbreak in that region.”

It is unclear whether there is a mechanism in place to top up the PCDR Trust in the future. The IMF states that “Replenishment of the Trust will rely on donor contributions, as necessary.”

But for his part, LeCompte says the fund has the potential to fill a significant gap: offering a pot of money, immediately available, that could be quickly mobilised to deal with true crises afflicting the world’s poorest countries, from hurricanes to major financial defaults.

Edited by Kitty Stapp

The writer can be reached at cbiron@ips.org

Brazil’s investments in Africa are steadily growing. The Odebrecht company leads the firms building the Cambambe hydropower complex on the Kwanza River in Angola. Credit: Mario Osava/IPS

By Fabiana Frayssinet
RIO DE JANEIRO, Sep 10 2013 (IPS)

The Brazilian government projects the cancellation of nearly 900 million dollars in debt owed by a dozen African countries as a gesture of solidarity. But others simply see an aim to expand the economic and political influence of South America’s powerhouse.

The decision by the left-wing government of Dilma Rousseff, which is now being studied by Congress, will especially benefit the Republic of Congo, which owes 350 million dollars, Tanzania (237 million), and Zambia (113 million).

The other beneficiaries are Ivory Coast, Gabon, Guinea-Bissau, Mauritania, Democratic Republic of Congo, Republic of Guinea, São Tomé and Príncipe, Senegal and Sudan.

The decision was described by Rousseff as a “two-way street that benefits both the African countries and Brazil.”

But it was not interpreted the same way by the opposition, and some lawmakers are seeking to block congressional approval.

Cases that have been called into question include those of Republic of Congo, Gabon and Sudan, which are facing international legal action for cases of corruption and even genocide.

Authorities in those countries are “corrupt figures who buy Louis Vuitton and Mercedes Benz luxury cars. Writing off the debt of governments that enjoy such privileges sends the wrong message,” said Senator José Agripino of the opposition Democratic Party.

A statement issued by Brazil’s foreign ministry says the forgiveness of the debt is based on the rules and principles of the Paris Club of rich creditor nations, aimed at easing the debt burden of poor countries.

The communiqué said the move was not just something that occurred to Brazil in a vacuum, but formed part of “an international practice with clear objectives to keep the debt burden from being an impediment to economic growth and anti-poverty efforts.”

In an interview with IPS, political scientist Williams Gonçalves at the Rio de Janeiro State University said the argument raised about dictatorships and “supposedly corrupt governments…has nothing to do with international relations.”

Gonçalves said the critics “were not scandalised” when the United States and other economic powers “protected and financed dictatorships in Latin America.”

“And today they are protecting similar regimes in the Middle East,” he said. “Nor are the defenders of human rights and democracy raising their voices.”

Brazil’s foreign policy defends respect for national sovereignty, Gonçalves said.

“Attaching political strings and interfering in local political systems is a common practice by the United States and other major powers,” he said. “Just as we don’t want anyone to meddle in our political life, we suppose others feel the same way.”

There are other aspects to the controversy.

Senator Alvaro Dias of the Brazilian Social Democracy Party mentioned the economic objectives.

Cancellation of the debt would reopen credit lines at Brazil’s National Economic and Social Development Bank (BNDES) and bolster the involvement of leading Brazilian business consortiums in the African countries in question.

Trade between Brazil and Africa climbed from five billion dollars in 2000 to 26.5 billion dollars in 2012, according to foreign ministry figures.

In Africa, Brazilian public and private enterprises have invested in sectors like oil, mining and major infrastructure works.

Marcelo Carreiro, a history professor at the Federal University of Rio de Janeiro, told IPS that Brazil’s Africa policy has “strategic objectives” such as “the extension of a strategic security area and the expansion of market access.”

That is reflected by the selection of countries, many of which are in West Africa, geographically across the ocean from Brazil’s impoverished but fast-growing Northeast, he said.

That could give rise to “the creation of a geostrategic Brazilian sphere in the south Atlantic, responsible for conceptually expanding this country’s frontier towards the African coast,” he said.

This would safeguard “not only its strategic pre-salt area (the ultra-deep oil reserves hidden under a thick layer of salt off the coast of Brazil) but also the vast extension of Atlantic coast, in a ‘mare brasiliensis’,” protecting this country from future access by enemies to its territory.

The history professor said “this new carving up of Africa” is indicated by the inclusion of “the only country on the planet governed by a leader facing genocide charges,” the president of Sudan, Omar al-Bashir, who is wanted by the International Criminal Court.

“Sudan is triply attractive for Brazil: it is rich in oil, in need of civil construction, and hungry for industrial and agricultural goods,” Carreiro said.

“It is possibly the most advantageous market in Africa, for the Brazilian economy,” he added.

Closer ties would bring additional advantages, such as support for Brazil’s aspirations to a permanent seat on the United Nations Security Council.

But Gonçalves is not shocked by this interpretation. “The forgiveness of the debts of small states by large economies is a common thing,” he said.

“The technical explanation for this cancellation is clearing the slate for those countries to pave the way for loans from the BNDES that favour the activities of large (Brazilian) companies,” he added.

But the political science expert does not see this as running counter to the principles of aid. “Solidarity and cooperation are carried out by means of loans and the implementation of projects,” he said.

“International economic relations occur under the capitalist system, which means the aim is always profit,” he said.

But the analyst believes that unlike other kinds of aid, “these projects will be carried out under financial conditions and with social objectives that do not awaken the interest of the big industrialised economies.”

Investments by South America’s giant also reach Africa through the Brazilian Cooperation Agency (ABC), with a total of 50 million dollars in projects in agriculture, health and education in 2010.

Carreiro pointed out that shortly before the debt cancellation plan was announced in May, the Rousseff administration reported that ABC would be overhauled, and its aid would be increased by 300 million dollars, mainly for Africa.

“But that was apparently seen as too little, and Rousseff decided to speed up the decision, directly buying influence in key countries in Africa,” he said.

“Earmarking 300 million dollars for cooperation projects and writing off some 900 million dollars in debt for corrupt governments are two contradictory practices in a chaotic foreign policy,” Carreiro said.

A 2012 study by the Don Cabral Foundation showed that Brazil’s presence in Africa was growing, with 34 Brazilian multinational corporations operating in the continent. In the view of 44 percent of the companies surveyed, the government’s foreign policy over the last decade has fuelled expanding international involvement by Brazilian firms.

Nearly 20 of the world’s largest creditor countries have announced that they would be cutting nearly half of Myanmar’s total foreign debt, worth some six billion dollars.

Those countries, which include the United States, United Kingdom and several members of the European Union, are part of the Paris Club, a group of 19 of the world’s largest donors. On Monday, the group stated that its members were aware of Myanmar’s “exceptional situation” and had agreed to a 50-percent cancellation of arrears and a seven-year grace period for the remainder.

On the sidelines, Norway and Japan came to separate agreements to cancel additional debts amounting to around four billion dollars. President Thein Sein, who has overseen more than two years of contested political and economic reforms in Myanmar, had reportedly made debt relief a priority for his administration.

The Paris Club move comes just a day after the World Bank and the Asian Development Bank (ADB) came to a separate agreement to restructure close to a billion additional dollars that Myanmar owed the institutions. This deal, made possible by a substantial “bridge loan” from Japan, will give the country economic breathing room as it works to emerge from decades of international isolation and almost nonexistent economic and social development.

The deals follow on an agreement signed last month stipulating that Myanmar would adhere to conditionalities set by the International Monetary Fund (IMF). Together, the accords signed in recent days clear up, at least temporarily, almost three-quarters of Myanmar’s total foreign debt.

Estimated by the IMF at around 15 billion dollars, that debt load has been described by some economists and diplomats as one of the most significant impediments to the new government’s plans for reforms and development.

Among other things, the new agreements will allow Myanmar leeway to engage in new programmes through the World Bank, which had been constrained in the extent to which it could engage with the country. Last week, the World Bank approved a new credit, worth 440 million dollars, aimed at strengthening the country’s macroeconomic climate – and beginning to pay back the Japanese government’s bridge loan.

Future saddling

Myanmar received significant foreign financing during the 1980s, but that was largely halted following a brutal crackdown on civil liberties that began in 1988. By the end of the 1990s, the military government, amidst broad stagnation and increasingly isolated on the international stage, essentially stopped paying its foreign debts.

As the past two years of reforms have taken hold, however, international donors and multinational companies have begun to eagerly flood back into the country; the World Bank Group re-opened Yangon offices in August. Yet the fact that Myanmar will now again be fully integrated into the international framework strikes some overly quick – and the terms of the new agreements as overly generous.

“These agreements allow large amounts of new lending, before any investigation has been made into how past loans did and did not benefit the people of Burma,” Tim Jones, a policy officer with the Jubilee Debt Campaign, an international anti-debt advocacy group, said Monday in a statement.

He also noted that the new World Bank and ADB deals, which simply restructure rather than cancel Myanmar’s debts, will now allow the government once again to engage in borrowing from these institutions.

“None of these deals save Burma any money now, but they commit future governments to making payments on debt they inherit,” he says. “This support for a military dictatorship could bind the hands of a hoped-for future democratic government.”

Indeed, for all of the changes of the past few years, Myanmar’s government is still dominated by the military, with President Thein Sein himself a former general. And despite suggestions of significant factionalisation within that force, it is far too early for many in and out of the country to believe that the Myanmarese military is in any way reformed.

“It is incredible that Burma gets billions of dollars of debt relief when its biggest spending is on the military,” Anna Roberts, executive director of Burma Campaign UK, said Monday. “Burma’s leaders should be on trial in The Hague, not getting special deals on debt relief.”

Unnecessary exception

The “specialness” of the new deals is of particular interest. Over the past decade, after all, the international community has made some progress in consolidating a set of principles by which it should deal with foreign debt amassed by developing countries.

“If two developing countries have the same amount of debt, we’d like them to get the same deal,” David Roodman, who researches aid and debt relief at the Center for Global Development, a Washington think tank, told IPS.

“But according to the norms that have been developed, Myanmar didn’t meet those requirements. So this agreement not only is an exception to those rules but undermines the rules-based approach more generally.”

In evolving discussions over the past 10 years, the international community has agreed to define eligibility for debt relief based on the sustainability of debt levels – the ratio of debt to gross domestic product (GDP), for instance, or the ratio of debt to exports.

Yet Roodman says that while the agreed level for debt to GDP is 30 percent, Myanmar’s debt stands at just 18 percent of GDP, almost half of the stipulated requirement. Likewise, the level for debt to exports has been agreed at 100 percent, while Myanmar’s stands somewhat lower at 85 percent.

“Further, the IMF has done some scenarios through modelling on the likely course of exports and GDP in coming years in Myanmar,” he says, “and they found that the debt load, if anything, is going shrink.”

The key to understanding the Paris Club decision, then, might have to do less with development than with foreign policy. From this perspective, while foreign governments may be successfully jockeying for position with Myanmarese officials, they may be losing valuable leverage that could still be required down the road.

Notably, Myanmar still owes around two billion dollars to China, the military’s closest ally for decades and a key reason many Western countries may be prioritising relations with Myanmar today. In a new blog post, Roodman notes that opposition leader Aung San Suu Kyi has in the past urged foreign governments to suspend rather than end economic sanctions.

“(T)he threat of easy reinstatement, in her judgment, would spur further reform,” he writes. “The analogous step in the debt dance was to refinance defaulted loans rather than cancel them. Just as sanctions can be permanently abolished later, so can debts be.”

Twelve years after a global campaign successfully advocated the cancellation of some of the world’s poorest countries’ public debt, developing economies are again facing unsustainable debt burdens. Only this time, it is the private sector’s debt in developing economies that is inflating dangerously.

Children in Otjivero, Namibia. Credit: Servaas van den Bosch/IPS

A recent report by the Jubilee Debt Campaign, a coalition of organisations supporting debt relief and increased transparency in global financial markets, highlights that foreign debt payments of the private sector in impoverished countries have increased from four percent of export earnings in 2000, to 10 percent on average in 2010.

“Some countries like Ethiopia, Niger or Mozambique continue to spend as much on debt service as before the rounds of debt cancellation in 2000,” Tim Jones, who authored the report, told IPS. The governments of El Salvador, the Philippines and Sri Lanka also continue to spend a quarter of government revenue on foreign debt payments.

Debt payments of the private sector are now double those of the public sector in many of the world’s most fragile economies, the ‘State of Debt’ report argues.

“Generally, public debt has decreased because of debt cancellation or better economic prospects, but the private sector has become dangerously indebted in many developing countries, threatening development achievements,” Jones explained. “Nothing has been done to prevent the build up of large debts in developing countries through a very liberalised global financial system,” he added.

Despite the international community agreeing to cancel up to 125 billion dollars for 33 countries since 2000 under the Heavily Indebted Poor Countries (HIPC) initiative, the International Monetary Fund and World Bank predictions foresee foreign debt payments in the least developed countries (LDCs) increasing by one-third over the next few years, the report argues.

The swelling of unsustainable debt, which has afflicted the South since the 1970s, is now causing panic in Europe as well. What is happening in Greece today mirrors what has been happening in the developing world, the Jubilee Debt Campaign argues, observing that history is repeating itself in a world where “lenders can go on lending with impunity and borrowers will always have to pay the price”.

The issue of unsustainable debt came to the world’s attention when Mexico first defaulted in August 1982. Mexico faced another debt crisis in the 1990s, followed by East Asia, Russia, Brazil, Turkey, and Argentina, due to excessive borrowing by the private sector.

The Campaign’s research estimates that “in the 1950s and 1960s, the number of governments defaulting on their debts averaged four every twenty years. Since the 1970s this has risen to four every year.”

“We now have a global financial crisis where people in the Western world are experiencing what many people across the global South have experienced for the last 30 years. It’s amazing how this ideology of liberalisation still holds so much sway,” Jones marveled.

“Some countries have tried to re-regulate international lending in recent years, like Brazil, which imposed a tax on short-term foreign money coming into the country; Iceland as well (whose entire banking system collapsed in 2008, the country’s three largest banks having accrued debt exceeding six times the national GDP) has had a very different response to the global financial crisis: its government refused to take on the banking sector’s foreign debt, largely because the people stood up and refused to do that. Iceland is now recovering far better than other countries from its debt crisis.”

“More countries have been backing regulations on how money flows in and out of their territory, but there are barriers in the system, such as World Trade Organisation (WTO) agreements,” Jones added.

Since 2000, 32 developing countries have qualified for debt relief, their debt payments reduced from an average of 20 percent of government revenue in 1998 to less than five percent in 2010, according to the report. In countries qualifying for debt cancellation, primary school enrolment has increased from 63 percent of children to 83 percent in ten years.

The Jubilee Debt Campaign has been advocating the creation of an international debt court able to cancel unsustainable debts, arguing, “Many developing countries have been, and continue to be, locked in a debtor’s prison.”

The increasing burden of debt is also strongly felt in developing countries that did not qualify for the HIPC scheme, such as Kenya.

“There isn’t enough thinking around debt management policies and development outcomes,” Kiama Kaara, who heads the Kenya Debt Relief Network programmes in Nairobi, told IPS.

“Loans and development financing must be tied to the national development agenda, otherwise we will end up with more useless, ‘white elephant’ projects that drain national resources,” he added.

Kenya’s public debt increased from 46.8 percent of GDP to 48.9 percent today, according to the Network.

“Borrowing makes economic sense, but the level of prudence should increase,” Kaara explained. “This is particularly worrying in countries where the political elite is the same as the economic elite; the appetite for increasing domestic debt benefits banks controlled by influential players, who profit from the private sector’s debt despite the obvious conflict of interest.”

At a national level, civil society is increasingly mobilising to have a stronger say on the level of debt incurred by governments. The Kenya Debt Relief Network has been drafting a ‘Responsible Borrowing Charter’ to gauge loans against the country’s macroeconomic indicators.

“The IMF has been seeking to create a new mandate on how to regulate the movements of money between countries, but it is still very weak,” Jones told IPS. “We are making the same mistake with the European debt crisis as with the Latin American debt crisis in the past, by thinking austerity is the answer, and it just creates further decline in the economy and suffering for the people on the ground.”

(END)