The East African (Nairobi)
August 2, 2004
According to the report, people living in absolute poverty in the region rose to 47 per cent in 2001, up from 42 per cent in 1981. In the rest of the world, absolute poverty dropped from 40 per cent to 21 per cent within the same period. UNIDO correctly asserts that further aid will help, but the only way of lifting the region from the precipice of further poverty is to develop trade and industry. Needless to say, trade will not be of any use unless it is fairer and efforts are made to eliminate the protectionism in the industrialised countries that prevents poor nations from accessing their lucrative markets.
As if that is not enough, sub-Saharan Africa now owes $201 billion in international debts. That Africa will not develop with these unending obstacles cannot be gainsaid. More aid, and therefore debt and interest obligations, are exacerbating the problem.
In a nutshell, there should either be a moratorium on any further debt and repayments, or Africa should simply default as recently suggested by Prof Jeffrey Sachs of Columbia University. Prof Sachs also happens to be the economic advisor to the UN Secretary General Kofi Annan.
There have been recent efforts at debt relief for the most impoverished African countries. But the size of the total debts cancelled by the G8 and other major lenders is laughable. According to a study by Jubilee Research, only one third of the $100 billion write-off promised by the G8 years ago has been delivered so far.
Sachs says that African debts are unsustainable and if foreign banks cannot cancel them, then he suggests obstruction, a euphemism for default. I think this idea, as fraught with risks as it may be, is the only solution to Africa’s troubles. The only caveat would be that there should be governance systems that are devoid of corruption to allow proper use of the freed resources for the intended purposes.
Defaulting on sovereign debt is nothing new. According to a study by Harold Cole and others, many Latin American countries and US states borrowed heavily from international markets in London during the 19th century to finance war and subsequently defaulted.
As is the norm, they were excluded from the credit markets until they agreed to settle part of their old debts, at which point they were gradually eased back into the markets. But Florida and Mississippi successfully repudiated their debts and never paid back. After the American civil war, they were able to borrow without settling the old debts.
Tony Sisule is a consultant at Africaintel.com.