Debt dooms development goals, UN

Marty Logan
Inter Press Service News Agency
September 30, 2004
Montreal: Unless the debts of the poorest African nations are completely forgiven, those countries stand no chance of achieving the world’s development goals by the target date of 2015, says a United Nations report released Thursday.

It was published one day before ministers from the seven most industrialised countries (the G7) are scheduled to meet in Washington, where they will also participate in weekend meetings of the World Bank and International Monetary Fund (IMF) in which debt cancellation, long urged by international non-governmental organisations (NGOs), is expected to be a main topic.

The issue was stirred up Sunday when a British official announced his country will assume 10 percent (equal to 180 million dollars a year) of the debt owed to the World Bank and African Development Bank by the planet’s poorest nations.

Other G7 nations are said to be reluctant to pay the debts from their own treasuries, and a U.S. proposal would have the IMF finance loan forgiveness by selling some of its huge gold reserves.

In its report the U.N. Conference on Trade and Development (UNCTAD) says the cost of servicing their debt means the African countries will not be able to attain the seven-eight percent growth it is estimated they must hit in order to halve poverty by 2015, one of the targets of the Millennium Development Goals (MDGs).

All but one of the MDGs, adopted by the international community in 2000, set targets for improving basic development indicators: poverty, child mortality, primary education, maternal health, gender equality, HIV/AIDS and other diseases, and environmental sustainability, all by 2015. The eighth directs the world’s rich countries to aid developing nations in their efforts.

According to UNCTAD, between 1970 and 2002 Africa received some 540 billion U.S. dollars in loans. But despite paying back close to 550 billion dollars in principal and interest, it still had a debt of 295 billion dollars at the end of 2002.

The situation was worse in sub-Saharan Africa, which received 294 billion dollars, paid 268 billion dollars to service its debt – yet remained straddled with debt of some 210 billion dollars.

“To anybody who reads this . . . it’s just absurd. It’s what (economist and U.N. advisor) Jeffrey Sachs – who’s no radical – calls the odious part of debt,” said UNCTAD Acting Secretary General Carlos Fortin.

“The debt burden of Africa is part of a vicious circle . . . that must be broken before Africa can think seriously” about taking its place in the world economy, he added in an interview from New York.

The report recommends a moratorium on debt servicing and setting up an independent panel of experts to assess the sustainability of debt, based on realistic and comprehensive criteria, which includes meeting the MDGs.

Eight years ago, the World Bank and IMF set up a scheme designed to reduce the debts of 42 of the world’s poorest nations to sustainable levels. Yet “heavily indebted poor African countries are still far from achieving sustainable debt levels” under the Heavily Indebted Poor Countries (HIPC) plan, says UNCTAD.

It predicts that 23 nations that reached their “decision points,” the stage at which creditors agree to consider debt relief, by the end of 2003 have only a 40 percent chance of attaining debt sustainability by 2020.

UNCTAD’s argument is echoed in the ‘Economic Report on Africa, 2004,’ issued Wednesday by the U.N. Economic Commission for Africa (ECA).

The document calls on rich nations to fulfil their aid pledges and to play fair in the trade arena so Africa can benefit fully from globalisation.

“In 2002, the 22.2 billion U.S. dollars Africa received in aid was lower than the 26.6 billion dollars received in 1990. Most of the benefits of aid are lost through debt servicing, which amounted to 22 billion dollars in 2002,” says the report.

It applauds Washington’s 2000 African Growth and Opportunity Act (AGOA) and the European Union’s Everything But Arms initiative for opening up some sectors of the countries’ economies to African goods, but points out that those gains are muted by northern nations’ agricultural subsidies.

For example, cotton producer Mali lost an estimated 43 million dollars in revenues in 2001 because of subsidies to cotton producers in the developed world. “This is more than Mali received in aid that year,” says the report.

“At the global level, priorities clearly lean away from Africa and developing regions,” says ECA Executive Secretary KY Amoako in a news release. “Each year, 300 billion dollars supports farmers in rich countries, while less than one-sixth of that amount flows to poorer countries in the form of aid.”

The document does not shy away from criticising African nations for their woeful economic performance. “They must do more to end conflicts, produce a better-trained and healthier workforce, improve economic and political governance and develop basic infrastructure. Peace remains a necessary prerequisite for growth,” it argues.

Manufactured goods must also start to replace commodities as exports, says the commission, singling out Mauritius, South Africa, Namibia, and Tunisia as countries that have successfully shifted to selling more of such products.

But overall the ECA adopts a positive tone. “Despite Africa’s slow progress towards the Millennium Development Goals, the overall message of the report is optimistic. In recent years, the continent has begun to recover from the ‘lost decades’ of the 1980s and 1990s,” says an overview of the report.

More good news emerged in 2003, according to the commission. Africa registered the second-fastest rate of growth among developing regions, behind East and South Asia, and its countries recorded an average growth rate of 3.8 per cent, up slightly from 3.2 per cent in 2002.

The continent’s current account deficit fell from 1.6 per cent of gross domestic product (GDP) in 2002 to 0.7 per cent in 2003, mainly due to higher oil and commodity prices and increased remittances from Africans working overseas, the report adds.

“Peaceful political transitions in Angola and the Democratic Republic of Congo (DRC) began to produce economic benefits. Angola attracted substantial foreign direct investment (FDI) during the year and GDP grew at over 7.5 percent. The DRC saw growth of over five percent.”

Still, notes the document, only five of the continent’s 55 nations – Angola, Burkina Faso, Chad, Equatorial Guinea and Mozambique – achieved the seven percent growth rate said necessary to reach the MDGs.

Categories: Africa, Odious Debts

Tagged as:

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s