Dealing the debt

Jon Harle
The Oxford Student
January 27, 2005

This year began with a disaster of unprecedented scale which prompted an incredible surge in public charity. In only a matter of days money for the Asian tsunami beat the total raised from 1984’s Live Aid and it has continued to grow.

As the aid machine cranked into action, commentators began to talk of debt and trade as the real barriers to relief and improvement, realising that the countries in question would still be repaying vast sums due to their existing debts. As much as we give in aid, more still comes trickling back into Britain from the very countries we seek to help; through unfair trading relationships and taxes on imports, and through unpayable debts that we force them to try to repay.

Yet it wasn’t just the journalists and the development professionals who began to talk of the debt; Britain’s own Chancellor, Gordon Brown seemed to be making the important links too.

As well as being a year that opened with monumental tragedy, 2005 was also supposed to be a year for Africa; a year in which Tony Blair’s Commission for Africa would tackle what he calls the “scar on the conscience of the world.”

Clearly debt is high on any African agenda, and the government makes no secret of its intention to use the influential combination of its presidencies of the G8 group of wealthy nations and of the EU to do this.

It is – as Brown acknowledges and as campaigning groups have long realised – a unique opportunity for Britain to do something and to get other powerful nations to follow suit.

So if debt is the great obstacle to development, why, assuming the politicians can be persuaded, can’t we “get real,” as Bono implored at Labour’s Brighton conference, and drop the debt? This is what the Jubilee Debt Campaign is calling for and it is a key demand of the newly launched Make Poverty History campaign, encouraging us all to wear white bands in support of their insistence on change.

In fact Britain has already done a lot to cancel debts owed to it. In 2000 it agreed to cancel those of 27 of the poorest countries, and last year relented after calls to do the same with its share of the debts owed to international lenders like the IMF and World Bank.

But cancelling debts outright is not simply a straightforward measure for good; instead it throws up plenty of other, often poorly understood problems.

The counter-argument may be made that in many cases the debt burden is all that shackles corrupt leaders and fragile democracies to any form of international responsibility. The rationale behind this claims that if you drop the debt, the leaders expand their Mercedes fleet and build a string of new government palaces.

Examples of irresponsible African leaders are easily found; King Mswati III of Swaziland is notorious for his private jets and lavish residences, and Malawian President Bingu wa Mutharika recently caused outrage when he moved into the white elephant 300-room palace of a former dictator, ousting his parliamentary committees into motels.

Holding leaders to account is therefore vital if their debt burdens are to be eased. Even if corruption causes concern, it is surely unfair to use this as a reason to deny debt relief to all, including those who have striven to be models of good democratic rule. We are left in a situation where distinctions and decisions have to be made, where cut-off points have to be designed, and where accountability must be enforced.

Aid is another of Africa’s key concerns. As its countries pay back their debts, our governments and NGOs desperately try to plug the gaps in social spending with charitable schemes and development programmes.

While Gordon Brown declares a new “Marshall Plan for Africa,” some would point out that Africa has been the recipient of ambitious plans and substantial aid many times over, but it still doesn’t seem to be working.

The link between debt and aid seems simple to make; as one flows out, the other flows in. In reality aid and debt have a crucial intersection in international financial policy, and the equations are far from straightforward.

While governments may waive debt repayment, the chances are that with recipient states cuffed to stringent IMF rules, they will actually end up with a cutback in aid and a net reduction in overall wealth.

In order to qualify for money administered by the IMF countries must sign up to an inflexible economic policy known as structural adjustment, and part of this package dictates that any debt-waiving is essentially a form of aid, and must be deducted from the total a country is allowed to receive. So if Mozambique’s debt is dropped, it may not end up any the richer.

Since aid money is often specifically targeted towards particular development projects, while debt waivers relieve the general government coffers, governments often don’t chose to, or aren’t allowed to redirect their own freed-up funds to social improvement schemes.

From irresponsible governments to a totalitarian financial institution: the IMF. A cursory look at the fetters of international fiscal policy shows that an end to debt will never be an end to the problem.

The IMF forces each country to adopt a standardised package, despite clear economic indicators that prove this does not work. A flexible case-by-case approach to assistance would be a much better system for economic and social improvement, so perhaps the same should be true of debt write-offs.

Uganda was guaranteed a two-fifths debt reduction in 2000 as part of a wider poverty reduction strategy. Pledging debt relief as a reward for good governance could provide a vital failsafe to ensure that debt relief actually acts as a positive step forward.

Quite simply, we cannot and should not try to divorce money from politics; development will only be achieved when the political mechanisms are in place to ensure that the people who suffer are those who really benefit. Africa’s politicians need to change, but so too must the international funds to which we subscribe.

So this year I will still be wearing my white band for poverty, but I ‘ll be watching the politicians too; to see if they stick to this mission and insist that Africa’s governments also respond as part of a fuller commitment of responsibility towards the country.

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