How the west dug holes for the poor

The New Statesman
January 31, 2005

During the cold war, the developed nations lent willingly to Africa. No worries then about how corrupt dictators might misuse the money or line their own pockets: the US gave millions to the notorious Mobutu regime in Zaire. The fear was that, without cash, these countries would go over to the other side. Once the cold war ended, the debts were smartly called in and, if countries hadn’t got the money, they had to borrow again at higher rates. That essentially is the origin of the developing world’s debt crisis. We dug ever deeper holes for these countries throughout the 1990s. Development aid fell by 40 per cent. Western government agencies gave credits for projects that would line the pockets of big corporations – arms purchases, airports, dams – even though these deals were frequently corrupt, offered no benefit whatever to ordinary people and, all too often, made unstable countries even more unstable. (Gabon, Nigeria and Algeria all owe more than half their debt to export credit agencies.) The IMF and the World Bank have insisted on neoliberal “disciplines” – lower tariffs and less state spending on social services, for example – which have only weakened indigenous industries, deepened poverty and further increased indebtedness.

Now there’s a new war on and the rich world is interested in poor countries, and particularly Africa, once more. Soon after the “war on terror” started in 2001, Pakistan had no trouble getting nearly a third of its debt to the US cancelled. But it’s not just Osama Bin Laden we are worried about. Poverty and civil conflict increase flows of migrants to the west. Poverty inclines countries to over-consume natural resources, degrade the environment and use obsolete vehicles and industrial plants that belch out carbon dioxide. Poverty leads to conditions that incubate new diseases that can spread across the world in a few days.

But if self-interest is prompting the G7 finance ministers, meeting in London, to push the poor world up the agenda, they at least show some signs of taking the long view. Initiatives in the late 1990s seemed to satisfy mainly the short-term interests of the creditors, forgiving some debt only so that the rest could be serviced more smoothly. As Noreena Hertz records in her recent book IOU, poor countries were left to pay out 40 per cent of their export revenues on debt repayments (after the Second World War, the equivalent figure for Germany was 3.5 per cent). Only a third of the $100 billion in debt relief promised in 1999 has materialised, and several of the heavily indebted poor countries that the scheme was supposed to benefit now have rising debt-service payments. Nearly all of them pay out far more to their creditors than they spend on the health of their populations, even though their medical needs dwarf those of any developed country.

The aim of western aid and debt relief should be – and how often have we heard these words? – sustainable, long-term, independent development. That cannot mean cutting spending on health and education, selling off state assets (usually to rich-world “investors”), charging for water or visits to the doctor, as the IMF and World Bank usually demand. Nor can it mean allowing western companies to dump their goods at the expense of fragile local industries – particularly while these countries are still prevented, by tariffs and subsidies, from competing in western markets. It is right to attach conditions to western assistance, but these should not include adherence to economic rules dictated by neoliberal dogma, and applied, in any case, one-sidedly. Poor countries should rather be required to give the highest priority to basic social, medical and educational services, to human rights and to “clean” government. All this, not dedication to the textbooks of US economics professors, will ensure that these countries can eventually stand on their own feet.

How can we be sure that aid and debt relief will not go into the pockets of corrupt elites? One answer is to channel more funds to civil-society institutions, such as trade unions, co-operatives and churches. Ms Hertz proposes that the money should go to specially formed “national regeneration trusts” where, though the majority of trustees would be local, only a minority would be appointed by the government. A second answer is to make transparency the sine qua non of debt relief. But the third answer is to encourage the most effective aid of all: the freedom of poor people to find jobs in the west. Remittances from migrants to their families bypass governments and elites – and in many countries are the biggest single source of foreign currency. Politicians who say they want to help the poor, while making it yet harder for them to come here, risk being accused of the worst kind of hypocrisy.

Categories: Africa, Debt Relief, Odious Debts

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