Doing the sums on debt
How much does Africa stand to gain from the G8 finance ministers' deal?
Gordon Brown should win a prize for Orwellian use of the English language in relation to the debt write-off package for the world’s poorest countries. The UK chancellor was widely quoted as saying that now was ‘not a time for timidity but boldness’ (1). But the package agreed by the finance ministers of the G8 industrialised countries was about as bold as Woody Allen at his most neurotic.
Some 18 countries, 14 of them in Africa, will have $40billion (£22billion) of debt written off under the deal (2). Another nine countries could benefit within 18 months, bringing the total write-off to $55billion. Such sums are enormous compared with a family’s shopping bill at a supermarket. But when put into the context of what is needed for Africa’s development, they are minuscule. To be transformed into an economically developed region, a far greater transfer of resources is needed.
In fact, the transfer to those involved in the deal will be even smaller than the headlines suggest. The most common estimate is that the debt write-off will be worth about $1.5billion a year, although the figures vary (3). The total population of Africa was about 869million in 2004, according to the United Nations (4). So the deal would be worth less than $2 per person per year, if spread across the whole continent. Even if only the 280million Africans covered by the deal are included, the figure is equivalent to about $5 per person per year, or about one-and-a-half cents per person per day. This is hardly enough to transform the life of even the poorest African.
Even compared with the pitifully small GDP of African countries, the deal is minimal in scale. According to the International Monetary Fund (IMF), at current prices the value of the goods and services Africa produces in a year is £773billion. Sub-Saharan Africa alone has a GDP of $589billion (5). So $1.5billion a year represents a small fraction of Africa’s own economic output. It should also be remembered that even a $55billion write-off would be far less than Africa’s total debt, which is about $300billion (6).
Even worse, it is even questionable whether the $1.5billion written off under the current agreement has much meaning. Many of the world’s poorest countries cannot afford to pay off their debt in any case. As the Wall Street Journal Europe has noted: ‘Most of these countries haven’t been paying interest on their loans anyway, so debt relief recognises the reality and lets everyone (including the world’s development banks) move ahead more honestly.’ (7) So Brown’s debt write-off is more a recognition of reality than a transfer of new resources to the world’s poorest countries.
Although the transfer of resources is minimal, the price is high. In return for a tiny input of resources, developing nations are being forced to compromise their claims to national sovereignty.
The G8 debt write-off goes far beyond the notorious structural adjustment programmes (or Enhanced Structural Adjustment Facility) of the late 1980s and 90s. Under structural adjustment, poor countries were forced to accept austerity and privatisation in return for debt relief. Under the Heavily Indebted Poor Country (HIPC) debt initiative launched in 1996, and the Poverty Reduction and Growth Facility (PRGF), which replaced structural adjustment in 1999, conditionality has gone much further (8). Poor countries now have to accept detailed interference in the way they run every aspect of their societies, including business, the economy, government and social policy.
Such an approach was apparent in the recent G8 debt initiative. According to the official conclusions of the London meeting: ‘We reaffirm our view that in order to make progress on social and economic development, it is essential that developing countries put in place the policies for economic growth, sustainable development and poverty reduction: sound, accountable and transparent institutions and policies; macroeconomic stability; the increased fiscal transparency essential to tackle corruption, boost private sector development, and attract investment; a credible legal framework; and the elimination of impediments to private investment, both domestic and foreign.’ (9)
Not only is such interference objectionable in principle – it is also counter-productive in practice. It undermines the capacity of African people to run their own countries. Instead they have to follow the whim of non-governmental organisations, international institutions such as the IMF and World Bank, and ultimately the world’s rich countries.
A totally different approach is needed. True development demands a massive transfer of resources, not empty hyperbole. And the poorest should be given the autonomy to decide how to use their resources, rather than having to follow the whims of the rich.
Daniel Ben-Ami is the author of Cowardly Capitalism: The Myth of the Global Financial Casino, John Wiley and Sons, 2001 (buy this book from Amazon (UK) or Amazon (USA))
(1) See, for example, Cautious welcome for G8 debt deal, BBC News, 12 June 2005
(2) The 18 countries that will receive immediate relief are: Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Uganda and Zambia. Those that could qualify in the next stage are: Cameroon, Chad, Democratic Republic of Congo, Gambia, Guinea, Guinea Bissau, Malawi, Sao Tome and Sierra Leone. See Cautious welcome for G8 debt deal, BBC News, 12 June 2005
(3) The Financial Times, for example, estimates that annual figure as being $1billion to $1.5billion. See ‘Nations close to deal but differences remain’, Financial Times, 11 June 2005
(4) Demographic, social and economic indicators (.pdf 64.8 KB), State of World Population 2004
(5) Figures from the International Monetary Fund¹s World Economic Outlook April 2005 database, available at the International Monetary Fund website
(6) Cautious welcome for G8 debt deal, BBC News, 12 June 2005
(7) ’Bono¹s next cause’, Wall Street Journal Europe, 13 June 2005
(8) On the Heavily Indebted Poor Countries Initiative, see the Heavily Indebted Poor Countries Initiative fact sheet (.pdf 104 KB). On the Poverty Reduction and Growth Facility, see Review of the Poverty Reduction and Growth Facility: Issues and Options (.pdf 626 KB), International Monetary Fund, 14 February 2002
(9) G8 Finance Ministers’ Conclusions on Development, Her Majesty’s Treasury, 10-11 June 2005
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