Britain’s proposal for essentially writing off all of the debts of some very poor countries is a good one. Debt-relief advocates should restrain their enthusiasm, however. Discharging debts of many countries might help improve conditions for their growing out of poverty, but it does not guarantee it.
Indeed, the indebted poor countries appealing for relief and the donor countries considering it must acknowledge some harsh realities. If they do not, debt write-offs might turn out to be a cruel hoax for Africa. Once again, hopes for growth and prosperity will be raised. Once again, they will be dashed.
The harshest reality is that high debt loads are a symptom rather than a cause of the fundamental problems of Africa’s poorest nations. Erasing debt without addressing the reasons it became unmanageable in the first place is like draining an inflamed wound without treating the underlying infection. The relief might be palpable, but it will be short-lived.
It is important to remember that most African debt is owed to rich countries’ governments or to multilateral development institutions like the World Bank and African Development Bank. Unlike the debts of large borrowers in Latin America that originated as commercial loans from large banks, little money ever was lent to Africa to make a profit.
The loans were made as a part of packages of development aid. Interest rates usually were below market rates and repayment terms were easier than those of commercial loans.
The loans were not made out of altruism, however. Foreign aid, whether in grants or loans, is always a foreign policy tool. Much Western aid to Africa was given to keep the Soviets, Chinese and Cubans out rather than to help the poor and downtrodden.
The United States, for example, knew early on that Mobutu Sese Seko’s Zaire was a kleptocracy. But Mobutu was our strongman in a vital region. The United Kingdom and France lent money to their former colonies to maintain political and commercial advantage.
In many cases, loans were made even when it was clear that scheduled repayments would be problematic. Aid funds always were limited relative to foreign policy objectives. Making a bad “loan” rather than a grant pushed the explicit drain on a donor country’s budget well into the future.
Even so, the loans contracted by African governments were for the purpose of economic development and for improving education, health, nutrition and agricultural production. If applied successfully, these funds should have produced substantial benefits for the citizens of the recipient countries.
In many cases they did not, although foreign aid successes were more frequent than commonly thought. Many recipient governments did not have the institutional capacity to productively apply the borrowed funds.
The reasons for this are beyond the scope of one column. The legacy of decades of colonial control and exploitation certainly was an important factor. Colonial regimes like Belgium and Portugal, which were brutal and failed to educate native administrators, left newly independent countries with little ability to govern themselves well.
Once again, Cold War politics worked against reform. Loyal autocrats were preferable to possibly unsound reformers. Corruption was an unfortunate but necessary evil.
There is little moral high ground in terms of rich nation relations with poor countries in Africa. The average citizen in Africa had no say over loans contracted by his or her nation’s regime of the day and little ability to demand the productive use of borrowed funds.
Not all development efforts failed. Botswana has pursued prudent economic policies for decades and has achieved growth rates as good as South Korea’s or Taiwan’s. Ghana and Senegal have done better than neighboring countries in West Africa. Uganda under Yoweri Museveni has done better than under previous rulers. Moreover, there is much greater impetus toward effective administration than there was 40 years ago.
Nongovernmental organizations have grown in importance and now are an effective conduit for many aid programs. Their watchdog activities have curbed the worst excesses of some dysfunctional regimes. Black-ruled South Africa has emerged as a cautious advocate of good government in the rest of the continent.
Many problems remain. That is why erasing debts is not a panacea. The question is what happens next. If many of the aid efforts of the past four decades are written off as mistakes, what can the developed nations do to help more effectively?
If existing debts are written off, will the beneficiary nations be free to contract new ones? And what message does blanket debt erasure for inept regimes send to nations such as Botswana that have managed their affairs with prudence?
Debt relief recognizes the reality that most of the outstanding loans could never be paid under any circumstances. It clears the way for more effective assistance. But it does not guarantee that any improvement will take place.
© 2005 Edward Lotterman
Chanarambie Consulting, Inc.