November 2000


Much more needs to be done to address the high levels of poverty in Africa, says the following article. Deeper, faster and wider debt relief for Africa is an essential step towards setting Africa free.

By Bill Walker

Eighty per cent of all poor countries with ‘unsustainable levels of debt, referred to as Heavily Indebted Poor Countries (HIPCs)’, are in Africa. African HIPCs owe US$230 billion to their creditors. In 29 African countries, repayment of loans far exceed annual health spending.

The reasons for these levels of debt are complex and interlinked. Understanding them requires historical analysis.

High levels of absolute poverty are both a cause and a reason for unsustainable debt, especially in sub-Saharan Africa. High levels of indebtedness in many African countries in relation to exports, GDP [gross domestic product] and basic social spending have built up, particularly over the last decade because of both poor lending and poor borrowing practices.

Loaned funds were too often misused on arms and inappropriate projects. HIPCs were not able to generate sustainable sources and levels of revenue for repayment, so the debts ballooned.

The poorest people, although not responsible for these problems, are the losers. They pay the highest price - with their health, their jobs and their lives, and those of their children.

As Sir Sridath Ramphal, former Secretary-General of the Commonwealth Secretariat, has written: ‘The debt bondage that ensnares hundreds of millions of the world’s poorest people, particularly in Africa, provides clear evidence [of feudalism between states]. As though bound to feudal lords, their lives and labour have been mortgaged to rich country banks and governments, often by leaders they did not choose, to finance projects that did not benefit them.

‘Debt, like an oppressive political system, strips them of their rights. And its tyranny is particularly painful now, with sub-Saharan Africa in the grip of an unprecedented calamity as AIDS spreads remorselessly.’

The impact of repayments being made on high levels of national debt in African countries is devastating. At a time when countless Africans live on less than a dollar a day, and the ravages of HIV/AIDS threatens even further the very fabric of many local communities, societies and economies, HIPCs continue to have desperately needed resources drained from them to repay creditor countries and institutions which by comparison are fabulously wealthy. Over a decade of structural adjustment programmes (SAPs) in Africa have failed to bring about anywhere near the level of economic improvements expected or needed.

Peter Henriot has argued that Africa has undergone four successive and overlapping ‘waves’ of impact from the West: slavery, colonialism, neo-colonialism and globalisation. Though mixed in their impact, all have contributed to and continue in varying ways to add to Africa’s impoverishment and indebtedness.

Responses to Africa’s debt crisis have included rescheduling and the provision of new loans. However, these have not been effective in reducing Africa’s debt burden. In 1996, the World Bank, on behalf of official creditors, launched an agreement called the Heavily Indebted Poor Country (HIPC) Initiative, ‘designed to help the poorest, most heavily indebted countries escape from unsustainable debt’. It failed dismally in achieving this objective.

At the G7 Summit at Cologne in June 1999, it was replaced by the enhanced HIPC Initiative (HIPC2). Here, major creditors pleged a large increase in the levels of debt relief to HIPCs: to over US$100 billion, and faster, deeper debt relief for more countries. By July 2000, seven African countries had begun to receive mostly modest levels of initial debt relief under HIPC2. The World Bank expects that about 20 mostly African countries will benefit from debt relief under HIPC2 by the end of 2000.

At Cologne, debt relief was firmly linked to poverty reduction in an attempt to ensure the proceeds were well-used. The mechanism for this is Poverty Reduction Strategy Papers  (PRSPs),  which are  now  the condition both  for HIPCs  to  receive debt relief under HIPC2 and also for new concessional lending.

Each HIPC has to prepare an interim PRSP as the basis for initial debt relief and, in consultation with civil society, a complete PRSP in order to achieve its full package of debt relief. Unlike SAPs, PRSPs are intended to be country-owned and driven, widely participative, and to make poverty reduction central not only to debt relief but also as a country priority. While PRSPs provide an opportunity for impoverished countries to tackle poverty, it remains to be seen whether they will achieve this.

There are, however, still fundamental flaws in the assumptions underlying HIPC2.

As Jeffrey Sachs has written, ‘The current targets of debt reduction are based on an utterly phoney “Debt Sustainability Analysis” that couldn’t pass muster in a first-year economics class.’

Sustainable debt-to-export levels are set arbitrarily at 150%. Estimates of future export levels appear to be overly optimistic assumptions. No allowance has apparently been made for the devastating social and economic impact of HIV/AIDS in many African HIPCs and other African countries within the next 10 years.

Funding levels for the debt relief pledged to date remain inadequate. Too many of the root causes of high debt levels in Africa are yet to be addressed. All in all, it is very doubtful that HIPC2 will deliver, as it promises, an exit from unsustainable debt levels for most African HIPCs.

As well as much deeper and faster debt relief, ways need to be found to avoid future debt traps.

Much more needs to be done to address the high levels of poverty in Africa. Deeper, faster and wider debt relief for Africa is an essential step towards unchaining Africa.

Almost a year ago, Pope John Paul II stressed the urgency of prompt and decisive action debt relief for the poor: ‘We have to ask, however, why progress in resolving the debt problem is still so slow. Why so many hesitations? Why the difficulty in providing the funds needed even for the already agreed initiatives? It is the poor who pay the cost of indecision and delay.

‘I appeal to all those involved, especially the most powerful nations, not to let this opportunity of the Jubilee Year pass, without taking a decisive step towards definitively resolving the debt crisis. It is widely recognised that this can be done.’

As the poor of Africa’s most impoverished countries wait on us to do what we can to relieve their hunger, their homelessness, their destitution, their powerlessness and vulnerability, justice demands that we act, and act now. - Third World Network Features

About the writer: Bill Walker is policy and campaigns officer in the Advocacy Network for World Vision Australia.

The above article first appeared in Global Future (Fourth Quarter, 2000), published quarterly by World Vision.