In Africa, Debt Relief Has 2 Sides

Until recently, school here was conducted on a patch of trampled earth beneath a giant berry tree. For the lucky few, there was a pair of grass huts. Now, the children meet beneath shiny metal roofs in brick classrooms at the Namayemba Primary School, one of thousands of development projects across Africa.

But the Namayemba school is different in a potentially momentous way: Construction money came from a new account created when foreign lenders canceled some Ugandan government debt. And because of strict controls, none of the newly freed-up cash appears to have been stolen or misused.

The unusual approach to financing the school is at the center of a contentious overhaul of the global creditor-debtor relationship. At a time of unparalleled prosperity in the United States and Western Europe, the world’s most impoverished countries are poised to benefit from billions of dollars in canceled debts owed to wealthy countries and big international institutions.

In order to reap this reward, strapped governments, mostly in Africa, have decided to play by the rules of the powerful lenders. Uganda, an East African nation of 22 million, is the first to benefit by redirecting money once earmarked for paying off debts to such things as building schools and buying medicine.

Two dozen African countries are lined up for the unprecedented debt assistance, but the write-offs have touched deep emotions. On a continent where bad governance and corruption are endemic, and Washington-based international institutions have patchy records, the debt relief programs run by the International Monetary Fund and the World Bank are being scrutinized through the prism of Africa’s tumultuous past.

At the center of the debate is a battle over what strings should be attached to debt relief--and how much of the developing world’s estimated $2.3-trillion debt should qualify. Some critics complain that the stringent structural adjustments required by international lenders could perpetuate the paternalistic north-south dynamic that has shackled the continent throughout its modern history. Others counter that without such tough guidelines, inept African leaders will squander the money they save.

“Debt and debt relief are normally subjects for economists, but there is nothing academic about them,” President Clinton said in September. “We have before us perhaps as great an opportunity as the people of the world have ever seen.”

Nearly half of all Africans live on less a year than the average American family pays for a cable television subscription. The Mozambican legislature recently calculated that Europeans spend more annually on ice cream than would be needed to provide primary education, clean water and sanitation for the tens of millions of Africans without such basic services.

Meanwhile, Africa’s poorest governments are spending up to 25% of total revenue on debt payments to foreign lenders.

Prodded by grass-roots anti-poverty movements worldwide, Clinton, British Prime Minister Tony Blair and others say the helping hand for indebted countries is long overdue. Clinton has proposed a U.S. contribution of $800 million over the next four years to help finance $50 billion in global write-offs, although Congress in November refused to approve the first year’s allocation.

Separately, the United States has already forgiven more than $1.2 billion in debt owed it by 20 African countries. Next year’s budget includes an additional $110 million to write off more debt as part of the worldwide debt relief programs.

The world’s poorest countries owe the bulk of the money to private and public lenders in the United States, Europe and Asia as well as to the IMF and the World Bank. The funds were borrowed by post-colonial governments over the past few decades and in most cases were mismanaged, stolen, squandered or lost on the battlefield. Some of the lenders, flush with cash, clearly overreached or were guilty of bad judgment.

The poor countries say they cannot possibly repay the loans. An estimated 55% of poor-country debt is not being paid, according to the Jubilee 2000 Coalition, a London-based group lobbying for debt cancellation.

But the cancellation of Third World debt is much like the refinancing of a personal loan: Borrowers don’t save a penny unless they agree to the fine print. And there is no guarantee that debtors will like the conditions, be grateful or see anything but self-interest on the part of those offering to help.

Powerful organizations such as the IMF say they want to make sure that savings from canceled debts do not pad the Swiss bank accounts of African autocrats or bankroll their wars. They intend to direct debt relief to causes they deem worthy, by imposing guidelines on who qualifies, when and how.

“It is not that there is any resistance to debt relief, but we can’t just write a blank check that says you don’t have to pay your bills,” said Robert L. Mallett, U.S. deputy secretary of commerce. “We cannot have Africa operating with a double standard.”

Economic Criteria to Qualify Are Exacting

Before qualifying for the kind of relief Uganda got last year, most eligible African countries will have to meet exacting economic criteria. They will be judged on everything from trade liberalization to taxation policies to the selling of state-owned companies.

The IMF, the World Bank, the United States and others say that African countries must open up to the global economy--and control wasteful internal spending and inflation--if debt relief is to be put to lasting use. African countries from Ghana in the west to Tanzania in the east have concluded that IMF-mandated reforms are their best option.

But in the past, reforms imposed from the outside have failed in some countries, leaving the poor no better off. A growing worldwide movement--which has attracted a following ranging from Irish singer Bono to former heavyweight boxing champion Muhammad Ali to Pope John Paul II--is demanding that debts deemed unpayable be canceled outright. Adherents of this approach insist only on bare-bones conditions--mainly, making sure that the money is properly accounted for and is directed exclusively toward helping the poor.

Some African leaders, moreover, want to ensure that debt assistance does not further solidify the economic dominance of the developed world. They would like to cut out the middlemen such as the IMF and the World Bank.

“For debt relief to work, let the conditions be set by civil society in our countries, not by big world institutions using it as a political tool,” said Kennedy Tumutegyereize of the Uganda Debt Network, a coalition of advocacy groups. “That way, we can promote democracy and human rights with debt relief. Right now, there is a general belief that no African government can survive without a master in the north.”

According to a survey cited by Oxfam International, a London-based network of aid agencies, three-quarters of the African countries undergoing IMF-mandated reforms in the 1980s and 1990s cut public spending on education.

An IMF study last year of 66 countries worldwide that have followed IMF economic programs found that per capita spending on education increased in Asia, Latin America and the Caribbean--but fell in sub-Saharan Africa. Oxfam and other advocates for the poor fear that IMF-guided debt assistance will only make things worse, at least in the short term, as governments rein in social spending to meet inflation and budget targets required for the write-offs.

“This is precisely the form of slavery that we . . . so roundly condemn,” said Anglican Archbishop Njongonkulu Ndungane of South Africa, a prominent proponent of cutting African debt with few strings attached. “Secretive, behind-closed-doors negotiations between political elites in Africa and bureaucratic elites in Washington foster corruption and undermine democratic accountability in Africa.”

Uganda Is Debt Relief’s Poster Child

Even Uganda had its assistance delayed for more than a year because of unhappiness among lenders. But those problems aside, Uganda remains the poster child of international debt relief.

Last year, Uganda became the first country to qualify under a recent IMF-World Bank debt initiative, with about $650 million in loans wiped off the books. Uganda met the criteria well ahead of other countries because President Yoweri Museveni had followed a strict regimen of IMF and World Bank medicine since the late 1980s.

“There must be some benchmark for the [debts] to be forgiven,” Museveni said in an interview. “[One] must show signs that he is managing his economy well, that he has made the necessary reforms. There must be linkage between forgiveness and the policy of reform.”

After disastrous rule by Idi Amin and then Milton Obote, a devastating civil war and a brief experiment with go-it-alone economic policies, Museveni turned the country in 1987 irreversibly toward Western-style fiscal and monetary conservatism.

The government cut public spending--including per capita allowances for education--tackled inflation and promoted economic growth. By the mid-1990s, with the economy in relatively good order, it then shifted toward anti-poverty efforts--which included big increases in health and education spending and strong appeals for international debt relief.

“A lot of countries are watching Uganda’s experience,” said Randolph Harris, the World Bank’s representative in Kampala, the Ugandan capital. “A lot still needs to be done, but they are doing things right.”

In this muddy farming district 100 miles east of Kampala, money from canceled debts has helped pay for antimalarial drugs, new dirt roads to remote villages and, so far, enough bricks to build 29 classrooms, including two at the Namayemba school.

Pastor Edward Nikanori, who heads the PTA at Namayemba and runs a nearby church, said the improvements may seem small to outsiders. God knows, he said, a lot more is needed. At Namayemba, pupils outnumber teachers by about 100 to 1. In first grade, there are only 15 textbooks for 400 pupils. And despite the new drugs, someone dies of malaria about every other day.

Even so, residents are so thrilled with the progress--any progress--that theft and corruption have been nonexistent, the pastor said. Normally, local government officials acknowledge, it is a struggle to keep international donations and other funds from going missing. Even bricks for public buildings walk.

“Everyone is admiring this place when they pass on the road,” said Nikanori, proudly summoning the student body to pose for a picture outside the newest classroom. “Parents now have started contributing to build three more classrooms of our own. There is optimism like we never had before.”

It is because of the excitement in Bugiri and a handful of similar places in Uganda that many proponents of debt relief are urging Africans to follow the Ugandan example.

Uganda’s poverty reduction program is the sole beneficiary of savings from its canceled debts. Every dollar not paid in debt service is placed in a government “poverty action fund.”

All contributions to the poverty fund--including canceled debts, international donations and Ugandan government money--can be publicly tracked. Last year, most of the money came from debt relief. The increasingly popular fund contains about $105 million this year, of which $44 million came from debt relief.

The Ugandan government is also trying to tackle chronic corruption by opening its books. The parliament invites nongovernmental organizations to monitor its work, particularly the anti-poverty programs. The media have also been given a free hand to scrutinize government spending, something not tolerated in many African countries.

“We recognize we cannot move forward with more debt relief if there is a lack of transparency and accountability,” said Damoni Kitabire of Uganda’s Ministry of Finance.

There have been mistakes and setbacks.

Uganda’s costly military involvement in Congo, where many Central African countries have intervened in a civil war, has raised fears about the country’s defense spending. Several high-profile government officials have been ensnared in corruption scandals--an indication that Uganda has far to go in conquering corruption. And even with its newfound openness, the government has been accused of cooking statistics; one top official was greeted with derisive laughter last year when he announced in parliament that the economy was growing at a rate higher than almost anyone believed.

Early last year, the Danish government decided not to increase its aid to Uganda because of worries about how the money was being handled. Uganda, which received $69.5 million from Copenhagen last year, is the No. 1 recipient of Danish foreign giving.

“We have had several cases of funds being misused,” said Jens Rasmussen of the Danish Embassy in Kampala. “It is a general problem in this part of the world.”

Many Lenders Stopped Expecting Repayment

Despite such obstacles here and in other developing countries, leaders of the big industrialized nations concede that more must be done to help the world’s worst off. But with little interest in spending a lot of money, they have turned to old debts to plug the hole. Many lenders had given up on getting the money back anyway.

Three years ago, the IMF and the World Bank launched the program intended to reduce repayments for the world’s poorest 41 countries. The so-called Highly Indebted Poor Countries initiative, or HIPC, is the centerpiece of international debt-relief efforts, though it falls far short of total cancellation.

So far, only Uganda and a handful of other countries have qualified. Leaders of the big industrialized countries who met in Cologne, Germany, last spring decided to ease the qualifications, but they were hazy about how to pay for the greater generosity. The cost of the expanded program, according to the IMF, will increase from $12.5 billion to $27.5 billion.

In contrast, a comprehensive write-off would mean erasing between $130 billion and $370 billion from the books, according to various calculations.

“If the developed countries are serious about human equality and equity, they should give Africa this chance,” said Ndungane, the South African archbishop. “Germany was flattened during World War II but given a lease on life with the Marshall Plan and a transfer of technology. Let’s give the developing nations the wherewithal to help themselves.”

The governments that are keeping up with payments say the burden is so great that they have little left for education, health care and other essential services. The IMF counters that poor governments, on average, receive twice as much money in foreign aid as they pay in debt service, but many governments say that is small comfort when poverty is so pervasive and aid worldwide is decreasing.

“Our debt service equals 25% of the total revenue of the government,” said Gabriel Fabiao Mambo of the Ministry of Planning and Finance in Mozambique, until recently the world’s poorest country. “That means we are left fighting poverty with just three-quarters of our resources.”

Mozambique is one of the most recent beneficiaries, and the biggest, of the IMF-World Bank program. In June, the former Portuguese colony became the fourth country to get relief. Uganda was the first, in April 1998, followed by Bolivia and Guyana in South America.

The Mozambican package is worth about $3.7 billion and, over the next five years, will cut the country’s external public debt by almost two-thirds. But Mozambican President Joaquim Chissano says it is not enough for the former Marxist economy to get firmly on its feet.

In the vicious circle of down-and-out economies, Chissano and others say, poor countries will never attract the foreign investment they need so long as their debt burdens remain so high; the massive obligations scare away investors and rob governments of money they could use to attract business.

Even with the new write-offs, Mozambique must pay an estimated $73 million a year in debt service for the next five years--about 10% of government revenue. Chissano says it is too much, and he is already pushing for total cancellation.

Mozambique will probably get more relief under the beefed-up HIPC program. But that too will probably not be enough. Mallett, the U.S. commerce official, recently warned Africans that they must root out corruption, stop killing one another and foster more regional cooperation to win the lasting confidence, goodwill and financial commitment of developed nations.

“The global economy is here, and unlike Europe [after World War II], you don’t have 40 years to get your act together,” he said.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Third World Debt Relief

HELPING POOR COUNTRIES BY CUTTING THEIR DEBT

Source: IMF

*

USING CANCELED DEBT TO FIGHT POVERTY

Source: Ugnada Ministry of Finance, Planning and Economic Development