To Help Africa Battle AIDS, Write Off Its Debt

When U.S. Treasury Secretary Paul H. O’Neill travels to Africa this week, he will see the consequences of Africa’s debt bondage. O’Neill will spend 10 days in Ghana, South Africa, Uganda and Ethiopia, accompanied by Irish rock star Bono for part of the trip. According to a Treasury press release, O’Neill is “ready to listen to those on the front lines” in the struggle against poverty. What he should hear is an emphatic call to cancel Africa’s debt.

Last fall, O’Neill spoke to African finance officials in Washington and downplayed the continent’s debt crisis. But on this trip, as he comes face to face with African realities, he will see that Africa’s external debt is a crippling barrier to action against AIDS or progress against poverty on any front.

African governments are forced to spend more money servicing their foreign debts than they are able to spend on the health or education of their people. Though African leaders have agreed to spend at least 15% of their budgets on health, meeting this target is impossible while they are forced to pay nearly $15billion a year to foreign creditors.

What is at issue is the backlog of old debts that rich-country creditors insist on collecting, even though these debts were largely illegitimate to begin with. Many loans were given for strategic purposes, to prop up repressive and corrupt regimes in the context of the Cold War. During the 1970s, when Western banks were flush with oil money, loans were pushed on African governments with little thought to their purpose or to their recipients’ capacity to repay.

African governments are being held liable for the cost of failed and often grandiose development projects pushed by creditors. Now Africa’s people are expected to repay huge debts that were largely incurred before their time and that did not benefit them. For example, South Africa is still paying debt over apartheid measures. South Africa’s white minority regime accumulated more than $18billion in foreign debt in the 15 years before apartheid fell. South Africa’s neighbors incurred more than $26billion in debt during this same period, much of it a result of Pretoria’s regional war. Today, victims of apartheid are forced to pay the costs of their own previous repression. Interest payments on these kinds of loans are still sucking resources out of Africa, even though the principal on the debt has already been repaid.

The current framework for debt relief--designed by creditors and called the Heavily Indebted Poor Countries initiative--has failed. Even studies from the World Bank, one of the HIPC authors, reveal that this plan will not provide an end to Africa’s debt crisis.

O’Neill’s third stop, Uganda, is often touted as a HIPC success story, having used debt relief for poverty-reduction programs. But because the price of coffee--Uganda’s principal export--has dropped by 60% in the past two years, the country’s debt payments have gone back through the roof.

Critics have long said that HIPC projections were based on wildly over-optimistic estimates of future export earnings. In guarded language, the World Bank now admits that the critics were right. Export growth for 2001 for HIPC countries was less than half of what the World Bank had predicted.

Instead of tinkering with a failed debt relief framework, it is time to write off the debt overhang. Details should be worked out not by the creditor cartel but by independent debt arbitration, as proposed almost two years ago by U.N. Secretary-General Kofi Annan. This process must also include large debt-burdened countries such as South Africa and Nigeria, which are excluded from the HIPC initiative.

The failure to resolve Africa’s debt crisis means thousands more lives lost needlessly every day to AIDS and poverty conditions.

The United States has the power to change this at little cost. Most of Africa’s debt is owed to the World Bank and the International Monetary Fund, in which the U.S. is the dominant shareholder.

After looking into the eyes of Africa, O’Neill should not be able to look away. He should understand precisely how wrong he was to have discounted the devastating impact of Africa’s debt burden. His first order of business upon his return to Washington should be to use U.S. influence to cancel Africa’s debt.