Opinion & Commentary
Time for real economics to cure Africa's plight
Bob Geldof is not only hoping for a large attendance at his Live 8 concert on July 2, but expecting a march of thousands to support debt forgiveness and more aid for Africa at the Group of Eight Make Poverty History meeting at Gleneagles.
Watching the fires burn the fringe settlements of Harare, Bulawayo and Victoria Falls in Zimbabwe, the refugee camps across the border from Darfur, Ethiopian farmers facing yet another season of starvation and South Africans becoming more impoverished than they were under Apartheid, who can but hope that this time there will be some help for the poor people of Africa.
But today’s misery does not result from too little aid. During the past 50 years the West has contributed nearly $NZ9,800 billion in humanitarian relief, government to government aid, loans by the IMF, the World Bank and other multilaterals and through non government organizations (NGOs) to Sub-Saharan Africa. On a per capita basis, this is much more than the aid flowing to Asia or Latin America .
Bob Geldof should be aware that aid is inversely related to growth and poverty alleviation. Countries that have received the highest per capita aid (including those in the Pacific) have had the lowest rates of growth. Aid only works if countries adopt growth policies. Where inept and corrupt elites exploit gold, diamonds, petroleum and other wealth for their own benefit, the main effect of aid is to keep such elites in power and prevent development. This has happened in most Sub-Saharan African countries. Botswana and Mauritius are two exceptions. They have achieved 30 years of growth and rising living standards with hard work backed by honest government.
Most of the poor African countries’ official debt, owed to Western governments was forgiven in the years leading up to the Jubilee 2000 debt moratorium campaign. Unfortunately many of these countries borrowed again, and again wasted the funds they borrowed.
The focus of the present campaign is the debt owed to the IMF, the World Bank and other multilaterals. The IMF and the World Bank staff began to be concerned about the non-performing loans they had disbursed to African rulers that used them to enrich themselves rather than develop their countries. The commercial banks that lent to Amin, Mobutu and other African dictators had to write off their non-performing loans, but the IMF and World Bank put together a Highly Indebted Poor Countries (HIPC) scheme. The debt of ‘deserving’ countries was to be serviced from additional aid funds from donors (including Australia and New Zealand ) and their own profits derived from loans to Asian and Latin American countries. The HIPC loan service was thus funded by deflecting donor country aid from recipients more likely to use it for development than the HIPCs and by the taxes of poor people in countries such as Bangladesh , India and China .
Mr Blair’s proposal would not reduce the HIPC’s budget outflows abroad; it would clear their and the multilaterals’ balance sheets. Paul Wolfowitz must be delighted that the loans pushed out from Robert McNamara’s to James Wolfensohn’s World Bank Presidencies will be off his books. But will he change the Bank’s culture so that loans are for development in the future?
Strict conditionality was to be the basis of the HIPC scheme. Ghana and Uganda are regarded as its star graduates. Ghana does have democratic elections and modest growth, but it has 88 Ministers and Deputy Ministers - each with a car, secretary, other staff and perquisites - heading a vast bureaucracy. Not much funding percolates to the health and education of villagers. Uganda , the World Bank’s model economic performer, has 70 Cabinet Ministers. It generates excellent data, but though its army has made repeated incursions into the Congo , its autocratic President seems unable to stop the Lord’s Resistance Army in the North from stealing children to turn into murderers.
Mr. Blair and Mr. Bush know that reducing Western agricultural subsidies that cost developing countries at least $NZ326 billion a year (compared to the $NZ109 billion a year Make Poverty History aid target) would do far more for poor Africans than aid. If African countries turned from waste and corruption to competitive market policies, they could follow Asian ‘tigers’ to develop through their own efforts. But that’s real economics that reduces poverty, not the rockeconomics of feel-good self-indulgence.
Emeritus Professor Helen Hughes, Australian National Universit y, is a Senior Fellow at The Centre for Independent Studies, Sydney .
