Opinion & Commentary
Lies and Statistics
The debt of poor African governments has three components: debt owed to commercial banks and capital goods suppliers, debt owed to Western donor countries such as Japan , the US and Europeans that give their aid as concessional loans rather than as grants, and debt owed to the International Monetary Fund, the World Bank, the African Development Bank and other multilaterals. Australia , in contrast, dominantly gives aid as grants. Aid forgiveness is not an issue.
Western and Middle Eastern commercial banks began to lend to African governments with rich mineral resources in the 1970s. The loans were used by their rulers for arms and palaces. But when dictators such as Amin and Mobutu were ousted and as countries imploded and fighting spread, commercial flows fell to a trickle and most of the non-performing loans were written off the banks' books.
As development failed to materialise even in countries not embroiled in civil strife or cross-border warfare, Western donors established the Paris Club under the chairmanship of the Bank of France to write off their non-performing loans. By the 1980s cycles of debt forgiveness, new borrowing and more forgiveness were established, accelerating in the 1990s and culminating in the Jubilee agitation of 2000. By this time most official debt to poor countries had been forgiven at least once.
Directly and indirectly (because capital is fungible) lending by the multilaterals propped up ruling elites. But without development, countries could not afford to service the multilaterals' non-performing loans. The multilaterals, unlike private banks, however, could not write off these loans. By their Articles of Association they would have had to recognise that they had failed, leave countries that did not service loans and sharply downsize. They therefore initiated the Highly Indebted Poor Countries scheme to service the debt of the predominantly African HIPCs.
Funding the servicing of the HIPC loans came from two sources. The multilaterals used their profits, derived from interest on their loans to reasonably well-managed countries like Bangladesh , India and China . Such countries' low-income taxpayers thus paid for the debt of inept, corrupt and vicious African regimes. The rest of the African debt service payments came from Western aid deflected from better-managed developing countries.
Forgiving multilateral loans will have no effect on budget and external account flows of African countries because they are not servicing these loans now. Debt forgiveness will clear their balance sheets of loans and enable them to borrow afresh. More importantly, it will clear the multilaterals' balance sheets of non-performing loans and enable them to continue to lend.
Multilaterals do not practise the accountability they preach. Between annual meetings, boards of directors rubber stamp loan proposals from week to week.
Will a new round of debt forgiveness reduce poverty in Africa ? Not without recognising how past lending has held Africa back.
Emeritus Professor Helen Hughes is emeritus professor, Australian National University and a Senior Fellow at The Centre for Independent Studies in Sydney .
