As a result of an agreement yesterday by the finance ministers of the Group of 8 rich nations, some of the poorest Third World countries could be relieved of up to $55 billion of debt and so saved the burden of finding more than $1.5 billion a year in interest payments. The British government, currently chairing the G-8, drove through this largest ever debt-relief initiative despite reservations from both the Americans and the Germans. It is being hailed as an especially significant move which, for the first time offers, 18 countries — the majority in sub-Saharan Africa — the chance to escape the crippling financial obligations run up by past regimes and so begin, with a clean financial sheet, to make their economic way in the world. On the face of it, the decision of the G-8 should be warmly welcomed. It does, however, deserve closer examination.
For a start, the IMF, the World Bank and the African Development Bank which are the major international creditor institutions have wearied of the process of debt renegotiation, as wretchedly poor and badly-run countries broke covenants and had to be bailed out with fresh money and rescheduling of repayments. In truth, a significant proportion of this debt was never going to be repaid by corrupt and inefficient countries that could hardly feed themselves, let alone generate exports for any surplus that could fund debt repayments. Renegotiation is time consuming and the stringent economic conditions that the IMF normally imposed were often both unpopular and unrealistic. The renegotiators had a pretty good idea that within a few years, they would be back again, starting the whole process over.
By clearing the books, these poor Third World countries can now return to the international financial markets in an orderly and controlled fashion. It will be much easier for lenders to assess their creditworthiness and probably specify the actions they want taken to guarantee their loans. Free of the morass of historic debt, everyone will have a clearer picture of what is going on. There are those, not least in black Africa, who fear that this massive debt forgiveness will produce the same circumstances that have followed smaller, piecemeal debt write-offs. What has happened is that venal or incompetent governments have merely run up a pile of new debt, squandering the money on unrealistic projects while creaming off spare cash into Swiss bank accounts. In the end, a fair degree of responsibility rests with the lenders. Just as no local bank manager would lend to a company without a realistic business plan and would want to know how the project was going at every stage, so international lenders should exert far greater control over the way that their money is spent. That they have not is largely why these 18 poor countries are in such a mess now.
If the G-8 is also planning to turn over a new leaf — just as it expects these Third World countries to — then all is well and good. Yet responsible lending must not be allowed to become an excuse for exerting more subtle controls over borrower countries. Everyone wants to see sub-Saharan Africa flourish economically and benefit from good governance, but in the final analysis, that transformation must be made on sub-Saharan Africa’s terms, not on those imposed by the rich countries of the G-8.
