The South African Coalition of
Non-governmental Organisations (Sangoco) claims to represent the whole
of the country’s civil society but continues to act as the civilian
wing of a political movement. Its annual conference met under the
slogan “Building People’s Power for Poverty Alleviation”, which has a
somewhat familiar ring for anyone used to ploughing through policy
proposals from the hard left.
Committed as ever to the cause of debt relief, the conference heard
Eric Molobi of the Kagiso Trust plead with them not to include the
“apartheid debt” in the general run of poor country debt. He argued
that since South Africa is a middle-income country with a small foreign
debt, quite unlike, say, Mozambique or Tanzania, lumping these
disparate cases together reduced the credibility of the general cause
of debt relief. Unfortunately for Molobi, Sangoco is pretty disciplined
about taking the party line and voted his proposal down.
But does debt relief work even for the highly indebted poor countries
(HIPCs)? These are some of the commoner myths surrounding debt relief
that Sangoco should bear in mind.
Poor countries are the victims of
private bankers and investors who exploit them by getting them into
debt and then making them repay forever.
The truth is that it is impossible to get such people interested in
putting money into the HIPCs, 87 per cent of whose debts are to
governments and public agencies.
It is the debt that has made HIPCs
poor.
Actually many of the loans were made on extraordinarily generous terms
such as those offered by the World Bank’s IDA arm, with an interest
rate of 0.75 per cent and ten years grace before repayment over 35-40
years. Countries receiving such loans could have put the money in a
bank, earned interest and made an easy profit. So if they cannot
service such debts it means only one thing: the money has been wasted.
Excessive debt is above all a sign of waste and forgiving it is no
guarantee that people will not waste future loans.
Debt relief will make the HIPCs
better off.
In fact the HIPCs continue to receive more money in loans from
public sources than they pay out on debt service. If the debt was
forgiven and the loans also stopped they would be collectively worse
off
Debt relief is just.
Not so. If one takes the world’s poorest quartile of people one finds
that almost a third of them live in India, which has managed its
affairs well enough to be ineligible for debt relief. The same is true
of China. The countries with the most unpayable debts are not so much
the poorest as the worst managed. Zimbabwe is a good example, though
fortunately there is little chance that President Robert Mugabe’s
demands that Britain should compensate him for colonialism at the same
time that he is busy shopping for a new private jet and pursuing an
expensive war in the Congo will win much sympathy. Forgiving the debts
of such countries means rewarding bad management and discriminating
against the really poor but well managed countries.
Debt relief will mean HIPC
governments spend more on schools, hospitals and other social
goods.
Not necessarily, even if the donor countries stipulate that their
money must be spent that way. In practice it just frees the recipient
government to spend its own money in other ways — quite often on
arms.
Debt relief can be combined with
conditions that ensure that HIPC governments behave responsibly towards
their own poor.
The opposite is true. If donors dribble money in bit by bit they have
the leverage to ensure compliance with loan conditions. If they simply
forgive debt in one big bang they lose all leverage for imposing
conditionalities.
Debt relief is bound to lead to
poverty alleviation through higher social spending.
Wrong. The only thing that will lead to poverty alleviation is the
honest administration of policies that produce economic growth.
