Monday, June 13, 2005

$100,000,000,000 a year.

There has been a cautious welcome for the recent deal agreed by the G8 (group of the world's seven largest economies and Russia) to offer debt relief to some developing nations.

The G8 will write off $40 billion owed by 18 mostly African countries; 9 more are expected to qualify for debt relief (totalling another $15 billion) within the next year and a half. The 18 countries will save an estimated $1.5 billion a year in debt repayment.

Though it's a positive development, it's worth remembering that the move is a good first half step.

The Nobel peace laureate Desmond Tutu noted, "It is a splendid start and one hopes that they will, from here, go on to cancel all debt for most of the countries - I gather it is about 62 countries - who are heavily indebted."
He acknowledged the continent had seen many corrupt leaders who had squandered aid but he told BBC News 24: "Remember the West had a hand in promoting some of those leaders because it suited them at the time.", reports the BBC.

Even with full debt relief occurs, there are still other steps that need to be taken to facilitate African development. As I explained earlier, merely cancelling the debt doesn't guarantee the money will be used for useful purposes.

The most prominent African leaders are campaigning for a reduction or elimination of western tariffs and agricultural subsidies. Those trade barriers will die hard, particularly in countries like France, Japan and the United States, which have very vocal farm lobbies.

Other problems that need to be addressed internally in Africa include winner-take-all politics and investment in infrastructure (particularly in maintenance).

But clearly the biggest impediment to African development is corruption. The G8 debt write off will total $55 billion; the total external debt of all African countries is around $300 billion. So even with the write off, remaining African debt will still be some $245 billion.

Sounds like a sum so huge as to be inconceivable.

But consider this.

According to Business in Africa online, Transparency International conservatively estimates that corruption drains a mind-blowing $100 billion from Africa... $100 billion per year.

That's many times higher than the amount African countries spend on debt repayment.

Conventional wisdom portrays the issue in stark terms: 'If African countries don't have to pay back debt to rich countries, they'd spend the savings on education, health care and other good purposes.'

With $100 billion ($100,000,000,000) being wasted on corruption every single year in Africa, what evidence is there to suggest that such an assertion?

Though the World Bank, IMF and western creditors certainly deserve their fair share of blame, but massive corruption has a far more devastating impact on African development than those convenient targets.

This is why I proposed that once full debt relief is granted, all future loans and aid MUST be conditioned upon a demonstrable record of money being used for its declared purposes. Failing to impose such conditions will only guarantee yet another cycle of crushing debt burden and aid dependency.

$100,000,000,000 a year.


Update: a graphic from this piece from BBC News shows that contrary to one might expect, African countries aren't simply deadbeats shirking their responsibility. From 1970-2002, African countries borrowed about $540 billion. In that period, they repaid some $550 billion. But they still owe nearly $300 billion. So Africa has collectively repaid the principle on what it owes; comprehensive debt relief would simply be forgiving the interest.

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