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Africa's Debt & Iraq's Debt - Washington's Double Standard
April 21, 2004
This week when the World Bank and International Monetary Fund (IMF) hold their annual spring meetings in Washington, DC, Africa’s debt crisis will hardly appear on their agenda.
As these wealthy and powerful institutions mark their 60th anniversary, the U.S. and other rich countries that control them will again this week refuse to address the massive burden of illegitimate debt that African countries face. At the same time, however, the Bush Administration has been actively pursuing the cancellation of Iraq’s $120 billion debt as a means to support that country’s supposed transition to democracy.
The following talking points explore the double standard in U.S. policy that brings the White House to advocate for the cancellation of Iraq’s unsustainable debt burden but causes it to ignore the massive debt crisis faced by African countries.
Africa’s Debt Crisis
* Africa's external debt burden currently stands at more than $300 billion, in a continent where most people subsist on less than $1 per day.
* Africa’s debt crisis is the single biggest obstacle to the continent's development and to the fight against HIV/AIDS. It represents a crippling load that undermines economic and social progress.
* African countries spend almost $15 billion each year repaying debts to the World Bank and International Monetary Fund (IMF) and other creditors.
* Servicing these debts diverts money directly from spending on health care, education and other important needs. While African countries struggle to cope with the devastating effects of the HIV/AIDS crisis, they are currently forced to spend more money on debt repayments than on health care for their people.
* This year almost 3 million Africans will die of AIDS. 500,000 African children will die of malaria. These deaths could be prevented if African governments could spend more money on health care than on debt repayments.
* It is estimated that African countries pay $1.51 in debt service for every $1 they receive in aid.
* Most of Africa's foreign debt is illegitimate in nature because of the circumstances under which it was incurred, as well as the harmful effects it now has on the continent’s development.
* Much of Africa’s debt was incurred by unrepresentative regimes during the era of Cold War patronage, when loans were made to corrupt leaders who used the money for their own personal gain, often with the full knowledge and support of lenders like the U.S. government and the World Bank and IMF. [For example, in the Democratic Republic of the Congo (DRC), formerly Zaire, dictator Mobutu Sese-Seko received more U.S. aid than the rest of Sub-Saharan Africa combined during much of the Cold War, even though it was well known that this money was being diverted into his Swiss bank accounts. The people of the DRC should not now have to pay back loans from which they saw no benefit.]
* In many African countries, debts were contracted by repressive or despotic regimes and used to strengthen the hold of that regime, contrary to the interests of the nation and its people. These are considered illegitimate "odious debts", and this is an established legal principle. [For example, in South Africa, the apartheid regime took out more than $18 billion in foreign debt in its last 15 years in power. The people of South Africa, the victims of the apartheid regime, should not now be forced to pay the cost of their own previous repression.]
* In many African countries, debts have swelled over time because of high interest rates and other conditions imposed by creditor governments and banks. These debts are illegitimate, since the original debt has already been repaid many times over.
* Many African activists and advocacy groups question the notion of an African "debt" to the U.S. and European countries after centuries of exploitation and plunder. They consider all of Africa’s debts illegitimate and ask, "Who really owes whom?"
U.S. Policy on Africa’s Debt
* The U.S., other G8 leaders and the World Bank and IMF established the Heavily Indebted Poor Countries (HIPC) Initiative in 1996 to address the debt crisis in Africa and other poor regions. HIPC remains the dominant international debt relief plan integrating all bilateral, multilateral and private creditors in one framework for select countries.
* Of the 42 countries selected by the World Bank and IMF as potential recipients of HIPC relief, 34 are in sub-Saharan Africa. These countries are eligible for some debt relief, but no African country has been offered complete debt cancellation, and many get no relief whatsoever.
* Over the past eight years, the HIPC initiative has fundamentally failed to resolve Africa’s debt crisis. It has not reduced the debts of African countries to sustainable levels. In fact, it serves the interests of creditors by continuing to extract the maximum possible in debt repayments from the world’s poorest countries.
* Recent World Bank and IMF reports have admitted that HIPC is not succeeding in addressing the debt crisis in Africa and other poor regions. But the U.S. refuses to encourage Africa’s creditors to move beyond this framework.
* President Bush and the U.S. Congress have acknowledged that Africa’s debt crisis represents a real obstacle to the continent’s efforts to combat HIV/AIDS and poverty.
* Although the U.S. is a relatively minor bilateral creditor of African countries, it is the single largest shareholder in the World Bank and the IMF, to whom most of Africa's debts are owed. As such, it holds major influence over the international response to Africa's debt crisis.
* The U.S. continues to refuse to use its power to promote the cancellation of Africa’s illegitimate foreign debts, even though the World Bank and IMF can afford to write off this debt from their own books using their own existing resources.
* U.S. Treasury officials estimate that Iraq’s debt amounts to $100-$120 billion.
* Of this total debt stock, some $40 billion is owed to Paris Club creditors (G8 countries, including the U.S.), and the remaining $80 billion is owed to Arab nations and others outside the Paris club.
* Jubilee Iraq estimates that an additional $50 billion is owed by Iraq in war reparations to countries like Kuwait and to individuals who claim damages from Iraq.
* Much of Iraq’s debt can be considered "odious", as it was contracted by Saddam Hussein’s regime and used for the repressive purposes of this dictatorship, with the full knowledge of creditor countries and institutions. This money was not spent on the needs or interests of the Iraqi people.
* Comparing Iraq’s debt burden with the size of its economy and export earnings, it is clear that Iraq is a very heavily indebted country.
* In addition, Iraq has urgent relief and reconstruction needs as it enters into a period of important transition.
U.S. Policy on Iraq’s Debt
* In December 2003, President Bush appointed James Baker III, a long-time friend and advisor to the Bush family and former Secretary of State under George H. Bush, as Special Envoy for Iraqi debt reduction. He is tasked with seeking an international deal to reduce and restructure Iraq’s massive foreign debt in order to promote peace and reconstruction in Iraq.
* Baker traveled to Europe in December 2003, to meet with some of Iraq’s creditor nations. He secured pledges from Britain, France, Germany, Italy and Russia to relieve much of the $40 billion owed to them by Iraq.
* Baker traveled to the Gulf region in the beginning of 2004 and negotiated commitments to waive much of the $50 billion Iraq owes to countries in that region.
* Early in 2004, reports indicated that the Bush Administration’s goal was to relieve Iraq of two-thirds of its debt burden so that future oil earnings could be spent on reconstruction rather than on debt repayments.
* Speaking in April, Baker called Iraq’s debt "simply unsustainable", and referred to it as a major obstacle to rebuilding the economy and government of that country.
* Baker insists that debt relief for Iraq must be achieved quickly, in order to allow Iraq to find its feet. He has stated that efforts to enforce the debt could sink the Iraqi economy and dash hopes for a solid transition in Iraq.
The Double Standard
* There are many compelling reasons to reduce Iraq’s debt burden, but these arguments are not being applied equally by the U.S. in the case of African countries’ debt crisis.
* The U.S. is supporting debt relief for Iraq because it considers that it has vital interests in Iraq and the larger Middle East region. U.S. corporations also have major economic interests in Iraq, which the Bush Administration wishes to promote.
* The U.S. does not consider it has such vital interests in Africa, despite strong historical ties with the continent and important economic and political relations with African countries. The U.S. acknowledges that Africa’s debt hinders efforts to combat poverty and HIV/AIDS, but it refuses to support debt cancellation for Africa.
* Another key difference between Iraq’s debt and Africa’s debt is who the creditors are. Much of Iraq’s debt is bilateral and is owed to rich European countries and to Japan. Most of Africa’s debt is multilateral and is owed to the World Bank and IMF, where the U.S. is the principal shareholder. The U.S. appears more willing to pursue the reduction of debts for which it is not a creditor.
* The Bush Administration and the U.S. Congress argue that much of Iraq’s debt is odious, but they refuse to apply the same criteria to African countries’ debt when it is clear that much of Africa’s debt is also odious.
* The U.S. appears unwilling to support debt cancellation for Africa because the U.S. actually gains a great deal from Africa’s economic enslavement. The U.S. and other rich countries, as well as the World Bank and IMF, use Africa’s debt as leverage to manipulate the continent’s economic fate to serve their interests.
* Despite the social and economic costs of this massive outflow of resources from the world's poorest region, the U.S. continues to insist that these debts be repaid. Yet the U.S. does not feel that Iraq’s debt should be enforced in the same way. Such a blatant double standard in U.S. foreign policy must be exposed and rejected outright.
What the U.S. Should Do
* The U.S. is the largest and most powerful shareholder in the World Bank and IMF, Africa’s primary creditors, and it should use this power to promote debt cancellation for Africa.
* A new report released by the Debt & Development Coalition Ireland confirms that the World Bank and IMF have the resources to cancel all the debts owed to them by the poorest countries without negatively impacting their credit rating or lending ability.
* Secretary General of the United Nations, Kofi Annan, has repeatedly called for a new solution to the debt crisis and the suspension of debt service payments in the interim.
* As a first step to supporting debt cancellation for Africa, Africa Action believes that the U.S. government should immediately do the following:
1. Undertake an inventory of the debts currently being repaid by African countries, in order to determine the legitimacy of creditor claims.
2. Complete a study to ascertain what would be the cost to creditors of the full cancellation of Africa's debts.
3. Declare a moratorium on debt repayments by African countries until such time as an inventory of these debts has been compiled and the costs of 100% cancellation have been determined, these two studies providing a foundation for moving towards a just resolution to the continent's debt crisis.
reprinted from Africa Action