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Thursday, September 18, 2014

African Debt Crisis....The Facts

Link: Statistics on Africa and Debt

(I was hesitant to use the above link because the site has a definite point of view.  Definite points of view tempt people to juggle statistics.  But in this instance, the figures were so accurate and easy to understand that I decided to take that risk.)

Most of the nations in Africa gained their independence from Europe in the 1960s.  In most cases, an attempt was made to transition the respective economies of these newly-independent states in a manner that would provide sustained, manageable growth.  By 1970, the majority of African states were suffering from high unemployment, eroding infrastructure, inflation, and endemic corruption.  I did not introduce this subject to debate the reasons behind the failure of post-colonial Africa.  Suffice to say that many African nations took advantage of loans offered by western interests (banks, nations, even companies) at sometimes mercenary interest rates.  The story seems to repeat itself again and again, whether its Burkina Faso, Zambia, Kenya, or the Central African Republic.  The process begins when the nation accepts the loan.   The corrupt nature of the civil service, administration and the military steal most of the money, a coup takes place, and when the new government take office, the money is gone.  What remains is a big I.O.U., with heavy interest.  The new government refinances the loan in order to access additional funds.  The money is looted in the same manner, the government is removed, and we start all over again.  Without adequate investment in infrastructure, much of Africa remains dependent on subsistence agriculture.  There is no money to pay for factories, roads, harbors, machines, farm tools, or education (the machines and tools won't do much good without skilled labor).  On most occasions the African nations made attempts to pay the necessary interest on the loans, until there wasn't even money for that effort.  The European banks (and eventually the International Monetary Fund) stopped loaning money to Africa.  I remember as a student in grade school, reviewing the list of the poorest countries in the world.  They all were in Africa.

In the 1970s, 1980, and 1990s, Africa went through a political metamorphosis. Most African intellectuals justifiably blamed (European) mistakes made at independence for the low standard of living in African countries.  I'm not much for the blame game, especially when there seems so much to go around.  It would have been nice if the Europeans had done a better job preparing the African work force for independence and it would have been great if Africa hadn't been plagued with so many selfish thugs with small armies.  From the late 1970s until the turn of the century, Africa went through periods of flirtation with just about every type of government our species has created.  Africa has seen its share of Socialist governments and also numerous attempts at western capitalism.  The episodes of Marxist and Socialist movements were definitely inspired by a need to "rebel" against the ways of the west.  Today it appears that for the most part, Africa has gotten that knot out of its system.  Many African countries are enjoying democratically elected governments, and sincere efforts are underway to improve the lives of people.  Corrupt functionaries are being replaced with educated civil servants and economies are bring rebuilt.  A sense of national pride has swept through countries like Botswana, Ghana, and Cameroon.  This turn of events has not gone unnoticed in Europe.  The owners of a handful of some very deep I.O.U.s are watching, and like a flock of vultures, they show up to remind everyone of their obligations.

I am a firm believer that people should pay their debts.  The same rule should apply to international agreements.  In this instance, though, it is in everyone's best interest to show some serious flexibility.  In most African countries, just paying the interest on the amounts owed would torpedo the promising changes that have been taking place.  Plain and simple, the debt owed to western interests by African nations will never be repaid.  Pressure can be applied by the United Nations and other international financial and diplomatic organizations that would require each nation to pay at least a percentage (possibly just the interest), but this only perpetuates the problem.  The debts can be eliminated through one of two methods: they can be repaid, or they can be written off.  I understand that the holders of the notes would prefer to at least get something in return, but I argue that in most cases, they already have.  A close look at the link provided demonstrates that in many instances the original loan amount has been repaid.

Writing off all external debt carried by African nations would be a historic event.  How long has it been since our species has worked together to create a positive, historic event?  Probably not since we put a man on the moon.  If the banks and other financial entities that hold the outstanding notes were to accept a token payment as paid in full, it would allow for opportunities that the African continent has yet to enjoy.  To release funds previously scheduled for loan payments, would provide a financial platform for infrastructure development that Africa so desperately needs.  What a pleasure it would be to build a hydroelectric plant with internal funding, instead of waiting for the Chinese government to decide that said African nation had become strategically important, therefore worth the investment.  Many folks will argue that making money available again will only lead to more corruption.  I disagree (which is easy, since I don't hold any of those notes); I think the African people, regardless of tribe, ethnicity, language or religion, desperately want an even playing field.  Once they have one, I pity the fool who tries to re-introduce some of the bad habits of the past.  Simply put, relieving African nations of the burden of debt, would provide a third-world economic stimulus that would drip UP as opposed to down.  All the economies of the world would benefit from an Africa that has the resources to responsibly access and exploit it own indigenous wealth.  Of course, not all the poor nations of the world are in Africa.  Maybe we should use the same formula in Asia and in Central and South America (except Argentina; I love Argentineans like no others, but that Kerchner woman really gets on my nerves).  I argue that such a bold approach to international debt would revolutionize and stimulate economies worldwide.




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