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CGD in the News

June 27, 2002

Broken Promises: Whatever Happened to Debt Relief for Africa? (International Herald Tribune)

Broken Promises: Whatever Happened to Debt Relief for Africa? By Nancy Birdsall and Brian Deese

This op-ed originally appeared in the International Herald Tribune on June 27, 2002.

WASHINGTON: Whatever happened to debt relief for the poorest countries in Africa? That's the question nobody is asking in the applause for the Bush administration's announcements last week of new support for AIDS prevention ($500 million) and for basic education ($100 million) in the world's poorest countries. It's the question nobody asked during the recent hoopla over Treasury Secretary Paul O'Neill's 10-day African tour with the rock star Bono.

Three years ago, Bono and the Pope, in the Jubilee campaign, helped put debt relief on the international agenda. They hoped sufficient debt forgiveness would jump-start growth and social progress for the world's poor, especially in Africa. In fact in its first stage the initiative has produced results. O'Neill saw this in Uganda where debt savings is helping put every child in grade school, and will pay for more teachers, classrooms and textbooks.

As part of an international agreement on a $30 billion program, the United States did commit more than $700 million over three years, a small but good first step. Since then, however, Congress has failed to appropriate the committed amount, and the president's 2003 budget proposes no money for debt relief at all.

A deeper problem arises from the original design of the program. The amount of debt written off for each country is based on projections by the International Monetary Fund and the World Bank of countries' future income and export growth. But the projections of likely future growth are too optimistic. Not only cynics but many of those directly involved in the process acknowledge that they had to be — so that the cost of the write-offs for the U.S. and European governments could be small enough to be politically swallowed.

For example, Uganda and Ethiopia are projected to grow at 6 percent a year for the next decade. That is a record achieved in the past by only a few countries like South Korea, Singapore and Ireland. In Africa, the rate has been more like 1 percent. The projections assume increases in the prices of primary commodities on which these countries depend. Yet in the last two decades, the trend in world prices for agricultural and natural resources has been at best erratic and at worst, consistently down.

Moreover, the projections ignore the poorest countries' vulnerability to drought and floods. A three-year drought has contributed to the collapse of agriculture in southern Africa this year (though so have civil conflict and political instability).

Signing the $190 billion Farm Bill — which by subsidizing increased U.S. production will drive world prices of some commodities down even more — President George W. Bush noted that the livelihood of farmers "depends on things they cannot control: the weather, crop disease, and uncertain pricing." He was referring to U.S. farmers, who make up about 3 percent of the U.S. labor force. Farmers in most indebted countries of Africa make up 70 percent of the labor force.

So far, the United States and the rest of the rich donor countries continue to hide behind the optimistic numbers. New IMF and World Bank projections still assume an average 6 percent growth rate and a strong turnaround in primary commodity prices.

This suggests an agenda for the Group of Eight meeting this week in Canada. First, commit to filling their existing promises. And second, straighten out donors' projections or insure poor countries against them: When the projections turn out to be wrong because of unforeseen circumstances such as droughts, floods and sudden price collapses — and as long as they are sustaining good economic management — countries' increased debt costs would be forgiven.

This would cost roughly $5 billion over 10 years — about 5 percent of what Bush has proposed the United States spend on foreign aid over the next 10 years.

Such an insurance arrangement would ensure that poor countries actually receive the long-term benefits of debt relief. It would also make the official creditors and the Group of Eight accountable for the commitments they've already made to the world's poor.

Nancy Birdsall is president and Brian Deese is researcher at the Center for Global Development in Washington. They contributed this comment to the International Herald Tribune.