Bush Announces Plan to Forgive Sub-Saharan Africa's Debt
JUST in time for next weekend's economic summit in Paris, President Bush has announced a plan to forgive the debt of some African nations. The move signals a key departure for the United States in its approach to the world's poorest bloc of nations. It is also an acknowledgment that Africa's ailing economies will never turn around as long as they are weighted down by heavy debt.
``It's a new context,'' says Frank Ferrari, senior vice-president of the African American Institute. ``The administration is beginning to make clear that its attitude toward third-world debt goes beyond the Brady plan,'' which calls for reduction of commercial debts owed mainly by Latin American countries.
Third-world debt is expected to be high on the agenda when Mr. Bush meets his economic allies Saturday and Sunday. And evidently Bush felt obliged to have something to show in Paris. Last year's economic summit, held in Toronto, produced a broad agreement to relieve African debt, either through rescheduling or cancellation. Several Western nations, including Britain, France, West Germany, Canada, and the Netherlands, have already announced debt-relief measures for sub-Saharan Africa.
Bush's announcement - tucked so discreetly into a press conference for foreign journalists last Thursday that some major US news media missed it - consisted of one sentence: ``To fulfill our commitment at the Toronto economic summit, beginning Oct. 1, the US government will forgive official development loans of the sub-Saharan African countries.''
Administration officials expect 16 countries to qualify for the cancellation of some $1 billion in development assistance and balance-of-payment assistance loans, some of which date back 30 years. To qualify, a nation must agree to undergo market-oriented economic reforms as prescribed by the International Monetary Fund and World Bank.
The 16 nations are: Benin, Cameroon, Ghana, Guinea, Ivory Coast, Kenya, Madagascar, Malawi, Mali, Niger, Nigeria, Senegal, Somalia, Tanzania, Uganda, and Zaire. Seven other countries could have qualified, but likely won't by Oct. 1, because they do not have a World Bank-IMF structural-adjustment program: Ethiopia, Sudan, Zambia, Liberia, Botswana, Swaziland, and Zimbabwe.
Until the passage of last year's foreign aid bill, the US government was prohibited from canceling official debt. Now the administration can forgive sub-Saharan African debt or receive payments in local currency, as long as a structural adjustment program is in place. By Oct. 1, the start of the next fiscal year, the Treasury Department, State Department, and Agency for International Development (AID) must present Congress with a plan for African debt reduction.
Congress must then approve the new policy and any possible budget implications, which will be ``fairly small,'' says a senior AID official. ``One of the reasons is that a number of these countries were not paying the United States anyway. ... If they [the 16] had been fully servicing their debts, our estimate is that in the next several years they would be paying us $42 million a year. Their actual payments to us have been a lot smaller than that.''
It will take a year or two for AID, working with State and Treasury, to sit down with each African government to discuss the state of their reform programs and establish conditions for conversion - and in many cases forgiveness - of the debt owed to the US, the AID official says.
Advocates of debt relief for Africa had begun to despair of ever getting the US to take action. At a Capitol Hill conference on African debt last month, speaker after speaker spoke of the need to get Africa ``off the back burner.'' They also noted a paradox of Africa's debt: Its numbers are small enough that they don't pose a serious threat to the world financial system, but because they aren't threatening, the Africans lack ``debtor's leverage.''
All told, in 1987 sub-Saharan Africa owed $137.8 billion in medium- and long-term debt. (By comparison, Brazil alone owes $120 billion.) Out of the $137.8 billion, $4.3 billion is owed to the US.
Now, some administration officials are starting to sound in some ways like United Nations officials.
``I don't want to overgeneralize [about the economies of Africa], because there is enormous diversity,'' says a high-ranking State Department official. ``But I think it's fair to say that the debt that we're talking about looms large in terms of impact. They're not as highly developed as the Latin American economies, for example. So in Africa, the impact of the debt, however small in terms of numbers, is of much greater significance.'' (Mexican debt-reduction plan readied, Page 7.)
Given that view, which is echoed by other administration officials, why is the US following instead of leading the move toward debt reduction? Tradition, says the senior AID official. ``That's a difficult issue, allowing debtors not to pay up,'' he says. ``It goes back a bit. We still have World War I debts from a lot of countries that haven't paid us back. So there's a lot of theology involved which is pervasive in our legislation.''
By uttering the taboo words ``debt forgiveness'' in his March 10 speech on commercial debt, Treasury Secretary Nicholas Brady started the US on a new course in its global economic strategy. Forgiving segments of Africa's official debt pushes the envelope a bit further.
But for Africa, there's a catch. By tying debt forgiveness to World Bank-IMF structural adjustment, the US is saying: Play by our rules and you will be rewarded. The problem is, many Africans feel the multilateral banks' formula for structural adjustment - which is heavily influenced by the US government emphasis on free-market economics - does not adequately address the differences among the African countries.
On the eve of Bush's announcement, the UN's Economic Commission for Africa issued a report on structural adjustment with a pointed title: ``African Alternative Framework.'' The report is the latest salvo in an already heated debate over how best to help Africa recover. With the new US plan, the debate is sure to get livelier.