Africa's Debt - Africa Action Position Paper
by Ann-Louise Colgan, Research Associate, Africa Action
The 48 countries of sub-Saharan Africa spend approximately $13.5 billion every
year (1) repaying debts to rich foreign creditors for past loans of questionable
legitimacy. These debt repayments divert money directly from basic human needs
such as health care and education, and fundamentally undermine African
governments' fight against the AIDS pandemic and their efforts to promote
sustainable development. The All-Africa Conference of Churches has called Africa's
massive foreign debt burden "a new form of slavery, as vicious as the slave trade".
Africa Action calls for the cancellation of Africa's foreign debt, which we consider in
large part to be illegitimate, based on its origins and consequences. We consider the
present and past attempts to deal with the debt crisis to be absolutely insufficient, and
we oppose the existing debt relief framework, developed and controlled by creditors
and designed to function only in their interests. Africa Action opposes conditionalities
imposed by Northern creditors which perpetuate a global economic system where
Africa remains economically controlled by the developed world. We believe that the
costs of debt cancellation should be borne by the creditor nations and the
International Financial Institutions, and moreover, we believe that the global North
owes Africa an historical debt for centuries of exploiting the continent's human and
natural resources. We therefore pose the question, "who really owes whom?".
1. Introduction to Africa's Debt Crisis
In the 1960s and 1970s, African countries became indebted to international lenders as they
accepted loans for political and economic stabilization in the post-independence era. In the context
of the Cold War, and with massive revenue surpluses of oil money in Western banks in the 1970s,
loans were made with little thought to their purpose or to their recipients' capacity to repay the debt.
Many were made to retain the loyalty of corrupt regimes, and much of the money went into the
hands of unrepresentative and repressive governments. In the 1980s, when the shocks of the 1970s
oil crisis, rising interest rates and falling global prices for primary commodities began to take a toll,
the debt crisis in the developing world began to unfold.
Sub-Saharan Africa's debt crisis worsened during the 1980s, as the ratios of foreign debt to the
continent's gross national product (GNP) rose from 51% in 1982 to 100% in 1992 (2), and its debt
grew to four times its export income in the early 1990s (3). In 1998, sub-Saharan Africa's debt
stock was estimated at $236 billion, and that of the whole continent was over $300 billion (4).
Africa's debt burden is twice that of any other region in the world -- it carries 11% of the developing
world's debt, with only 5% of its income (5). GNP in sub-Saharan Africa is $308 per capita, while
external debt stands at $365 per capita.
Early attempts to address the debt crisis began in the 1980s, with debt swaps by creditors and with
the IMF's Structural Adjustment Programmes, which were designed to stabilize and re-structure
economies to ensure full payment of the debt stock. From 1989 on, a range of measures were
enacted to reschedule and restructure debts through the Paris Club, an informal forum where
creditor governments review and reschedule debt payment programs for poor countries. In 1996,
the Heavily Indebted Poor Countries (HIPC) Initiative was created as the first comprehensive debt
relief framework -- encompassing private and government creditors as well as the World Bank and
IMF, for the first time -- and this remains the dominant approach to resolving the debt crisis.
2. Africa's debt is 'illegitimate' debt
In light of the circumstances under which much of the debt of African countries was incurred, and in
recognition of the mistakes of both borrowers and lenders, as well as of the harmful effects of
Africa's debt on the continent's development, Africa Action considers much of Africa's debt to be
illegitimate. The illegitimacy of the debt is based on the following principles:
* Debts contracted by dictatorships or repressive regimes, and used to strengthen the hold of these
regimes, are illegitimate, for instance the apartheid-caused debt inherited by South Africa. This has
also been termed "odious debt" (an established legal principle).
*Illegitimate apartheid-caused debt also includes the debt incurred by neighboring countries who
were destabilized and against whom war was waged by the apartheid regime in South Africa.
* Debt contracted by formally democratic but corrupt governments, which was stolen by leaders or
senior officials, is illegitimate. This has also been referred to as "stolen wealth".
*Debts contracted and used for improperly designed projects and programs are illegitimate. There is
heavy responsibility on creditors here, particularly on the World Bank for its failed development
* Debt that swelled because of high interest rates and other conditions imposed by creditor
governments and banks is illegitimate. This perspective argues that the original debt (the principal)
has already been repaid many times over, so the continued existence of a debt burden is illegitimate.
* Debts which cannot be serviced without impoverishing a country's people are illegitimate. This is
more often termed "immoral debt". As Julius Nyerere said, "Must we starve our children to pay our
* All debt owed by the South to the North can be considered illegitimate. The argument here is 'who
owes what to whom?". Africa Action and Jubilee South maintain that the countries of the South are
in fact creditors of an historical, social and ecological debt which Northern countries refuse to
Understanding the illegitimacy of the debt reinforces the arguments for debt cancellation, and opens
up some new options for accomplishing this.
The concept of odious debt exists as a doctrine in international law, and this legal precedent (dating
back over 100 years to when the US captured Cuba from Spain) could allow for the cancellation of
such debts by international agreement. The Doctrine of Odious Debt holds that debt incurred by
dictatorships for their own benefit or for the purposes of enforcing the dictatorship is 'odious', and
therefore not the responsibility of the population or of subsequent democratic governments. The
Doctrine has two main aspects: the legitimacy of the borrower's purpose in seeking the loan and
whether the lender was recklessly indifferent to the status of the contracting state. In the case of
South Africa, for instance, all apartheid-caused debt should be considered "odious" because of the
nature of the regime. More broadly, it may be argued that the debts of developing countries that
have arisen as a result of bad lending policies and loan conditions should be declared odious and
Debt repudiation is an option for countries that refuse to acknowledge the legitimacy of their debts.
Repudiation involves the unilateral cessation of debt repayment. This is a dramatic move, and has
several potential disadvantages, including the possibility of retaliation from commercial banks,
creditor governments and multilateral lending institutions, and the possibility of jeopardizing relations
with rich countries. One way to minimize this risk might be for a group of debtor nations to act in
concert, joining in a "debtors cartel" that would not only be more difficult to "punish", but that would
also command greater leverage in negotiations on future credit. The risk of limiting future access to
financial flows would still be real, however. One past example of debt repudiation is that of Peru,
where President Garcia declared that Peru was unilaterally limiting its debt payments to 10 percent
of its export earnings - a de facto repudiation. This move proved detrimental to the Peruvian
economy, leaving the country isolated from international financial markets, and eventually leading to a
crushing $20 billion foreign debt. In Africa, there is a growing call from civil society for collective
repudiation of external debts by African countries. The refusal to pay is increasingly seen as the
moral and logical outcome of the illegitimate nature of these debts.
International Debtors' Court
Another possible approach for addressing the problem of illegitimate and unpayable debt is the
notion of an international debtors' court, as a full insolvency procedure where debtor governments
could present their case rather than leaving all control in the hands of creditors, as is currently the
case. Jubilee 2000 and others have endorsed the idea of such an international, independent court,
appointed to arbitrate between creditors and debtors. This would be a mechanism for drawing a line
under the unpayable debts of a sovereign state, similar to bankruptcy laws for individuals. In this
forum, creditors and debtors would argue their separate cases, with the final decision resting with
independent arbitrators, who would only endorse an agreement that was fairly and openly reached.
Disclosure and Classification of Debts
In order to expose the illegitimate nature of much of Africa's debt, a process of disclosure and
classification of all outstanding debts has been proposed by Jubilee South, to examine the
circumstances under which the debts were incurred and to encourage future government
accountability and transparency. An immediate and thorough information disclosure on existing debts
would permit the investigation and classification of these debts in order to establish their legitimacy,
and therefore would allow a fair determination on the appropriate policy on servicing these debts.
Making public the purpose and use of loans and investigating their legitimacy should not only help
determine which debts should canceled as a matter of principle, but should also encourage greater
transparency and responsibility on the part of both lenders and borrowers in future lending.
3. The Current Debt Relief Framework
The Heavily Indebted Poor Countries (HIPC) Initiative was launched by the Bretton Woods
Institutions in 1996. It was a significant development in that it acknowledged that previous efforts at
restructuring or rescheduling debt had been insufficient to resolve the debt crisis in the developing
world. This was the first comprehensive international debt relief scheme, integrating all multilateral,
bilateral and private creditors into one framework. The aim of the HIPC Initiative was to reduce to
"sustainable levels" the debt burden of poor countries that demonstrated sound economic and social
policy reforms, and thereby to provide a lasting solution to the debt crisis. Reducing the debt to
"sustainable" levels was intended to remove the debt overhang, and make it such that the debt
service owed was the same as the amount being paid, thus preventing countries from falling behind
on their repayments.
In order for countries to be selected for HIPC status, they had to meet three main criteria:
* They had to be eligible only for concessional loans from the International Development Association
(IDA) of the World Bank and the Enhanced Structural Adjustment Facility (ESAF) -- since
re-named the Poverty Reduction and Growth Facility (PRGF) -- of the IMF.
* They had to have a debt burden that was considered "unsustainable". A "sustainable" level of debt
was gauged to be a debt-to-export ratio of between 200 and 250%, and a debt-service to exports
ratio of between 20 and 25%. This meant that "sustainable" debt should not exceed two and a half
times the value of exports, and that debt service should not exceed one-quarter of the value of
* They had to establish a track record of economic reforms under World Bank and IMF-sponsored
programs. In 1996, the World Bank and IMF selected 41 countries as potentially eligible for HIPC
status. 33 of these were in sub-Saharan Africa. The total debt stock of these highly impoverished
countries amounted to approximately $200 billion in 1997 (6). 85% of HIPC long-term debt is
owed to public lenders (multilateral and bilateral creditors) rather than to the private sector, and
about half of this is owed to governments, though only a small amount (3.7 %, at the end of 1997) is
owed to the US (7).
The HIPC process was to be divided into two phases. First was a three-year period between the
"entry point" and the "decision point", during which a country followed IFI adjustment programs, and
at the end of which a debt sustainability analysis was conducted to see whether and to what degree
the country required debt relief. After a second three-year period, during which the country would
consolidate its track record in following World Bank and IMF programs, the "completion point"
would be reached, and the country would then receive a reduction in its total debt stock.
Under the original HIPC Initiative, progress was very slow, and criticisms of the pace of the process
and the stringency of the qualifying criteria led to a revision of the plan and the unveiling of the
Enhanced HIPC Initiative at the G-7 summit in Cologne in 1999. Under the enhanced framework,
debt relief was to be made "broader, faster and deeper", and it was to be linked more closely and
transparently with the goal of poverty reduction. Debt relief was to be "broader" in the sense that the
lowering of the debt sustainability ratio to 150% of exports would admit more countries to qualify for
relief. It was to be "faster" in the sense that the timetable for offering relief was accelerated by
'interim' assistance being provided between the decision and completion points. In addition, the
completion point was made 'floating', which meant that countries that performed exceptionally well
would not be required to wait the full three years in the second phase of the Initiative, but could
reach the completion point more quickly. Debt relief was to be "deeper" because expanded
assistance was to be provided to qualifying countries.
The Enhanced HIPC Initiative also aimed to link debt relief more firmly with poverty reduction
efforts, requiring that all HIPC governments produce a Poverty Reduction Strategy Paper (PRSP) as
a condition to their being eligible for HIPC relief. PRSPs were to be developed transparently through
a Government-led national process, in consultation with civil society, the private sector and external
donors, and with the assistance of the World Bank and IMF. The aim of a PRSP is to ensure
consistency between a country's macroeconomic, structural and social policies and the goals of
poverty reduction and social development. A country is expected to have a viable and
comprehensive poverty reduction strategy in place prior to its decision point, either in the form of a
PRSP or an Interim PRSP. The Boards of the World Bank and IMF then consider this paper as
they review the eligibility of a country for HIPC debt relief. The requirement of a PRSP is yet
another conditionality that the World Bank and IMF have tied to the debt relief process.
At the G-7 Summit in Cologne when the Enhanced HIPC Initiative was announced, the leaders of
the G-7 countries committed themselves to writing off an additional $100 billion of the HIPC
countries' debt. The US share of this plan amounts to $920 million over 4 years. In FY2000, $110
million was appropriated by the US Congress for this global debt reduction plan. In FY2001, debt
relief was approved in 2 parts:
* $435 million in appropriations, which was the Administration's request to fulfil the US commitment
to Cologne. $225 million of this was for FY2001,
* $210 million was emergency supplemental funding for FY2000. Legislative language was passed
which authorized the re-evaluation of the IMF's gold reserves to be used for the purpose of
multilateral debt relief.
The remainder of the US' share of the Cologne Agreement is $375 million for FY2002 and
The HIPC Initiative is financed jointly by creditors in a 'burden-sharing' practice. Bilateral debt relief
is financed according to the budget process of each creditor country, while multilateral relief is
funded through the IDA-managed HIPC Trust Fund, which receives money from the World Bank,
IMF and bilateral donors. In order to finance IMF debt relief costs, the re-valuing of a portion of the
IMF's gold reserves is an option, and this was endorsed by Congress in Fall 2000. The IMF holds
103 million ounces of gold in its reserves. It values this gold at $47 per ounce rather than the true
market value of $262 per ounce, and therefore adjusting the value of this gold to reflect the market
price would realize about $25 billion in capital gains (8). Re-valuing about 14 million ounces of gold
would generate enough money to cover the IMF costs of HIPC debt relief (9).
The process by which the gold would be revalued works as follows: A country owing money to the
IMF would use this money to buy a portion of the IMF gold at current market value (over $260/oz).
After buying the gold, the country would make its loan repayment to the IMF using the gold that it
had just purchased rather than hard currency. This transaction would adjust the value of the gold
from the $47/oz at which it is valued at the IMF to the real market value. The IMF would invest the
"profits" of this transaction in a security instrument where the interest earned would be used to pay
the costs of canceling HIPC debt. Harvard economist Jeffrey Sachs and others argue that the IMF
therefore has more than sufficient resources on its own balance- sheets to absorb the cost of a more
substantial write-down of the debt than is provided for through the HIPC process.
Under the Enhanced HIPC Initiative, 22 countries had reached their decision points by early 2001,
including 18 in Africa - Tanzania, Mozambique, Cameroon, Uganda, Mauritania, Mali, Senegal,
Burkina Faso, Benin, Zambia, Niger, Gambia, Guinea-Bissau, Malawi, Guinea, Madagascar,
Rwanda, and Sao Tome & Principe. So far, only two African countries have finished the entire debt
relief process and reached their completion points -- Uganda & Mozambique.
The IFIs consider the HIPC Initiative to be meeting its objective of relieving the debt burden of the
world's most impoverished countries. They quote figures of "significant" debt reduction for HIPC
recipients. The World Bank stated late last year that once 20 countries had passed their "decision
points", debt relief worth $30 billion would have been committed. The U.S. Treasury similarly stated
that the HIPC process would reduce the debt level of qualifying countries to 30% of the debt they
originally held. Both the US Treasury and the IFIs consider this to be major progress, and both
expect significant growth to occur in developing economies as a result of the HIPC process.
Africa Action disagrees.
The IFIs' estimates of the savings countries will make under the debt relief plan are grossly
unrealistic, as are the extremely optimistic growth projections they make for HIPC countries (8-
12% per annum). The fact is that many poor countries are simply not paying their debt service at
present because they are unable to meet the cost, and therefore a reduction in the debt stock of
these countries, or even a minor reduction in the debt service, will make no difference to their plight.
At best, a minimal amount of resources may be released, with a negligible effect on the country's
Analyses by Jubilee 2000/UK in 2000 assessed the progress of HIPC debt relief much more
conservatively than the IFIs. They estimated that, for the 23 countries expected to qualify by 2001
(of which 22 have now qualified), approximately $1 billion dollars per annum would be released. Yet
they also noted that all 23 countries would still be left spending more on debt repayments than on
health care, that 6 of these countries would gain negligible levels of reduction, and that several
countries, including Zambia and Niger, would actually be required to pay more in debt service after
qualifying for HIPC assistance (10). An April 2001 report from Jubilee 2000/UK's successor Drop
The Debt, found that the HIPC process has brought a mere 27% reduction in average annual debt
payments to the 22 countries that have begun to receive debt relief, and that the total value of this is
only $735 million per year (11). A GAO report, commissioned by Congress in 2000, concluded that
the HIPC Initiative is unlikely to provide a country with a lasting exit from its debt crisis or sufficient
resources to tackle poverty unless it achieves strong, sustained economic growth, and unless it
continues to borrow at the same level and concessional terms as before (12). This can hardly be
considered a successful outcome.
On a practical level, the length of time and the level of bureaucratic detail involved in qualifying for
HIPC relief make the process complicated and slow, despite the "enhancements". Only half of the
eligible countries have begun to receive debt relief at this point, and not all countries who are in need
of debt relief are included in the HIPC plan (e.g. Nigeria). The requirement of economic and
structural reforms both delays progress in the implementation of debt relief and gives the IFIs a
degree of control over debtor countries that is detrimental and inappropriate. The role of the World
Bank and IMF in designing the terms and process of debt relief, and in dictating the economic and
social policy reforms that must occur, gives these institutions a powerful influence in developing
The only significant outcome of the HIPC Initiative, therefore, is that it permits creditors to continue
to squeeze the maximum in debt repayments from the poorest economies. The so- called
beneficiaries, the debtors in the world's poorest countries, see no real benefits from the current
framework. The United Nations Conference on Trade and Development (UNCTAD) recently
predicted that if current growth trends continue, only 1 out of the 43 Least Developed Countries will
have graduated out of that category by 2015, and only 8 will graduate in the next 50 years. It is clear
that the massive debt burden of the world's poorest countries cannot be serviced, and that the
continuing existence of this debt will only further impede their development.
4. Conditionality Tied to Debt Relief
The issue of conditionality is central to any discussion of debt relief or debt cancellation. The IFIs
argue that conditions, such as economic reforms and supervision by the World Bank and IMF, are
necessary to ensure that debt relief proceeds are used wisely, and to prevent 'reindebtedness' (a
recurrence of the debt crisis) caused by economic mismanagement by irresponsible or
unrepresentative governments. They use the "moral hazard" argument to reject calls for debt
cancellation, maintaining that writing off outstanding debts would "reward" bad practices and would
encourage, rather than discourage, future financial irresponsibility by debtors. Not only is this
argument flawed in its failure to acknowledge the illegitimate nature of much of Africa's debt, it also
fails to recognize the responsibility of creditors in the lending process, and the role of creditors in the
origins of the debt crisis.
The latest form of conditionality imposed by the World Bank and IMF is the requirement for HIPC
countries to develop a Poverty Reduction Strategy Paper (PRSP), as described above. This
approach, devised by the World Bank and IMF, is portrayed as a means to link debt relief more
firmly with the goal of poverty reduction. While the notion of a national plan for poverty reduction
and social and economic development, designed through collaboration between governments and
civil society, undoubtedly has some merit in the abstract, the PRSP process is highly problematic.
The fact that this approach is dictated and supervised by external creditors and is a precondition for
receipt of debt relief raises serious questions as to its legitimacy as a natural expression of
democracy in a HIPC country. Rather, it is another means by which rich country creditors retain
control of African economies, and it is an inappropriate intervention in the process by which these
countries govern themselves. It is a matter for African governments to determine their own
approaches to poverty reduction, not to have this prescribed to them by external powers. The
requirement of a PRSP presupposes that, without Northern guidance, Africans would neither care
enough nor know how to apply themselves to the business of poverty reduction, and as such this is
just another example of the neo-colonial mentality of these creditors in their relations with Africa and
the global South.
Beyond the philosophical problems with PRSPs, there are also practical problems with
implementation. The development of PRSPs brings an added bureaucratic dimension to the HIPC
process, rendering it even more cumbersome and complicated. Linking the receipt of debt relief with
the creation of such a paper means an even slower progression through the HIPC program and
creates tension between the desire for speed in achieving debt relief and the complex requirement of
producing a PRSP, which may lead to sacrifices in the quality of the paper drawn up. The PRSP
requirement is a weak attempt to make the HIPC Initiative seem more concerned with the
eradication of poverty. In reality, the current debt relief framework does not allow for sufficient
savings for the roots of poverty to be tackled, and the PRSP is therefore just one more structural
adjustment program to which developing countries must conform.
A more immediate approach to linking debt relief with poverty reduction was developed in Uganda,
where the Poverty Action Fund (PAF) is often held up by creditors and NGOs alike as a model to
emulate in the management of debt relief resources. Early in the HIPC process, the Ugandan
government created this Fund, which is transparently managed and audited, and which has been
used to channel debt relief resources to funding human development goals (13). Uganda's PAF has
allowed for increased expenditures in education, in clean water supply and in infrastructure. While
this approach has proved successful to date, and might be one short-term way to deal with the
proceeds of debt relief in a transparent and productive manner, this is not a substitute for a broader
poverty reduction strategy, with a poverty focused macroeconomic framework. There is a need to
strengthen the links between expenditures from the PAF and poverty/human development indicators
to ensure that this approach is systematic and comprehensive in its objectives. It is also worth noting
that even after debt relief, Uganda still pays out roughly 18% of its government revenues to cover its
While many NGOs consider debt cancellation tied to World Bank and IMF conditionalities to be
fundamentally inappropriate, particularly in the case of illegitimate debts, it is important to
acknowledge that the desire for conditionality in the debt relief process does not merely come from
the creditors' side. There are groups in African civil society, as well as NGOs elsewhere, who
consider some form of conditionality to be a useful safeguard against the misuse of freed up
resources and the possibility of reindebtedness by an irresponsible and authoritarian government. In
cases where there is no democratic government, the establishment of an international monitoring
body to oversee the use of debt relief proceeds is one approach which has been suggested by the
Eurodad Network. This would work through the creation and management by this independent body
of a "poverty fund" into which debt service savings would be diverted, and to which civil society
would apply directly to finance specific sustainable human development opportunities (14).
Bypassing a country's government in this way seems difficult as well as inappropriate in encouraging
citizens to move outside the framework of their own state to seek guidance and economic direction
from an external body. It is also unlikely that a country's civil society would have sufficient capacity
to function independently of an undemocratic government.
Some argue that a basic precondition for debt cancellation is the existence of a democratic
government, that can be relied upon to practice transparency and to include civil society participation
in determining how resources are spent to ensure that they are re-channeled into programs that
promote sustainable development. A democratic system should also allow for transparency and
consultation on future loan transactions, and thus minimize the risk of reindebtedness. It is our view,
however, that illegitimate debts should be written off regardless. It is new loans and grants that are
most appropriately used as incentives to support civil society and other internal campaigns for
5. Principal Creditors and the Costs of Cancellation
As noted above, the US is a relatively minor creditor in relation to the HIPC countries. Only 3.7% of
the long-term debt of HIPC countries is owed to the US. This small proportion is explained in part
by the fact that the US independently canceled about $3.58 billion in poor country debt in the late
1980s and early 1990s, and also by the fact that the US shifted from loan aid to grant aid in the early
As of early 1999, African countries owed the United States approximately $6.8 billion. This is only a
small share of sub-Saharan Africa's total $236 billion debt burden. The principal debtors to the US
are: Democratic Republic of Congo ($2.1 billion), Sudan ($1.2 billion), Nigeria ($871 million),
Somalia ($431 million), and Cote d'Ivoire ($378 million) (15).
The cost of canceling these outstanding debts is actually far less than it might appear. While collective
HIPC debt amounts to some $200 billion in nominal terms, the actual cost of writing off this debt is
much lower. A Jubilee 2000 report finds that the real cost of canceling the debts of all HIPC
countries would be $24 billion (16). These figures are based on the market value of the debts --
determined by how much the debts are bought and sold for on the secondary market -- not the face
The US has already pledged to cancel the bilateral debt which it is owed, as have many of the other
big bilateral creditors among the G-7 countries. The actual cost of bilateral debt cancellation by the
US and other countries is likewise less than it might seem. For the $6 billion which the US is owed
by the HIPC countries, this debt is carried on its books at a more realistic 10% of face value, in
recognition of the fact that 90% of this money is simply not going to be repaid. The cost of writing
this bilateral debt off the books is therefore only about $635 million (17). The Treasury Department
has estimated that every $1 the US contributes toward debt cancellation will leverage an additional
$27 from international creditors. The importance of US leadership is clear, while the cost of acting is
The Treasury Department admits that the cost to the US of bilateral debt cancellation is small, yet it
emphasizes that the costs of multilateral debt relief are great, and that some of these will also fall on
the US. A recent Drop The Debt report stated that after HIPC debt reduction, the 22 countries will
owe more to the World Bank and IMF than to the next 17 largest creditors combined. Achieving
cancellation of this huge multilateral debt is therefore crucial.
On the basis of recent studies and analyses, it has become clear that the wealth of resources that the
major IFIs hold on their own balance sheets is sufficient for them to use internal funding to absorb
the costs of multilateral debt cancellation. The IMF, by using accounts already in place for absorbing
losses and by revaluing its gold, could come up with enough funding to absorb the $6.2 billion it is
owed in effective HIPC debt. The $21.9 billion in effective debt owed to the World Bank by all
HIPCs might similarly be absorbed from within its own reserves (18). A major new Report from
Drop The Debt in April 2001 concluded, on the basis of an audit by two Independent Accounting
Firms in the UK, that the World Bank and IMF could write off 100% of the debts of the world's
poorest countries from their own resources and without negatively impacting their credit rating or
ability to function (19). This Report seriously undermines the arguments of the World Bank and IMF
and proves that debt cancellation is not a financial impossibility for these institutions. Adam Lerrick, a
leading economist, argues that canceling the debts makes economic sense, and that any temporary
cash flow imbalances that might be triggered by an immediate write-off could easily be addressed by
bridge financing by the US Treasury and the Treasuries of the other G-7 countries.
Any proposal for debt cancellation must also consider how development in future countries will be
financed after the debts have been canceled. The very idea of loans being more appropriate than
grants has been seriously called into question by the current crisis. The Meltzer Commission's Report
expressed scepticism about loans being the best means of financing development in the world's
poorest countries, and instead endorsed a change from loans to project-centered and results-based
grants. This notion of transforming the IFIs into grant-making institutions has also been expounded
elsewhere. Jeffrey Sachs has proposed the creation of a World Development Agency to replace the
World Bank in dealing with the world's poorest countries, which would provide grants to support
programs in health care, education, technological development and other areas (20).
What is certain is that the staggering cost of poverty eradication means that debt cancellation cannot
be used as an alternative to development assistance. The need for "additionality", for substantial new
grants and capital contributions by donor governments and multilateral institutions, over and above
the cancellation of the debt burden, cannot be stressed enough. Development Assistance has been
steadily decreasing over the past decade. Despite repeated promises from rich countries to provide
0.7 % of their gross national product for overall official development assistance for poorer countries,
not one of the G-7 members (21) reaches even half that figure. The U.S. ranks at the bottom with
only 0.1 percent of GNP going to development assistance, and only 1/100th of 1% of the U.S.
budget is currently spent on aid to sub-Saharan Africa.
In light of the questionable legitimacy of much of Africa's outstanding debt, the enormous social and
economic costs associated with servicing this debts, and the failure of debt relief efforts to date,
Africa Action calls for the cancellation of Africa's massive foreign debt burden.
The HIPC Initiative, even in its "enhanced" form, is clearly inadequate and has certainly failed as an
approach to Africa's debt crisis. Even in those rare countries, such as Uganda, where savings have
actually permitted greater social expenditure, debt services still drain much-needed resources from
social priorities and from efforts to address the devastating AIDS pandemic and other development
challenges. In the majority of African countries that have received some HIPC debt relief, reductions
in debt service have been minimal, and annual debt repayments still exceed expenditure on health
care. Recent moves by the World Bank and IMF to attach additional debt relief conditionalities only
render the debt relief process more complicated and accord these institutions an even more intrusive
role in the economic and political processes of African countries.
It is time for a far more bold approach to Africa's debt crisis. The World Bank and IMF can and
must do more, and the US, as global leader, must use its great power within these two institutions to
push for real progress toward debt cancellation.
(1) Drop the Debt, "Reality Check. The Need for Deeper Debt Cancellation and the Fight Against
HIV/AIDS", April 2001 ( http://www.dropthedebt.org).
(2) Alternative Information and Development Center, Briefing for the Archbishop of Cape Town
WHN Ndungane. ( http://www.aidc.org.za)
(3) Sanford, Jonathan E., "Africa's Debt Burden: Proposals for Further Forgiveness", CSIS Africa
Notes, October 1996 (in) "Promoting U.S. Economic Relations with Africa", Task Force Report
sponsored by the Council on Foreign Relations, 1998.
(4) Africa Policy Information Center, "Africa's Debt", Background Paper, 1998
(5) Jubilee 2000 Afrika Campaign. Conference Report.
(6) The World Bank website ( http://www.worldbank.org)
(7) Congressional Research Service Report, "Debt Reduction: Initiatives for the Most Heavily
Indebted Poor Countries", February 2000.
(8) Sachs, Jeffrey D., Testimony before the House Committee on Banking and Financial Services,
Hearing on Debt Reduction, June 15, 1999.
(9) Congressional Research Service Report (see above).
(10) Jubilee 2000/UK Presentation, "The need for further enhancement of the HIPC Initiative",
Bretton Woods Committee Roundtable, Washington, DC, November 2000.
(11) Drop the Debt, "Reality Check. The Need for Deeper Debt Cancellation and the Fight Against
HIV/AIDS", April 2001.
(12) GAO Report, "Developing Countries: Debt Relief Initiative for Poor Countries Faces
Challenges", June 2000.
(13) Oxfam International Briefing Paper, "Drop the Debt - Go Back to First Principles", July 2000.
(14) EURODAD, "Making Debt Relief Work. Mechanisms for Aligning Debt Relief with Human
(15) Congressional Research Service Report (see above).
(16) Garrett, John & Travis, Angela, Jubilee 2000/UK, "Unfinished Business - The world's leaders
and the millennium debt challenge", 1999.
(17) Sachs, Jeffrey D., Testimony before the House Committee on Banking and Financial Services
(18) Lerrick, Adam, "The Initiative is Lacking", EuroMoney Magazine, September 2000.
(19) Drop the Debt report 2001 (see above).
(20) Sachs, Jeffrey D., "The Charade of Debt Sustainability", The Financial Times, September 26,
(21) The members of the G-7 are Britain, Canada, France, Germany, Italy, Japan, and the U.S.
Africa Action - Incorporating American Committee on Africa (ACOA), The Africa Fund,
Africa Policy Information Center (APIC)
Washington Office: 110 Maryland Avenue, NE #508, Washington, DC 20002, USA.
Tel: (202) 546-7961 * Fax: (202) 546-1545 * E-mail: email@example.com
New York Office: 50 Broad Street, #1701, New York, NY 10004, USA.
Tel: (212) 785-1024 * Fax: (212) 785-1078 * E-mail: firstname.lastname@example.org