Clearing the books in Africa

Uganda, a poor landlocked nation in East Africa, carried about $172 million in international debt when brutal dictator Idi Amin took power in 1971. By the mid-1990s, following the shocks of mass killings, invasion, rebellion and finally a costly effort to rebuild a shattered economy, the country owed lenders $3.6 billion.

The loans helped fuel an economic turnaround, but created a pile of debt the country could not pay off. Uganda’s government by 1997 was spending about $9 per person annually servicing loans and less than $3 on health care, according to the Economic Policy Research Center in Kampala, the country’s capital.

“I think the intention was good. Borrowing in itself is not bad. But the loans were not effectively managed. And, of course, corruption and mismanagement always go together,” said Zie Gariyo, executive director of the Uganda Debt Network, a coalition of advocacy groups founded in 1996 to draw attention to the country’s hefty debt.

Rich nations rescheduled or reduced poor-country debts owed to them more than 200 times through the 1980s and 1990s. The World Bank and International Monetary Fund starting in 1996 led two major efforts to grant even more relief. But Uganda today owes creditors about $4.7 billion, mostly to the World Bank and IMF.

The situation is similar in dozens of other impoverished countries. Thirty-eight of the world’s poorest nations, mostly in Africa, received $40 billion in debt relief from 1989 to 2002 but still piled up $93 billion in new loans. At the end of last year, they owed an estimated $144 billion to multilateral lenders such as the World Bank and IMF, other countries and private banks.

The Group of Eight industrialized nations — the United States, Britain, Japan, Germany, France, Italy, Canada and Russia — last month proposed wiping out much of that burden, and leaders from the wealthy countries are expected to give the plan their blessing at a summit starting tomorrow in Gleneagles, Scotland.

Eighteen countries, including Uganda, would quickly have $40 billion worth of bad loans, owed mostly to the World Bank, IMF and African Development Bank, written off. Twenty others would be eligible for cancellation, bringing total cancellation to $60 billion.

The program does not consider countries such as Nigeria and South Africa, which despite hefty debt do not meet criteria for the forgiveness program. Only “highly indebted poor countries” qualify. Average annual income must be less than $500 per person, the ratio of debt to exports must offer little or no hope of repayment, and governments must build a track record that indicates the money will not be wasted through corruption or incompetence.

The debt cancellation would recognize that past loan programs have by most measures failed. It also would be an important victory for a broad coalition of religious groups, politicians and rock stars who have long campaigned for a “jubilee” — a biblical term for freedom from bondage and debt — and believe the cancellation offers Africa a fresh start as the continent tries to eliminate poverty.

“The leadership of the jubilee campaigners is bearing fruit once more. We really owe those people, from church basements to national treasuries, who have worked so long and so hard for this day,” said Bono, the lead singer of U2 and a leading campaigner for debt relief, when G-8 finance ministers outlined their plan last month.

But debt cancellation alone would not solve myriad political and economic problems in some of the world’s poorest countries, and the G-8 program does not address many struggling countries at all.

“What happened with the … finance ministers is a step forward, definitely, but it’s a very modest step forward,” said Jeffrey D. Sachs, director of the Earth Institute at Columbia University.

’Worthless debts’

The World Bank and IMF consider 38 nations, mostly in Africa, to be heavily indebted poor countries (HIPC). Most racked up crushing debt starting in the 1970s or 1980s. The cause is at least slightly different in each case:

• Uganda used loans to rebuild what by the mid-1980s had become a failed state with little infrastructure or industry.

• Mozambique ran up debts to Cold War benefactors eager to support one side or another in running insurgencies and civil wars.

• And the Ivory Coast, in the 1960s and 1970s considered an African success story, borrowed money easily on international markets, but when commodity prices collapsed in the 1990s — especially for exports such as cocoa and coffee — the government no longer could pay creditors.

Most politicians, academics and specialists consider the loans uncollectible.

“The IMF and other [international financial institutions] should simply cancel 100 percent of the worthless debts owed them by poor countries,” said Rep. H. James Saxton, New Jersey Republican and chairman of the House Joint Economic Committee.

Dozens of U.S. lawmakers have been pushing for debt cancellation, some because they believe the money cannot be recovered anyway, others out of religious or moral conviction. For example, Reps. Maxine Waters, California Democrat; Jim Leach, Iowa Republican; Barney Frank, Massachusetts Democrat; and Spencer Bachus, Alabama Republican, are among 68 lawmakers who see the G-8 proposal as a positive start, but still inadequate. Their bill would cancel the debt of 50 countries, including the Philippines, Nigeria, South Africa and others not covered by HIPC.

British Prime Minister Tony Blair has championed the cause internationally. President Bush and Mr. Blair last month agreed on an outline to forgive debts of poor nations, a plan adopted by the G-8 finance ministers soon after.

“It was about a year ago that we put this idea on the table, and there were many people along the way who were skeptical of our motives, or not convinced that it could be achieved — but, clearly, a year of hard work on this has paid off,” Treasury Secretary John W. Snow said last week. “The G-8 leaders will build on this achievement in Gleneagles.”

The Treasury Department estimates U.S. share of the G-8 debt cancellation plan would be $1.3 billion to $1.8 billion over 10 years, roughly 40 to 60 cents per American per year. It is about the same amount of money taxpayers expected to pay in subsidies to soybean farmers in 2005.

Schools and health clinics

Uganda, with a population of about 25 million, accumulated most of its debt after 1987, following Yoweri Museveni’s seizure of power, and turned to the West for economic guidance and financial assistance.

Mr. Museveni, who today is sometimes criticized for corrupt practices and strong-arm tactics, is largely credited with rebuilding the country’s political and economic structure, producing solid growth and falling inflation through the late 1980s and 1990s.

The cost of rebuilding was high. Uganda relied on billions of dollars from international donors. At the same time, many of the loans were poorly managed while rising energy costs and falling prices on major exports, such as coffee, limited national income.

Uganda in 1997 became the first country to qualify for the HIPC initiative. The program has since granted close to $2 billion in relief by waiving interest or delaying payments. Uganda’s government estimates that about $80 million a year that otherwise would have gone toward servicing debts instead is going to poverty-reduction efforts.

The first major initiative financed under HIPC was an increase in primary-school enrollment. School spending immediately jumped from $3 million to $20 million a year, while enrollment quickly rose from 3.1 million to 6.6 million children.

Another initiative was to improve health care through a network of rudimentary clinics that could dispense clean razor blades to be used by women giving birth, basic information on HIV and AIDS, and other bare-bones services. Spending on health care more than doubled to just under $100 million.

The government also spent heavily on roads and other infrastructure.

“Without debt relief, it would not have been possible,” said Richard Kabonero, a spokesman for the Ugandan Embassy in Washington. Mr. Kabonero provided the figures on government spending.

Still, the poorest nations see debt cancellation and aid as pieces of a broader strategy necessary to help them reduce poverty. Uganda, for example, is still one of the world’s poorest countries with per-capita economic output of less than a dollar a day and an economy now growing slowly.

“Debt cancellation is not enough. The most important thing for us is trade. Uganda would benefit most if it could export all that it can produce. But there are barriers, subsidies,” Mr. Kabonero said.

One of Uganda’s important crops is cotton, a commodity that faces a world market distorted by as much as $4.7 billion in annual subsidies the U.S. government pays its farmers. The United States has opened its market unilaterally to some African countries, but developing nations will have to wait for a broader deal until the 148 members of the World Trade Organization strike a global bargain during the so-called “Doha Development” negotiations.

Mr. Bush last week acknowledged the importance of trade.

“The Doha negotiations are the most practical and important anti-poverty initiative in the world, and we must bring them to a prompt and successful conclusion,” he said.

That is unlikely before 2007.

’Simplistic’ targets

The G-8, the World Bank and IMF still have to work out the details on the debt write-off and how to link the cancellation with development aid.

Mr. Blair has pressed for massive new aid for Africa to go with debt cancellation — $25 billion in new funds by 2010, roughly double current figures. A wave of popular sentiment, embodied in Saturday’s “Live 8” concerts on four continents, also has raised international pressure for grander commitments.

The Bush administration also has called for action to address poverty in Africa, both for national security and humanitarian reasons.

“We seek progress in Africa and throughout the developing world because conscience demands it,” Mr. Bush said.

But he has resisted specific targets. Instead, the administration has tied debt cancellation with reforming the way the World Bank and other institutions deliver assistance to poor nations.

“We have tried to change the focus both with our bilateral assistance and multilateral assistance away from simplistic numeric targets, and toward a greater focus on ensuring that assistance is well-spent and goes into environments where it can have a great impact in lifting people out of poverty. Money alone is not the answer,” Mr. Snow said.

The administration is pushing to shift away from loans to grants, a step meant to avoid the cycle of borrow and forgive. The administration wants to tie the grants to performance requirements and be able to measure results.

The World Bank’s Operations Evaluation Department, an independent internal watchdog, in a report faulted the bank for funding programs that do not adequately measure results, that do too little to reduce poverty, that demand too little of poor nations’ governments and that do not reduce corruption.

But many still believe the United States is stingy with aid.

Mr. Bush last week proposed doubling U.S. aid to Africa from 2004 levels by 2010, and promised $1.7 billion for new programs, mostly to fight malaria. The mosquito-borne disease kills more than 1 million Africans each year. The funding will be phased in over several years.

Other official U.S. aid spending for 2005 is about $3 billion for Africa. The administration says aid to Africa has tripled in recent years, but Mr. Sachs compiled figures showing that it has doubled since 2000 and called U.S. aid to the continent “meager.”

’Corrupt,’ ’authoritarian’

Some African countries, such as Sudan, are mired in violence, while others are rife with corruption. But overall, African nations have made remarkable progress toward democracy and stability in the past decade.

“After years of colonization and Marxism and racism, Africa is on the threshold of great advances,” Mr. Bush said, noting historically strong economic growth, settlement of old conflicts and democratic elections.

Uganda, for example, is often credited with an impressive economic and political turnaround through the late 1980s and 1990s. Mr. Museveni, who seized power in 1986, won elections in 1996 and 2001.

But some are worried that the country is backtracking.

“Having celebrated Uganda’s success, the United States and the rest of the donor community should now acknowledge that the Museveni government is an increasingly corrupt and authoritarian regime that has probably overstayed its welcome,” said Joel Barkan, a University of Iowa professor who has studied the country.

Mr. Barkan said Mr. Museveni’s government relies on crony capitalism and other corrupt practices to remain in power. That legacy may be extended as the president presses a change to the constitution that would allow a third term.

“Given Uganda’s high dependency on aid for budget support, the donor community directly and indirectly — but unintentionally — finances corrupt practice,” Mr. Barkan said.

Official development aid to Uganda — $959 million in 2003 — was more than 15 percent of the country’s economic output, according to World Bank figures.

Despite the potential of misspending, aid to Africa is more likely to increase than decrease. The World Bank last month reported that aid to sub-Saharan Africa rose about 40 percent from 2002 to 2003 — to $24 billion — while the countries also received greater debt relief.

Officials around the world hope that a trend toward internal reform coupled with increased international attention, aid and investment will help the continent tip away from corruption, violence and poverty.

“There is no question that there is an enormous, compelling moral urgency to the conditions of Africa, and there is no question that there are needs. But there is a lot more going on than just need. Africa may be on the verge of being a continent of hope,” World Bank President Paul Wolfowitz said.