- The Washington Times - Monday, April 28, 2008

ANALYSIS/OPINION:

As Congress grapples with the sub-prime crisis, it looks set to reward some corrupt governments and leaders that have squandered and stolen funds with a bailout; and seeks to do so at taxpayers’ expense. As a result, in part due to Pope Benedict’s recent visit to the United States, Congress has taken steps to pass a massive debt-relief effort called the Jubilee Act. The House passed this legislation on April 16 and the Senate Foreign Relations Committee held a hearing on April 24 bringing it one step closer to potential reality. It may come with good intentions, but if enacted, it would be harmful for poor countries.

Not only will the legislation constitute a massive bailout for some corrupt regimes, but it will undermine the cultures of trust and reform that need to develop in Sub-Saharan Africa, and elsewhere in the developing world, whose absence is responsible for the very troubles that poor nations face.

When used properly, debt relief can be an effective and sensible policy tool and is also morally correct when a despot has stolen money and has been replaced by a democratically elected leader. There are times when it is appropriate to ease the burden a nation faces so that it might meet more pressing needs. But the current debt-relief effort — which has been lobbied for heavily by pop culture stars such as Bono is wrong-headed and ill-considered. Effective debt-relief measures take into account the specific circumstances of aid candidates. We speak from personal experience, having worked extensively in Africa and having witnessed the corruption of regimes reliant on foreign aid up close.

The current legislation is overly sweeping and broad. As such, it undermines America’s current policies on debt relief to the detriment of not only American taxpayers and aid agencies, but also debtor nations themselves.

Many Americans may not know this, but the United States already sponsors numerous, more sensible debt-relief programs, including the Heavily Indebted Poor Country initiative or HIPC. This measure was designed to enforce accountability standards, an effort particularly relevant to Africa where corrupt regimes have misspent foreign investment and used it to fund their often lavish lifestyles.

The HIPC initiative has been a success in many ways. According to the International Monetary Fund, HIPC debt reduction has helped 27 African countries. All told, a remarkable $49 billion in debt-service relief has been approved reducing the financial burden of servicing the debt by 2 percent of GDP. Countries benefiting from HIPC, such as Niger, Zambia and others in Africa, are now spending more on health care education and other vital services as a result. Malaria control has been improved in some countries thanks in part to careful, well-designed debt relief.

The IMF points out that “Poverty-reducing expenditures in post-decision-point HIPC’s have increased on average from under 7 percent of GDP in 2000 to 9 percent in 2006. In nominal terms, poverty-reducing expenditures amounted to $17 billion in 2006, which represents an increase of $3 billion since 2005. These expenditures are more than five times the level of debt-service payments after debt relief.”

At the same time, several countries have failed to qualify for debt relief. According to the IMF, “To qualify for debt relief under the HIPC Initiative, pre-decision-point countries must build a track record of policy performance ” in place of a satisfactory poverty reduction strategy.” In other words, these countries must engage in constructive reforms for their debt to be lifted. When they don’t, they do not get the relief that their neighbors who did reform receive. This is tough love, but it what is needed to push the political elite in poor countries to enact reforms.

The Jubilee Act includes no criteria for recipient countries to meet. It’s not tough love, it’s dumb love. And this is the worst kind, since it weakens the need for reform that must take place for these countries to grow and prosper.

The Act has a few key Republican sponsors, including Sen. Richard Lugar, Indiana Republican, who recently spoke out in favor of the legislation, saying, “This legislation continues our effort to fight poverty and help poor countries achieve the Millennium Development Goals. The results of the two previous rounds of debt relief are impressive — more children are in school, more families have access to clean water and health care, and communities are benefiting from infrastructure improvements.” But the point is that the Jubilee Act is nothing like those earlier rounds of debt relief, in which accountability was maintained. It might be tempting to think that all debt forgiveness is alike, but alas, it is not.

The United States has come a long way in recent years in transforming foreign aid. Gone are the days when open-ended grants did little more than prop up dictators who mouthed false platitudes about new beginnings as they accepted American taxpayer dollars only to continue oppressing their people. The Jubilee Act is in the tradition of that old and discredited way of doing business. It’s a step back. Congress would be smart to bury it.

George Ayittey is professor of economics at American University and president of Free Africa Foundation. Richard Tren is director of Africa Fighting Malaria.


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