Global Policy Forum

Africa Out of the Limelight: The Debt Crisis One Year After the Gleneagles G8

Africa Action
July 6, 2006

Last year, leaders of the world's economic powers proclaimed that 2005 would be the "year for Africa" and gathered at the annual Group of 8 (G8) meetings to create a plan to address the continent's challenges. Debt cancellation figured prominently on the agenda, and the G8 leaders crafted a deal to cancel 100% of the debts owed by 18 countries – 14 in Africa – to the World Bank and International Monetary Fund (IMF).

This Africa Action statement examines the current reality in Africa's debt crisis and investigates the results of last year's promises. As the G8 leaders prepare to convene in St. Petersburg, Russia, it is clear that Africa's debt crisis is far from resolved, and there is an urgent need for new action from the G8 on this critical priority.

The Outcome of the G8 Promises

Last year's G8 deal promising to cancel $40 billion in debt owed by developing countries was met with global acclaim. This deal was the result of years of activism on the part of civil society in Africa and throughout the Global South, supported by activists across the U.S. and beyond. However, this agreement marked only an initial victory on the path to debt cancellation for Africa, as the past year has made clear.

Once the spotlight dimmed after the G8 meetings in Gleneagles, the World Bank and IMF initially made attempts to renege on the debt cancellation commitments, arguing over details of eligibility and seeking to insert further economic conditions. In addition, Mauritania was dropped from the deal, due to a dispute over its governing practices. After new pressure from activists and others, the IMF finally carried out its debt cancellation in January 2006, releasing $3.3 billion. The World Bank followed suit this week, on July 1, 2006.

Despite claims of "100% multilateral debt relief," the G8 deal does not apply to all countries in need of cancellation, nor does it cancel 100% of the debt for any one country. The 14 African countries considered eligible under the G8 deal – Benin, Burkina Faso, Cameroon, Ethiopia, Ghana, Madagascar, Mali, Mozambique, Niger, Rwanda, Senegal, Tanzania, Uganda, and Zambia – represent only about one-quarter of Africa's 54 countries and a small portion of the African nations in critical need of debt cancellation.

A number of the selected African countries have had significant fractions of their debt cancelled. For example, Uganda will have 79% of its debt cancelled, and for Mozambique the proportion is 48%. But there are dozens of other nations that still require debt cancellation to meet their development goals.

The handful of countries that were eligible for debt cancellation under the G8 deal must all meet harmful economic conditions established by the Heavily Indebted Poor Countries (HIPC) initiative. HIPC terms, such as the forced privatization of public enterprises and the implementation of unfair trade regulations, undermine the ability of African governments to look after the welfare for their populations. Only once these stipulations had been carried out to the satisfaction of the World Bank and IMF, however, would the countries be said to have reached their "completion point" qualifying them for debt cancellation.

Nigeria, with its $30 billion debt burden, was one of the many African countries considered ineligible for inclusion in the G8 deal. Nigeria's debt was largely incurred during the military and dictatorial regime of Sani Abacha, and the borrowed funds provided little benefit for the Nigerian people. In a separate deal reached last year with members of the Paris Club of major world creditors, which did not recognize the odious nature of the debt, $18 billion of Nigeria's debt was written off. In exchange, Nigeria agreed to make a payment of $12 billion. This substantial sum siphoned money away from other more pressing domestic concerns, such as addressing extreme poverty in the country.

One year after the G8 announcement of a debt deal, Africa's debt crisis is far from over. While initial debt cancellation for an initial list of countries has freed up some funds that will make a difference in alleviating poverty, improving health systems, and attaining other development goals, Africa's debt crisis persists and demands new action from G8 creditors.

What Remains to be Done

In the past, the benefits of debt cancellation have been plainly demonstrated. In Burundi, elimination of school fees in 2005 allowed an additional 300,000 children to enroll. In Mozambique, debt relief allowed the government to provide free immunization to all children.

Culminating with IMF debt cancellation in January 2006, Zambia's debt burden was reduced from $7.1 billion to $500 million. This drastic change allowed the government to grant free basic healthcare to its population, a major step in countering health threats such as HIV/AIDS and malaria. These examples illustrate the significant leaps that can be made when African countries are not forced to funnel their resources away in onerous debt payments.

Despite last year's deal, African countries still owe over $200 billion, and are still required to pay $14 billion annually in debt service. This is barely a modest improvement from the $15 billion annual payment that existed before the G8 deal. Most African countries continue to spend more on debt repayment than on health and education for their populations.

Under these current trends, most African countries will not be able to reach the United Nations (UN) Millennium Development Goals by 2015. If the international community and particularly the G8 nations are serious about attaining these goals, they must recognize debt cancellation as a necessary prerequisite and free the resources to achieve these targets.

The international community must also recognize that the bulk of Africa's debts are illegitimate and odious. Years of creditor mismanagement of poorly planned projects, and irresponsible lending to despotic leaders during the Cold War years, have saddled African populations with huge and harmful debts, which must now be canceled as a matter of justice.

Africa Action maintains that last year's G8 deal was insufficient on paper and carried out incompletely in practice. The agreement excluded the vast majority of African countries and the vast majority of Africa's debt. It is insufficient to alleviate the burdens sapping the continent's resources and its ability to face major economic, and social challenges, especially the HIV/AIDS pandemic. As the G8 assembles once again, Africa Action exhorts G8 leaders to take new action on the debt crisis by expanding the debt deal and cutting the harmful conditions. The leaders of the world's wealthiest countries must now finish what they started one year ago – the only moral and practical course is to fully cancel Africa's debt.



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