TOO LITTLE OR TOO MUCH: THE G-8 SUMMIT 2007 DECLARATION, Growth and Responsibility in Africa

“If you are interested in helping the poor, it makes sense for the developed world to forgive the debt, and that is what the United States will continue to do”. President Bush Speech to the Group of 8 (June 6-8, Heleigendamm, Germany).

At least for the past 10 years or so, at the summit meeting of the G 7-8 pledges are heard, commitments declared to help the poor, heavily indebted poor countries referred to as HIPCs rid themselves of the debt overhang, improve their living standards and achieve a sustainable rate of economic growth. The problem that is yet to be solved is how exactly these excellent goals are to be achieved. Good intentions aside, concrete measures need to be taken to lift HIPCs out of poverty and achieve a sustainable level of economic growth. One can use an example of a sick patient seeking relief. Prescription drugs or therapy require good diagnosis. This may not always be the case. Even in the best “milieu” diagnoses can err, drug therapy may not be followed or disrupted. Treating a patient with multiple illness is difficult enough, treating a country suffering from a multiple of diseases may border on the impossible.
To gain insight into the problems facing HIPCs and to evaluate the efforts exerted on their behalf, both in actuality and through pledges and pronouncements, a few statistics may be helpful. But first, who are those countries that are labeled HIPCs?

According to the World Bank, there are some 41 countries classified as HIPCs, 33 of which are in sub Sahara Africa (Angola, Benin, Burkina Faso, Burundi, Cameroon, Chad, Cote D’Ivoire, Democratic Republic of Congo, Eritrea, Ethiopia, Ghana, the Gambia, Guinea, Guinea–Bissau, Kenya, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Niger, Republic of Congo, Rwanda, Senegal, Serra Leone, Somalia, Sudan, Tanzania, Uganda, Zambia, Zimbabwe). Non-African countries in the HIPCs group are mostly in Latin America.
The classification is based on three criteria: being poor with per capita income of less than $695 per annum, a present value of external debt to GDP ratio greater than 80%, a ratio of present value of external debt to exports greater than 220%.

To appreciate the enormity of the problems facing HIPCs and the efforts of the international community in addressing the debt issue one needs to look at the development of some of these indicators. For example, in all HIPCs, the external debt stock was at least twice the value of exports on average during the 1992-94 with several countries having ratios that exceeded 1000%. The present value of the debt service to exports was over 25%. The debt has grown so rapidly so that by 1995 (the eve of HIPC initiative), it stood at $406 billion or 9 times its value in 1970. As of 2004, the debt stock stood at $441 billion. The debt service which was equal to $1.8 billion in 1970 reached $35.7 billion in 2004 (the external debt consists of multilateral credits, official bilateral credits and private credits).

The call for debt relief (debt write-downs) for this group of countries came to fruition in the mid 1990’swhen the HIPC initiative was launched by the IMF and the World Bank. Earlier commitments towards debt relief were announced during the 1987 G-7 Summit in Venice, the 1988 G-7 Summit in Toronto where a menu of options, including partial forgiveness, lower interest rates to help poor countries meet their debt obligations. Additional debt relief measures were announced in subsequent Summits: the 1990 Houston Summit, and the 1991 London Summit. The Paris Club (the club of official lenders) also called for additional relief both in 1993 and 1994.

These waves of debt relief, from Venice to London were not sufficient to deal with the external debt problem of HIPCs. Thus, the HIPC Initiative was born. The initiative was put in place in 1996 and expanded in 1999. The initiative is a comprehensive program aimed at achieving “long term debt sustainability and poverty reduction”. But to be eligible a country must meet certain criteria such as a track record of macroeconomic policy that promote economic growth. The HIPC Initiative was supplemented in June 2005 at the G-8 meeting by a new program — the Multilateral debt Relief Initiative (MDRI). The program proposed that the three multinational Institutions, the IMF, the World Bank, and the African Development Fund, “cancel 100%” of their debt claims on these countries thus freeing their resources for development. Countries eligibilities for this program are spelled out in terms of completion of certain requirements under the HIPC Initiative. MDRI’s goal is to half the poverty rate by the year 2015.

Too Much or too Little? Whatever judgment one makes about the debt relief efforts, the debt problem of HIPCs and their poverty status had changed but little (for more details on this see W. Easterly “How Did Heavily Indebted Poor Countries Became Heavily Indebted? Reviewing Two Decades of Debt Relief’, World Development, 2002).

With all these expended efforts, what did the G-8 Summit has to offer? One interesting development is the group focus on Africa. This as it should be since the majority of HIPCs are Located in the African Continent.

“Today we underline once again our strong interest in a stable, democratic and prosperous Africa. We stress our firm resolve to implement the commitments on development made in Gleneagles (the 2005 Summit meeting). These include the historic Multilateral debt relief of up to $60 billion; increasing ODA (official development aid) to Africa by $25 billion a year by 2010.” With that the group of 8 made a number (63) of pronouncements and recommendations to improve African countries governance, Stability and developments (see Summit Declaration, June 2007). A short sample is given below:
- Good Governance in Africa is vital to Peace, Stability, Sustainable development and Growth. The G-8, with its Africa action plan, has provided a strategic framework for partnership based cooperation.
- The G-8 reaffirm their commitments to actively support countries that implement sound policies with the recommendation of the APRM (African Peer Review Mechanism).
- The G-8 reaffirm its support for infrastructure Consortium for Africa to address infrastructure shortcomings.
- The G-8 will support national and regional efforts to improve the investment climate by means of regulatory and administrative reform.
- The G-8 reiterate their commitment to education for all.

Good intentions may not always bring good outcomes. And wishing it does not make it so. No one doubts the good intentions that underlie the G-8 measures to promote sustainable development in Africa. Unfortunately a lot is wished for and little has been accomplished.

Debt relief like drug therapy is futile for a patient who lacks incentives to follow the prescribed treatment. No one belittle, or should belittle, the enormity of the problems facing the HIPCs. But, prescribing remedies may be necessary but not sufficient to secure good health outcomes. The same should be applied to HIPCs. Outcomes should be the criteria for extending debt relief or any other forms of aid. Multinational creditors should not set multiple tasks or grandiose schemes for eligibility, nor follow a protracted program of relief. As Easterly (2002) has argued: “a once and for all program is superior to a gradual program of increasing relief”. The once and for all program has to establish a credible policy that debt relief will only be given to governments with a shift in development orientation. IT MAY BE EASIER SAID THAN DONE. NEVERTHLESS IT SHOULD BE TRIED. NOTHING VENTURED, NOTHING GAINED.