There is no case for putting money in the hands of the government of Zimbabwe and little point in giving it to the government of Congo. The emotive interventions of pop stars and religious leaders has not necessarily advanced the vital cause of poverty reduction.
The bleeding-heart view of third-world debt imagines subsistence farmers working to pay grotesque salaries to Wall Street financiers. The hard-nosed view says, in words used for an earlier debt crisis by Calvin Coolidge, US president from 1923 to 1929, “They hired the money, didn’t they?”
Neither picture bears any relation to reality. Those farmers did not incur the debt, nor are they repaying it. The money lent to the Highly Indebted Poor Countries has gone and cannot be recovered. Most private sector lenders extricated themselves years ago. The contentious debt is owed to international agencies – the World Bank, International Monetary Fund and African Development Bank – whose shareholders are the governments of rich countries.
Most of this debt is ostensibly being serviced but this is true only on the surface. The only way to repay debt is to earn more than you spend and, for countries, this means exporting more than you buy from abroad. With one or two exceptions, such as Bolivia, which benefits from high copper prices, the HIPC governments cannot run a trade surplus now or in the foreseeable future. Their external deficits are covered by aid and new borrowing. Rich countries are giving and lending the money they are repaying.
Would it not be better if this merry-go-round stopped? Not necessarily. When debt relief comes as an addition to total aid flows, funds are released to HIPC governments, which then have more to spend on their own projects. When such relief redistributes existing aid, it shifts resources to these governments from other potential recipients. The outcome will be somewhere between the two: there will be some new money, but nothing like as much as the headline figure. This grubby reality of rearrangement and spin, rather than a latter-day miracle of loaves and fishes, is how a modest commitment by the British and US governments has been turned into a reported $40bn of debt cancellation.
The effect of debt relief is to favour HIPC countries as recipients of aid and HIPC governments as channels of aid. Such a distribution is problematic. Most of these countries are highly indebted because of long histories of dreadful government. Many of their leaders – as in Tanzania – were well-intentioned but hopeless. Others – as in Democratic Republic of Congo – were thieves and murderers. Their people were innocent victims.
Yet other countries, outside the HIPC group, may be more needy, or more able to use aid effectively. States such as India are poor but have been better governed. Nigeria does not qualify for HIPC status because of the sheer scale of the larceny of its former rulers. And other countries, such as Afghanistan, have never had a government to which people would lend. There is no compelling reason why poor countries that have run up large debts should receive preferential treatment relative to poor countries that have not, and some justification for the opposite bias.
Debt relief not only favours HIPC countries, but specifically gives spending freedom to their governments. The aid it offers goes for general public purposes, and donors have less control over its distribution. Some debt campaigners claim that empowering local politicians in this way is an advantage of this form of aid.
Occasionally this is true. There is a case for rewarding the numerous improving governments of southern Africa. There is benefit in enabling honest and capable politicians to show benefits to their electorate. But there is no case for putting money in the hands of the government of Zimbabwe and little point in giving it to the government of Congo.
The only policies that make sense are case by case, country by country. Treating debt as a moral issue is wrong: neither leaders nor borrowers emerge with any credit from the process through which these debts accrued. It also gets in the way of the pragmatism necessary to ensure that the inevitable process of write-offs yields the maximum advantage to the impoverished population of those countries. The emotive interventions of pop stars and religious leaders has not necessarily advanced the vital cause of poverty reduction.
