IMF blames Africa for improper use of loans - important

[Robert Weissman <rob@essential.org>]

This is an important article. I view the comments in this piece as a
strong cautionary warning to Northern campaigners on debt cancellation:
there are real dangers involved in conditioning debt relief or
cancellation on investment in social sectors, rather than emphasizing the
principle of national sovereignty.

Robert Weissman
Essential Information			|   Internet:	rob@essential.org


IMF blames African nations for improper use of loans

The Nation (Nairobi)  August 31, 1999  By Samuel Nduati

Nairobi - The International Monetary Fund yesterday blamed Africa for not
utilising past foreign loans properly and still wasting the money that
continues to flow into the continent on unproductive spending.

It said although Africa continues to get money from abroad and relief debt
concessions, the initiatives had not yielded the desired results as they
were not accompanied by economic growth.

The failure of Africa to accompany external financial assistance with
economic growth, it argued, was also responsible for the persistent poverty
in most African states.

The director for the African department in Washington, Mr. G.E Gondwe, said
accelerating economic growth was critical not only to social development
and poverty reduction but also to resolving Africa's debt problem. He was
giving the IMF's position at the official opening of Africa's external debt
that opened yesterday at the School of Monetary Studies, Nairobi. It is
organised by Japan and is being attended by finance ministers from African
countries.

Mr. Gondwe said debt relief was not a panacea to Africa's problems, adding
that on its own, it was unlikely to have the desired results. He said
although most African countries had received debt relief of some kind on a
regular basis over the past 15 years, the relief had not yielded the
positive effects as it has been granted to countries with inconsistent
macroeconomic policies and weak governance and so could not contribute to
growth.

"The resources freed up by the debt relief were often not channelled to
priority areas but to unproductive spending including the military," Mr.
Gondwe said.

He urged the delegates to take the debt problem on country to country basis
and look for solutions to the individual case.

The fundamental objective of debt relief of any kind, he said, should be to
enable each country, with proper policies to achieve and maintain the high
growth rate necessary for sustained development and poverty reduction.

Mr. Gondwe said if debt relief was to make a real contribution to
accelerating development in Africa, it must take place in a context of
macroeconomic stability and structural reform, adding that any approach to
debt relief should be designed as part of an overall strategy for achieving
faster growth through the efficient use of essential resources and
enhancing the ability of governments to deliver essential services that
their populations need by concentrating spending on priority areas.

The IMF official said although the external debts problem could be a
balance of payment problem in that a country lacks adequate foreign
exchange to make payments, or a budgetary problem in that the government is
unable to raise enough money to make payments, in Africa it was a mixture
of both.

He warned that from a budgetary point of view, the domestic debt could be
as bad a problem as the external debt, noting that many of the African
states seeking external debt forgiveness have high stocks of domestic debt,
much of it already in arrears. He cautioned that for countries with large
domestic debts, external debt relief would be insufficient.

Mr. Gondwe suggested that since African countries will continue to need
substantial resources from abroad, it was imperative that they gradually
shift from dependence on official development assistance to private capital
flows particularly direct foreign investments.

However, he said, this would require the right policy environment to
encourage private sector development.

He opposed direct cancellation of loans and suggested that poor countries
negotiate for grants, pursue rescheduling and use money raised from
privatisations to retire part of the debt.

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