On November 9, 2011, Posted by , In News, By , With No Comments

Debt rip-off

While Western governments are trying to recoup money from foreign tax havens, African countries are being forced to pay loans that have already made their way into illicit external accounts. Desmond Davies reviews a book that throws light on a disturbing situation

When President Olusegun Obasanjo came to power in Nigeria in 1999, the first thing he did was to set up a Debt Management Office to examine the country’s external debt. The findings were quite stark. For instance, 40 per cent of projects, for which loans were disbursed, never got off the ground.

After long negotiations with so-called creditors, the Nigerian government managed to have $18 million wiped off a dubious debt of $30 million. By 2006, with the help of high oil prices, the government finally paid off the $12 million. This move, according a new book, Africa’s Odious Debts How Foreign Loans and Capital Flight Bled a Continent, ‘[completed] the largest single transfer of wealth to foreign creditors in African history’.

To dispense with the facts, African countries do not owe any debt because capital flight and imputed interest earnings have ensured that the continent is a net creditor. That’s the essential message of the authors, Leonce Ndikumana and James K. Boyce. They point to the fact that more than $700 billion has been salted away from Africa in the past four decades ‘ an amount that is far more than the continent’s total debt stock of some $200 billion as at 2008.

This is indeed a stomach-churning read because of the bare-faced manner in which loans and other funding to Africa are stolen. And it is not just Africans who are on the make and who act with such impunity. Western bankers and businessmen and international loan sharks are complicit in this massive fraud against the ordinary people of Africa. Bankers disburse the loans and then facilitate their movement back into private accounts in the same bank.

Western politicians are equally guilty of turning a blind eye to the excesses of African leaders. Here, Mobutu of Zaire comes to mind. Former President George H. Bush referred to the Thief of Zaire as one of America’s ‘oldest and most solid friendships in Africa’.

Officers of the World Bank and the International Monetary Fund are not spared either. It has been a case of subprime Africa. ‘The perverse incentives for pushing loans to Africa…sound eerily familiar in the wake of the 2008 subprime mortgage meltdown in the United States, which triggered the world’s worst economic crisis since the depression of the 1930s. The creditors knew, or should have known, the score. And they continued to lend,’ the authors write.

All sorts of dubious arrangements are fashioned by the foreign robbers to maintain the flow of illicit wealth from Africa: oil-backed loans; juicy participation fees; outrageous upfront fees. On the part of their African accomplices you have what economists call ‘a principal-agent problem’: officials borrowing in the name of the government and lining their pockets and those of their cronies.

The effect of all this is that, those who signed for loans and then siphoned them out of their various countries do not have to pay back the monies. It is the ordinary citizens who have to bear the burden through debt servicing that has led to the destruction of social services in their countries. Indeed, the most galling aspect of all is the human cost of repaying non-existent debts. There is no money to reduce infant mortality or stop women dying in childbirth. Is it any wonder that these Millennium Developments Goals will not be achieved by 2015?

In all this, the authors have called for the debts to be repudiated. But this is easier said than done. Look at the raw deal the Nigerians got from their creditors. This is now really a crime against humanity. The fact that so many children in Africa are dying before they get to the age of five as a result of corruption; the fact that so many children in Africa are dying unnecessarily from diseases than are easily cured because funds are stashed in foreign banks; and the fact that so many women in Africa are dying in child birth when they could have been saved if the money for such a purpose had been put into proper use, all call for the culprits to face a charge of committing crimes against humanity and hauled before the International Criminal Court. The ICC should not just be investigating crimes committed during armed conflict.

Africa’s Odious Debt is part of Zed Books’ African Arguments series. So far, 11 titles have been published. This, the 12th, I believe, is the most significant because it deals with the fundamental reason why Africans continue to struggle on a daily basis: rampant capital flight.

Indeed, those who are involved in the international financial system that governs borrowing and lending to Africa should hang their heads in shame for allowing such an odious system to exist.

This review was first published in NewsAfrica magazine: www.newsafrica.net/en/index.html

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