Do global strategies for poverty eradication in Sub-Saharan Africa work? An assessment of several international macroeconomic policies.

Author:Apodaca, Clair
Position:THIRD WORLD PROBLEMS AND ISSUES IN HISTORICAL PERSPECTIVE - Essay
 
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INTRODUCTION

The July 2005 rock concert Live 8, and the subsequent Group of 8 Summit meeting in Scotland, put African poverty and underdevelopment in the forefront of world affairs. As with past attempts at poverty eradication and sustainable development, promises were made. Despite decades of foreign aid and borrowing, Africa has remained poor, and many of the recently made promises have been met with much skepticism. In Sub-Saharan countries, poverty affects the daily lives of the majority of the population. The United Nations Statistical Office estimated that, in 2002, 44% of the people in SubSaharan Africa lived in extreme poverty, defined as less than $1 a day. (1) But the deep and severe poverty of Sub-Saharan Africa is not only a political, economic or social problem. With famine, starvation, and deprivation of basic necessities threatening the lives of millions of men, women and children, abject poverty in Africa is also a humanitarian issue.

Africa stands as the most marginalized continent in the global economy. Even in the new millennium, Africa's economic integration with the rest of the world is still the product of sustained economic ties with former colonial powers and of an over-dependence on foreign aid. (2) However, there is one economic sector that is an exception. Africa's oil and gas resources have instigated a "new scramble" for neo-colonial control of Africa' strategic resources. Governments reliant on resource extraction, including oil and gas, have poor records of democratic promotion, human rights standards and poverty alleviation. (3) As the 2005 G8 World Summit stated, the eradication of poverty in Sub-Saharan Africa will depend on effectively attracting large amounts of trade and aid. African economies will not become competitive and will remain marginalized in the new global economic and political order without the help of external capital inflows. But so far, the flow of capital into the region has been meager--outside of the enormous increase in the foreign direct investment in Africa's oil and gas production--because financiers choose to invest in economic and politically stable countries. Many states in Africa have experienced and continue to experience social and political unrest. And, today, this continued unrest is in great part due to Sub-Saharan African states' increased geopolitical importance in the extraction of oil and erosion of government legitimacy resulting from the lack of human development in the mist of plenty (oil). At the same time, however, the international strategies to reduce poverty in Africa proclaimed by world leaders and Western economists are not without their critics and detractors.

This study examines the effect of several global strategies for poverty reduction--debt relief, greater foreign aid, improved access to Western markets, and increased Foreign Direct Investment (FDI)--on poverty rates in Sub-Saharan Africa. The next section of the article will present a brief summary of the arguments for and against each proposed strategy.

DEBT RELIEF FOR SUB-SAHARAN AFRICA

In 1996, the World Bank and the IMF initiated the largest multilateral program, the Highly Indebted Poor Countries Initiative (HIPC), aimed at relieving the debt burden of the poorest and most heavily indebted countries. The belief was that the "debt overhang" was preventing economic growth and poverty reduction in poor countries. (4) The initiative was to grant debt relief to those countries willing to carry out economic reforms thought necessary to prevent future debt problems with the savings redirected towards social expenditures. Eligible countries had to meet three criteria: they had to be eligible for World Bank and IMF concessional lending; external debt had to exceed 200-250 percent of the country's exports or 280 percent of government revenue; and countries had to establish and maintain reforms for economic stability. In 1999, the HIPC Initiative was enhanced in order to provide "faster, broader, and deeper debt relief' and to allow more countries to qualify for this debt relief program. (5) The debt to export ratio requirement was reduced to 150 percent, and the debt to revenue ratio was lowered to 250 percent. Once qualified, the country had to remain committed to "sound macroeconomic policies with a focus on poverty reduction," at which point the IMF and World Bank would determine if the country had reached its "decision point" and then the benefits of debt relief could begin. If the country continued with its sound macroeconomic policies, a completion point was determined for when "the remainder of the full stock-of-debt reduction pledge is delivered." (6) Debt relief would free up resources the country could use for poverty alleviation measures, infrastructure construction and human development projects. (7)

Proponents of debt cancellation policies believe that poverty alleviation is hindered by demands on the economy and on government resources from a heavy foreign debt. Social, health and education services, needed to ease the suffering of the poor, are cut because the scarce resources of developing countries must be diverted to pay foreign creditors first. Much of the accrued debt is from loans that are said to be 'odious' (made by dictators instead of elected representatives) and are, therefore, illegitimate. The loans were taken out by despots to increase their personal fortunes, not to benefit the poor. Furthermore, the unscrupulous leaders frequently used IMF and World Bank funds to build and fund repressive security structures that made it impossible for citizens to object to the loans in the first place. The fault, however, is not only the dictator's, who took out the loan, but it is also the responsibility of the international financial institution that provided bad loans to non-elected elites in the first place. Thus, proponents of this global strategy believe that these financial institutions must bear the blame for their irresponsible lending decisions. Because the IMF and the World Bank have knowingly lent money to illegitimate leaders in corrupt governments with poor policies, they have in effect created the debt cycle. As a result, poor indebted countries must now borrow more money in order to pay off old debts. The only hope out of the debt and poverty cycle, these proponents argue, is total debt forgiveness.

But critics of the debt forgiveness strategy believe that the problem of Sub-Saharan African poverty cannot be attributed solely to international factors. Forgiving the debt will not pull Africans out of poverty. (8) Because many African nations are still run by authoritarian leaders, the canceling of the debt would simply give these autocrats more money to repress and abuse their citizens. Given the continuing turbulent history of revolutions, civil wars, coup d'etats and grabs of power in Africa, few governments practice good governance. Thus, detractors of this strategy suggest that debt relief will not necessarily benefit the poor. William Easterly writes: "By transferring scarce resources to corrupt governments with proven track records of misusing aid, debt forgiveness might only aggravate poverty among the world's most vulnerable populations.... Debt relief enables governments to spend more on weapons, for example." (9) If the governments did not use the original loans to help their people, provide health clinics, create schools, or develop agricultural services, why assume now that these governments will use the newly freed up resources to do so?

In addition, opponents of the debt relief program argue that the moral hazard of debt relief would simply encourage government leaders to borrow even more, expecting that future loans will also be forgiven. As a consequence, poorly governed countries, reasoning that accumulating unsustainable debt will be written off, will in fact create future debt crises. Even the IMF admits that "in some instances the fact that IMF financing is available could increase the incentive for risk-taking ... Policymakers could pursue more risky policies, knowing that the IMF would be there if their policies failed." (10) Critics of the debt forgiveness strategy thus believe that the international community's erasure of the debts will encourage regimes to take out more loans in the future in the expectation that these loans will never have to be repaid. At the very least, the elimination of bad debts will allow irresponsible nations to apply for new loans, thus creating a new unending cycle of dependency. If debt relief remains a highly debated and controversial strategy, foreign aid is another development option that has had its share of supporters, but also detractors of late.

INCREASING FOREIGN ASSISTANCE FOR AFRICA

Proponents of the foreign aid option believe that African countries are trapped in poverty. Mothers are dying in childbirth, children are starving, the masses are illiterate, and this massive humanitarian crisis can only be broken by large amounts of foreign aid. Many countries in Africa are simply too poor to pay for the investment in human capital (health and education) needed for economic growth and poverty reduction. Thus, Official Development Assistance (ODA) is seen by some as an essential component in the fight against poverty. Foreign aid often provides the sole source of funds for economic development that is required for poverty reduction. Monshipouri believes that, where private domestic or foreign capital is lacking, bilateral and multilateral foreign aid is essential in breaking this vicious cycle of poverty. (11) Foreign assistance must be increased, to previously agreed levels of .7% of GDP, (12) in order to assist in the development of Africa's human capital. The shameful low levels of aid hide a further injustice to the poor. Historically, only 0.1% of all international aid is targeted by donors to basic education (primary schools and adult literacy), and 0.3% is for basic...

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