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Correction, Please!.

Another banker bailout

ITEM: A report from AllAfrica.com carried by the Pacific News Service on June 14 praised the "long-sought debt relief for Africa," saying: "The agreement on 100 percent debt relief for developing countries announced by finance ministers from the eight largest industrial nations (G-8) ... initially benefits 14 nations in Africa. Britain put the price tag for writing off the debts of the 18 eligible countries at $40 billion, plus an additional $11 billion for the soon-to-be eligible nine. The annual savings to the 18 countries will be about $1.5 billion. The money is needed for health services and education."

CORRECTION: In actuality, the bad loans to the world's poorest nations, most of which are in Africa, have long since been written off. Moreover, it takes a case of incurable naivete to believe that this debt forgiveness will result in better health care or education.

The latest spasm of assistance rewards insiders within those unscrupulous governments who siphoned off the original loans and bails out international institutions that have lending schemes in place. In the meantime, the African poor can expect to get relatively poorer--despite the pleas of aging rock stars who demand a say in how Western governments should spend other people's money.

The game has been repeated so often that it is all but transparent. As the Wall Street Journal put it on June 8: "Lenders stopped expecting repayment on this money years ago. In fact, since 1985 the HIPCs [highly indebted poor countries] have been regular recipients of new funds to cover their debt service, as Carnegie Mellon economist Adam Lerrick shows in a new paper from Congress' Joint Economic Committee. This has put the HIPCs further into debt. But the process continues so the World Bank and International Monetary Fund can boast--preposterously--that they've never made a bad loan."

These lenders, said the Journal, "have also figured out that they can wring more foreign aid out of donor countries if they call this process 'debt relief.' So rather than writing down their worthless assets the way normal banks do with their bad commercial loans, these government lenders now want the [industrialized nations] to cover their losses, including interest due. Mr. Lerrick calculates that this means the banks would get $130 for every $100 of nominal debt."

The original funding, from the taxpayers in the developed world, was given to corrupt leaders in the so-called developing world. While the results have been abysmal, the profligacy will again be rewarded.

Rewarding Failure

For example, Ghana will be a supposed beneficiary of this new bailout. It was not that long ago, incredible as it might seem, when Ghana and South Korea were just about on an economic par. If anything, Ghana had the upper hand. According to the World Bank: "In 1965 ... incomes and exports per capita were higher in Ghana than in Korea.... Korea's exports per capita overtook Ghana's in 1972, and its income level surpassed Ghana's four years later. Between 1965 and 1995, Korea's exports increased 400 times in current dollars. Meanwhile, Ghana's increased only four times, and real earnings per capita fell to a fraction of their earlier value."

Another "beneficiary" will be Ethiopia, where the bungling government has bankrupted its agricultural economy. Should this be a surprise? After all, there is no private property in Ethiopia. As the Economist noted last year: "By law, all Ethiopian land is owned by the state. Farmers are loath to invest in improving productivity when they have no title to the land they till. Nor can they use land as collateral to raise credit. And they are taxed so heavily that they rarely have any surplus cash to invest."

A Look at the Bottom Line

As noted, the history of largesse to such governments--in this case disguised as "debt relief"--is horrendous. Since 1980, the World Bank, working with the African Development Bank, has "loaned" more than $75 billion to African governments. Yet, as reported by the Arizona Republic, "half of these countries have seen a decline in real per capita income. Only a handful made any meaningful economic progress."

Over the longer run, the record is even worse. Between 1960 and 2005, writes Marian Tupy in the Washington Times, "foreign aid worth more than $450 billion, inflation adjusted, poured into Africa. Result? Between 1975 and 2000, African gross domestic product (GDP) per capita declined at an average annual 0.59 percent rate. Over the same period, African GDP per capita fell from $1,770 in constant 1995 dollars adjusted for purchasing power parity (PPP) to $1,479."

In contrast, reports Tupy, the assistant director of the Project on Global Economic Liberty at the Cato Institute, "South Asia performed much better. Between 1975 and 2000, South Asian GDP per capita grew at an average annually 2.94 percent. South Asian GDP grew from $1,010 in constant 1995 dollars adjusted for PPP to $2,056. Yet, between 1975 and 2000, the per capita foreign aid South Asians received was 21 percent that received by Africa. The link between foreign aid and economic development seems quite tenuous."

In the meantime, sub-Saharan Africa has been the least capitalist area on the globe. This region, point out Nima Sanandaji and Tomas Brandberg in "Saving Africa" on the Tech Central Station website, has been "dominated by protectionism, extensive government interference and disregard of market mechanisms." The consequences were unsurprising, regardless of the extent of aid. "Total overseas development assistance ... that went to sub-Saharan Africa between 1984-2002 accounted for $319 billion. This corresponds to approximately 80 percent of the region's total GDP in 2002. Despite this relatively large development investment, 23 countries in the region experienced negative compound annual growth between 1980 and 2002, while only three achieved growth over 4 percent. During this period, GDP per capita in sub-Saharan Africa fell from $660 to $577 dollars (in constant terms). Foreign aid fosters dependence, corruption ... and government waste."

While only a meager amount trickled down to individual citizens, their dissolute leaders were propped up by this aid. Propaganda flowed, then as now, about this being some sort of Good Samaritan effort--though the biblical account of the Good Samaritan story does not call for a forced transfer of wealth via governments.

More of the Same

The institutional lenders were hardly taken by surprise. As columnist Patrick Buchanan puts it, the World Bank and African Development Bank "will see all their lost funds replenished, so they can start flying around to those same exotic countries and capitals, shelling out new loans to the same crowd of crooks and incompetents, or their successors."

This is not a bailout of the peasants, Buchanan emphasizes. "This is a bailout of the IMF [International Monetary Fund], the World Bank and the African Development Bank. They will get the money to replace their lost loans. As in a Monopoly game where the rules are thrown out, they will be handed new money to play with. Bush and Blair are bailing out failed global institutions run by the highest-paid bureaucrats on earth."

After the next installment of wealth transfers, look for the poor to be worse off. This is tough to stomach when you consider that the 48 sub-Saharan nations have a total economy less than the economy of just six states of the U.S.

There are already lobbyists in place to push for even more "debt relief"--part of the time-tested strategy of creating pressure from below so elitists can impose their alleged solutions from the top. One such group, called Africa Action, is already issuing press releases rejecting what it calls the "exclusion of dozens of countries" from the latest debt cancellation, saying their efforts won't stop "until all African countries are freed from the burden of illegitimate and unpayable debt." The gambit never ends.
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Article Details
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Author:Hoar, William P.
Publication:The New American
Article Type:Correction Notice
Date:Jul 25, 2005
Words:1298
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