(I did this review as an academic exercise a while back, and I’d love to share it because I think it is relevant to today’s Nigeria.)
The words on the cover page tug at the string of my heart and curiosity, and compel me to discover “how debt is destroying the developing world” and threatening the rest of the world: this was my experience on my first encounter with the book The Debt Threat. The emotions this introduction on the title page evokes set the pace for the mixture of angst and sorrow as I follow the discourse from cover to cover. Noreena Hertz gives in-depth analysis of the debt burden borne by developing countries in book in such a way that any reader can understand without prior knowledge of economics (I did follow the story even with my measly grasp of economics). Employing vivid illustrations, direct quotations, anecdotes, statistical evidences, historical backgrounds, and legal precedence, the debt issue is brought to life, and a compelling argument is made for the cancellation of the developing world’s debts.
The issues at stake are:
- Though some of the loans were for developmental projects, such as Brazil’s loans that were used to invest in its manufacturing industry, most of the loans were either as bribe to buy allegiance, or as reward for political support, during the cold war;
- Certain groups (lenders and borrowers) had taken advantage of the loans to line their pockets, to the detriment of the masses. Some loans were given out to facilitate purchases of their exported goods. Mobutu Sese Seko of Zaire spent loans on private shopping trips and estates in Europe. Sani Abacha of Nigeria was lent billions that were spent on follies and were stashed away in Swiss, German, U.K, and American bank accounts;
- The loans, and consequent debts servicing and repayments, have had a negative impact on development. Saddam Hussein was lent monies by the West, part of which was used for the chemical gas bombing of the Kurdish city of Halabja in 1988, killing 5,000 Iraqis and wounding 10,000 others. European ECAs loaned President Felix Houphouet-Biogny of Ivory Coast $140 million to build a cathedral with an open-air piazza built to hold a congregation of 350,000 in a town with a population of 100,000 and in a country where only 15 percent of the population is Christian, at a time when millions of people in the Ivory Coast were dying from diseases, there were no funding for immunization programs, and AIDs was widespread;
- Substantial parts of the loans have been used to fund violence and environmental degradation. The weapons bought with the French loans to the Habyarimana regime in Rwanda in 1992 were in all likelihood used to commit the 1994 genocide. The Argentinian military junta of the 1970s was lent money used to sustain a government that was responsible for the ‘disappearances’ of tens of thousands of people. American Export Credit Agencies (ECAs) funded the Enron project responsible for damaging thirty-nine indigenous communities and several other non-indigenous communities in Bolivia and Brazil, as well as devastating the environment;
- Tyrannical and corrupt leaders, like Mobutu of Zaire, Saddam Hussein of Iraq and Abacha of Nigeria, have been beneficiaries of loans;
- The international institutions, such as the commercial banks, the World bank and International Monetary Fund (IMF), the ECAs, and the developed countries have been saying one thing about the debts and conformity to human rights standards, but have been doing another thing. They have been hypocrites;
- The debt repayment and servicing is causing more debt and stifling private investment and internal growth and development. In 1993 and 1994, Tanzania spent $155 million on debt repayments, which was twice what it invested in that period in providing safe drinking water, despite the fact that half of its population lacked access to clean water at that time. ‘Zambia, a country with almost one million people affected by HIV/AIDS is still spending 30 percent more on servicing its debt than it is on health care.’;
- Some countries have been denied debt relief because they refuse to meet IMF conditions, such as privatization, even though they lack the capacity to regulate private industries sufficiently;
- The debt relief promised by the developed world never materialized, and that there has been no Jubilee;
- Developing nations are being compelled to service and repay loans incurred by tyrannical rulers, for example, post-Saddam Hussein Iraq being asked to pay debts racked during the tyrants regime, and post-genocide Rwanda being asked by the World Bank to pay the $3 million interest on their outstanding debt;
- The United Nations (UN) Millennium Development Goals (MDGs) cannot be met at the targeted 2015 because of the hurdles of debts, and IMF and World Bank conditions that hinder the developing world.
Hertz painstakingly discusses the roles of several world institutions in the debts accumulation. The invaluable background information on how the debts were incurred over time builds the tempo for what comes afterwards. A chapter each is devoted to the role of the following key players in the buildup of the developing world’s debts: the developed nations, ECAs, Western commercial banks, the capital market, and the World Bank and IMF.
Hertz logically states the case for debts cancellation. The proposition is explicitly stated in the introductory chapter: the debts of the developing world need to be cancelled. Then, she goes on to build the case, clearly stating premises and giving evidences to back the proposal. Each chapter begins with an epigram, an illustration, to make it easier for readers to relate to the issues discussed. The ‘Me and You’ approach used in the illustrations that introduce the chapters giving the background information of the debts draws a reader into the scene, as if they are directly a part of the events chronicled in the book.
Hertz makes a strong case for the debt cancellation by enlightening the readers that the debt burden does not only affect the developing world, but the developed world as well. And she goes on to show how by explaining how it affects the finances, health and security of the whole world, including that of the seemingly immune developed world:
- There is ripple effect when debtor countries default. For example, Italian investors comprising of pensioners, individuals, and companies lost life savings when Argentina defaulted on their $97 billion debt in 2002. When the burden of the debts become overwhelming, some debtor nations may choose to default and this will affect the lending parties, people who have bought their debts in the capital market, and other economies dependent on them. Banks will lose their credibility, and there will be reduced exports for manufacturers from the developed countries.
- Debt issues cause health issues, as in the case of Peru, where the cholera epidemic spread from Peru to Ecuador, Colombia, Chile, and Brazil, killing thousands. When countries spend more servicing their debts than on developmental issues, there is poverty. Cutback in education affects health. People die from diseases that are manageable in the developed world. ‘Poverty makes people sick and sickness makes people poorer’ – a vicious cycle that continuously exacerbates the issue. Doctors and nurses of these debtor developing nations travel to the West in search of greener pastures, leaving the health institutions lacking of sufficient professionals to serve their populace. The important thing to note is that diseases can cross borders from the developing to the developed world through migrations, tourism, international trade travels, and illegal trafficking of people.
- Debt issues foster discontent, extremism and terrorism. There is the classic case of Hitler whose rise and popularity owed a lot to the German nation’s discontent at the burden of debt they had post World War One. The poverty resulting from debt issues causes the citizens of the debtor nations to view the developed world as the ‘other’ and themselves as marginalized; this kind of situation breeds anger, and extremist and terrorist leaders thrive on this kind of anger to gain converts. Osama bin Laden is a good example of this outcome. Militancy gives a form of employment. Drug trafficking also serves the same purpose. And, when the drug barons and extremists offer what the governments cannot offer, they gain converts. Also, debts create failed states, which in turn provide haven for terrorists (some of Osama’s lieutenants allegedly fled to Liberia after the September 11 attacks in 2001. Al Qaeda training camps were in Afghanistan, Sudan and Somalia – failed states).
- There is also the issue of environmental security, with deforestation, rising ocean levels, loss and sometimes extinction of some species, increasing environmentally damaging projects, and increase in toxic agricultural products, contributing to global warming and other health hazards. This is because these debtor developing countries are too poor to resist exploitation, and sometimes, the environmentally damaging activities provide income to assist in servicing debts and carrying out developmental programmes.
Hertz does not stop at announcing Armageddon; she proffers solution, and that is the high-point of the book:
- First, the developed world needs to acknowledge the truth that the debt issues still linger, why the debts were incurred in the first place, that some of them are illegitimate, and as a matter of justice, should not be repaid.
- An ad hoc arbitration tribunal should be set up to reconcile how the debt cancellation should be done.
- The developing world has to address the needs of their poor, needy, and sick. They should also be prudent in administering resources: the money has to go where it is needed the most – for development, not building unneeded stadia and cathedrals.
- The developed world has to know that good leadership is not synonymous with following IMF/World Bank recommended macroeconomic policies, but rather should be measured by commitment to human rights, democratic values and transparency.
- The developed world should not wait for good leadership to be achieved in the developing world before cancelling the debts, as people are dying daily as a result of the issues raised earlier. Hence, National Regeneration Trusts should be created in these nations, where the savings of the outcome of the bankruptcy (debt cancellation) processes will be used to meet the developmental goals, to protect the monies from abuses of being squandered by corrupt leaders. Trustees should be appointed, with minority government appointees, majority nationals, and few members from UN bodies, whose expertise and experience would be required to run the trusts.
- These trusts should be the only condition to participate in the debt cancellation processes, and the international donor community should ensure that the trusts are continually funded. And when a country achieves development, measured by the MDGs, they no longer need their trust.
- There should be no secret debts, the developed world has to stop careless lending and IMF and World Bank should be open and accountable in their dealings.
- The developing nations should mobilize domestic resources through tax and prudent expenditure, to achieve some developmental strides.
- Very importantly, it is not expensive to cancel debts; most of these debtor nations have paid up the actual value of their loans over time and are left with the interests of the loans.
Hertz states her case logically. And, is she convincing? Yes, especially with the many statistical evidences, historical and contemporary examples, precedence, and illustrations. This is not a work of fiction; it is a really frightening reality. The Paris Club only temporarily suspended the debts of nations affected by the 2004 Tsunami, instead of cancelling significant portions of the debts! Nations have to pay what they cannot afford on healthcare and other basic human needs to service debts that were often incurred by violent dictatorships and without their consent. Citizens of these debtor nations have to pay dearly for debts that they did not benefit from; some are even burdened with settling debts of loans that were used to decimate members of their families and communities, and deprive them of their livelihood. That is injustice, and Hertz calls the attention of the developed world to come face to face with the disheartening realities that they were complicit in enabling.
The Abuja stadium mentioned in the book is another reality that exposes the decadence on the part of the African rulers in handling the economies of the nations they control. The ultra-modern 53 billion naira (330 million dollars) facility built in 2003 has been burden to maintain. In September, 2012, several news media reported that the place was overrun with weeds! Millions of naira have to be spent to maintain that place per annum, when as Hertz noted, the Lagos stadium and other modern stadiums could have easily been renovated and the money spent on other more pressing developmental issues such as power supply, health care, and education.
While we wait for our creditors to heed Hertz’s call, we really should turn a new leaf and become more prudent and disciplined with our finances. While we may not have control over following every recommendation raised, WE SHOULD PAY ATTENTION TO WHAT WE CAN DO.
The current developing world is not alone in requiring loans for developmental projects. China took loans, but they ensured that the loans were used for the developmental projects they were intended for, and repaid before they were due. They were aware of the snare that indebtedness could cause. We should learn from their example and focus on developmental issues, rather than irrelevant monuments, funding excessive consumption, and using public offices as platforms for personal enrichment. We need to focus on education, on human capacity development, and on health issues, instead.
Leadership is at the core of our developmental issues. There is need for the younger generation to be groomed on ethical leadership, so that when we take over power, we will lead rightly. This is another reason for the need to focus on human capacity development. In Nigeria, we should also take advantage of democracy to question our leaders and demand accountability from them, and in choosing new leaders, ethical standards and development should be our focus, and not partisanship, ethnicity, or religious affiliation.
We also need to restructure our policies to favour our development, rather than the demands of the Western nations. We need to look inwards for solutions to our problems, instead of our long-term reliance on loans and aids. While aids and loans are not bad, they should not become our enduring pattern for sustenance. Let this paraphrase of the title of Anver Versi’s July 2009 editorial be an admonition for us in Africa: let us first build our own house! (Anver Versi is the editor of African Business.) Let us endure the short-term pains for the long-term gains.
The Debt Threat is not only a call to the developed world to cancel our debts, but an appeal for us to amend our ways and choose the disciplined path of training, education, development, creativity, innovation, and sacrifices, to salvage our economy and achieve real admirable growth.
This book is an excellent read. You may have been desensitized to the economic realities before you read it, but it peels off those layers of indifference as it reveals realities that are very close to home. The book forces you to think, if not act.