How to Avoid a Renewed Debt Crisis in Africa

May 5th, 2009 8:31 AM UTC
By Margaret McDonnell

I recently attended a very interesting congressional briefing titled “The Global Financial Crisis and Africa: How to Avoid a Renewed Debt Crisis?” hosted by partner organizations Jubilee USA Network, the Evangelical Lutheran Church of America, the American Jewish World Service and the Episcopal Church. The conversation focused around how to preserve the achievements that many African countries have made over the last five or so years (with help from debt relief and increased trade) in light of the current global financial crisis. One of the measures suggested was that the International Monetary Fund (IMF) direct revenue from its upcoming gold reserve sales to developing countries.

As explained by Matthew Martin, Director of Debt Relief International, countries freed from odious debt have been able to invest in national poverty-fighting strategies such as lowering the barriers to healthcare and education by reducing user fees and improving infrastructure. In turn, debt relief empowers countries to be less dependent on foreign assistance in the future. Hon. Timothy Thahane, Minister of Finance and Development Planning for Lesotho, shared how when Lesotho received debt relief from the United Kingdom, they immediately redirected monies previously spent on debt relief service to vulnerable populations by providing free primary education, school feeding programs, and antiretroviral drugs for persons living with HIV/AIDS.

All this was somberly put into context when Thahane explained that the gains in employment and revenue due to debt relief and increased trade vis-à-vis the African Growth and Opportunity Act (AGOA), are currently threatened by the global financial crisis. The World Bank has estimated that an additional 53 million people will be forced to live on less than $1 per day as a result of the global economic downturn. The decline in commodity prices, remittances, and demand for exports has already had a dramatic effect throughout the continent. For example, the downward trend of car manufacturing in the U.S. has led to a significant decline in steel exports, which has impacted steel-producing African countries such as Guinea, Liberia and South Africa. Similarly, the sudden decline in demand for textile exports, led to a loss of 12,000 jobs in Lesotho, which impacts 40,000-50,000 lives.

Vitalis Meja, Program Director of African Network on Debt and Development (Afrodad) warned that the economic situation will make it very difficult for African countries to achieve the Millennium Development Goals (MDGs) and called on donor countries to resist reducing Official Development Assistance (ODA). Meja called for the reform of lending practices and joined the other panelists in asking the IMF to allocate revenue from its gold sales for debt relief and grants for the world’s poorest countries, which would help them weather the current economic crisis and avoid falling back into another debt crisis. Lesotho would be one of the countries that would directly benefits.

More information about the IMF gold sales and its potential to help low-income countries can be found in briefings prepared by ONE and Jubilee USA.

-Margaret McDonnell, US NGO Partnerships & Faith Relations Team

TAGS: Debt Cancellation, IMF, NGO Partners