Percy S. MISTRY

Senior Fellow, International Finance

Queen Elizabeth House, University of Oxford

A Paper prepared for the North-South Roundtable

in Abidjan on July 8-9, 1991 on

AFRICAN DEBT RELIEF, RECOVERY & DEMOCRACY

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VII. CONCLUSIONS.

7.01 This paper has considered at lenght: (a) the impact of the private and official rescheduling exercise which attempted to provide debt relief in the 1983-87 period; and (b) all thr initiatives that have been taken to reduce Africa's bilateral, multilateral and private debt between 1988-90. It arrives at the inescapable conclusion that these efforts have not been even remotely effective in achieving the objective of relieving DDS burdens sufficiently for African countries to have a reasonable chance for success in achieving structural adjustment, recovery or growth in the foreseeable future, unless previous desultory approaches to debt relief areabandoned in favour of more dramatic but absolutely necessary and long overdue action. Certainly without past efforts matters might well have been worse in the sense that arrears would have reached levels which would have caused a complete breakdown in debtor-creditor relationships much sooner. But they can hardly have been worse in the damaging economic and psy

chological effects that the failure of previous attempts has had on African debtors. It has resulted in a lost decade of development and a lost generation of people. These years of effort have clearly resulted more in procrastination than in progress. Creditors could have arrived much sooner at the conclusion that past efforts were merely token gestures rather than real relief measures. Optimists would argue that perhaps the value of such procrastination was to clear, at long last, reluctant official minds of the cobwebs that have ensnared them for so long and prevented lucid thinking. Pessimists would rebut that with the view that so much damagehas been done in the eight years of dithering over debt that much more drastic action now needs to be taken than would have been necessary if things had been done right in the first place.

7.02 Such arguments are counterproductive because they focus on a past which cannot possibly be retrieved. The blame must be shared equally by creditors who should have known better and debtors who didn't know enough. The question now is what needs to be done in the next year or two so that Africa can indeed recover and have its income grow at the extremely modest target rate of 1% per capita per year. Some of the answers to it have been embedded in the discussion that has taken place in the main body of the paper. Before recapitulating them briefly it is as well to consider some fundamental features of the junction at which Africa seems to be at this rather critical moment in its economic and political history. They have a bearing on the actions that might be taken to provide further debt relief.

7.03 First, Africa - and particularly sub-Saharan Africa - is at a point where there is no longer much argument about the need for significant economic and political reform. It is almost universally accepted that African populations, if not yet their elites, are in favour of good economic policies and good political governance with the failed experience of half-baked experimentation with various discredited ideologies behind them. There is of course legitimate debate about which mix of policies is good and what, in the African context, would constitute good governance; but such disagreement is now on the plane of sensible intellectual debate rather than of previous, emotively rethorical flourishes. It is clear that blind faith in the efficacy and applicability of IFI adjustment prescriptions has not been justified by actual experience with outcomes and that much more needs to be known about what policy prescriptions will work in Africa. But, accepting that fact, the real issue is how, with its present en

dowments of human capital and institutional social infrastructure, Africa can implement good policies and ensure good governance at every level of life. That issue needs to be much more seriously and honestly addressed by Africa itself and by the international community without everyone constantly being concerned about dancing on sensitive eggshells.

7.04 It is clear that most African countries do not have the human or institutional capacity to apply sound economic policies and to provide good governance. It is not at all clear how Africans, working together with the international community, can best bridge that yawning gap in mutually acceptable ways which do not offend a still insecure, but ever-present, sense of national pride and do not threaten legitimate concerns about sovereignty - concerns which in the past have simply provided an excuse for African leaders, and the tiny elites which sustain them, to profit enormously at the considerable expense of their populations and countries. For any progress to occur in Africa that lack of clarity must be corrected sooner rather than later.

7.05 Second, the creditor community - especially OECD and CMEA - must aknowledge the tremendous harm that their own ex-and neo-colonial machinations have done to crippling the capacity of independent Africa to sustain itself. The continent has, between 1960-89, been a large chessboard on which the games of super and sub-power rivalry, (whether in terms of security, trade, aid and financial flows) involving the industrial nations have been played out; inducing and supporting precisely the type of indigenous leadership to emerge and thrive that is now universally reviled. Africa is not alone in this misfortune. The rest of the developing world has also had its fair share of Ceaucescus, Castros, Duvaliers, Marcoses, Noriegas and the like, whether supported by the West or the East. It is too easy for the creditor community therfore to walk away from the damage that it has contributed so much to doing on the grounds that it cannot be held responsible for the egregious domestic excesses of African leaderships and

governments which have brought Africa to this parlous state.

7.06 In the amity that, with occasional lapses, pervades a world filled with the essence of superpower detente - whether or not it can be portrayed as the end of history - it is too easily forgotten that Africa has been a victim of previous global disharmony. It was caught, at an awkward moment when emerging from colonial rule, between two competing ideologies, which were alien to African mores. The post-independence experience of trial, error and virtually continent-wide economic and political failure, has left a troubling and deep legacy of confusion - about individual and national identity, about what course to follow, and about whom to trust, in the present generation of cognizant adult Africans - that will take a couple of generations to clear. The generation born during or just before the debt crisis, and having suffered the enormous deprivation which that crisis has inflicted, is hardly likely to emerge from it with the sense of direction and confidence that is necessary for Africa to sustain incipie

nt recovery.

7.07 Third, the relentless repetition of one failure of government after another and the monotonous repetition of one disaster after another of the African continent - whether natural or man-made - has finally resulted in the sense of fatigue and hopelessness taking hold in sympathetic aid quarters which so many in the international community had long feared. It coincides with the diversion of the world's attention, and its finite capacity for compassion, with the dislocating aftermaths of: the almost simultaneous disintegration of communist regimes of Eastern Europe; the Gulf War on the Kuwaiti, Palestinian and Kurdish nations; the continuous cycle of unrest and fragmentation in the Soviet Union and Yugoslavia; the emerging prospect of splintering in India; the devastating impact of successive cyclones in Bangladesh; the eruption of cholera epidemics in the Amazon basin, the simultaneous collapse of three regimes in the Horn of Africa - a region already confronted with an enormous problem of refugees and

of looming famine, requiring emergency assistance of a sort which the world now finds itself in difficulty responding to. Under these circumstances, and with the past record in view there is neither the well of sympathy nor the energetic drive to support Africa in thr same way as in the 1980s despite initiative like those of Minister Pronk to create a Global Coalition for Africa. The general sense of people in the industrial world, and of officials in the international community, is that too much of what has been given to Africa has been wasted and there is no reason to believe that giving more would result in a different outcome.

7.08 Fourth, all of these negative influences seem to be converging on the African scene at a turning point when the prospects for, and African commitment to, achieving real and durable political and economic changes have probably never been better in the post-independence period. It may well be, though one fervently hopes it is not, that the African change of mind and heart has come about just a little too late to capture hearts and minds in the international community. And even if it has not, there is real doubt in the international community about Africa's capacity to put its own house in order regardless of the newly emerging African will to do so. Several years may have to pass before that judgement can be changed.

7.09 In the face of all these concerns it seems almost trite to revert to what can be done about the future course of debt relief and reduction. To summarize, for convenience, the conclusions reached in previous sections of the paper, the following steps emerge as the most critical:

A. BILATERAL DEBT: Two years ago the official world went through precisely the same kind of euphoria which is again being witnessed now with the discussion of Trinidad Terms and the Pronk proposal. Pre-London Summit rumours again suggest that the debt crisis in general, and the African debt crisis in particular, is about to be "solved". Nothing would be more gratifying than if those rumours proved to be true.But even the Trinidad Terms or the Pronk proposal will only address one part of the problem. And given the present reality of actual debt service being under 40% of scheduled debt service in sub-Saharan Africa, the acceptance of these proposals is likely to make only a noticeable dent in that region's debt burden. They will, by no means, eliminate it. Hence a sense of realism needs to be restored about even the best scenario that is likely to emerge after the London Summit: i.e. unadulterated acceptance of the Trinidad Terms by the Paris Club, coupled perhaps with the extension of modified Toronto Terms

for middle-income debt-distressed countries in sub-Saharan Africa. The more likely scenario is the acceptance of the recently negotiated "Poland/Egypt" terms as the nexte step for Paris Club creditors to take towards further relaxation. If that happened it would be yet another marginal, inadequate and myopic effort to evade the real issues and postpone necessary action in order to avoid compromising creditor negotiating positions with other debtors. Under the best scenario, African debt could be reduced by between $20-30 billion with reductions in scheduled debt service of between $3-4 billion and but little reduction in present levels of actual debt service on bilateral obligations. By itself that would not be enough if current levels of debt service to multilaterals, and particularly to the IMF had to be sustained. Even if Trinidad Terms are employed, aggressive options for converting the residual one-third to official debt obligations through varioud kinds of debt swaps (intended to encourage privatizati

on, protect the environmen, enable special programs of health and education to be launched and so on) need to be considered. Most of all, matters now need to be taken out of the hands of the Paris Club when it comes to providing bilateral debt relief for low-income countries and the responsibility transferred to establish Consultative Groups.

B. MULTILATERAL DEBT: In this category the principal problem is that of IMF debt and the large net transfers from Africa to the Fund which have taken place throughout the 1983-90 period. Though the Fund is not the best placed institution to cope with problems of African adjustment and development it is now locked in to providing resources to Africa over the medium term. Over the long term the creditor community would be well advised to organize a gradual take-over of IMF exposure (and of its influence) by IDA. Till that happens, the international community must exert every form of pressure possible on the Fund's management and Board to reconsider the kinds of conditionality which block needed access by African countries to SAF and ESAF resources and to adopt a policy of "zero net transfers" to the region (and to individual countries in it) for at least the 1991-97 period by replacing debt service on Upper Tranche facilities with more readily accessible ESAF disbursements (in the same way as the World Bank a

ttempts to cover IBRD debt service through enhanced IDA flows).

Second, the Fund's "right approach" which is being applied to coutries in egregious arrears needs to be modified to reduce the burden of interest charges on frozen arrears and to capitalize the interest due over the shadow programme period. Short of that, the IMF will vitiate the very objectives it is trying to achieve by pre-empting too much of the donor financing provided for its own coffers and leaving too little over to finance real adjustement. Third, the optimal solution to the IMF debt problem would be for the Fund's membership to agree to a special, limited one-time emission of SDRs (of about SDR 5 billion) to enable the IMF to write-off its debts to low-income, debt-distressed countries. That solution is not being considered for entirely spurious objections based more on irrational fears than on hard practicalities.

The World Bank's efforts to help African countries cope better with debt service burdens on IBRD loans are exemplary. But they could be improved by enabling an up-front reductionin IBRD obligations through appropriately structured IDA financing supplemented by donor resources. However, the World Bank's efforts are being diluted by the lending practices of the African Development Bank and other multilateral institutions which are contributing to an increase in the stock of non-concessional multilateral debt to low-income debt-distressed countries at the same time that the World Bank is attempting to alleviate it. That does not make much sense. The donor community should encourage AfDB mamagement to create special facilities similar to those of the World Bank and for the same purpose while enjoining other multilaterals to lend more by way of concessional funds. It is clear that AfDF resources need to be expanded substantially for AfDB to offer a blend of resources which reflects the present IBRD/IDA blend rath

er than the much harder blend that AfDB is presently constrained to offer.

C. PRIVATE DEBT: Insufficient progress is being made in reducing the overhang of Africa's commercial debt despite the creation of a special DRF by the World Bank. The present obstacles which prevent more rapid use of this Facility need to be removed and the DRF expanded to around $500 million, with an extension of its terminal date to 1995, to allow more time for debt reduction in the low-income countries. Experience with the Brady Plan in Morocco and Nigeria so far suggets that this initiative is likely to be of minimal relevance and applicability to Africa. It is simply too cumbersome slow and complicated to apply in the face of the general reluctance of commercial banks to abide by true "case by case" approaches to African countries for fear that they would result in the kind of measures which they feel would compromise their negotiating positions in Latin America and Eastern Europe. A DRf of the type proposed in the 1987-88, before the Brady Plan was announced, needs to be resurrected to address the s

pecial problems of private debt in Africa's middle-income debtor countries both North and South of the Sahara. More work needs to be done in the area of understanding why debt servicing is so high for private unguaranteed debt when common sense would dictate the opposite. But debt service payments diverted to this category of debt seem to be both unfair to official and guaranteed creditors as well as potentially improper. This trend needs to be swiftly corrected by remedies which penalize debtor countries more effectively for maintaining inappropriate debt-servicing priorities in the face of extreme pressures for improved management of debt and debt-service.

Debt Relief and Adjustment Success.

7.10 No set of conclusions on the issue of further debt relief could be considered complete without connecting them to observations about the process and nature of the economic adjustment which such measures are intended to support. The observations offered here are extracted from another paper by the author presented earlier this year:(31)

"...The debate about whether the right kind of structural adjustment for low-income Africa is indeed likely to be achieved with neo-liberal prescriptions has been continuing for some time. Essential arguments have been made in various documents issued by the Bank and Fund on one side and by the ECA, UNCTAD and large parts of the African and international academic communities on the other. Those arguments leave much to be desired from both empirical and conceptual perspectives. What is now perceptible is that the conceptual underpinning for structural adjustment in Africa seems to be shifting towards precepts concerned more with long-term development and away from those aimed at immediate stabilization. The notion (which has taken hold with confusing repetitiveness in obscure Bank-Fund jargon) - that structural adjustment is a unique medium-term "in-between" phenomenon making a sort of chronological mid-point between short-term stabilization and long-term development - is a peculiarly untidy, if all too

convenient, one. It now needs to be abandoned...

In substance, where low-income Africa is concerned, there seems to be no conceptual, practical or programmatic difference between what the Bank and Fund now refer to as "adjustment over the long term" and what previously used to be known more simply as "development". It may well be that a long, roundabout route has been taken to recognizing an elementary point - i.e. that the process of development involves more than making a series of efficient investments to improve physical and social infrastructure and to expand and diversify productive capacity for increasing output, employment and incomes. It also involves making continual policy and institutional adaptations to changes in internal and external circumstances which are now occurring at a much faster pace than before. That is what adjustment quite literally means. It is, in that sense, a process without end, not one which some finite temporal dimension which can be stretched like elastic to suit the convenience of either the Bank or the Fund when it come

s to fund-raising (or one's intellectual shortcomings when one is pressed to prove that what one is doing is working!). Continuous adjustment is inescapably an integral part of long-term development; it does not end when macroeconomic stability is achieved.

Low-income Africa may have the capacity to make physical and social investments in a static environment, if development were that easy. It lacks the capacity to make such investments in a dynamic environment because its weak structural endowments - which have been further eroded throughout the 1970s and 1980s - render it incapable of adapting as readily as external circumstances warrant. That rather simple observation, though made in a painfully laborious way, provides the point of departure for assessing the implications of the way in which Africa's external finance and debt relief needs have been managed over the last decade......

The view taken here is that the annual financial programming exercises which form the basis for financial gap plugging and for consequent debt relief - which today constitutes by far the largest component of external "financing" for Africa - are fundamentally flawed in two ways. First, they have an inherent bias towards underestimating the extent of transitional financing that is really needed for successful adjustment to occur and take hold in any given time period. Second, because these exercises are excessively sensitive to the practices and protocols of institutions offering debt relief - in particular the Paris Club - they are biased towards providing finance on the wrong terms, for too short a time. If one accepts the view expressed earlier - that structural adjustment and development in Africa are, for all intents and purposes, synonymous - then it becomes immediately obvious that focussing on new financing and debt relief on a short-leash basis for 18 months at a time is entirely inappropriate.

Apart from making the trajectory of long-term resource flows for development financing highly uncertain, such an approach has resulted in the embedding of a mentality of continuing crisis management in African governments. Apex level policy makers have become so absorbed with allocating the next week's foreign exchange availabilities that they have little time to focus on or manage the execution of programmes intended to address intermediate and longer term priorities. Moreover the rituals and procedures involved in negotiating debt relief, again especially with the Paris Club, have become so involved, arduous and repetitive that they absorb far more time, energy and are far more wasteful of scarce administrative resources than can possibly be justified by the gains which have so far accrued.

The picture which emerges is clear .... Africa's debt profile has changed with a larger proportion of debt due to preferred multilateral creditors (up from 18% in 1980 to 27% in 1990) to whom service obligations are nearly impossible to reschedule, and the costs of running arrears are far higher, than in the case of officialbilateral or private creditors. It is also clear that despite repeated bilateral reschedulings for almost all severely indebted countries in Africa, after significant amounts of ODA debt cancellations ... and attempts at other forms of commercial debt reduction such as buybacks and swaps, Africa's ability to meet its rescheduled payment obligations (after adjustment measures have been instituted) continues to deteriorate, not improve. The export of real resources from Africa by way of debt service has increased from about 3% in 1980 to 6% in 1989 and a projected 8% in 1990. That is indefensible in a continent where per capita incomes are still declining from levels which are abysmal.

These aggregates - which although they must be translated down to the country level for appropriately sensitive treatment of the debt problem - suggest quite clearly that, despite repeated measures to liberalize the terms of official debt relief and the efforts being exerted to reduce the burdens of private debt service, something is still wrong with the present debt management approach and its results.

....the stark reality remains that for Africa and particularly for its poor what has been achieved still amounts to marginal trimming of the remote outer branches of the problem and not hacking away at its roots. Debt relief, though much to be appreciated and further encouraged, is still being provided to Africa on a "too little, too late" basis. It is not sufficient to help the adjustment efforts being made to take hold, nor to ameliorate Africa's trade credit problems, or the ...premiums in import prices that Africa has to pay on the open market....

The economic instability created in large part by the debt overhang also continues to pose a continuing threat of interminable devaluations and accompanying inflations. Together, these make it nearly impossible to regenerate domestic or foreign private investment to any significant degree. That, however, is not the only pernicious effect being experienced.... the effects of adjustment failure are resulting in significant financial dissavings and disintermediation by households which are now exercising their preference to hold net wealth in non-money forms. Paradoxically, this phenomenon is accompanied by an illusory liquidity balloon in many African economies caused by the build-up of effectively unusable parastatal deposits in the commercial banking system. Overall the signals being sent by the joint, but related, failure of both debt management and adjustment efforts are feeding back to discourage rather encourage domestic savings and investments - two forces which must be revived if Africa is to have any

serious hope for climbing out of its predicament....."

7.11 the specific suggestions embedded in this paper would, taken individually or as a whole, make a significant difference to providing further, and necessary, debt relief to Africa and facilitate prospects for returning to a trajectory of sustainable long-term development. Africa's debt service payments need to be reduced to levels of no more than 3% of GNP and 15% of exports. That means reducing total debt service from a level of around $27 billion for the continent to around $15 billion. In the specific case of sub-Saharan Africa it would mean reducing total debt service from around $12 billionn to about $6 billion. That reduction will not be achieved by the Trinidad Terms or other measures taken in isolation. It will only be achieved by a comprehensive package of measures which addresses all forms of debt. As observed earlier, it is often argued that even with greater debt relief, the development problems of Africa are not going to be solved. That counter-argument to the case for debt relief misses the

point and sidesteps the issue. No one has ever argued that debt relief is or can be an all-purpose panacea for curing all of Africa's ills. What is being argued is that, in most of the region's low-income countries, significantly greater debt relief than has been offered in the past is crucial to, indeed may even be a sine qua non for, any accompanying attempts at successful adjustment and recovery in those countries.

The Need for a Comprehensive Debt Strategy in the 1990s.

7.12 After nine years of debt crisis management, a comprehensive debt strategy has not yet emerged for any group of debtors. That is due entirely to the unwillingness of creditors and of the G-7 authorities to deal with the debt problem in other than a piecemeal fashion; with every incremental step for relief being at first stubbornly resisted and then reluctantly agreed only when there seemed to be no choice but to risk egregious arrears or outright default. That approach has been taken without any serious concern about its effects on the economic plight of the debtors or for global economic welfare. A full decade after Poland's ushering in the debt crisis, it is entirely appropriate to ask whether this might not be the right time to propose, as a logical extension to the stuttering Brady Plan and John Major's welcome proposals, tying the bits and pieces of these different initiatives together. The two-track approach which has been followed so far (Baker and then Brady dominating for one group and the P

aris Club for the other) addresses quite separately, private and official creditors on the one hand, and low-income and middle-income countries on the other. This approach has required occasionally embarassing ad hoc improvisation when G-7 decides to favour one debtor countries for some expedient political reasons (e.g. poland and Egypt and, by the same token, to punish others using the Damoclean sword of debt as a tool for foreign policy leverage).

7.13 A more legitimate and by now long overdue approach would be to bring these different initiatives within the umbrella of a consistent and coherent framework based on more sensible criteris to determine which debtor country should be eligible for what kind of relief. Creditors and debtors must see the debt strategy as making some wholistic sense, so that debt relief and reduction can be more sensibly and predictably negotiated by all parties in a less protracted and expensive way. The compartmentalization of these issues (in the way the Baker/Brady Plans and the various successive Official Debt initiatives have done) has resulted in official debt not being properly addressed in middle-income countries; commercial debt being virtually ignored in low-income countries; and multilateral (IFI) debt being swept under the carpet in the case of both groups. This has resulted in endless and spurious arguments about burden-sharing which inhibit constructive reactions from creditors and make it difficult to arrive

at sensible outcomes for debtors. The problem is best explained by the matrix shown below:

7.14 the picture permits an immediate glimpse of where the holes are in the different debt initiatives (in eight out of the twelve different debtor/creditor combinations which are important). It is self-evident that for the debt problem to be dealt with sensibly, it is simply not possible to have twelve plans for dealing with each of these twelve different boxes; ergo the need for greater semplicity and comprehensiveness. The World Bank and IMF would do both debtors and creditors a signal service if they could convey that rather obvious point to their more powerful shareholders and push for a coherent framework within which all types of debt, particularly for the low-income countries, could be dealt with in a manner which, if not entirely satisfactory to all concerned, would at least be mutually acceptable as a compromise.

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NOTES

(1) It is odd to continue referring to a phenomenon which has lasted for over eight years as a crisis. It si more like a cancer because the debt disease has spread to virtually every corner of the continent; it has had a debilitating effect on the life of Africa's economies, and it is providing singularly resistant to cure by the remedies which have been attempted thus far.

(2) For a detailed account of how the African debt crisis arose and developed readers are referred to: (1) "African Debt: The Case for Relief for sub-Saharan Africa" by Percy S. Mistry, Oxford International Associates, 1988; (2)"The External Debt of sub-Saharan Africa: Origins, Magnitude and Implications for Action" by Kathie L. Krumm, World Bank Staff Working Papers #471, July 1985; (3) "African Debt: The Search for Solutions" by Tony Killick & Matthew Martin, UNARP Briefing Paper no.1, June 1989. The causes, effects and possible solutions to the African debt crisis were the subject of an earlier conference on "The Challenge To Recovery & Growth: Finding Solutions to Africa's External Debt" sponsored by the African Development Bank and held in London on April 18-19, 1988. The Collected Papers presented at that Conference provide useful source material, as do host of country economic reprots, special reports and working papers published by the UN Economic Commission for Africa, the World Bank and the Interna

tional Monetary Fund. These are too numerous to single out for special mention.

(3) This type of blanket concern about potential portfolio contamination contravenes the banker's own insistence that each debtor case be treated on its own merits (the case by cade approach). In Africa the case can clearly be made for most low-income countries that debt reduction on a large scale, with the burden of such reduction being shared by both official as well as commercial creditors, is absolutely necessary. That case has been made in all too many instances not by the governments themselves but by agencies like the World Bank and IMF.

(4) A corollary of this belief (and one which is unproven in reality) is that a tight, short-leash approach to debt relief, doled out grudgingly year by year in elaborate, expensive and tediously repetitive Paris Club reschedulings, provides greater and more effective leverage to creditors and IFIs in getting African governments to change the course of their economic policies and to endure with the consequences of such change.

(5) This reason needs to be examined more carefully and seriously. In several African countriesther is evidence emerging that governments have been cautious about proceeding with Bank and Fund adjustment prescriptions NOT because they enjoy being recalcitrant, or because they find such reforms to be politically difficult or administratively unworkable, but because the prescriptions are not resulting in the advertised. cures. Exchange rate changes are not inducing switching effects at the pace anticipated. The lack of supply-side responses to changes in relative prices are leading to unstoppable cycles of inflation and continuous devaluation. Similarly resort to positive real interest rate policies in highly inflationary environments are causing a collapse in investment without any evidence of reviving savings. Swift trade liberalization is resulting in sharply widening current account deficits as imports race ahead of exports, and so on. Unless more credible and workable prescriptions are developed and appli

ed, creditors should take a more realistic view about tying debt relief so closely to the speed of acceptance of untried and untested reform packages monitored by the Bank or IMF which have unintended and deleterious economic effects. A related point is the oft-repeated claim, particularly by the World Bank, that countries which have adopted reform packages are now performing better than countries which have not. The vidence, however, does not support such a clear cut conclusion. It is not clear whether these countries are performing better because of the reforms themselves or whether because their acceptance of reform has suddenly opened access to external financing which has enabled essential imports to be financed thus triggering growth. Also, the indicators of relative performance show such marginal improvements in the reforming vs. non-reforming economies that they could easily be shown to be swamped by the fundamental inaccuracies inherent in the basic data available on African economies. Most of all t

his argument ignores the fact that reduction in actual (rather than scheduled) debt service payments from present levels could, in several instances, go a long way to improving economic performance even without significant policy change.

(6) This fact was established in a recent study undertarken by the World Bank, the findings of which were incorporated in a Working Paper entitled: "Does Africa pay more for its Imports- Yes".

(7) The relationship between imports and growth in the African context is the most easily accepted, but the least understood, tenet of development faith. Evidence over the last 10 years shows no particular link between the value or volume of aggregate imports and of growth. Much more needs to be learnt about the structure and quality of imports relative to the productive capacity characteristics of particular African economies in order to be more certain about the link between increased import capacity, improved investment and growth performance.

(8) Of these only Egypt and Morocco are severely debt-distressed while Algeria is classified as "moderately debt-distressed" in the debt-speak of the World Bank and WDT.

(9) Nigeria, Cote d'Ivoire and Zambia together account for nearly a third of sub-Saharan debt. Till 1987 Nigeria was classified as a middle-income country. After a decade of negative income growth it is now a low-income country, though it is still treated like a middle-income debtor when it comes to debt reduction of relief.

(10) Like Poland, and for the same political reasons. Egypt (in what John Denham calls a "debt-for-war" swap) has now received more favourable treatment from the Paris Club for its role in the recent Gulf War sooner than the needler and more distressed sub-Saharan economies including, in particular, Nigeria. Half of Egypt's debt to OECD creditors (nearly $22 billion) was cancelled.

(11) It must be asked here whether it was ever justifiable, sensible or even remotely responsible for private creditors to have accounted for such a large proportion of total exposure (private exposure in sub-Saharan Africa amounted to nearly $37 billion in 1982) in the developing world's poorest and most backward region in 1982.

(12) Multilateral exposure in sub-Saharan Africa would probably have been even larger had soft-loan resources from IDA not been so tightly constrained in the 1980s as a result of: delays in the US fulfilling its contractual obligations under IDA-6; and refusing to agree to expand IDA-7 resources at all in real terms.

(13) For the Western Hemisphere (including the Caribbeam) net transfers aggregated a negative $120 billion for the 1983-90 period on all financial accounts and $150 billion on the debt flows account. By comparison aggregate net transfers for Africa as whole amounted to a positive $60 billion for 1983-90, while for sub-Saharan Africa they amounted to a total of nearly $81 billion thus implying that North Africa actually suffered an aggregate outward net transfer of nearly $21 billion in that period.

(14) The distribution of official bilateral debt among different creditors has also been analysed in "The Problem of Official Debt owed by Developing Countries" by Percy S. Mistry, published by the Forum of Debt & Development (FONDAD), August 1989.

(15) World Debt Tables 1990-91, Vol.I Analysis & Summary, pg 89 Table A6.1

(16) For a thorough exposition of this point and for a discussion of how Paris Club procedures serve to achieve the wrong outcomes readers are referred to a forthcoming book entitled "Africa's Debt Negotiations; No Winners" by Dr. Matthew Martin, Chapter 3.

(17) See, World Debt Tables, 1988-89, Vol.I Analysis & Summary, pg XLIV and XLV. This ugly and damaging feature of Paris Club preconditionality, tied in with IMF programmes that were proving particularly difficult to negotiate at the time (largely because of a lack of realism in the IMF's conditionality which later, was fortunately moderated), led the World Bank to suggest "a shadow adjustment programme for countries in arrears with a major portion of ODA disbursements, sinultaneous with a settlment of arrears and a Paris Club rescheduling, at the end". (WDT of cit, pg XXXIX)

(18) These warnings were conveyed in several special reports on Africa, in the World Bank's annual commentary on the debt situation of developing country contained in the covering text of the World Debt Tables for the years 1986-91, in several Consultative Group Meetings held between 1986-90 and in specific country economic and sector reports. They were also echoed in the annual reports of UNCTAD and UNECA over the same period.

(19) Though often ignored by most students of the Third World debt crisis, Secretary (then of the Treasury) James Baker III, included a special section of his Plan for dealing with the debt of low-income countries in sub-Saharan African calling for: (a) redirection of IMF Trust Fund reflows to be directed to addressing the financing needs of low-income debtors; and (b) for the IMF and Bank to take a joint approach in support of comprehensive programmes of policy reform. Mr. Baker made an offer to "ssek resources in support of such a far reaching approach if other other donors were prepared to make equitable contributions". In fact, this announcement resulted in the creation of the IMF's Structural Adjustment Facility (SAF) and its "enhances" variant ESAF to which the US did not, in fact, make any contribution leaving it entirely to other donors to cary the burden.

(20) See "The Problem of Official Debt owed by Developing Countries", by Percy S. Mistry, op cit. para 3.14

(21) See World Debt Tables (WDT), 1990-91, Vol I. pg 94.

(22) See WDT, 1989-90, Vol. I; pp 47-48 for these calculations.

(23) Provind of course that they could be persuaded to put their domestic houses in order and pursue rigorous reform programs without disruption by fratricidal conflict within the foreseeable future.

(24) Egypt is a prime example of the embarassing double standards employed by the creditor community (and particularly by the United States) when it comes to applying political rather than economic performance criteria to development financing, to pressures for policy reform or access to adequate debt relief.

(25) Similar treatment needs to be extended to African Development Bank (AfDB) loans which continue to be disbursed to low-income recipients who are patently uncreditworthy to receive funding on such terms. The same applies to other multilateral (such as those in the Arab-OPEC world) which have extended hard-window facilieties because though outstanding debt stocks due to multilateral banks account for 20-22% of total African debt stocks, debt service payments to these creditors presently account for 30-35% of total service payments.

(26) About $15 billion of this amount of short-term debt has been in arrears for over five years and should, effectively be classified as long-term though most commercial lenders refuse to permit that classification in the fear that it may compromise their prospects for recovering it.

(27) In Africa this is not, as commonly thought London Club type debt owed mainly to commercial banks. Less than half the LTG debt is owed to banks, the remainder is owed mainly to private trade suppliers who arranged long-term credits for their previous sales of capital goods and project services in both North and sub-Saharan Africa.

(28) Moroccan debt has been traded at between 38-45 cents in the last six quarters. Under the terms of the deal Morocco is free to set a price or organize an auction for its debt so long as the same offer is made to all banks each time a buyback is done. The second phase of the Brady deal was conditional on Morocco signing an EFF Agreement with the IMF after which banks have agreed to implement det and debt service reduction (DDSR) provisions through an exchange of bonds for debt. Interest on the bonds would be enhanced with guarantees for payment by the World Bank but the principal of the bonds would not be collateralized. Banks not participating in buybacks or the bond exchange would agree to provide 15% of their existing exposure by way of new money.

(29) Niger's debt was purchased at 18 cents. The buyback offer was made in January 1991 contingent upon acceptance by creditors holding at least 70% of outstanding commercial debt of $111 million. In the event, 97% of that amount was cleared. The buyback included interest arrears as well as principal (which meant that creditors probably recovered 40-50% of their principal). There were two options offered to creditors: (i) an exchange of 60 day notes equal to 18% of the face value of debt plus interest arrears tendered; and (ii) an exchange of debt for long-term zero coupon notes guaranteed by US Treasury zero coupon bonds with the maturity of such notes being adjusted so that their price at the time of exchange would be 18% of the dollar amount tendered. Both types of notes were guaranteed by the BCEAO (the West African Central Bank for states in the CFA franc zone) -- the recipient agent of the grant aid which financed the buyback. The 1986 Bolivian buyback was executed by the IMF at 11 cents when, just pre

viously, Bolivian debt had been trading for between 4-7 cents; resulting in a few arbitrageurs making a very substantial profit on the transaction at the time. The Brady deal for Costa Rica resulted in a buyback of commercial debt and arrears also at 18 cents. Compared to these two deals, a price of 18 cents for Niger represents very poor value for money and casts considerable doubt on the professional competence and judgement which were exercised in this particular operation.

(30) This type of DRF was suggested at various times between 1985-88 by Felix Rohatyn, Peter Kenen, Percy Mistry and James Robinson among others. For a detailed account of how such a DRF would operate see "Third World Debt: Beyond the Baker Plan" by Percy S. Mistry in The Banker, September 1987 issue.

(31) These paragraphs have been extracted from Prepared Remarks made at the Joint Symposium of The Association of African Central Banks (AACB) and The International Monetary Fund (IMF) held in Gaborone, Botswana under the auspices of the Bank of Botswana on February 25-27, 1991. The remarks were made by Mr. Percy S. Mistry, Discussant for Session 2 on "Africa's Adjustment & The External Debt Problem".