Does Forgiving Debt Mean Condoning Corruption? (An El Niño example)

July 10, 1998
By Michael Glantz

Fragilecologies By Michael GlantzThere are many good reasons to wipe the slate clean in order to help developing countries to once again get their houses in order. A leading reason to forgive the debt burden is that it robs these countries from having the means to maintain peace and order and to shore up deteriorating infrastructure.

Forgiving debt would enable governments to focus on improving food production and to attend to the basic needs of their citizens. Those needs include but are not limited to quality of life issues such as personal security, access to affordable food supplies, the ability to have as many (or as few) children as people would like, to have adequate shelter (e.g., more than just a makeshift roof over their heads), and to be educated well enough to have a meaningful job.

Securing some of these needs can be achieved directly as a result of debt forgiveness... at least in theory. Securing other needs can be done indirectly by, for example, increasing confidence of other countries and industries to invest in the future of a recipient country by investing in that country. That makes funds available through taxes, increases employment, puts money into the economy. But, in many of the developing countries there are obstacles to the enticement, among them the lack of personal security and the belief that corruption will make life difficult to carry out commerce.

Corruption at all levels of government, especially the highest levels, is a major reason that donor governments and their citizens are reluctant to forgive national debt. They feel that wiping the slate clean only lets corrupt officials off the hook. The real dilemma is that these officials are not the ones "on the hook". It is their citizens who bear the brunt of foreign debt. It is the infrastructure that suffers. It is foreign investment that is turned away from assisting in a country's economic growth. It is the lack not only of personal security of the person on the street but also the personal fear at the highest levels of government that they might lose power to internal or external foes. As a result, government leaders make sure that the military and the national police fare well even in time of budget crises.

For example, consider the rumors about Zaire's president Mobutu stash of about 9 billion US dollars in Swiss and other banks while his country has an international debt of about the same amount. The people of Zaire (now the Congo) must bear the brunt of Mobutu's theft of national wealth by wallowing in state-sponsored squalor.

This example is neither limited to one continent nor just to specific countries. It also applies to the governments and foreign lending institutions who have supported these corrupt regimes over the decades for a variety of reasons such as containment of some real or perceived enemy. Donor governments, international banking institutions, development agencies have all been aware of the fact that their development assistance was often ending up in a Swiss or other numbered bank account. In other words the costs of such containment was borne by the local citizens of the se countries with corrupt officials.

So the dilemma is the following: how to get donor assistance or the benefits of debt forgiveness down to the level of the person on the street. While it is temporarily comforting to hear the words of leaders of government agencies and lending institutions about sustainable development, improved social well-being and specific economic development strategies, it is quite clear that most people in most developing countries are far from receiving any benefit of external assistance.

Perhaps it is time for governments to convene an international meeting to discuss such issues as reconciling foreign assistance in whatever form, corruption, investor confidence, and the pathways to get foreign assistance down to the level of the people, since it is obvious that "Business as Usual" will not work in the next century. Donors and investors will become fatigued, governments in many third world countries will stay insecure, and an increasing number of third world people will find that they have been forced to join the ranks of the poorest of the poor... they will have become fourth worlders.

The recent El Niño event and the devastation it brought in certain countries support a need for change. Peru, for example, received a few hundred million US dollars in mid-1997 in loans to prepare for the onslaught of El Niño. However, at the end of last year (1996) the Peruvian government purchased an equivalent amount of airplanes from Belorus. In response to both El Niño and the military purchase, Ecuador also purchased planes and received World Bank funds to combat El Niño. The interesting point here is that the amounts received from the international lending agencies were equivalent in both cases to the amount paid to purchase aircraft. Was this in fact an indirect subsidy by those institutions to support the ongoing border conflict between these two countries?

And a similar situation has occurred most recently in Kenya. Kenya's infrastructure was greatly impaired by the heavy rains associated with the 1997-98 El Niño. In mid-May 1998 Kenya received almost $100 million dollars from the World Bank in order to repair its roads and bridges that had been destroyed by El Niño. However, the local newspapers ran the story of a corrupt money deal involving members of the Kenyan government, to the tune of one hundred million US dollars.

Is it that the national governments in many parts of the world have come to 'expect' that, with regard to development needs and responses to natural disasters, the international community of donors and investors will come to bail them out. This has often been the case in the past. Should not be allowed to continue in the future.

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