Globalisation and debt

By Basil Kandyomunda

Let me start by thanking the organizers for inviting me to talk to you about this important topic - globalisation and debt. Globalisation has become a household concept. However, like many similar concepts, it is elusive. I will therefore as a basis for my discussion just attempt to share with you my own understanding of the two key concepts "globalisation" and "debt" with reference mainly to the Ugandan and African experience.

However I think I should first tell you something about the Uganda Debt Network, because our founding was based in increasing awareness of, and a move to counter the effects of, the global debt and poverty of the highly indebted countries, Uganda included. Uganda Debt Network (UDN) was started in 1996 by a group of Uganda civil society organizations and individuals, as a coalition to campaign for debt relief for Uganda under the Highly Indebted Poor Countries (HIPC) Initiative of the World Bank and IMF. When Uganda became the first country to reach the decision and completion points in 1997 and 1998 respectively and became eligible for debt relief, the purpose of the organization was extended to include the monitoring of the utilization of the savings from debt relief which were channeled through the Poverty Action Fund (PAF). Our mission is to:

Promote and advocate for pro-poor policies and full participation of poor people in influencing poverty focused policies, monitoring the utilisation of public resources and ensuring that borrowed and national resources are prudently managed in an open, accountable and transparent manner so as to benefit the Uganda people.

What is globalisation?

It is common to hear phrases like the "global village". The word village means that it is the smallest unit of a group of society next to the family, which means to a large extent that the individuals in the village know each other and share to a large extent most of the resources in the village especially those with "public good" character such as the village well, school, birth attendant, etc. In the village, however, you will find some few greedy individuals who may want to grab some of the public goods for themselves irrespective of its effects on the lives of the rest of the village. This is the most simplistic way of looking at the topic before us this afternoon - globalisation and debt.

"Globalisation" refers to the growing sense of interconnectedness of the different parts of the globe. It refers to the ways in which developments in one region of the globe can rapidly come to have significant consequences for security and well-being of communities in quite distant regions of the globe. It is associated with a perception of powerlessness and chronic insecurity because the speed and scale of contemporary global social and economic change tend to overwhelm governments, communities and individuals. Development scholars like Anthony McGrew argue that it involves the stretching of social, political and economic activities across political boundaries, regions and continents. It entails the intensification of interconnectedness, in terms of flows of trade, investment, finance, migration and culture. This interconnectedness can be linked to a speeding of global interactions and processes such as the evolution of world­wide systems of transport and communication which increases the velocity of the diffusion of ideas, goods, information, capital and people.  The impact of this interconnectedness tends to span the whole world, and the boundaries between domestic matters and global affairs becomes increasingly thinner and thinner (Tim Alien et al, 2000: 347).

In this paper I discuss these characteristics of globalisation in relation to debt, with specific reference to the accumulation of external debt by the Southern countries (especially in Africa) to the rich Northern countries.

However, at this point we need to ask ourselves: What is the driving force behind this "globalisation". Is globalisation a new phenomenon?

In my opinion, the 15^th century European commercial expeditions into Africa, India up to China for ivory, spices, silk etc, and the trade in human beings (slave trade) to boost the production of sugar and cotton in south and central America are all indicators of globalisation. This means that for over 500 years, capitalism, which triggered off colonialism has been the main driving force behind globalisation. These interests have not changed, and the major tenets of the triangular trade of the 17^th and 18^th centuries, where through expeditions were made into Africa to raid and ship slaves to Americas for cheap slave labour in cotton, sugar and tobacco plantations which in turn fed the European industries with cheap raw materials for finished products to export to Africa markets still epitomize the present day global market. Today, the capitalist north is organized better and controlled by Transnational Corporations (TNC) like Pepsi Cola, Coca Cola, McDonalds, AES, Toyota, Marks and Spencer etc. These TNCs depend on cheap labour and raw materials from the south and, inevitably, on control of regional and global markets for their finished products. One can therefore and rightly conclude that colonialism has been re-baptized and called globalisation.

In order to pursue their economic and commercial interests, however, the capitalist north has had to play dirty politics and insist on development aid rather than fair and just trade or even outright debt cancellation. In the last two decades, development aid conditions have focused on non-state intervention so as to leave the market rule with enabling policies such as deregulation, privatization and economic liberalization. These policies continue to make economies and societies more open to the world while the market rules are unfair for the poor south.

There are other driving factors such as technology, and culture, which are also central to globalisation, but these two, again, augment the economic and political interests. For instance, if you walk the pubs in Kampala, during the English Premier Soccer season, the pubs sell more, because DSTV has globalised the English Soccer. Arsenal and

Manchester United might have as many fans in Uganda as in the UK and the beneficiary is the clothing industry producing outfits for the two clubs. The fans must identify their undivided loyalty to their clubs, never mind the resentment they portray towards the Ugandan Soccer Clubs.

Globalisation (and its effect) is not affecting Uganda, or Africa alone. It is affecting the entire world: including Asia and Latin America. It is even affecting negatively the very poor in the rich Northern countries. However, its effects on the poor developing countries is disastrous.

The Genesis of Debt and Development Aid

During the Cold War period political considerations were the main motives behind development aid. Each block tried its best to protect its interests through development aid and cared less about the economic benefit for the recipient countries. In the event, debts kept accumulating without much concern by the donor countries. To a large extent political hegemony (interests) ruled the day and over-shadowed the economic interests. The economists in the rich north however, kept updating their books of accounts. By 1970s and 1980s when ice was finally being poured on the Cold War, came the revelation of the huge debts of the former colonial states owed to their former masters.

With the end of the Cold War, political issues in development aid were relegated second to economic interests. The need to balance external debt servicing to the provision of services, and to promote development in their countries was becoming an impossible game for the African indebted countries. It was the beginning of the debt crisis. However, the developed north sought to address the problem through provision of development aid.

However, the countries providing development aid were looking at investment opportunities while the poor borrowing countries largely were looking at opportunities for borrowing at low interest rates. While this was going on, the raw materials and agricultural products from the poor countries especially of Africa kept dropping in prices at international markets. This is why despite the huge loans extended to African countries in the 198os it has not necessarily led to sufficient economic growth to enable them repay the loans. The obvious conclusion was, development aid with its ill and extractive intentions would and can never help develop the poor indebted countries out of debt. The hard reality of debt crisis had to resurface, and it came with the public pronouncement by Mozambique in 1994 that it was unable to pay the loans. This brought the debate into the public arena. And the only obvious option for the highly indebted countries in this regard would be to default or be forgiven of their debts through debt cancellation.

However in order to save their banks from bankruptcy, western governments' chose to focus on enabling the African indebted countries to pay their debts, through the IMF and World Bank-devised conditionalities to their loans (Hanlon B, 1997: 24). This basically meant that a major bilateral donor country could only provide aid to developing countries by agreement with the IMF and World Bank. This was the beginning of the biting Structural Adjustment Programmes (SAPs). The global creditor nations from the north decided to make IMF their clearing house for negotiating and administering aid. Up to date, IMF is the gatekeeper that certifies whether a country's macroeconomic management policies are sound and hence deserves support. All this means that development aid and debt are linked as one reinforces the other.

Debt cancellation initiatives

The failure of development aid to solve the African debt crisis has led to several initiatives aimed at addressing the debt crisis. But to date any such attempts have yielded no concrete results, and the debt keeps increasing. I will just highlight a few of these initiatives.

The Paris Club: the main focus of the Paris Donor Club has been on rescheduling and capitalization of the debt in this group, which has therefore instead increased the debt burden of Africa to about US$31 billion. Hence worsened the debt crisis. Postponing the treatment can never be the best way of addressing the ailment. Instead it may hasten the passing away of the patient.

The Toronto Terms: the aim was to restructure at least US$6 billion of debt instead only managed to tackle that of Congo (Zaire). Hence this can be termed a failed opportunity.

The G7 Summit of September 1991: this was sabotaged by the USA unilateral action in April 1991 to forgive 50% of Poland and Egypt. The NATO and Middle East politics were at play. Hence could not result into anything meaningful for Africa's debt crisis.

The G7 Naples Terms: approved in 1994, the terms promised to offer 27 poorest nations a 50 - 67% reduction in net present value (NPV). Unfortunately the terms linked aid and IMF debt conditionalities hence rendering it a futile exercise.

The HIPC Initiative: launched in 1996, it identified 41 insolvent countries as eligible for debt relief. By June 1999 only 2.9% of the debts had been written off from Uganda, Mozambique, Guyana and Bolivia in terms of partial debt relief (not cancellation). The relief to Uganda was virtually negligible because it only reduced debt service from US$166 to US$149. By HIPC III the debt burden for Africa remains growing rather than reducing. Hence HIPC is another example of rhetoric and a waste.

HIPC has failed that is why for instance in September 2000, IMF proposed a number of options for smoothing post-HIPC debt service obligations in respect to the Zambia's debt crisis. But as usual these options are suspect and full of mischief. For example the option of front-loading of interim assistance under the initiative by 75% would still be above the current debt service and hence would not address the objectives of the HIPC initiative. On the other hand rescheduling the Structural Adjustment Facility Loan to the IMF, would only shift the hump of the debt burden to a different time in the future; while blending HIPC initiative grants and reducing Zambia’s debt to export ratio to 11.7% in 2001, and 8.5% in 2005 would leave the debt-to-revenue ratio at 23% in 2001 and would not fall below 15% until 2005, hence rendering it insufficient.

Therefore, the talk about debt cancellation or debt relief for Africa's debt crisis are mere rhetoric of the developed North. In fact some of the countries have actually failed to honour their pledges of debt cancellation. So debt cancellation through the HIPC initiative is simply a theory of unity of opposites (no master, no servant). The simple fact is the rich North cannot survive without the indebted South. Total debt cancellation would cause a global problem and distortion in the global economic order. This is why many rich northern countries like France and USA have totally refused any idea about total debt cancellation in preference for the meaningless HIPC. The HIPC initiative is absolutely inadequate to solve the problem of debt. HIPC alone can never deliver any poor indebted country out of indebtedness. If ever like in the case of Uganda, it sends the country into deeper debt.

While the conferences are held to discuss the debt crisis the indebted African countries continue to sink and become further entangled in the so called “increased” development aid so that they can continue to service their debts. For example scheduled debt service takes over 40% of the national budget of Tanzania and Zambia which could have been used more on productive and service areas.

As a result, Africa's debt has sharply risen in the past decade and is now equivalent of 100% of its gross national product (about US$200 billion), and debt servicing payments account for about 30-40% of the continent's export earnings which are themselves subject to vagaries of commodity price decreases. Sub-Saharan Africa alone is expected to spend about 70% of its export earnings on external debt servicing. The sad news is that in spite of incurring the highest growth of borrowing, the African economies have registered retarded growth compared with other regions of the world.

Uganda external debt

Before I end my paper, I would like to share with you a the participants a synopsis of  Uganda's external debt. The entire picture can be read in table I below. Simply put, despite Uganda being the first country to enjoy the fruits of HIPC initiative, according to reliable sources from the Bank of Uganda and the Ministry of Finance, as of September 2003, Uganda's total external debt stock had reached US$ 4.3 billion and accounted for about 70% of the GDP. This is an equivalent of 186% of the value of Uganda's exports.

Table l - Debt Stock Ratios

~	FY	FY	FY	FY
	2000/1	2001/2	2002/3	2003/4 (est)
Total Goods and Non-Factor Service exports	676.42	697.28	826.04	1019.40
Nominal GDP at Market prices (Ug.Shs billion))	9991.42	10247-50	11812.84	12263.10
GDP at Market prices (US $ Million)	5667.55	5840.49	6273.86	6015.70
Exports as a % of GDP	8.09	8.12	8.10	10.29
Imports as a % of GDP	-16.82	-18.19	-18.75	-22.71
Total external Debt Stock (end of period) (US$ millions)	3395.20	3825.21	4215.52	3606.30
o/w External arrears	281.56	0.00	185.40	185.40
Total Debt Stock (end of period) as a %age ofGDP	59.91	65.49	67.19	59.95
Debt Service (maturities excl. IMF) as a %age of exports	14.86	17.54	17.82	16.87
Debt Service (maturities excl. IMF) as a %age of export of Goods and Services.	10.07	11.92	10.96	10.24
Debt Service (maturities excl. IMF) as a percentage ofGDP	1.20	1.42	1.44	1.74
Debt Service (maturities incl. IMF) as a %age of exports	24.92	24.83	26.70	25.57
Debt Service (maturities incl. IMF) as a %age of export of Goods and Services.	16.88	16.88	16.41	15.52
Debt Service (maturities incl. IMF) as a percentage of GDP	0.67	o.6i	0.88	0.91
Total external reserves (end of period) in months of imports	9.30	10.99	12.14	14.06
Total external reserves (end of period) in months of imports of goods & services	6.44	6.63	6.87	7.02

Source: Bank OfUganda, 2004

This situation should be a cause for concern for Ugandans. But one has to ask why should we, a potentially rich country, be so heavily indebted? Like many other highly indebted countries, the debt is a direct reflection of the unjust international economic order (globalisation). Every year the external debt continues to grow because of the interest it accumulates, but also because quite a large amount of the debt was contracted to finance the former dictatorships, and/or channeled to individual leader's bank accounts abroad.

As in many other African indebted countries, since the 1990s the cure to indebtedness has been prescribed in the form of imposition of export-led growth, financial and trade liberalization, fiscal austerity, privatization, liberalization and de-regulation. Our economy remains a source of cheap raw materials and pools of labour for the interests of the industrialized North. And our president is an ardent believer that at last he has got a cure for accelerating economic growth for Uganda: that we should trade ourselves out of debt. Unfortunately, AGOA and Europe's “Everything but Arms” programmes are just another gimmick. The prices for the AGOA products are determined in America, not Uganda. The AGOA industry thrives on exploitation of the cheap human labour - as good as slave labour. So export-led growth will never trade Uganda into prosperity, because Europe and America are not about to allow their farmer to become paupers in the name of lifting Africa out of poverty and indebtedness.

Promoting foreign direct investment (FDI) comes with a windfall of incentives for the multi-national corporations like Coca Cola, BIDCO, Shoprite, Tri-star, MTN etc.

These enjoy the incentives, exploit high quality labour from the nationals at almost no cost, and finally repatriate the profits. Hence, they cannot trade Uganda out of poverty and indebtedness. It would not be in their interest.

The obsession of the Government of Uganda "to maintain macroeconomic stability and support the rapid growth of the economy that is necessary to reduce poverty" only helps the investors and not the nationals. Macro-stabilisation policies do not have a human face. They are about inflation control - just figures not human beings. Inflation harms the interests of investors more than anyone else. So Uganda must protect the interests of these investors.

Uganda's development policy framework is called the Poverty Eradication Action Plan (PEAP). It was recognized and adopted by the World Bank and IMF as the country's PRSP. The PEAP is revised every three years. Indeed Uganda has been promoted but the World Bank and IMF as their success stories. The February 2004 IMF Uganda Country Report No. 04/34, praises the country's economic growth. However, the report also admits failure. It recognizes the increase in the incidence of poverty in the population from 35% (1999/2000) to 38% (2002/03). This is very marked in the rural areas and it attributes this to the deterioration in terms of trade associated with the sharp fall in the price of coffee. This clearly shows the way in which global policies are against us.

Conclusion

In conclusion, I would like to reiterate the following points about aid and debt. Both aid and debt are controlled by the creditor countries without the participation of the debtor countries. Both aid and debt negotiating mechanisms use conditionality which favour the rich creditor countries while undermining local initiatives. The rich North thrives on giving debt and aid. It is a profit-making venture, and the creditor nations are not about to shoot themselves in the foot. Why let loose the goose that lays the golden eggs?

Therefore other means - some of which might be life threatening in terms of sacrifice - may need to be employed to deal with the debt crisis. The rich North has over the last 500 years used criminal means to accumulate capital from the impoverished South.

What possible means can the robbed South use to state and win its case against the robbers of the North – most probably before a panel of northern judges sitting in a northern court with legal representation provided by some philanthropists? This was tried following the Jubilee 2000 Campaign and all the south got was HIPC.

Globalisation is not a tea-party of equals. It is a gambling house where the rich North have mastered all the cheating tricks. They are after all the makers of the gambling machines and set the gambling rules. The rich North lends the South the coins to insert in the gambling machines so the North can win the jackpot and take it home. Such is the game of globalisation and debt: a game of predetermined winners on one hand and losers on the other.

 

Basil Kandyomunda is with the Uganda Debt Network

 

References

Focus, 2000, The Transfer of Wealth, Debt and the Making of a Global South, FOCUS, Bangkok.

IMF, 2004, Country Report No. 04/34, Kampala

Judith Randel, et al (eds), 2002, Reality of Aid, 2002, An Independent Review of Poverty Reduction and International Development Assistance, IBON Books, Manila

Tim Alien et al (eds) 2000, Poverty and Development into the 21^st Century, The Open University, Milton Keynes, UK

World Council of Churches, 1999, Dossier on Globalisation and Debt, World Council of Churches, Geneva.