Economic Apartheid – How Western banks are strangling Africa

Reprinted from The Common Good, no. 21, Spring 2001

by Archbishop Njongonkulu Ndungane

September 2001


Things have changed dramatically in South Africa since our first democratic elections in 1994. Sadly, we are still deeply affected by apartheid’s legacies, including the lack of representation in many of our national sporting teams. But of overarching importance to all the people of South Africa is that we continue to carry the burden of a $25 billion foreign debt incurred to underpin a political system that the United Nations had declared a sin against humanity.

What is really frightening is that many other Sub-Saharan countries, long free of colonialist oppression, are also suffering under the burden of debt incurred by their oppressors. And please do not assume that oppression is always about politics. In Africa it has been as much about economic exploitation as about power. It may surprise you that more money flows outward from my continent to the developed world than flows inward.

On the matter of debt. I know and understand the reaction that says: ‘If you borrow money, the honourable thing is to pay it back’. My reply is, yes, of course, as long as it was you who incurred the debt in the first place and if the contract is an ethical one. Even when these two benchmarks do apply, there is also a need to recognise that some debts are unpayable. It is the principle on which all developed nations base their insolvency laws.

But, it goes way beyond that. The same countries that are caught in a never-ending interest-cycle of debt and have already repaid their debt several times over, are the same countries that are registering the world’s highest incidence of HIV/AIDS. The fact is that AIDS and poverty walk hand in hand. No wonder 75 percent of people with AIDS in the world are in sub-Saharan Africa.

In South Africa, despite being the most developed of the sub-Saharan countries, the second highest item on our national budget is the repayment of debt incurred to finance the system that oppressed millions of people – R46.5 billion compared with R32.3 billion for health care.

How do we look an HIV positive pregnant woman in the eye and tell her there is nothing in the budget for even the simplest anti-retroviral drugs that will at least give her baby a chance? How does the developed world face a Mozambican who will in a very short time die of an AIDS related disease because there are not even vitamins in his nearest clinic? How does the developed world justify more billions of dollars in profits for a handful of pharmaceutical corporations, who pay their chief executive officers hundreds of millions of dollars a year, while our millions of African and Third World sisters and brothers unnecessarily die?

The anti-retroviral drugs that would keep them alive are out of reach not because they are too expensive to produce, but because patents and intellectual property rights allow companies to realise monopoly super-profits on those drugs. The high prices keep them out of reach of those who most desperately need them, with punishments for countries like my own that take even partial steps to import the same drugs from countries like India and Brazil at five percent of the local cost from the trans national pharma-corporations.

An example – Mozambique

Mozambique is a typical example of a Highly Indebted Poor County (HIPC) that is hamstrung by the very relief programme that is supposed put matters right. The point is that, while the relief programme accommodates the cancellation of debt that could never be paid off anyway, it comes with extraordinary strings attached.

Let us take a closer look at Mozambique, which many of you may remember as making headlines when a baby was born in a tree during a flood and was rescued by a South African helicopter pilot. A former Portuguese colony, it is an excellent example of developed world aid projects that do not work. During the 1970’s first the Rhodesian and then the South African regimes sponsored an army called Renamo that killed an estimated one million Mozambicans. When peace finally came in 1991, Mozambique borrowed to pay for the damage incurred by apartheid’s proxy army. The debt rose to more than five billion US dollars and the country was so weak that it qualified as a pilot for the HIPC programme.

The unserviceable debt is slowly, gradually being written off but at huge cost to Mozambique’s people. In 1998, conditions included an order signed by World Bank President James Wolfensohn to raise the user-fees for public health services by five times the existing rate. Municipal water had to be privatised and with consequent sharp increases in cost to the consumer.

In June 1999, under pressure from protests at the Cologne G-8 meetings, a little more debt was relieved. But Mozambique still spends far more in debt servicing than on health and education and Washington’s expanded debt relief entails 71 brand new conditions. Let me give you a typical example. Mozambique, once famous for its cashew nuts, is not allowed to resurrect this industry using traditional industrial policy tools. The IMF also insists that parliament adjusts the overall tax structure to make it more regressive. The rich now pay a smaller share of their income. Even after those massive floods that tugged at the world’s heartstrings, the World Bank and IMF refused to cancel any further debt. They instead offered new loans. This, in a country where the average income is less than 100 US Dollars a year and which follows both organisations quite loyally. Earlier this month, President Chissano complained publicly that the World Bank held him hostage, so that for a few crumbs of debt relief, he was forced to destroy more than 10 000 jobs in cashew-nut processing.

Debt repayment and AIDS

The most objectionable aspect of the HIPC initiative is its insistence that the debt repayment is the first call on a nation’s budget. Hence that poignant call from Mwalimu Nyerere: ‘Shall we starve our children to pay our debt?’ I must ask the related questions: How can the developed world express such concern about the AIDS pandemic yet remain so indifferent to the debt that is fuelling a pandemic that has already killed more people than both World Wars? Is it because the world is unable to put a human face to the horrific AIDS statistics that seem to dazzle everyone?

That 75 percent of AIDS infected people in the world come from sub-Saharan Africa is the natural consequence of a situation that hinders education, health care and economic empowerment. The weight of unpayable and unjust debt deprives us of essential tools in the battle against the pandemic that is placing eight year olds as heads of families and leaving tiny babies in the care of 80 year old grandmothers. Our orphanages are overflowing, our graveyards are full and our economies are threatened. And, because of global economic interdependency, you are also threatened.

But please do not misunderstand me. I am not here with a begging bowl. What I do ask is for justice, your prayers and your support for my two hobby horses – the cancellation of unpayable and unjust debt and a sustainable response to the AIDS pandemic, which is greatly aggravated by the debt situation and unfair economics.

The common thread is the abject poverty generated by unpayable debt and unjust economics and the impact this poverty has on the AIDS pandemic. The statistics for both poverty and AIDS are mind-boggling. Put a human face to the suffering those figures represent and it sears one’s soul. When the United Nations Programme on HIV/AIDS and the World Health organisation jointly agree that by December last year 34.7 million adults and 1.4 million children world wide were living with the disease it is so easy to be dazzled by the numbers.

In human terms, mothers and fathers are dying like flies. Seven and eight year olds are having to place a higher priority on scavenging for food for their younger siblings than on going to school. Faithful women infected by unfaithful partners live, and die, with the heartache of knowing they have transmitted the disease to their babies.

At the same time we are told that 1.3 billion people continue to live in extreme poverty, on less that one US dollar a day. This is about hunger, ill health, squalor, deprivation, lack of education and is a far cry from the basic human dignity that is our God-given right. On average, 34 000 children die each day as a direct result of malnutrition.

In Africa, malaria and TB kill about 5 million people every year but the world’s pharmaceutical giants do not spend money on research and development for these diseases because there is no profit in it. The fact is poor people and poor governments cannot pay for drugs and the implications for the AIDS pandemic is horrific. All this happens in a world in which the three richest people have assets that exceed the gross domestic product of the 48 least developed countries and their 600 million people. Against this backdrop of human suffering, Americans spend more than 8 billion dollars annually on cosmetics. In a year when Ethiopia’s foreign debt stood at 10 billion dollars, Europe spent more on ice cream.

It is what gives us the UNDP’s famous ‘Champagne Glass Graph’ its shape. In this, 20 percent of the world’s population captures 86 percent of all wealth, while the stem of the glass is represented by the 20 percent of humanity which has seen its meagre portion of wealth reduced to about 1 percent.

Yet, despite the poverty statistics we live in a world of surplus of nearly every commodity.

But the situation is not hopeless. In the AIDS arena, I am particularly proud to share with you the outcome of a workshop that took place in my country about 2 weeks ago. As many of you know, the United Nations recently declared AIDS a global emergency. In response, a meeting of Anglican archbishops representing more than 73 million Anglicans worldwide charged me to develop a sustainable response to the pandemic in Africa. It is a drive to create a generation without AIDS.

Our workshop looks set to cause global ripples and has already proved a catalyst for strategic partnerships between the likes of faith communities, governments, the international donor community, care givers, people living with HIV/AIDS and pharmaceutical manufacturers. Among those who have pledged support are our Deputy State President, who also heads our South African National Aids Council, and Nelson Mandela’s wonderful wife, Graca Machel.

We emerged with a renewed sense of hope and purpose and, most importantly, with key people from all over Africa now equipped to assess the pandemic in their own regions and develop appropriate and sustainable responses. It was an excellent example of how we global villagers can and must work towards a common good. Yet without debt cancellation, the struggle to end the AIDS pandemic will fail.

Some may feel that this is really all about mismanagement by the Highly Indebted countries. There is, of course, a strong element of truth in this. And naturally, those fighting for debt cancellation are also fighting hardest for good governance, I can assure you. They are motivated by the fact that the burden of debt that is becoming a crisis not only for the spirit of democracy in Africa, but for all of humanity. These debts, driven by unacceptably high interest rates, have over several decades become monstrous. Over time the countries have repaid the principle amount several times over, without retiring the loans. For every dollar a wealthy country lends a poor country, it gets eight dollars back in the form of repayment and the declines in prices of Third World exports that have accompanied the incessant need to export to repay debt.

The Case of Zambia

I have already mentioned Mozambique. Zambia is another typical example. Although it was granted some debt relief the cost of servicing the remaining debt has risen so sharply that the country is paying out more than it was before. The result is that the impoverished governments are left with wholly inadequate funds for basic human needs. Men women and children die as old debts to wealthy lenders are repaid. It is a human rights emergency that cries out for a just approach to global economics. It is an urgent call for debt cancellation and indeed for a full-fledged reassessment of the role of the World Bank and the IMF. For example, a Fair and Transparent Debt Arbitration process should be supported, so that creditors no longer are judge, jury and party to international debt negotiations.

Of course there are players in the international arena who are trying. One example is South Africa’s Minister of Finance, Trevor Manuel, who last year was chair of the board of governors of the World Bank and IMF. Manuel’s attempts at changing voting rights and governance in the Bretton Woods Institutions, and his arguments for more debt relief, are to be supported. But they don’t go nearly far enough. And in any case, even arguments for minor reforms failed to convince the world’s ruling elite of the urgency of change. Indeed, nothing was done on governance, and only a few more crumbs of highly-conditional debt relief were given.

In contrast, NGOs and social/church movements continue to debate more creative options, including exchange controls, financial taxation inspired by Nobel economics laureate James Tobin, and a redirection of domestic investment into productive activity and credit aimed at those who most need it. One crucial subject of debate is whether an international financial agency like the World Bank is required. The Bank has been told by the Bush Administration that it should incorporate far more grants than lending, which is at least a step in the direction of reducing the institution’s funding and leverage. But reforming the World Bank and IMF appears exceptionally difficult, under conditions of extreme countervailing pressure from the financial markets. In recent months, Argentina, Papua New Guinea and Turkey have suffered extreme hardship as austerity is imposed from Washington, DC.

That is why the global movement for justice is making the case that Washington’s financial boot, now pressed against Africa’s neck, must be lifted, even if that means abolishing the World Bank and the IMF.

You may wonder if African countries do not desperately need the World Bank, especially its low-interest IDA loans? In fact, for basic-needs development – such as a rural school and teacher salary, or a micro credit scheme – hard-currency loans make little sense. For vital imports, hard currency can always be raised through export credit agencies, which are also the subject of international NGO reforms. Most World Bank/IMF loans to Africa are, after all, immediately channelled to repay old loans, if not to import luxury goods for the elite. Mobilising domestic resources would be far preferable, even if that means more expansive monetary policies as a substitute for foreign loans.

Through campaigning by the Jubilee movements across the world, debt cancellation is a bit closer. Return of stolen wealth such as Sani Abacha’s (former Nigerian president) Swiss bank hoardings, and reparations for what technically can be termed ‘odious debts’ already repaid, are also on the agenda.

If the World Bank, for instance, was serious about owning up to past mistakes and malpractice, it would take responsibility for:

its $200 million in loans to Pretoria during the apartheid era;

its rejection of a UN general assembly mandate not to lend to Pretoria in 1966;

and the fact that $100 million in credit during the 1950s-60s helped expand South African electricity supplies to white households only, although the entire society repaid those loans.

Surely, reparations would help clear the World Bank’s conscience? This is one demand that is being made forcefully by Jubilee to the World Bank at the World Conference Against Racism (September 2001). It illustrates the need to systematically understand how institutions which thrive today, do so because of their history of conquest and profit during slavery, colonialism and neo-colonialism.

Likewise, I have raised the Swiss banks’ apartheid debt directly with their own government officials, and I sincerely hope that instead of waiting the five long decades they did before reimbursing victims of Nazism, we may soon anticipate some kind of Southern African reparations fund for apartheid’s victims, to which Swiss, other European and US financiers will willingly contribute. This initiative is important, we believe, as a disincentive for these banks to ever fund apartheid or similarly despotic regimes again.

A new ‘Marshall Aid Plan’ for Africa?

Whether or not the final outcome is formal reparations need not deter us from discussing our vital material interests. Developed nations must seriously consider a Southern Africa recovery plan similar to what became known as ‘the Marshall Aid Plan’ after World War Two. That plan brought post war Europe out of chaos to what it is today. At the time a politically unstable Western Europe faced a frightening prospect of hunger, poverty, desperation and chaos. Inflation was rampant, foreign exchange was exhausted and there was a threat of economic collapse.

Similarly, Southern Africa has been ravaged, by an undeclared war waged by the former apartheid state against the ten countries of the region. It was fought on many fronts: overt occupation, direct military intervention, military intervention via surrogates, and economic warfare. Let us also remember that the United States financed the European Recovery Programme to ensure its own economic prosperity. So a Southern African plan to redress the apartheid legacy of poverty and inequality offers a rare occasion where justice, morality, and economic benefit meet in a mutually beneficial situation.

People like the G-8 rulers and bankers may hesitate to consider moral issues. However, the World Bank’s rhetoric on governance leads us to believe that president James Wolfensohn may look at reparations more seriously. His institution is implicated in tremendous historical and contemporary suffering, especially around the failure to cancel debt. His argument that 100% debt cancellation may impair the future ability of the beneficiaries to borrow is daft, since so few can borrow anyhow. So if moral carrots – such as the opportunity for the World Bank and others to provide reparations – do not work, there is also a stick. Jubilee South Africa was one of the initiators of a ‘World Bank Bonds Boycott’ to de-fund the Bank by having pension funds, church and university endowments, and municipalities tell their investment managers not to buy Bank bonds in future.

I am pleased to report that over roughly a year’s time, dozens of major congregations in the United States and Europe have moved to cleanse their investment funds by telling their fund managers never to buy another World Bank bond. You can learn more by accessing the website at Through such tough tactics, the global movement for justice is introducing social values to an economic system that often seems topsy-turvy. They do this against the backdrop of convincing documentation that it is women, children, the elderly and the disabled that are the main victims of debt repayment pressure.

The Anglican Church views the issue of international debt and economic justice in the light of our belief in creation. God has created a world in which we are bound together in common humanity in which each person has equal dignity and value. The concept is not exclusively ours. It is a tenet of most faiths. There is, for example, a wonderful rabbinical saying that before each and every person there walks an angel proclaiming: ‘Make way, make way for the image of God’.

Yet our prevailing economic system does not put food in bellies. Nor does it allow the drugs needed to treat the most stressful and appalling diseases known to man: HIV/Aids, malaria, hepatitis and TB. This is because it does not have human values at its centre and it is not judged by its impact on people on the downside of the economy. Our challenge is to bring about a global economic policy that has, as its major focus, the well being of humanity. It is about the common good, not just individual benefit.

In Africa we have a wonderful word Ubuntu, which translates roughly into: ‘I am because we belong together’. In other words, I am only a person through other people. My hope and my prayer is that Ubuntu will come to govern the way we global citizens deal with each other.

At the end of the day, this struggle is about power: the power of international and local financiers, and allied bureaucrats, versus the power of people. I have been through such a power struggle once before, and will be with the global movement to the end. We who are struggling to cancel the debt, roll back AIDS and achieve lasting international social justice, need your help more than ever before and I urge you to join us!

Archbishop Njongonkulu Ndungane, Anglican Archbishop of Cape Town and Primate of Southern Africa, visited Aotearoa recently as a guest of Caritas and Christian World Service. He is a powerful visionary and prophetic figure in the struggle for African freedom from poverty, disease and international debt

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