The Debt Trap And Impoverishment

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For all the highly-indebted poor countries, they should qualify for either a drastic reduction in the stock of debt which then would make the remaining debt payable or sustainable or simply agree to cut it out. Cut it out and let's start again.

[Wisdom From The Archives]

This week, we bring our readers another essay from Tanzania's late president Mwalimu Julius K. Nyerere. Here he wrote about what was then described as the "debt crisis." Ironically some of the lessons from the hardships suffered by countries such as Tanzania due to the debt trap can inform contemporary society, including here in the United States.


Once you have borrowed and the fact that you did borrow, you have to pay. It is due and you have got to pay.

So you have to do it. But second, the government of Tanzania and other governments of these highly indebted poor countries, if you don't pay, you don't borrow any more. So you pay in order to qualify for borrowing.

Actually you pay in order to increase your capacity to increase your debt. And that is one of the real problems about paying debt. You pay not to reduce debt; but you pay in order to qualify for more debt, because you need the resources.

Somebody put the question to me 'Mwalimu can we default?' and I said 'no you can't default. How can you default?'

You need the money. All these governments including the Tanzanian government have no choice. They must squeeze themselves and pay in order to earn respectability to borrow more and so it is a problem and the donor community knows better than some of you people do.

This thing called 35% of government revenue, which government pays, does not represent the full debt due. Every year the government should pay X, if they pay fully. Well they don't. They can't pay X; so they pay X-minus and it is that X-minus that takes that 35%.

If they pay 100% of the debt due, it would take more; I don't know how much it would take.

When you consider the fact brought out by the Oxfam paper, the debt from multilateral institutions is about 40%; from the Paris Club lenders, is about 41%. Something like that.

Debt to the multilateral institutions is sacred. You must not touch it. Once it is due. I think it is within 60 days, you jolly well have to pay. That debt to the World Bank and the IMF; and that is what Tanzania basically is paying, the debt to the World Bank and the IMF.

I did put the question, I don't know whether I got the proper answer 'Is it ever, this debt to the international financial institutions, is it ever rescheduled?'

You don't reschedule. Paris Club, where you are dealing with bilateral lenders, that can be rescheduled. For sometime now Tanzania has never been paying fully.

These debts are virtually equal. Consider what would be happening if Tanzania was paying both of the 40% of the IMF and the international institution and the Paris Club. You don’t reschedule; so that you pay.

At Paris Club, where you are dealing with the bilateral lenders, that can be rescheduled; and that for sometime now, Tanzania has not been paying fully.

These debts are virtually equal 40 % and 41%. It would be taking some 60% of the government revenue. For all the highly-indebted poor countries, they should qualify for either a drastic reduction in the stock of debt which then would make the remaining debt payable or sustainable or simply agree to cut it out. Cut it out and let's start again.

I am told that the problem the donors fear is precedent. The precedent. They don't like to set the precedent of wiping out debt for these countries. Debt, the need to borrow, has undermined the capacity to decide. It's gone. There is very little.

We were poor then; we are still poor now. We could say 'no' in those days. It is very difficult to say 'no' now. Very, very difficult. Very difficult. I don't want to blame debt, but there it is.

It is no use saying 'how did we get there?' We are there. It is really no good simply saying 'how did we get there?' Well we borrowed. In my case I could say we borrowed. I was in Brazil in 1998 and we were talking about the huge debt of Brazil, so I said, I was then traveling in my capacity as Chairman of the South, I wondered very much about the debt of Brazil, and Mexico and Argentina.

On my way back I asked Treasury I said 'what is our debt?' and they said $3 billion dollars 10 years ago. Today, it is nearly, $8 billion. The figure we got is $7.93 billion, so let's call it $8 billion. It does not represent money borrowed; not all of it. A lot of it is arrears.

You pay. The government pays what it can pay. You owe X; you don't pay X, you pay X-minus. That minus accumulates. It defines what you have borrowed and what you have failed to pay.

That debt defines partly what you have borrowed and partly what you have failed to pay; that failure becomes debt.

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