Samuel Akpobome Orovwuje
The subject of debt restructuring has generated one of the most impassioned debates in international politics and diplomacy since the emergence of Donald Trump in the White House. This is provoking tensions between the USA and China, and it is pressurising the United Nations (UN) multilateral system and the evolving international norms related to transparency of loans that the Global South has attracted from the International Monetary Fund (IMF), World Bank, African Development Bank (AfDB), the Paris Club and other private lending institutions. At stake is the principle of state sovereignty, a defining pillar of international relations.
This article interrogates the controversial place of development loans, multilateral institutions and trade war. It provides practical and conceptual answers to some of the most burning issues of our time and it demonstrates why the United States in particular should footstep carefully on the stoppage of loan restructuring for Africa in this COVID-19 era. Further, it provides an overview of why the United States of America and the West should ensure equity and fair play in their dealingsinAfrican affairs.Finally, the article offers a diagnosis of the new global disorder being masterminded by the Trump Administration to undermine the workings of the international system by meddling in the activities of the multilateral organisations and disrupting global governance architecture.
The multilateral lending institutions, as a result of the global pandemic, have proposed a panacea of debt restructuring and reduction in order to ameliorate the impact of COVID–19 on the Global South, which is indeed a welcome development. Nevertheless, the USA is interfering with the process. The Trump Administration and the West are using soft-power diplomacy to thwart such moves. The conspiracyof the US Treasury Secretary,Steven Terner Mnuchin, and his principal, Donald Trump,and the West on this critical issue is dangerous for sustainable economic development, particularly for the fragile economies of Africa.
Indeed, because of the consequences of the global pandemic, governments in the Global South are focusing once again on government debt sustainability. The cloaked argument is that Africa and other countries in the Global South are going to leapfrog their development and use the money to pay back China loans.According to the Trump Administration, contributingto debt relief is unfair to US taxpayers. However, what is unfair is that the USA is the country most in debt, siphoning away reserve resources that should be delivered to Africa need for relief. This is worrisome.
According to the Federal Reserve Bank, the US debt-to-GDP ratio is 135% of its (US) $19.5 trillion dollar GDP. US debt is $26 trillion dollars. Why countries in the Global South should be punished for the West’s malfeasance, given that the combined external debt stock of sub-Saharan Africa is $625 billion (World Bank, 2019).
The treacheries of inter-nation imperialist rivalry in the global north are America and Europe. The United States has been reckless in the management of its domestic affairs in a number ways. First, the US public sector is running a deficit budget, and less than 1% of the private sector, including the wealthiest American businessmen, evades tax.This year alone, it is estimated that over $2 trillion USD is not in the tax net. Second, China’s pledge and commitment to adhere to debt reduction is constructive in the face of the US-China trade war. If the soft power hegemony and policymaking option continues, China will come to a terrible loss in the global economic equation.
The tragedy of America’s overbearing influence on the Bretton Woods institutions is tendentious and Donald Trump’s false economic philosophy will pique Africa. Therefore, it is within the mandate of the World Bank and the IMF to use the special drawing right (SDR) to activate and help the Global South with the proposed debt restructuring plan. Nevertheless, the US has dipped its hands into the SDR (comprisingthe dollar, euro, pound sterling, yen and RMB) by printing more currencies. All the currencies in the SDR have either met or surpassed their governments’ debt-to-GDP thresholds except China’s RMB,while China’s debt-to-GDP ratio has been consistently stable.
While the game of selective morality and double-standard diplomacy continues, China is stuck between a rock and a hard place. China cannot leave the SDR basket, and even if itdoes, that will have negative implications for the fragile global economy,with grave consequences for China-Africa trade relations, particularly in the area of infrastructure development. The question is – will it be in the interest of China-Africa relations to tolerate the unwholesome attacksby the US? The US should note that in spite of her international conspiracy and coercion diplomacy, China has been a stabilising factor in the global economy,and Africa is helping to anchor that position. It is a win-win co-operation, and it is up to Africa to help stabilise the global economy. It is important to note that the mutual benefit of China-Africa trade relations is not impoverishing the Global South. It is the economies of the West that are impoverishing the Global South.
The governments in the Global North barely grasphow their political manipulations impact the South’s vulnerability. The USA must refrain from sowing the seed of fear and obstructing the benefits of China-Africa relations. Western free trade and open markets, privatisation of state-owned institutions and the liberalisation of capital markets across Africa must be cross-examined.
Expectedly, Africa’s heavy debt strain,its overall fiscal performance and balance of payment pressures are worrisome. A dutiful look at the debt management dashboards leads to the categorisation into four options: debt forgiveness, debt/equity swaps (where countries are giving way vital resources), debt service suspension initiatives, and non-payment (which would affect their credit ratings). If these are the only options, it does not leave a lot of wave to and fro for either lender or debtor, and not a lot of room for fair or just mediation in the short- or long-run.
Africa’s domestic public debt has been on the rise as result of the COVID-19 pandemic,just as external indebtedness has increased sharply and the GDP- to-debt ratios are also on the rise. A scan of the two largest economies in Africa provides a dreadful situation of the debt overhang.
According to the 2020 African Economic Outlook, at the end of June 2019, total public debt in Nigeria amounted to $83.9 billion, 14.6% higher than the year before. The debt represents 20.1% of GDP, up from 17.5% in 2018. Of the total public debt, domestic public debt amounted to $56.7 billion while external public debt was $27.2 billion(representing 32.4% of total public debt). South Africa’s debt was estimated at 55.6% of GDP in 2019, up from 52.7% in 2018.
Furthermore, according to the Debt Management Office (DMO),Nigeria’s total public debt rose to $79.5 billion (N28.63 trillion) as of the first quarter of 2020, which is March 31, 2020. This represents a 15% increase from the figure that was recorded for the corresponding period in 2019, which was about $69.09 billion (N24.94 trillion).
The African debt crisis has been experiencing chaotic curves, and the conversation about the future of Africa in the development finance trajectory paints a scenario of hopelessness and despair.The echoes from the USA, the World Bank, IMF and other credit rating institutions point to the downgrading of credit in the foreseeable future.
The African Union (AU) and other regional influential institutions need to think creatively from the perspective ofalternative economic models. One such model is coming from the Pacific Conference of Churches known as “Intemerate Accounts”.It is a new development paradigm that is gaining acceptability in the Pacific Region. Dr. Transform Aqorau,the former CEO of Regional Fishing Agreement posits: “We need to see the whole cost of development, both to the retention of our cultural values, social wellbeing and preservation of the quality of the natural environment, and not only the benefits as they contribute to the GDP. It will require courage and a determination to dare to be different, but we in the Pacific Islands are different. Our unique cultural values, traditions, dependency on the natural environment, and the fragility of the environment make it inevitable that we take a different perspective to the way we value our development. The call for ecological accounting is timely and appropriate; it is an idea and call whose time is actually overdue.”
Against this backdrop, African nations must now construct an index of our ecological biodiversity and begin to trade on restoration and ecological factors rather than merely on extraction, degradation and depletion.We should exploit the lessons of thisglobal pandemic to move in the direction of equalisation in the global economy towards really fulfilling sustainable development and not further indebtedness and alienation of Africa from the new world order.
Accumulating evidence suggestshow we can develop policies and a measurement index thatoperationalises our operating environment accounts for the greater components of Global South’s relatively poor debt management performance. Therefore, one of the benefits, according to Dame Meg Taylor,Secretary-General of the Pacific Island Forum, is the“possibility of not only exploring an alternative development pathway but adopting an ecological approach towards accounting for development… [Which] could eventually reorient our economic trajectory away from an over-reliance on foreign aid and financing which… has been a negative force for our island economies…?”
There are creative solutions to Africa’s quandary of debt overhang and development myopia, and what now threatens the existential wellbeing of the continent can be reduced to adaptable levels. A sustained track record of the intemerate financing model and sound biodiversity management, nurtured by a supportive political engagement, can help to recalibrate an economicarchitecture that will be less dependent on borrowing from the international financial system that has done innumerable damage to Africa’s development agenda.
All things considered, the appropriate policy response to debt restructuring or deferment is not one that targets the western-neoliberal model (although it certainly needs addressing for the reason of the COVID-19 pandemic); rather, we must focus on the mechanism for an ecological accounting framework that includes natural resources ecology and resource nationalism, instead of the extraction curse of a disoriented, hegemonic, globalised financial system that not only created and maintained disequilibrium in the last 75 years but also contributed very little to the future of the Global South.
Orovwuje is founder, Humanitarian Care for Displaced Persons, Lagos. Nigeria. orovwuje@yahoo.com, 08034745325