The Royal African Society

Africa and the Debt Crisis

Author(s): Julius K. Nyerere
Source: African Affairs, Vol. 84, No. 337 (Oct., 1985), pp. 489-497
Published by: Oxford University Press on behalf of The Royal African Society
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 AFRICA AND THE DEBT CRISIS*

JULIUS
K. NYERERE

I LAST SPOKE to this Society in 1975,** and dealt with the problem of
povertyand the relationsbetween the rich and the poor countries. I did
so because it was topical; because of the CommonwealthDeclarationof
Principlesof 1971;andbecauseTanzaniais amongthe 25 poorestcountries
of the worldin termsof per capitaGrossNationalProduct.
The last two reasonsare still valid. Today, however,this is my subject
becauseit is not topical and needs to be for the sake of every country in
the world. Africanstarvationis topical,but the relationsbetweenrichand
poor countries which underlie Africa's vulnerabilityto natural disasters
havebeen relegatedto the sidelinesof worlddiscussion.
The Third World is now blamedfor its own poverty. Each countryis
analysedseparatelyby internationalinstitutionsand by politicalcommen-
tators. Its problemsare then explainedin terms of its socialism,its cor-
ruption,the lazinessof its people and such-likeallegednationalattributes.
The fact that virtually all Third World countries, and certainly all the
poorestof them, arein the sameplight is largelyignored.
In 1975 I referredto the Commonwealth's'Ten Wise Men' Report;
since then there have been the two 'Brandt Commission' Reports, and
many studies done under the auspices of the United Nations and other
bodies. All said the samethings;the conditionof the very poor countries
would worsen,and the slightlybetteroff would stagnate,unless actionwas
taken against the problems underlyingthe present situation, and unless
resource transfers to the poor countries were considerably increased.
Now a 1984 World Bank Report on Sub-SaharanAfrica predicts: 'even
with some fundamentalimprovementsin domesticeconomicmanagement,
per capita incomes in Sub-SaharanAfrica will continue to fall during
1985-95'. All these warningshave been neglected, and this World Bank
prophesyis ignored.
Yet these arenot only problemsfor and affectingthe poornations. The
realityof a single world economystill remains. One country'sexportsare
the importsof another,and vice versa. Whenpoor countriesareforcedto
reducethe volumeof their importsbecausethey can no longeraffordthem,
thereis an increasein unemploymentin the richercountries.

*This is the text of an address given to a combined meeting of the Royal African Society with a
number of other British voluntary bodies at the Royal Commonwealth Society in London on
21 March 1985.
**The earlier address by the President of Tanzania on 21 November 1975 was printed in
African Affairs (April 1976) at pp. 242-50.
489

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490 AFRICAN AFFAIRS

Nor arethe socialeSects of worseningpovertyamongthe poor countries

confinedwithin their own nationalborders. For they meanrisinghunger
and malnutritionamong the people, greater sickness and a reduction in
productivityamongthe workersand peasants,and increasingvulnerability
to the naturalcalamitiessuch as those which have hit Africaso continually
since the early 1970s. And disease spreads; famines too affect other
countriesas well as the one afflicted. And when sufferingpeople reactto
their worseningconditionsby civil disturbance,increasedcorruption,and
a general break-down of law and order, a new flash-point of conflict
threatensworldpeace.
Further, the debts and debt service chargesof Third World countries
have now reachedlevels which threatenthe bankingsystem and financial
centres of the world. I notice that Europe complainsbitterly about the
effects on it of US deficits and the consequenthigh world interest rates.
But we the poor haveto pay those interestratesalso. And we pay from
our poverty, not from abundance. The high, and often floatinginterest
ratesare a form of Taxationwithout Representation-taxationof the poor
for the benefitof the rich.
The Third World'sheavy debt burden arose througha combinationof
modest developmentambitions,and externalevents beyond the controlof
the developingcountries. In the 1960s and early 1970s most debts were
incurred for developmentwork; this was very often infrastructuraland
thus not directly revenue earning, or very long term. But the debts
incurredfor long termcapitalinvestmentarenow by no meansthe whole of
the problem-or indeedthe majorpartof it.
After the first oil shock of 1973, many Third World countriesborrowed
to ease their adjustmentto the new fuel prices. Creditwas easy to obtain
as Westernbankssought for profitableuses of the OPEC surpluseswhich
were being entrustedto them, and the generalworld inflationof the period
meant that real interest rates were low. The 1979 oil shock then hit
with doubleforcebecauseit was followedalmostimmediatelyby recession
in the developed world, and by strict monetarist policies which were
intended to reduce the rate of inflation. Simultaneously,interest rates
sky-rocketed;whereasin 1971 Africa'saveragenominal interest rate was
4.2 per cent, by 1981 it had reached 10.1 per cent. It has since risen
much further. One estimate(in the Lever Reportof the Commonwealth)
suggeststhat the real interestrate for non-oil developingcountriesrose to
over 20 per cent in 1981-82 and has not fallensignificantlysince.
The resultinghuge debtsarea nationalproblemfor the debtorcountries;
we undertookto repay, and honour demandsthat we do so. But we are
increasinglyunable to do so becauseof changesin world conditionssince
the debts were incurred. The debts are thereforealso a problemfor the
developedcountries.

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 AFRICAAND THE DEBT CRISIS 491

This immediately becomes obvious when a country like Brazil, or

Mexico, or Argentina,is not ableto meet majordebt-servicecommitments;
the financialcentresof the world get togetherto protectthe over-extended
banks whose collapse would threatenthe system. But it is also true in
respectof the smallerdebtorswhen they are consideredtogether. This is
why the creditorsinsist on a 'case by case' considerationof debt-payment
problems, with each debtor country sitting alone to face all its major
creditors.
Africancountriesas a group have the highest ratio of debt servicingto
exports, and of debt to Gross Domestic Product, of any region in the
World. Africaas a whole has a debt of between 150 and 200 billion US
dollars;of this over 90 billion is owed by Sub-SaharanAfricaalone. The
debt servicingfor the latteris about 12 billion dollarswhen only long term
debt is considered;that excludespaymentsof arrearsand supplier'scredit
commitments. It also excludesIMF repurchasesand interest which for
Zambia,for example,by itself represents26 per cent of exportearnings.
It is not uninterestingthat the interest alone, which was due from all
developingcountriesin 1982, was about X66billion which is more than
half of their combined deficits. And when reschedulingis attemptedas
a temporarysolution to a current payment difficulty, it can usually be
effectedonly at a higher interestratethan the originalcommitment. The
poor countries borrow more and more just in order to pay higher and
higherratesof interest. They thus compoundtheirbasicproblem.
Debts and the very high interest rates are very importantamong the
reasonswhy Third World countriesbecome desperatelyshort of foreign
exchange-which is a self-reinforcingprocess. A shortage of foreign
exchangein the import-dependentmodernsectorof our economiesleadsto
a shortageof agriculturaland industrialinputs, spares,transport,etc., and
so to reducedproductivityand reducedabilityto pay debt-servicedues, or
anythingelse.
But high interest rates are only one of the many mechanismsby which
the resourcestransferredto developing countries through aid are all the
time counteredby the automaticworkingsof the internationaleconomy.
Over the long term perhaps the most important single factor is that
changesin relativeprices paid in internationaltradeare automaticincome
transfers. In practice,these transfersare made from the poor to the rich,
as the termsof tradefor primaryproducersfluctuatewildly but on a down-
wardcurve. In its 1984WorldDevelopmentReport,the WorldBanksaid
'between 1973 and 1981, low income Africalost as much as 23 per cent in
the purchasingpower of its exports to buy manufactures'. And in 1982,
commodity prices achieved a post-war low in terms of manufacturing
prices. In addition, and for the poorest Third World countries,the oil
price changes during that period had an equal if not greater adverse

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492 AFRICANAFFAIRS

effect on the level of resourcesavailablefor domestic consumptionand

investment.
Take, for example, Tanzania's terms of trade from 1980 to 1984.
Taking 1980 as a base year, importprices had risen to 115-2by 1984)and
export prices to 103-3. In 1982 things were even worse, with import
prices at 117 4 of the 1980 figure, and export prices at 95 4. In reality
this means that resourceswere transferredfrom Tanzaniato its trading
partners-including Britain and other developed countries. And the
transferhas been even greater for single-commodityexporters, such as
copper-exportingZambia. It is quitepossible-indeed it not infrequently
happens-that a fall in the price of a developing nation's basic exports
results in a loss of resourcesavailablefor developmentand consumption
which is largerthan its total aid receipts.
So we are back in the vicious circle;Third World countriescannotpay
their debts or maintaintheir volume of their imports. The deflationof
their economiesspreadsto the developedcountries.
In the faceof these realitiesaboutthe natureof our interdependentinter-
nationaleconomicsystem, there has over the last five yearsbeen a marked
decline in internationalistattitudesand practices. Many examplescould
be given of what appearsto have begun in 1981 with the failure of the
Cancun Summit Meeting to agree on any positive internationalaction to
deal with acknowledgedNorth-South problems. Thus we see the reduc-
tion in the proportionof their Gross NationalProductwhich is allocatedto
OfficialDevelopmentAssistanceby the OECD countries;in 1960, it was
0 51 per cent; in 1983 it was 0 37 per cent and has since declinedfurther.
Officialaid has in fact declined in real terms in recent years. This is
particularlymarkedin relationshipto the seventh Replenishmentof IDA
which, at $9 billion, is 25 per cent lower in nominalterms and 40 per cent
lowerin realtermsthanthe Sixth Replenishmentthreeyearsbefore. This
reductionis despite the fact that China has since joined the World Bank
and becomeeligiblefor IDA loans!
There is also the tendencyto attackor underminethose UN agenciesfor
developmentwhich arenot undervirtuallycompleteWesterncontrol,with
UNESCO) UNCTAD, and IFAD, being the majorvictims so far. This
reflectsan increasingdeterminationby donorsto use their aid for ideologi-
cal and foreign policy purposes. For example,Zimbabwehad its aid cut
by the United States becauseit voted a certainway at the United Nations.
And some monies are now set aside to be allocatedjust to such African
countriesas acceptan untrammelledcapitalisteconomy.
Generally,the interdependenceof the developedand developingworlds,
which the South knows from bitter experience,is not recognizedin the
actionsof the economicNorth. Insteadthe South is faced by attitudesof
impatienceand irritation,or at best by compassion. The compassionof

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 AFRICAAND THE DEBT CRISIS 493

the ordinarycitizens of the rich countries is very real; the outpouringof

famine relief monies from millions of people is evidenceof that. But the
compassionof the Governmentsis often ritual;there is usuallya reference
to the problemsof poor countriesin communiquesfollowing meetings of
industrializedcountry leaders,but their decisions at these same meetings
do not reflectthe expressedconcernin action.
The developed countrieshave a very large measureof control over the
world economy. They act as a group, and makedecisionswhich they see
as in their own interests. The leadershipof the group is in the hands of
the nationwith the most powerfuleconomy USA. Even the othermajor
economicpowers seem unableor unwillingto act as a group on any inter-
nationaleconomicmatterif the US refusesto join in. The smallerpowers
of Europe-like Holland and the Scandinaviancountries do sometimes
try to act on theirown, but by definitionthey arenot powerfulenoughto do
much by themselves except bilaterally and even then they sometimes
come under pressure to conform to the larger 'consensus' of the
industrialisedPowers.
There is one internationalagency, however, which is now increasingly
being used to backup anti-internationalistactions. The IMF was estab-
lished to bring stability to world trade, and to encourageits expansion.
Its decision making is virtually controlled by five major industrialised
countries;for some purposesthe USA alone can at least veto a decisionby
all other IMF members. The IMF has virtuallyceasedto concernitself
with the economic problems of the rich countriesfor which it was orig-
inally conceived. It has become largelyan instrumentfor economicand
ideologicalcontrolof poor countriesby the rich ones.
Thus, for example, when poor countries are in deficit for whatever
reason they turn to the IMF. They need foreignexchangeurgently,and
the World Bank as well as bilateralcreditorsand aid donors become very
reluctantindeed to continuetheir supportin the absenceof an agreement
with the Fund.
Yet in practicethe conditionson which IMF creditscan be obtainedare
inappropriateto the circumstancesof Africa-probably of the whole Third
World. The IMF is not designed to deal with structuralimbalances;its
credits are short term, and very expensive, at 9 per cent interest, 3 years'
graceperiodand 3 years'repayment. It uses its conditionalityas a means
of rationing its decreasedresourcesin proportionto world trade. And
every Third World country knows the litany of conditionswith which it
will be confronted.
It will be told to devaluc- heavilyand one go-before it gets an injection
of capital;to increaseexportsand liberalizeimports;to reduceGovernment
spending;to raise interest rates;to impose a wage freeze, to remove sub-
sidies, and lift any price controlsit has and so on. But when a country

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494 AFRICANAFFAIRS

like Tanzania resists terms which it believes would make its economic
conditionsworse and imperilits socialand politicalstability,it pays a very
heavy price. Not only is it denied the foreign exchangeinjectionto which
its membershipof the IMF ought to entitle it, and not only does it come
underheavy pressurefrom its creditorsand donors;it also has to continue
paying foreign exchange to the IMF at its time of crisis. For example,
Tanzania'sforeign exchangedifficultiesbegan to become serious in 1978;
yet between 1978 and 1984 it has made a net foreignexchangepaymentto
the IMF of 50 2 million SDRs. It cannot even get into arrearson these
payments they have to takepriorityover purchaseseven of food or mini-
mum oil requirements. For if payments are not made when due, con-
tinued negotiation about a new agreementis suspended, and also it is
designatedas bankruptby all othertradingand financialpartners.
What all this amounts to is an increasingtendency towards a kind of
internationalauthoritarianism. Economic power is used as a substitute
for gun-boats (sometimes- as in Nicaragua-it is used as an addition)in
enforcingthe unilateralwill of the powerful. The sovereignequalityof all
nationsis ignored,as is the futurestabilityof the worldas a whole.
In the face of this situation,when even negotiationsabout reformof the
internationaleconomicorderareblocked,whatareThirdWorldcountries-
whatis the Third World to do?
Fir.st,the Developing Nations have quite clearlyto undertakenational
internal struggle and reorganisationin the full consciousness that this
meansmore hardshipfor the people, and can only be embarkedupon with
any hope of successif the people arewilling to cooperate.
Further, we can try, and Tanzania is trying, to move towards greater
self-reliancein the technologywe use. You makea feeder-roadby labour
intensivenot capitalintensivemethodsand so on. Yet howeverprimitive
your economy, some fuel is necessary,some steel and spareparts, and so
on.
Another 'solution' frequently urged upon African and Third World
countriesis the greaterencouragementof foreignprivateinvestment. In
practice, investors are rarely interested in long term investmentand are
very selective. They arunderstandably in the light of the genuinedif-
ficultieswhich exist reluctantto go to reallypoor countriesbecausetheir
aim is profit,not development. It has been estimatedthat less than 10 per
cent of the ForeignDirect Investmentin the Third Worldis to be found in
countries with a per capita Gross Domestic Product of $500 or below.
None the less, we are told that the solutionis to makethe conditionsmore
attractiveto investors. There aremanyAfricancountrieswhichtry. But
however capitalist-orientedthe African country, success is very limited.
Even Europe apparentlycannot make privateinvestmentmore attractive
than it is in USAi it is thereforedifficultto see how Africa could do so.

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 AFRICAAND THE DEBT CRISIS 495
Especially when, at the same time, African states are being told to cut
public expenditure,and generallyadd to austerityamongthe population-
thus addingto socialand politicalinstability!
Cooperationwithin the Third World is a long-term partialsolution to
the problemsof Developing Countries. It is not the best solution from
the world point of view, but helpful for themselves. However, it is not
easy. First, the economiesof the Southarelargelycompetitive,not comp-
lementary,except in terms of planned growth which takes the kind of
capital they do not have. Secondly, and without adopting a conspiracy
theoryof politics, it must also be acknowledgedthat South-South coopera-
tion is made more difficultby the operationsof the present international
system. Individual decisions which may be compromisingfor a Third
World partnerare sometimesthe price of short-termrelief for a country
faced with a desperatesituation. And if, for example,Zambiacannotpay
its debts, it cannotpay those to Tanzaniaeither, which in turn cannotpay
money due to a country like India, and so on. No Third World country
has any leverageto enforcepriorityin payment;that belongs to the IMF
andthe WorldBankand the GreatPowersof the world.
None the less, cooperation especiallyon a Regionalbasis is growing
between Third World countries. In the Caribbeanthere is CARICOM,
in Asia the Colombo Plan, and so on. In Africa there are a number of
sub-RegionalOrganizations,like ECOWAS, SADCC, and PTA, and the
Organizationof AfricanUnity is in the processof discussingwhat African
states can do as a group to meet their pressingeconomicdifficulties. The
next SummitMeetingof the OAU will be devotedprimarilyto this subject.
Over-allThird Worldcooperationis inchingforwardunderthe leadership
of the Group of 77 and the Non-Aligned Movement. And there are, of
course, many functional cooperative groups like the Association of
CopperProducers,and OPECitself.
But Third World cooperationis in any case only a long-termcontribu-
tion to solving the economicproblemsof the Third World. And we are
facedwith desperateproblemsnow.
So I come backto the question I posed in this buildingin 1975. Is it to
be dialogueor confrontationbetweenthe rich and the poor countries?
If the rich refuse to discuss methods by which the Third World can
repayits debts, should we continueto try to pay on the terms set, even at
the cost of letting our people starve? If the interestrateson loans needed
evento repayold debts continueto be set at levels determinedby the deficit
in USA, should we acquiesce? Should we continue to beg for charity
fromthe ordinarypeople of the developed countries in order to support
the existing internationaleconomic and financialstructuresof the world?
The old age pensioner,who contributeshis or her money to succourthe
hungryin Africa,would not like to know that if Africadid not have to pay

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496 AFRICAN AFFAIRS

billions of dollars in interest to bankersit would be able to do more for

itself.
If dialoguecontinuesto be refused and we cannot now even get talks
about the InternationalEconomic Order should the Third World not
use the power of its debt to force discussion? When Tanzania-or some
other poor country is simply unableto makedue payments,(which may
amountto 80 per cent or more of its currentand reducedexportearnings!)
it will not shakethe internationalfinancialsystem;by itself such a country
has no power except to scream and struggle, and keep itself afloat by
whatevermeansit can. But if Africadecidesto act as a group,the world's
financialsystem would take note. And if the Third World-or even the
richer regions in it stood together in seeking better terms, then there
would be a realthreatto financialstability,and discussionswould be held.
The rich countriesdo act together,they do not have to do so. What I
am saying is that the Third World should begin to work togetherand use
its combined power-including the power of debt-to force upon the
Developed World a series of interlinkeddiscussions. There needs to be
an urgent discussionabout how and on what terms the debt problem be
dealtwith. But the basicproblemis widerthanthat. There also needs to
be discussiondirectedat a reconsiderationand reformof an international
economicsystem which is workinginequitablyand inexorablyagainstthe
interestsof the poor but which is inimicalto all with the possible(but not
certain)exceptionof the richeststate.
The unemploymentin Britainand the falling value of its currencyare
not unconnectedwith the world economic jungle in which this country
tries to earnits living. The economicchaosunderlyingthe Depressionof
the 1930s, and leading up to the Second World War, was recognizedas
insupportablein the 1940s,and led to the reorganizationwhich is summed
up in thewords'BrettonWoodsSystem'. Thatsystemhasnowcollapsed-
it collapsedin 1971,even beforethe firstOil Shock. It is time for men and
nations to look at the BrettonWoods institutionsagain, and see how they
can be reshapedin orderto deal with the financialand economicproblems
of today'sworld.
Mr President [Lord Trend, President of the Royal Commonwealth
Society, was chairmanat this joint meeting], it is a gloomy analysisI have
been making, and my final remarks are controversial and extremely
unpleasant even to me. But the factsarenot pleasanteither.
Such a confrontationbetweenNorth and South is not inevitable. But I
cannotsee how responsibleleadersof the Third Worldcancontinuewatch-
ing their people sink furtherand furtherinto poverty and misery without
any kind of protest against an internationalsystem which produces that
povertyandmisery. Whenthe poor of the South eventuallyrevoltagainst
theircondition,it is alwaystheirGovernmentswhich bearthe brunt. I do

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 AFRICAAND THE DEBT CRISIS 497

not say that those Governmentsare always blameless. But all of them,
good andbad, victimsor surrogates,act withinthe confinesof an iniquitous
internationaleconomicsystem. Can such a situationgo on for ever?
Why, however, do I talk in these terms to the Royal Commonwealth
Society?
The Commonwealth represents a 'remainder' of the North South
dialoguc and still operates effectively within the limits of its own
resources. It can and it should work togetherfor a wider dialogueand a
greater commitment to internationalism. It can play a crucial role in
achievingthat goal, especiallyif it can do this in cooperationwith the other
smallerdevelopedcountriesof Europe.
This Society has members who are influentialwithin their own com-
munities;I am hopingthatthey will use their influencein favourof preven-
ting an economiccataclysm,just as I would like to see the Commonwealth
itself also workingagainstthe threatof a politicalor militarycataclysm.
Mr President. This is the last occasionon which I will be speaking at
leastas Presidentof my country to the CommonwealthSociety. I would
like to pay two tributesbeforeI leave.
The first is to Her Majestythe Queen. She is a concernedand active
Head of the Commonwealth,andwe areindebtedto her.
The second is to the CommonwealthSecretariatand its able Secretary-
General. They do get through a tremendousamount of work, and give
great assistancein furtheringpracticalcooperationamong all members.
On behalfof my countryI would like to expressappreciation.
And lastly, I thankyou all for listeningto me so patiently.

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