Recently the eight most prosperous countries wrote off as much as $40b worth of debt owed by 18 third world countries to the World Bank and International Monetary Fund (IMF).
The debt was forgiven on condition that the beneficiaries shift the savings towards poverty eradication projects, mostly education and health.
I would have loved to fall in line with everybody and thank the donors for their magnanimity but I find it difficult to do so knowing what I know.
The only thing this type of debt forgiveness does is perpetuate donor dependence. So five years from now we will be again expressing our gratitude to donors for again forgiving us more debt.
Any businessman will tell you debt in and of itself is not bad, it what you use it for that makes it dangerous. The smart businessman will invest loans in assets that will show a return and pay off the loan while the poor businessman will probably buy a luxury sedan and marry another wife digging himself further into debt.
You know what they say if you want to keep a man beholden to you give him a fish but if you want him to be independent show him how to fish.
Investments in education and health show returns years, even decades down the line. Worse still free education and health care are a subsidy towards the cost of living of rural populations and because we have taken a lax view towards the quality of these handouts there is no guarantee that the beneficiaries will experience improvements in their standard of living in the long term. After all poor educated and disease free Ugandans are all over the place.
If debt relief is to have sustainable impact on poverty alleviation the savings should go towards boosting the sectors that will promote economic growth.
Finance minister Ezra Suruma’s budget captured this spirit by increasing the Agriculture budget. One may question the strategy that informed the new spending choices – towards extension services, research and water for production, but you cannot fault the minister on making the first step that will turn our agricultural comparative advantage into a competitive advantage on the global market.
Our comparative advantage is that by geographical accident our climate and soils mean we can produce agricultural commodities much more economically than any number of countries.
However we have been unable to convert this into products that the world demands in sufficient quantities and at prices that will improve the population’s welfare. In other words we have developed little or no competitive advantage in the things we can do best.
We have some comparative advantage in other fields that can be turned into more income — tourism, education, health care and Information & Communication Technologies (ICT) to name some but what is lacking is a national strategy and targeted funding.
I am in no way suggesting that government creates corporations to exploit these opportunities but by targeting transport networks, utilities and financial services in support of these sectors government can facilitate the private sector in making the most of them.
The cynics maintain that the only reason there is debt relief is to make it possible for poor countries to borrow more. The even more cynical argue that there is no debt to repay anyway, after all most of it does not even reach our shores being spent at source to buy four wheel drive cars and source and pay technical experts.
The way current and previous debt relief packages have been structured only serves to create greater poverty and dehumanizing donor dependence to believe otherwise is to be in fool’s paradise.