A V Rajwade: Make poverty history - G-8 and Africa

A reduction in agricultural subsidies by the rich countries would probably help the African countries more than a doubling of aid.

There was a great deal of hype, musical concerts, people-power demonstrations before last month's G-8 Summit Meeting in Scotland.

The objective of some was to put moral pressure on the heads of government of the eight rich countries to increase aid to Africa and to "make poverty history".

Other demonstrators were protesting against globalisation and capitalism in general""their presence at such meetings has now become customary.

The first crowd, those in the "Garibi hatao" camp, could not have had a stronger, more committed or more articulate champion than Britain's Prime Minister, Tony Blair, who was hosting and chairing the Summit.

The backdrop to the G-8 Summit was the Millennium Development Goals, adopted earlier by the United Nations, and the report of the Commission for Africa, appointed by the British government. Specifically, there were three major issues: debt relief, aid, and trade.

The first involves the writing off of all outstanding debt owed to multilateral institutions (the International Monetary Fund, the World Bank, and the African Development Bank) by 14 African and four South American countries""the so-called Heavily Indebted Poor Countries (HIPCs). (Howsoever deserving the recipients of such debt relief may be, the question is whether such debt relief is not unfair to other, equally poor countries, like India, who were virtuous enough not to pile so much debt.)

Such multilateral debt amounts to $40 billion, with debt-servicing costs of $1-1.5 billion per year. The write-off would result into this amount being, in theory, available for other, more productive uses.

The moral case for the write-off is strong as the rich have exploited the African countries through slavery and ownership of their material resources for long. (As for slavery though, I am tempted to make a politically incorrect point""while the European cruelty to, and exploitation of, African slaves was obvious and well-documented, a large number of Africans themselves helped capture the slaves in the first place.)

There are differences about how exactly to finance the debt write-off. The IMF would like to sell its stock of gold (the difference between the book value and the market value is of the order of $45 billion)""and use the profit for the purpose. But the Americans do not agree.

As for the World Bank, the Americans propose that funds from the Poverty Reduction and Growth Facility be diverted to finance the write-off""in effect, the money would be diverted from other poor countries.

Even if the debts are written off, in practice, this may not make much of a difference to the countries concerned: one way or another, the amount needed to service the debt comes by way of fresh aid.

In the absence of the debt-servicing requirements, fresh aid disbursements may also get reduced correspondingly, rendering the net cash flow benefit as zero!

The second proposal before the G-8 was an increase in aid to 0.7 per cent of GDP, in consonance with a 35-year-old commitment; right now it is barely a third of that, at $78 billion last year.

Despite Mr Blair's passionate advocacy, he has been unable to persuade the Americans to renew the old commitment, let alone honour it""poor reward for years of poodleism.

This apart, there is also a major question mark about the efficacy of external aid in helping eliminate poverty. Over the past 40 years, Africa has received aid totalling $450 billion: yet, many countries are having per capita incomes lower than what they were 40-50 years back!

What happened to all the aid? Can it really do any good in the absence of at least a modicum of efficient and honest governance in the recipient country?

The Commission for Africa itself conceded that "without progress in governance", including tackling corruption, other measures and reforms will have a limited impact.

A research paper by Raghuram Rajan and Arvind Subramanian, of the IMF, suggesting that aid flows to poor countries have not led to higher growth rates, came out just before the G-8 Summit and did not help the advocates of larger aid.

One telling example of misgovernance: such a resource-rich country as Nigeria remains poor as ever, because, for decades, the politicians have looted tens of billions of dollars of oil revenue from the country's treasury. (Nigeria recently settled $31 billion of debt to the Paris Club for just $13 billion.)

If critics of aid claim that it merely represents transfer of resources from the poor in the rich countries (through taxation) to the rich politicians, bureaucrats, businessmen and assorted middlemen in poor countries, there are also some signs of neocolonialism creeping in.

For example, recently, the World Bank has constituted an international committee to monitor the use of oil revenue in Chad, a poor African country.

Even Martin Wolf of the Financial Times, as liberal a commentator as one may come across, recently argued (July 20, 2005) that "this is why it is right to intervene powerfully where states collapse and promote (force?) economic development".

Perhaps his frustrations are telling. The neoconservative Paul Wolfowitz, nominated (no democracy here) as head of the World Bank, can be counted upon to implement such neocolonialistic agenda""in any case, new aid is dependent on proof of better governance and curbing corruption. (While one's brain accepts the need for such conditionality, the heart rebels.)

Perhaps education (literacy, numeracy and, most important, thinking) and freer trade are a better way to fight poverty than aid. But on trade, the gap between the words and deeds of the G-8 is wide as ever.

A reduction in agricultural subsidies by the European Union ($55 billion a year!), Japan and the United States would probably help the African countries more than a doubling of the aid amount. But the agricultural lobby remains strong and there are few prospects of a major change in the subsidy regime.

This is another battle poor Mr Blair will have to fight in the coming months""bargaining a reduction in the refund of Britain's contribution to the EU, for a reform of the Common Agricultural Policy.

avrco@vsnl.com