22.12.2002 Feature Article

OPINION: Our Evolving Borrowing Culture

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OPINION: Our Evolving Borrowing Culture
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Kwame Nsiah for Ghanaian Chronicle (Accra)

We have been in the borrowing culture for some time now. It looks as if we are not going to go out of it in the foreseeable future. It is to borrow to manage borrowing for the management of the Economy. We are in the process evolving a borrowing culture.

When we go out to borrow, we look for lending institutions, and look for lending nations. We call them Development Partners, which is quite a beautiful name for all their good intentions. They come down indeed as partners to co-manage the loans with us, which appears a little superfluous in the lending and borrowing business we are acquainted with locally.

But here they come as Country Representatives, not as Ambassadors or High Commissioners, but representatives in fact to manage the targets set for the borrower who should accept the loan on set conditions we call as conditionalities. The conditionalities are hardly negotiable. The borrower should accept them to have the loan, or refuse them and miss the loan facility,

Such is the evolving culture. Before, the conditions and the regulations were called mere strings which could not be so complex and damning, as we have them now. It was in the era of the Cold War when strings could mean toeing one or the other ideology of one of the nations engaged in the Cold War drama.

The Cold war is over. Conditions for lending money to the borrower have become the business of economics rather than politics. And for the most part, the evolving conditionalities could be destabilizing of the politics of the borrowing nations. They are usually hard, hence lending institutions have preferred the hard hand of a military ruler to the ordinary Civilian Governor of a President or a Prime Minister.

And it was quite an image boosting of the Soldier-Governor who takes the loan to build the roads, and build the clinics, and provide potable water, provide access to infant and primary schools, and related projects for development. They are worth having them but the euphoria of it all could be shortlived.

The loans are meant for specific things as specified in the Loans Agreement. The Country Representative should be around to enforce the conditionalities to the letter. And the conditionalities have in-built mechanisms to make them fool-proof to adulterations and or alternations that could be effected to suit the economic purpose of the people.

And the people for whom the development of the water systems are meant to boost their good health must "Cash and Carry" their good health from the hospitals, or waste away. Lending nations lend us money to build clinics and not subsidize our drug bills. There is no state intervention here by way of subsidy we have grown to know and have.

The borrowing culture is such. It is shorn of all Communistic tendencies of the Socialist order we encountered in the Cold War era, when there was the pampering and coaxing with some subsidies as obtained in a Welfare State. So, the farmer now should stand on his own without state subsidy support in his endeavours, What generally applies now in the borrowing culture is the removal of subsidies of any kind to profit the lender more than the borrower.

Self-reliance is the word to size in more economic terms than political. It is better expressed in privatisation to which private enterprise also applies. And the State is not a private individual in definitive terms under the conditionalities for the borrower. So, every state enterprise should be shorn away - sold in fact to private individuals.

The understanding has been that the state manages economic policies by the exercise of its political power/mandate. It does not in any way manage economic ventures. And the state needs money, which it must go out to borrow from external and internal sources? The irony of it all is obvious except that the Science of Economics as it applies here is not virtuous. In any case, philosophers are not economists within the limits of our discussion.

The direct economics language of the Lender to the Borrower has been that if you want money, open money shops for buying and selling activity in the open market. And there is the open market indeed for what economic relief to the borrower? He has many and varied choices to make to please his ever increasing consuming appetite. It is one condition to appreciate in the evolving borrowing culture. And the open market is the lenders market!

There is the money shop to go to buy the hard currency to purchase goods to enliven the Open Market System. And the practice has not been profitable to the 'borrower-beggar' who has no choice, and no device in his wisdom to side-step the conditionalites there are for his economic comfort! But the grants and aids come in handy to abate the hardship, and which is quite humane.

But the economics of it is only tantalising. It keeps the spirits of the borrower up to live at all to service the loan that has to come with that much hardship to the borrower.

But there is moratorium, a sort of a lull in the repayment period. It is some respite to allow time for the economy in the borrowing culture to grow and be on its own to pay up the loans. But moratorium is nothing in the poor circumstance of the economy that subsists on loans. That is the culture any way.

Then some 'economic' ethics could apply here where repayment should be repayment on the interest on the loan, and not the principal sum, lent the borrower. And every year the interest which the strength of the economy of the borrower And evey year the interest on the loan swells by compound interest which the strength of the economy of the borrower canot service repayments.

And interest free loans are rare, so is the cancellation of loans because they are not part per se of the evolving borrowing culture. But if a country can have the nerve to declare that it is bankrupt and it is proved to be so, there is the HIPC tunic to put on. It could be a 'red' tunic or 'white' tunic which ever of course could attract abatement in the service of interests on loans contracted earlier on.

And the HIPC initiative could be human in deed under the general (in)human conditionalities in the borrowing culture we are evolving. It is like a moratorium with a difference, where payments due are allowed to be set aside in some 'savings' at a Central Bank, and dished out to alleviate poverty in the economic and social systems.

But it falls within the borrowing culture all right. It could be the same old story of grants and aids, which are dished out but fizzle out in no time. Their alleviation propensity is appreciable; they are sustaining enough within the limits set for them and no more, no less.

The culture of loaning and borrowing has come to stay in the political and economic system. The economy under un-wise political management has not been able to sustain repayment, and cannot do without loans, which must cone whenever there is the need for one. So the loans pile up while their interests multiply in uncountable multiples.

And we reached the IFC one billion dollar loan we could not take by reason of its potential to make nonsense of the known borrowing culture with our traditional lending institutions and nations. For them there was going to be a sovereign guarantee "interest" of 3.6 per cent of the principal $1billion at stake. And who of the poor can accept that much alien conditionality, it is good the International Finance Consortium loan did not materialise in the long run?

The Loan/Borrowing Culture could corrupt our politics and the players of our politics in no small measure. We borrow without set plan in the name of development. And in spite of the presence of the country representative the loans for development are sort of siphoned through the verb development effort the loan is contracted to promote. The shoddy work of our contractors tells the corrupt use of loan money very eloquently.

And we hear in those days payment certificates used to be prepared to effect payment for works which have not been executed. And they say it is even so in the era of zero tolerance. We fear zero tolerance may not survive its innovators because the known borrowing culture is itself corrupt. And we are borrowing to stay wholesome of some corruption? We wonder!

Well, the Millennium Treasury set up by the Bush Administration demands conditions of good governance, and good human rights record for eligibility for consideration and subsequent dishing out the necessary grants from the treasury to borrowing nations. It has the potential to offset the corruption the Borrowing Culture is gradually availing us in the borrowing system.

And NEPAD (New Partnership for Africa Development) may make the difference by its human approach and conditionalities. Who knows that the evolving hard borrowing culture would turn moral since after all politics and economics should be the moral means to serve our moral ends

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