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19.06.2005 Feature Article

Of Debt, HIPC, and Debt Relief

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Debt Stifles
Finally, the G-8 guys have decided to let go of the debts of some African countries. This is good to some degree because with the interest rates attached to these debts, and the financial positions of poor African countries, it would have taken hundreds of years to pay the debts off. According to Bono of the famous British U-2 Band, we probably have paid the borrowed amounts in full through interest payments only. To elaborate, let's take Ghana for instance; in 2001; our budget revenue was $1.603 billion with an outrageous expenditure of $1.975 billion. The simple mathematics here is that we spent more than we earned. Our total debt, according to 2004 estimates is $6.1 billion, and in 1999, Ghana paid $261.7 million to service our debt. Yes, we paid a whopping 261.7 million dollars on interest and debt related expenses. I do not have the figures for years after 1999, so I am going to use the 1999 figures here. (How come one never gets the current figures of a country's financials? It is always some light years before the needed time period). Imagine that you owe some one $100, but you are not in a position to pay it off. As a result, you pay about $30 in interest and other related expenses on the loan. This amount is constant. It does not matter how much you have to pay to reduce the principal, which is the $100. Chances are you will be paying the amount that you can't avoid-the debt service payment without actually paying anything towards the principal. That is what happened to Ghana. Our Debt History Our first president, the visionary cum dictator, Kwame Nkrumah justifiably saw the need to borrow some money abroad to develop Ghana. Among the projects that he did with the loans is the now indispensable Akosombo dam. The CIA helped some security guys to overthrow Nkrumah, then they in turn “handed over power” to the Busia government. As we all know, Busia did not stay long enough before another security forces guy kicked him out. Busia had also acquired some loans in addition to Nkrumah's. Then the entertainment prefect, I.K Acheampong in his zombie way of thinking declared, “we no go pay”. He came up with “Operation Feed Yourself”. Ghanaians were encouraged “to do something before they die”. Now, folks, in those times, the West had some machines called computers. They also had a mathematical principle called interest.
There are two types of interests, as my class three teacher taught me in those very days. We have simple and compound interests. The simple interest is when you multiply principal by the interest rate, and then by the time it will take to pay the loan off. The compound interest is a whole new mathematical and computational world of its own.
Our debts attracted the compound interest. What this means is that you do not have a flat interest rate. Your interest rate grows exponentially. In other words, you may end up paying money in commercial quantities if you don't take the trouble to reduce your debt substantially. (On the personal side, I have had the misfortune to “teach” some of our African brothers and sisters on how to manage their finances, particularly from credit cards). By the way, when our leaders were collecting all these loans in the name of Ghana, the transactions were recorded on mainframe computers. That means our debt were literally recorded in the book of life of the financial world, so when Acheampong raised his abongo voice to declare “we no go pay”, the principal of our debt stayed in the books, but most importantly, our compound interest rate started to kick in. As the years passed by, the unpaid interest accrued exponentially and was religiously added to our principal. Our debt increased.
Another thing, the computer also had a program in it that computes each county's credit rating. Credit rating helps financial institutions to set interest rates for borrowers. The better your credit rating, the lower the interest charged on borrowed amounts, and vice versa. This means that if country A has a better credit rating than country B, and both countries want to borrow the same amount of money, country A will finance her loans with a relatively smaller interest rate than B. As the years went by, it was clear that Ghana had been delinquent on her loans and as a result, was put in a default mode. Our credit ratings suffered so we were put in a whole different interest rate bracket. Bear in mind however, that our debt did not disappear. It was still accruing in monstrous numbers. Then there was a coup, and another coup, then an election.
Entered Dr. Hilla Limann, perhaps the noblest of all the heads of state. Dr. Limann tried to negotiate with our creditors and borrowers to put the nation back in track with the rest of the world, but no, another abongo mind knew better. Many people try to always compare and contrast Ghana with South Korea. To me, it is good yet incompatible comparison. While South Korea was gradually developing and attracting foreign investment, people who did not know what they were doing were running Ghana. South Korea has never experienced a coup, always leaned towards the West, and of course the U.S and Western Europe have helped a great deal. Ghana on the other hand, was branded as a problem child as soon as Dr. Nkrumah opted for socialism and aligned himself with the Soviet Union and China. Due to this, we have not received the grant, help, and attention on development as South Korea. Back to history lessons: JJ Rawlings accused Limann of selling Ghana to the West, IMF, and World Bank. The fiery, dynamic, and charismatic revolutionary also declared “we no go pay”. Meanwhile, the laws of mathematics, computer, and the book of life were still in effect with our debt. Our interest rate compounded exponentially, and our debt became larger and larger. Then out of the blue, around the mid eighties or there about, JJ saw something. He went back to the very people and establishments he had accused Limann of and consequently ignored. The debt had increased and our credit rating had been bad. Bad credit rating means huge interest rate. We acquired more loans. The rest is everybody's guess. HIPC Fast forward to 2005. For some reason, someone came up with idea that all Heavily Indebted Poor Countries should raise their hands, and shamelessly say they are poor and some debts will be forgiven. Ghana raised her hand. Some people saw that as despicable, others saw it as the right thing to do, and yet others had nothing to say about it. Our 2003 data shows that Ghana had a HIPC foreign debt of $5.96 billion. By the way, do we have a HIPC domestic debt? My guess is that this debt has been wiped out. The NPP government in turn has used some of this money to build, renovate, and rebuilt primary schools. They have even put up some KVIPs for people's squatting needs. I see that as positive step in the right direction. Debt Relief Now come the G-8 countries that decide to cancel $40 million debt of 18 African countries. Let's do the math here. When you divide 40 by 18 you get about 2.2. This figure is significant because it might look very small on the average, yet the gesture of the G-8 is encouraging. Many African political leaders have more than this amount stashed somewhere. They more than likely stole it from their nation's coffers and won't give it back, no matter what. These same leaders will blame the West for unjust world economic order, etc. To me, it seems that the G-8 cares more about the plight of Africans than most of our leaders. Every period has its time. The 1950s and 60s saw the civil rights and self-governance movements spreading across the world. The 70s saw the black power and back to Africa mentality. The 80s saw the devastation of Africa by her own leaders, and the 90s saw more irresponsible governance by some African leaders, butchering, maiming, and killing ourselves. The 90s also witnessed the realization that Africa better wake up and stop being a jerk.
Then came the 21st century which has witnessed the wind of democracy and freedom blowing again. Africa still has her problems. Notable among the many is Ivory Coast. This country has plunged itself into a ruthless, senseless, and destructive civil war. I remember when the Y2K scare was at its peak, Ivory Coast was mentioned as the only sub-Saharan country besides South Africa that was developed enough to be fully prepared for the computer bug or whatever the perceived problem was. Now, we see the country shredding into pieces. In spite of the few mishaps, countries like Ghana, Namibia, and Niger are making strides. This is the period for these countries to prove to the rest of the world that Africans have the sense to rule and govern themselves to success. Getting out of debt through HIPC and debt relief should be our only way out. We need to learn how to mange our finances to better a whole nation, not just the sons, daughters, nephews, nieces, concubines, and spouses of corrupt politicians. My message to our present African leaders is simple: it is a line from the play This is Our Chance By James Ene Henshaw, “The world outside (of Africa) moves fast, my lords, and we must move wit it. This is our chance.” Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.


Kwaku Duah Berchie
Kwaku Duah Berchie, © 2005

The author has 15 publications published on Modern Ghana. Column Page: KwakuDuahBerchie

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