Can Africa Get Out Of Debt?

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But there is plenty more to be done, and debt relief alone won't make it happen. In Uganda's case, debt relief was accompanied by a surge in aid, which funds nearly half the country's $2 billion annual budget. This year, Uganda received $760 million in foreign grants, more than eight times the savings from reduced loan repayments. "Debt relief catalyzed donors to increase their spending," says Keith Muhakanizi, director of economic affairs at the Ugandan Ministry of Finance. Still, Uganda's needs far outstrip its ability to pay. In the past four years, the country has borrowed $1.5 billion to build schools, clinics and roads. Total debt now stands at $4.3 billion. Meanwhile, collapsing coffee prices have pummeled its export earnings, further undermining attempts to escape from the debt trap. "As long as we cannot balance our budget, we can't avoid borrowing," says Bright Rwamirama, chair of the Ugandan Parliament's finance committee.

Debt relief gives countries a predictable flow of resources free from the whims of donors. But when it's directed at poverty reduction, there's little difference between the

	Debt relief is NOT A MAGIC BULLET. The poor countries still need a lot of resources. — WORLD BANK OFFICIAL

write-offs and other types of aid. "One dollar of debt relief is the same as one dollar of grants," says a World Bank official. Last week at the G-7 summit, the U.S. Treasury proposed a plan to cancel the debt of about three dozen countries by using money that would otherwise have been earmarked for aid. By swapping aid for debt relief, the onerous repayments would be eased without costing donors anything extra. But another provision of the plan — that all aid should be in the form of grants — has the World Bank worried about bankrupting its aid funds.

Not every country is a good candidate for debt relief. In nations wracked by civil unrest, like Ivory Coast or the Central African Republic, there is no guarantee that the money will be wisely spent. And defaulters can drain a lot of resources away from other worthy recipients. Sudan is estimated to owe over $21 billion, $18 billion of which is in arrears, while Somalia has around $2.5 billion in debts and lacks a functioning government. "Countries that are most indebted are not necessarily the ones that have the best policies and institutional environment to best make use of aid," says an economist working for a major Western donor. "Or indeed spend any money whatsoever."

So even for countries that have benefited from debt relief, write-offs are only one step on the ladder out of poverty. And it's a small step. "Frankly, debt relief should be put in the proper perspective," says the World Bank official. "It's not a magic bullet. The poor countries still need a lot of resources." Writing off the remaining debts of the 27 countries that have qualified for the HIPC initiative would cost about $2.3 million a year, a small sum compared to the $50 billion in annual aid flowing to the developing world. Eclipsing both sums, the official adds, is the $300 billion a year the developed world spends on agricultural subsidies, money that locks the poorest countries out of the international marketplace. While Western governments offer aid and debt relief with one hand, they're taking away Africa's best chance at self-sufficiency with the other.

Uganda has tried to tackle the problem head on. The Ministry of Finance has advised the government to cap borrowing at $200 million per year, and has even suggested that grants be restricted. The country is also breaking free of its dependence on coffee exports, pulling up the beans in favor of flowers, tea, cotton, tobacco and vegetables. The next push, says Director of Economic Affairs Muhakanizi, is to turn raw agriculture products into processed goods. "If you're exporting cotton, you can sell yarn," he says.

For many, economic self-sufficiency can't come soon enough. "A return on investment in health and education takes a long time," says Paul Busharizi, business editor at Uganda's New Vision daily newspaper. "Meanwhile, we're not building capacity. We're taking all these kids to school, but they're going to come out and have no job. At the end of the day, where are these guys going to work?" Maybe Uganda will have an answer by the time Headmistress Kansiime's students get their diplomas.

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