Transcript of an Super Morning Breakfast show on Joy FM.
Jeffrey Sachs, Kofi Annan?s Economic Adviser, says that the developed world should cancel Africa?s debts; we owe something like a hundred and nine billion pounds(109billion). He says if the Developed World refuses to cancel the debt we should refuse to pay, remember General Acheampong , well, he says we should refuse to pay. What do you think? Send us a text on 0244-258700 but economist Nii Moi Thompson says it is a lousy idea, it is patronising and our problems are not bad debts, but bad leaders - bad leaders are our problems. Most of them are at Addis Ababa right now, 0244-258700, join myself and Nii Moi Thompson later on. Meanwhile Mozambique President speaks in the local language and throws the whole conference in confusion later on in the programme.
On the International front, economic analysts have described as unrealistic calls by the special adviser to the United Nations that African countries should refuse to repay their foreign debts. Mr. Annan?s Economic Adviser Jeffrey Sachs yesterday called on rich nations at a conference on the eve of the summit of the Heads of State of the African Union in Ethiopia, to double AID to Africa to one hundred and twenty (120) billion dollars a year in order to meet commitments made in 1970.He also urged them to cancel Africa?s debt but failing that he said Africa should ignore it?s debt burden .His comment has however received bashing from Economic Analysts who say Mr. Sach?s call cannot be achieved. Collins Foyer is the director of the OACD Development Centre.
Collins Foyer: If you cancel the debt overall with no questions asked, you may end up by cancelling the debts of countries that may immediately need to re-contract debts that would then have lost their credit rating and you may also be compensating those nations that have borrowed heavily with no thought of tomorrow.
U.S. Secretary of state for Economics, Allen Dickson is also skeptical about the feasibility of Mr. Sachs? call.
U.S. Undersecretary of state:
We need to do our better job but we also need to see what has worked in achieving reductions in poverty around the World in the last generation and a lot of that has been broad?based, private sector growth that has been broadly shared within the society. Debt reduction in another job isn?t gonna make any poor country richer or is not gonna reduce poverty.
Allen Nixon, U.S Secretary of state for Economics. Meanwhile Ghana?s Nii Moi Thompson believes that Mr. Sachs? suggestion is wrong.
Komla Dumor : Later on, we?ll like to get your thoughts as well. Jeffrey Sachs is a well respected Economist even though he missed the point in Argentina and in Russia as well. But that?s besides the point. He?s now calling for a second look at Africa?s debt and that if the developed world won?t cancel our debts we should refuse to pay. What are your thoughts? Send text messages to 0244258700.Nii Moi Thompson is an Economist and he?ll join us on the programme to talk about that.
I will play his comments again later on but he?s described some of Jeffrey Sachs recent comments as irresponsible as Jeffrey Sachism- he?s kind of like a popular figure in fashionable economics that really don?t make any sense but at the end of the day sound really good and you generate a lot of publicity such as let Africa?s leadership refuse to pay their debts and the rest. Serious economics , serious thinking, serious political science, Jeffrey Sach is a respected Economist and political scientist and he?s one of the most respected in the World but this time around there are some who just seem to disagree with him. Nii Moi Thompson who?s an economist joins us on this subject.
Komla: Good morning Nii.
Nii MoiThompson: Hi, how are you?
Komla: I am very good and it?s great to have you on the show again.
Komla: What is wrong with debt cancellation? Shouldn?t it be a good thing? If your bank was to tell you that they were writing off your debts wouldn?t you be thrilled?
Nii Moi: I would be thrilled and there?s nothing wrong with debt cancellation as such .The problem is the underlying assumption that somehow it forms a solution that if you cancel it and you pump in more AID to Africa, we are going to solve our problems. It ignores the underlying problems of the causes of the debt crisis in the first place, which is mismanagement, weak institutions, so cancel all of out debt today, bring in billions of dollars every week starting next week and by the end of next year, we?ll still be in poverty because somehow few individuals, few officials are going to find ways to mismanage these monies also in one way or the other.
Komla: But that does not make debt cancellation a bad option, does it because; shouldn?t it work better together with better management? Isn?t it what HIPC is all about?
Nii Moi: No HIPC is meant to reduce your debt burden, not to cancel it completely but to reduce it to manageable levels. Even there we have problems with the indicators they?re using but that?s a separate issue. Back to the debt cancellation and its relevance, there?s also the practicality of it because like it or not we will still have to borrow. Borrowing on the International Market is a feature of modern economic management so what are you gonna do?
You want complete debt cancellation and then the next day you go and stand somewhere and say okay loan us two million dollars or twenty million dollars; nobody?s going to give us money and then as someone suggested this is more like populist economics and not practical economics; if he gets up there of course he?ll not point out some of the issues of the extravagance of this very conference where he spoke at. The fleets of Mercedes Benz, the five star hotels, the hotels and all that; these are the things that are making it difficult for Africa to finance its debt and of course he?ll not talk about that because he?s a stranger amongst them and so what does he do? He takes the easy way out and takes the populist route- Don?t Pay Your Debt. That takes us back to the 1970s, Acheampong and the rest of it. What happened we??
Komla: Okay, unfortunately we had a bit of a technical problem. These things do happen; we?ll get back to Nii Moi Thompson in just a few moments. In the meantime here is Mr. Carl Zigla who is with the Centre for Accountability and Debt Relief. We?ll get back to Nii Moi Thompson in moment.
Carl Zigla: Debt relief has been granted in Africa. The first country that I actually helped in the Centre for Accountability and Debt Relief , to achieve Debt relief is Uganda .Uganda made all kind of promises about how they are going to apply the proceeds of the Debt Relief. In the first year when thirty million dollars was relieved, a thirty -five million dollar aircraft was bought by the President of the Uganda.
I demand Accountability on how these funds will be used. I think it?s absurd to call for massive increase in development AID and in debt relief to countries which demonstrably, even the Star people of the continent demonstrate they misuse the relief of debt granted. I think it has to be linked to good governance and good financial management but the problem is and it?s not just the cynics that look at Africa this way but it?s the bankers, the World Bank, the IMF and the multi-lateral donors who realize that without accountability and massive increase as supposed by Jeffrey Sachs in pouring more funds into the black hole which is basically bottomless and most of the debt relief proceeds have ended in presidential frivolities or in Swiss Bank Accounts; it?s something that does not help the starving kids and the suffering people of Africa.
Komla: Well folks I?d like to hear your comments on that as well but we are back with Nii Moi Thompson on the same issue of having our debts cancelled and refusing to pay. now Nii you are commenting about the statements in the 70s made by former head of state General Acheampong.
Nii Moi: And even there, as you know, eventually we had to pay and some debt was re-scheduled and even that itself incurred more debt and so overall in the long term we paid more debt than we would have paid with our old position but there are some more issues here but it all boils down to effective management of resources including money. In the case of Ghana for instance everyone is up in arms over the fact that our external debt has risen from six billion dollars to seven billion dollars for instance over the past three years and therefore something ought to be done but if you do a more careful analysis, you realize that the seven billion dollars actually represents something like 40% of what our external debt level should have been by now. So why is it that we are only at 40% of what it should be and still we are having problems financing it? It?s because of mismanagement and I mentioned some of the issues too yesterday; for instance of the nature of the external debt and now if you give me a few moments I?ll explain that so that your audience understands the critical issues at stake.
Komla: Sure.
Nii Moi: There are three components to the external debts. Unfortunately we have focused on only two; even this IMF HIPC focuses on only those two and leaves out the more critical one. We have the public debt; we have publicly guaranteed debt and then private non-guarantee debt. Our debt in the case of Ghana and most of these African countries is almost entirely public debt and publicly guaranteed debt, that?s where you have the most inefficiency. Private non-guaranteed debt for Ghana is something like 2% or 3% by now. It should have been about 30% which means a lot of that money would have gone into the private sector; they would have invested, would have created more employment, instead of 7billion dollars GDP now we would have had something like 60billion dollars GDP with average income of over $4,000 (four thousand dollars) instead of $270. But because it?s the government that took the money or guaranteed the loans for SOEs, a lot of this went to waste and yesterday I mentioned the issue of Ghana Railways Corporation, $213million and we are being told that they don?t know what happened to the money and that the government should write that off. I have the list for the other places also .Let?s look: The Ghana Water Company- $110million Omnibus Services Authority - $21million Electricity Company of Ghana - $143million dollars and of course Ghana Railways - $203million. That?s almost half a billion dollars, no one can find the money and rather than deal with the fundamental courses of what led to that, we want outright debt cancellation for them to bring in more AID and somehow few individuals are gonna waste it again so then ten, fifteen years again, we will start asking for more, that is not how we are going to develop from poverty. We have to be responsible.
Komla: Nii, isn?t it true though that at the end of the day governments don?t service debts, actually it?s you and I tax payers who service these debts so if at the end of the day they are going to lift this burden which affects you and I directly and indirectly shouldn?t we say it?s a good thing regardless of the kind of leaders we may end up getting?
Nii Moi: Again we are looking at two things: the cancellation of the debt and what we assume the cancellation will do. you cannot go out there and borrow anymore so that restricts your options for development .Two, that would not have dealt with the fundamental causes of why you went into debt distress in the first place, so why don?t you stay focused and find out what we did that was wrong in the first place. In that case you can even service your debt, you can go ahead and service it out of pride and out of ethical responsibility and then proceed to doing this sort of thing but we haven?t done that. Look at the extravagance of African leaders and tell me if we have not developed because we don?t have resources or because of mismanagement; let?s take Nigeria for instance, it doesn?t even make sense to say that Nigeria remains one of the poorest countries in the world because they don?t have resources and that somehow we should cancel their debt. It?s simply waste, this is a country where people steal not millions of dollars but billions It?s happening all over, repatriation of money of government officials and their commercial cronies in Africa runs into billions of dollars every year. We?ve been reading in the paper for a year in Ghana.
Komla: But aren?t African people suffering as a result of this irresponsibility so therefore if they act irresponsibly shouldn?t we focus on better leaders, better governance as opposed to saying they shouldn?t cancel our debts?
Nii Moi: The question is not canceling the debt, I don?t want us to go to the assumption that once you cancel the debt somehow everything is going to ?I mean, paradise will follow. That is what I?m trying to guard against, so in that sense let me just repeat what I told one of your reporters yesterday. I am not against debt cancellation, obviously as you stated earlier, it?s a good thing but the underlying assumptions is what we should look at; that somehow if you cancel all then as Mr. Sachs is saying they should bring in more AID which is itself doesn?t make sense because now the evidence is clear that foreign AID, especially official development assistance has contributed to our under-development because they tend to distort priorities. You want road, they say no, we?ll give you hospitals; you want hospitals they say no we?ll give you roads. You want $100million, they give you $20million and so forth and so on and so now the evidence is clear that part of the reason we?re underdeveloped is foreign AID.
Now what we ought to do therefore is to demand responsible leadership from our leaders; yesterday I gave a typical example from Ghana where our per capita income is only $270, the same as Togo which has far less resources than we do. Now in these circumstances we have the nerve to pay $90,000(ninety thousand dollars) for a vehicle for a public official when we could have paid $20,000.The difference of $70,000 is money that?s no longer available to the Ghanaian financial system to be loaned to Ghanaian businesses to create employment to help alleviate poverty; that is money that?s actually used implicitly to finance development in those areas where we buy those vehicles from and you can cite any number of examples like that where our leaders through their expensive import-dependent consumption patterns end up destroying jobs and progress in their own countries and then promoting progress in those other countries. We have to look at those things so transparency, accountability, good governance, there are so many dimensions to it. It?s not enough to just have conferences and issue communiqu?s about good governance, no, you have to practice good governance, that?s what our leaders have not done.
Komla:
No, but isn?t our debt becoming virtually unsustainable at some point, Nii?
Nii Moi: It is not unsustainable; as I pointed out, the IMF analysis itself is flawed and later on,.. In fact I?m actually working on a paper on that, in fact I intend to send them on.. because I?ve recalculated some of the computations they did especially the part for Ghana and found that they were actually flat out wrong for all the years they used, so I?m now going to look for the data for the other countries and do the re-computations and send them the information but the point is that some of the indicators they used were flawed. Let me just give you an example, when they started, don?t forget that we had HIPC which was 1996 and then enhanced HIPC in 1999. Now HIPC was using 250% export earnings at the share of gross domestic product.
Komla:
Simplify Nii, my listeners and myself, none of us are economists here.
Nii Moi: So it?s different looking at how much you earn for export as a percentage,.. Ok, let?s say you take the amount you earn and then you divide that by the gross domestic product so that if it?s higher than 250% that means you are having problems servicing your debts. If it?s lower than that then that means you are earning, of course that was an arbitrary figure , that?s why it was criticized, then out of nowhere they reduced that to 150% so that alone went on to confirm that these are some of the arbitrary measures that they use. Now underlying that and there are several other indicators they use; they introduce several other things that don?t make sense; they tend to have popular appeal. For instance deficit GDP ratio and again if you want I can explain that.
Let?s take the situation between deficit and the debt ;the deficit is simply the difference between what the government takes in and what the government actually spends so let?s say the government takes in ?10billion or ?10 trillion and spends ?12trillion , the deficit then becomes the difference. That deficit is added on every after year, after year, after year. That then gives you the public debt, that?s how it grows; now they are obsessed with this thing that if you have a lower deficit GDP ratio let?s say the deficit divided by the GDP therefore you are better off, it doesn?t make sense, there?s no empirical basis whatsoever to support that but because they want an easy way out this is what they are using so even as your HIPC wrongs is caused, trust me my brother we may have at the end a HIPC today because all the fundamentals are wrong, I?m not the only one criticising this, there are a lot other people doing so.
Komla:
But coming back to the issue Nii we are poor, because of poverty there isn?t electricity, because of electricity there?s a direct correlation between electricity and poverty and electing very bad leaders. At the end of the day isn?t the problem our problem and is there anything that the international community can do therefore to promote good governance in Africa?
Nii Moi: Primarily it is our problem and it is also our responsibility and now that one of our country leaders spoke about improvement in tax mobilization for instance, that is one way of making sure that we stand on our own feet to promote development. Unfortunately as well as we?ve done over the past few years in mobilizing domestic resources, if you travel around the country and I have been doing that the past few weeks you realize that there?s still major potential out there for increasing domestic resources. VAT, for instance looks like beyond Accra it doesn?t apply anywhere else. I was in Prestea, Tarkwa recently and there people actually ask you, do you want VAT receipt or not; in several parts of the country and so with this and several other factors, we can even conclude that the VAT that we collect now is somewhere maybe between 30% or 40% lower than what it should have been. What does that mean; it means that we should strengthen institutions for the mobilization of resources.
This morning we?ve heard about the IRS going after the Winners Church to go and collect more money, why should they wait for this scandal. We should already have institutions in place to do some of these things. These are all areas where we have complete control in terms of mobilizing domestic resources to be able to finance developments and depend less and less on these people. Komla if you look at the history of countries like South Korea, Singapore and all these countries that developed, they have the so ?called Miracle economies, they made conscious efforts of confronting their national developments and said, listen we are no longer going to depend on foreign AID, they reduced them drastically and it wasn?t until they did that that development as a whole took off. The Minister of Finance held a press conference on the MCA Millennium Challenge Account and remember what he said, I think the CNCTI issue and not .. He said the money that we get from our development partners is simply not enough which takes me to a suggestion and I hope the government considers this at least. Talking about raising revenue, Komla according to the Ghana Living Standards Survey, the fourth Ghana Living Standards Survey, the top ten percent of this country has something like 43% of the country?s income ,the top ten per cent with the bottom 40% having 7% of national income.
Now that translates to something like two million people per year- those at the top ; if you impose just ?200,000(two hundred thousand) cedis on each of these persons per month, we in Ghana can raise something like $533million every year; let?s give it three years which will give you something close to $1.7billion raised automatically ,no interest paid, the government doesn?t have to pay back anything; $1.7billion raised domestically and we are just shedding our own potential for financing development and obsessed with this dependency psychosis.
Komla: Are you advocating for additional taxes?
Nii Moi: No, no, no additional taxes, in fact I would call it, and I am actually working on that, I would call it the Wealth Tax for only the top ten percent of Ghanaians, those people who have 43% of the national income and these people if we impose ?200,000 per month on them, it?s nothing, they probably spend that much in one hour at the beer bar somewhere anyway.
Komla:
Now Nii, the suggestion that we refuse to pay for some it bothers on the ridiculous is it even feasible? I mean refusing to pay if the debts aren?t cancelled for some it actually bothers on the ridiculous, is it even possible for any African country to decide they won?t pay monies that are owed to the international lending community?
Nii Moi: Of course any country can decide that they don?t want to pay but like they say, any public policy bears benefits and costs, so you have to look at that, what benefits do I get if I refuse to pay and what are the costs, the costs obviously include the fact that you no longer have access to international financial resources in which case you turn to your own domestic resources that I just explained to you using the tax .
There are costs and benefits, so what you can do if you are really in a fix is to perhaps suspend payments for a while. In the case of Ghana I believe that after we went for HIPC, the first year we should have used that as an opportunity to develop alternative programmes so that we won?t have to depend on these folks anymore but that?s a separate issue. Most African countries haven?t done that, but to get back to your question we can refuse to pay ,I?m surprised that Jeffrey Sachs of all people will come out with that because he lives in America , he knows the importance of honouring your debts, he has credit cards, let him go back to America and refuse to pay his credit card and see what happens to him afterwards. So why is he standing there indulging in this populist economics, don?t pay your debts,.blah,blah,blah, bring in more foreign AID, what kind of nonsense is that?
Komla: Thanks very much for your time Nii. You have a very good morning.
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