Sierra leone and third world debt relief
The sustainability criterion the World Bank and IMF decided on was that a debt-to-export ratio above 150% implied an unsustainable debt burden while a debt-to-export ratio below 150% meant that a country could manage to service its debt (3). As indicated above, Sierra Leone’s debt is 681% of her exports, putting her debt-to-export ratio well above the 150% considered unsustainable by the HIPC and meaning that Sierra Leone is annually responsible for a debt which is almost seven times what the country makes through exports. Among the most impoverished debtor countries, post-conflict countries need special attention for several reasons.
Many citizens have been internally displaced, become refugees in other countries, or died. Social structures have disintegrated and anyone with enough brains or money to help re-establish these structures left town while they still could. The World Bank and the IMF view post-conflict countries as a challenge, as the HPIC does not take into account countries that have arrears with multilateral institutions, which these war-torn nations logically do. Before beginning receiving debt relief from HIPC these countries are obliged to pay off old debts and the compound interest that has accumulated (3).
In 2001 the World Bank illustrated its concern for the difficulties facing post-conflict countries, stating that: “countries in arrears pose a particular challenge since the delivery of HIPC assistance requires that the country be in good standing with the IFIs (4). ” What this means is that the World Bank cannot lend to a country that is not current on its debt payments, but with no relief the country will just seep further and further into a huge, unmanageable public debt. In 1995 the IMF developed the Fund for Emergency Post-Conflict Assistance as a solution to this problem.
The Fund provides these countries with money to meet external payment schedules so that they will be eligible for additional aid. Unfortunately for Sierra Leone, one of eight countries that have received assistance from the fund, this money comes not in grants but in the form of loans from the Fund’s General Resources Account (GRA), which are offered only on non-concessional terms, making them the expensive loans available (3). In December of 1999 developed a fund for Sierra Leone in the context of Emergency Post-Conflict Assistance from which the government borrowed $50.
7 million at an annual percentage rate (APR) of 4. 5%. The government of Sierra Leone told the World Bank that they have an unsustainable level of debt in their Poverty Reduction Strategy Paper (PRSP): “… the huge debt service payments continue to crowd out public investments in the social sectors and hampers private investment (3). ” Basically, Sierra Leone raised the question of whether scarce national resources should be used domestically for peacekeeping and reconstruction, or to pay foreign creditors?
The IMF seems to agree with Sierra Leone that their debt is unsustainable, claiming that: “… Sierra Leone’s debt burden even after enhanced HIPC debt relief is barely manageable…. For Sierra Leone to achieve long-term debt sustainability, it is of the utmost importance that the country achieves high and sustained growth… (1). ” The IMF expects unreasonable growth out of Sierra Leone’s fragile economy. To attain debt sustainability Sierra Leone must live up to the IMF’s optimistic predictions of their exports earnings, which are supposed to increase by 8. 4% annually.
This prediction fails to take into account the fact that Sierra Leone’s most profitable exports come from the diamond and rutile mines which were the main focus of the civil war, and any rebel insurrection would certainly start at these hotly contested mines. Specifically, the IMF projects rutile production will rise from 66,000 tons in 2002 to 236,000 tons in 2006, and that agriculture will recover, including that of rice, cocoa, and coffee (3). Unfortunately, the amount of debt relief that Sierra Leone receives will depend largely upon these unrealistic projections.
In October of 2001 Sierra Leone went to the Paris Club, a very powerful creditor cartel that operates within no legal framework, hoping to obtain debt cancellation of the $1. 19 billion they had already accumulated. The Paris Club cancelled only $72 million, leaving the citizens of Sierra Leone to shoulder these loans and their ludicrous interest rates for many, many years to come. The plight of Sierra Leone and their unsustainable debt raises an interesting question: does economic cooperation through the World Bank, IMF and other institutions actually help or hurt developing countries?
The obvious answer as I see it is that economic cooperation benefits developing countries, specifically Sierra Leone, because it provides them with money which would otherwise be unavailable except through grants from donor countries. As Sierra Leone found, these grants usually dry up after the conflict ends because the atrocities committed during the war are what made headlines, invoked sympathy, and persuaded countries like the United States to use their “limited” resources toward peace, but unfortunately not rebuilding.
Therefore, it is essential for these countries to have access to loans through the World Bank and IMF to rebuild their dilapidated country. However, these organizations have come under fire for the conditions they sometimes place upon their LDC debtors. In particular, the IMF has been accused of violating the sovereignty of states through these stifling loan conditions, sometimes leading to even worse conditions.
The fiscal reforms that the IMF frequently requires of its debtors often ignore social welfare and human rights concerns, leading to a disenfranchised population which then destabilizes the government when the citizens blame elected officials for restrictions which they had no control over (4). Also, the fact that the monetary agencies which impose such heavy debts upon LDCs are all northern-run, (World Bank is run by an American, IMF a German, and WTO a New Zealander), does not sit well with many.
The establishment of a New International Economic Order (NIEO) in 1974 was a step in the right direction for LDC’s, who demanded such policies as political and economic sovereignty, economic aid, as well as debt relief, specifically the outright cancellation of unsustainable debt in developing countries (4). The fact that the IMF and World Bank expect Sierra Leone to continue repaying her enormous, unsustainable public debt instead of putting the money towards rebuilding and improving quality of life in the official worst country in the world is a clear sign that economic cooperation often has a negative effect on the developing world.
However, I feel that without the economic cooperation of these intergovernmental organizations the LDC’s of the world would be much worse off, with no source of money for necessary costs such as rebuilding and stabilizing the state. On the flipside, I think that attaching stifling conditions to these loans is completely avaricious and without regard for the hardships many of these countries have already endured. Also, as obvious as it seems, any nation with a debt that is considered unsustainable by the World Bank’s own guidelines should have their debt completely cancelled.
As far as I can tell, the economic powers of the world are fairing decently without Sierra Leone’s $1. 2 billion, and the relative value of this money to a post-conflict developing nation compared with a trillion dollar IGO seems to clearly indicate that we should forgive all of Sierra Leone’s debts, and should act soon to do so before the weight of these debts crush any chance Sierra Leone may have of becoming an economically and politically stable country, and once stability is achieved maybe a top notch tourist destination.
Works Cited (1)- Jubilee Research on Sierra Leone http://www. jubilee2000uk. org/databank/profiles/sierra. htm#2 (2)- World Bank policies on Sierra Leone http://www. worldbank. org/afr/sl (3)- Sierra Leone: the IMF’s planned route from conflict to poverty, by Michela Telatin, Jubilee Plus http://www. jubileeplus. org/analysis/articles/Sierra_Leone_IMF_planned_route. htm (4)- Chapter 16: Global Economic Cooperation in International Politics on a World Stage, by John T. Rourke. Mcgraw-Hill 2003. Sierra Leone and Third World Debt Relief By: Peter Brennan Assignment #2 POLSCI 121D.