Ways of alleviating third world debt in Africa

Written by walter johnson
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Ways of alleviating third world debt in Africa
African debt is destroying its economies. (Getty Thinkstock)

No one denies that debt service throughout the Third World cripples the economic chances of the countries involved. Africa, specifically, is where more of the Fourth World exists, those countries so poor that the older "Third World" status no longer applies. The only difference between Africa and the rest of the Third World is that the national economies of Africa are poorer, so the ratio between production and debt is far more detrimental to those countries.

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The most radical concept for dealing with African debt is repudiation: Essentially, a country acknowledges that it will no longer consider its debt payable. In light of the Western banking crisis, this seems to be a viable consideration. The simple question is that if Western banks are already failing, and the taxpayers are being forced to bail them out, why should the poorest of the poor assist in this? It is the equivalent of declaring bankruptcy. The downside of repudiation is that those states who now refuse to pay any debts will not have any incentive to restructure their economies and will receive no loans in the future. Their international creditworthiness will be non-existent.

Debt Equity Swap

Less radical than the repudiation idea is to permit Western banks to take over the natural resources of African countries in exchange for writing off certain debts. This has been done in several places. Africa is rich in natural resources, precious metals and oil, among other things. The value is there, but the capital is not. Permitting Western banks to take over their strategic minerals might be a win-win option. This is because Western firms with the technical know how can begin exploiting these valuable stores, while Africa gets a fresh economic start. The downside here is that many Western investors do not trust the stability---financial or political---of most African states.

Debt Reduction

Few will argue that African debt cannot be realistically repaid. Servicing the interest is nearly impossible, never mind the principle. The concept here is that banks merely write off the debt their own policies have incurred, say, 20 per cent or more. Then, the World Bank or some other agency guarantees the remainder of the debt. This gives both the banks (currently failing) and the states involved a fighting chance. Banks can recoup some losses, while African states receive some relief. The good thing here is that banks remain involved in helping to restructure the African economy while assisting its debt crisis. The downside is that American taxpayer money will essentially be used to restructure foreign states, while the crisis at home continues to worsen.

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