Debt Issues in Africa: Thinking beyond the HIPIC Initiative Alemayehu Geda
Debt Issues in Africa: Thinking Beyond the HIPC Initiative to Solving
Structural Problems
(Paper for a WIDER Conference on Debt Relief, Helsinki, August 2001)
Alemayehu Geda
*
The Kenya Institute for Public Policy and Research (KIPPRA) and Addis Ababa University
Abstract
This paper attempts to answer the following question: If the HIPIC initiative is
fully successful and managed to write-off all debt that owed to Africa, will the
debt problem be over. The answer is No. This pessimist answer is arrived at by
examining the historical origin of African debt and the structural problems the
continent is confronted with. The literature about the origins of the African debt
crisis lists a number of factors as its cause. The oil price shocks of 1973-74 and
1978-79, the expansion of the Eurodollar, a rise in public expenditure by African
governments following rising commodity prices in early 1970’s, the recession in
industrial countries and the subsequent commodity price fall, and a rise in real
world interest rate are usually mentioned as major factors. Surprisingly, almost all
the literature starts its analysis either in the early 1970s or, at best, after
independence in 1960s. The main argument in this paper is that one has to go
beyond this period not only to adequately explain the current debt crisis but also
to propose its possible solution. The conclusion that emerges from such analysis
is that the African debt problem is essentially a trade problem. Thus, long run
solution to debt points to the importance of addressing trade and trade related
structural problems in the continents.
1. Introduction
Notwithstanding the highly publicized debt relief initiative, the Highly Indebted Poor
Countries (HIPC), the African debt problem is one among myriad of problems the
continent is facing. A number of studies, in particular on Latin American countries debt,
have attempted to explain the origin of the debt crisis. This literature attributes the
developing countries debt (including that of Africa’s) to shocks generated in the early
1970s. In this paper an attempt to explain the historical origin of the African debt crisis is
made. It will be argued that understanding the African debt and proposing its solution
requires understanding its historical origin. The paper is organized as follows. In section 2
an attempt to provide a brief summery of the policy debate about African economic crisis
is given. This is primarily intended to show the general context under which the debt
problem is understood by major institutions. This is followed by section 3 where the
external finance problems of Africa will be described. In section 3 I will focus on the
structure of African economies created by its colonial history and its impact on current
*
Resident Economist at ISS-KIPPRA project and Assist. Professor, Department of Economics,
Addis Ababa University
Alemayehu@kippra.or.ke
or :
Alemayehu@excite.com