NEAL CONAN, host:
This is TALK OF THE NATION. I'm Neal Conan in Washington.
Over the weekend, 18 poor countries from Honduras to Zambia caught a rare break. Finance ministers from the group of wealthy nations known as the G8 agreed to cancel their debts: $40 billion worth in total. Advocates of debt relief have argued for years that these loans were made to corrupt former regimes and that paying the interest shackles their successors and keeps those countries from growing.
But debt relief is hardly a get out of jail free card. All of these nations still struggle with widespread poverty. British Prime Minister Tony Blair wants G8 commitments to aid and trade for Africa as well. Thus far, there's only agreement on debt relief. And today we want to focus on debt through the lens of one country: the United Republic of Tanzania. This East African nation is rich in wildlife and spectacular scenery from Mt. Kilimanjaro to the beaches of Zanzibar. But Tanzania also remains one of the poorest and least developed countries in the world. After taking out billions of dollars loans, more than half the population lives on less than $2 a day. As in many poor countries, life expectancy is short. The AIDS rate and child mortality are high.
Why did Tanzania borrow that money in the first place? How much did it change things? What difference will debt relief make? If you're from Tanzania or another country on the debt relief list, how much will that help? Or if you have questions about how debt relief works, give us a phone call. Our number here in Washington is (800) 989-8255. That's (800) 989-TALK. The e-mail address is email@example.com.
Later in the program, we'll talk with the new head of Mothers Against Drunk Driving. He's a dad, and he's looking to steer MADD in new directions.
But first, debt relief and the story of Tanzania. We'll begin by unraveling some of the mechanics of debt relief and putting Tanzania's case into perspective. Joining us now is Steve Radelet. He's a senior fellow at the Center for Global Development and a former deputy assistant secretary for Africa, Middle East and Asia at the Treasury Department. And he's with us here in Studio 3A. Thanks for coming in.
Mr. STEVE RADELET (Center for Global Development): It's my pleasure to be here.
CONAN: Well, to begin with, how much does Tanzania owe?
Mr. RADELET: Well, in total, they owe just over--about $4 1/2 billion, which has been accumulated over many years. Almost all of this is now owed to the World Bank, the African Development Bank and the International Monetary Fund. Almost all of this will be forgiven by this weekend's debt deal.
CONAN: And why did they borrow that money in the first place?
Mr. RADELET: It's been a long time coming, and for most of these countries, the story really starts in the mid-1970s, when the entire world economy was in turmoil because of the oil price shocks, the end of the gold standard when everyone's exchange rate began to float, high interest rates that were with us in the United States throughout the '70s and into the early '80s.
CONAN: I think everybody remembers stagflation.
Mr. RADELET: Everybody remembers stagflation, and that's when it really starts. And at that point, many countries around the world got into debt problems. Mexico was the first to really get into deep problems, and they defaulted on some of their payments in 1981. So this is really that same story that's been with us for 25 years or 30 years in this case. For some in the middle-income countries, they were able to get partial debt forgiveness from their bank creditors back in the 1980s through a mechanism called the Brady bonds, which are still traded on international markets. Other countries were able to get partial debt relief, including Tanzania, from their bilateral creditors; that is loans that they had taken from the United States, Great Britain, France, Germany, through an organization called the Paris Club, and there have been successive rounds of reducing their debt throughout the '90s.
This round is fundamentally different in that it is the debts owed to the international organizations, the World Bank, the IMF and the African Bank. They never gave debt relief to anybody until 1996 when they began to give partial debt relief. What this deal does for these 18 countries, for the first time ever, those three organizations will provide 100 percent debt relief. So for these countries, it's the final chapter in that 25-year-old saga.
CONAN: But it doesn't tell me what they borrowed that money for. Were they going to build roads, improve their port, what?
Mr. RADELET: Right. A variety of things. And each country, of course, is different. Some of it went to roads and to ports. Some of it went to health care. Some of it went to primary schools, and some of it was misused and stolen and not used particularly effectively. But some of it was used pretty well. Health indicators and education indicators in Tanzania and Uganda have improved fairly steadily over the last 25 years with some ups and downs. But economic growth and, therefore, the income levels of the poor have not improved particular--or did not improve much in the '70s and '80s. In both Tanzania, Uganda and some of the neighboring countries, the last 10 years have been more successful, where we have finally begun to see some steady economic growth and poverty reduction. But these particular loans were for, in some cases, infrastructure, for building roads, for energy supplies, for ports; in other cases, for health facilities and education facilities. Some of the projects were good ones; some of them were bad ones and didn't generate the rates of return in economic growth to enable them to repay the loans.
CONAN: And that was the other question. If you had $4 1/2 billion of debt, which Tanzania did, or I guess still does as of the moment, how much does that cost you every year?
Mr. RADELET: Well, a lot of this debt now is fairly concessional, and their debt service has been running on these loans probably about $50 million a year at this point. Four and a half billion dollars that they had accumulated in debt sounds like a lot, but actually, it's about 50 percent of their GDP, which they had accumulated over years. So it's not a huge amount, but they had accumulated that and were paying on the order of $50 million a year in debt service, and that will now be forgiven.
CONAN: And presumably, that money is now available to put to any other purpose the government sees fit.
Mr. RADELET: Well, some of it is, and some of it's not. It depends a little bit on the two different main creditors here, the IMF and the World Bank--this is operating a little bit differently. For the IMF money, at least in the initial part, they will be able to keep that money and it will go into their foreign exchange reserves. For the part for the World Bank, this is a little bit--has been misunderstood. The money that's been forgiven, Tanzania will no longer pay the bank, but for the last 20 years or so, they have been taking loans from the bank to repay the bank, and it's been a silly set of circumstances, which has created lots of--wasted lots of time and energy on everybody's part, to take out new loans, to repay old loans. And that's going to stop.
In the first instance, Tanzania's new money from the World Bank will fall by the same amount as their debt payments, but the donors will replenish the World Bank, which will then disperse some new money. So Tanzania will get some of it back, but not all of it back, but they will be ahead by something on the order of about $50 million a year that they will actually be able to increase their spending on, hopefully, poverty reduction programs, good infrastructure projects.
CONAN: Let's get some callers in on the conversation; (800) 989-8255 if you'd like to join us, (800) 989-TALK. The e-mail address is firstname.lastname@example.org.
Let's begin with Bill. Bill's with us from Minneapolis.
BILL (Caller): Yes. You know, I really commend your speaker there and all those who are so entrusted in trying to provide relief to these African countries, but the fact of the matter is that these countries are so corrupt and the leaders are so corrupt, and I can assure you that this forgiveness that we are talking about here--and I won't be surprised if these leaders actually go into these banks in their homeland and take out that money, that they use for themselves and their families. It is so--you have to--I mean, it's one thing to talk about these in theory, but you have to prepare to experience what these leaders do.
CONAN: Well, Bill raises a point.
Mr. RADELET: It's an excellent question. And I've spent many years actually living overseas and have seen this firsthand, and there's no doubt that corruption is a problem. It's a problem in Africa. It's a problem in Latin America. It's a problem in Washington, DC, and it certainly has been a problem historically in the United States. And unfortunately, it's endemic to human societies and political systems. What we need to do is to do as much as we can to ensure that the funds that are freed up are actually used for good development purposes.
And there's been a fair amount of progress in the last few years in trying to push governments to be much more accountable with the funds, much more transparent and to impose penalties when there is corruption by reducing the amount of money going forward, but the deeper point that you're making is absolutely right. If we don't change the system going forward to better ensure that these funds are used productively, then we could easily get back into a trap going forward. One part of that is to provide more of the funding as grants rather than loans, especially to the poorest countries that are stuck in poverty traps. But the other is to look hard at issues like corruption. Those that are making advancements in corruption, in my mind, should get much more foreign aid. Those that are having trouble falling back and not succeeding and not achieving basic goals in using the money productively, we have to be much tougher and cut the funding for those countries and make it available for better governed countries.
CONAN: Bill, thanks for the call.
CONAN: Despite its poverty, Tanzania is often described as an African success story, a country that's worked hard to earn debt relief. Joel Barkan is familiar with Tanzania's progress. He is a professor of political science at the University of Iowa. He's consulted for the World Bank and the US Agency for International Development on governance projects in East Africa. And he joins us now from the studios of member station WSUI in Iowa City, Iowa. Good to have you on the program.
Professor JOEL BARKAN (University of Iowa): Good to be with you, Neal.
CONAN: And again, we were asking Steve Radelet about it, but what's your perspective? Did Tanzania acquire this debt for good purposes?
Prof. BARKAN: Well, Tanzania required the debt for the reasons that Steve mentioned, but there were a couple of other factors that exacerbated their problem. And that was the vision of Julius Nyerere. While Nyerere himself was one of the most honest leaders of Africa, he was determined to create a socialist command economy in that country, and that resulted, among other things, with the emergence of some 400 public corporations during the 1960s and 1970s, only of which about a dozen or a dozen and a half ever made any profit, which became a tremendous drain on the state, which bloated the payrolls of these state-owned corporations and the civil service itself. So the hill that Tanzania had to climb in respect to reform was very great, and they resisted that until 1985 when Nyerere stepped down from his presidency.
CONAN: Well, as you pointed out, he stepped down. His party, the CCM, is still in control in Tanzania.
Prof. BARKAN: Very much so. For all practical purposes, Tanzania remains a one-party dominant state. It won about 80 percent of the vote in the last elections. There is a presidential parliamentary elections coming up in October, and there's no really viable alternative there, and that is also one of the problems in terms of creating a viable break on corruption. Corruption really will be brought down when there is true public accountability through downward institutions of accountability, not chasing around via anti-corruption authorities.
CONAN: So this is not something that could really be imposed from without, but has to have structures within the country.
Prof. BARKAN: Very much so. Reform, both political and economic, is an extended process of institution-building. It cannot be imposed from without. It could go only as fast as local leaders want the pace of reform to go, and Steve Radelet is quite right. The donors need to be increasingly selective in terms of who they reward in this regard and who they do not.
CONAN: We're talking about debt relief through the lens of one country in Africa, Tanzania. If you're from that country or from one of the others on the list, give us a call, tell us how you think it's going to work. Will it make a difference? (800) 989-8255, (800) 989-TALK; the e-mail address is email@example.com. We're going to take a short break. We'll be back right after afterwards.
I'm Neal Conan. This is TALK OF THE NATION from NPR News.
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CONAN: This is TALK OF THE NATION. I'm Neal Conan in Washington.
Over the week, the Group of Eight industrialized nations reached a deal to write off the debts of 18 deeply impoverished countries. Four of the recipients are in Central and South America. The rest are in Africa. Each of those countries has its own story about financial troubles that led them to borrow billions, the development projects they were supposed to fund and results that got them, well, back to where they are now.
We're focusing on one of those countries, Tanzania. It is in eastern Africa, borders the Indian Ocean between Kenya and Mozambique. It's about twice the size of California, with a population of 37 million people; a life expectancy, 45 years. Fifteen percent of children under the age of 5 die. Median age is 17 years old. HIV and AIDS--the adult prevalence rate is 8.8 percent, which means about 1.6 million people live with HIV/AIDS, that in a country of nearly 37 million. And again, this country just passed the million mark. Well--and news of that came out yesterday.
We're talking about Tanzania's debt. Our guests are Steve Radelet, senior fellow at the Center for Global Development, and Joel Barkan, a professor of political science at the University of Iowa and a senior consultant on governance to the World Bank. If you'd like to join the conversation, our number is (800) 989-8255, (800) 989-TALK. And the e-mail address is firstname.lastname@example.org.
And let's get another caller on the line, and this is Margaret. Margaret's calling from Daly City, California.
MARGARET (Caller): Yes. I'm interested in the fact that you're making this appear to be very philanthropic, whereas if you go back to the Bretton-Woods in 1954, globalization and the whole plan of pushing in the World Bank and the IMF and all the rest of them is certainly not philanthropic. It was just simply a plan of the whole Western world to take over and rip off all the countries in Latin America, Africa, wherever you want to go, not simply Tanzania. And if--the fact that this appears to be such a great deal to give them this break of--you don't have to pay the balance on the loans, well, the loans were a rip-off in the first place.
All they had to do was to go in and convince the dictators that they were going to give them a great deal, and then we'd go in with all our big corporations and money-making operations and rip off the country. And it's just not--the attitude is si--nothing compared to what should have been done, just a globalization--the whole damn world, and I'm not at all impressed by the giving off the--taking off the loans.
CONAN: Well, Steve Radelet, let me ask you about Margaret's point. Were these loans an engine of exploitation?
Mr. RADELET: Well, the organizations are controlled mostly by the G8. They're shareholder organizations with about 140 members each, but the preponderance of the voting goes with the Western powers. The United States has the largest voting share, about 20 percent in both the IMF and the World Bank. I think it's a little bit extreme to paint this as vehicles of exploitation. Although there's no doubt that some of that occurred. More of that actually occurs through our bilateral foreign aid that's often tied to US contractors and to corporations. The Fund and the Bank do less of that, but there's some.
You know, the fact is that countries that have more globalized in the sense of opening up their economies have done very, very well, by and large. Not all of them have, but most have in terms of creating jobs and reducing poverty and reducing literacy--or increasing literacy rates and infant mortality rates. It's a long, long struggle. You know, one of the earlier questions was about institution building, and Joel made the point about the weak institutions in these countries. It takes a long time to build up the institutions, the institutional strength for these countries to evolve and to begin to grow and reduce poverty.
MARGARET: But I...
Mr. RADELET: So I think the accusation that they were just being exploited has some truth to it, but I think it's a little too strong.
MARGARET: It's not too strong. It's not at all too strong. You go to the specific countries, the few leaders that refused to go along with the IMF and the World Bank operation, like the presi--Torrijos in Panama and Maldives in Ecuador--they were killed because they didn't go along with this operation. If you read "The Ten Confessions of An Economic Hit Man," you'll hear what's going on, primarily in South America. They did it in Indonesia, got rid of Suharto and put in Sukarno. The whole thing is a rip-off of all the other countries, and I'm so mad. There isn't any way you can change this globalization and corporate interest of the damn world.
CONAN: Margaret, thanks very much for the phone call. Joel Barkan, one of her points was that this money was, to a large extent, well, loaned to previous regimes, dictators in many cases; though there is, of course, continuing parties--same party's still in power in Tanzania.
Prof. BARKAN: Well, Julius Nyerere was the recipient of the initial embrace by the donors. As I mentioned in my earlier remarks, one of the things that attracted the donors to Tanzania during the 1960s and 1970s was a social experiment. This was particularly true in respect to the Scandinavians, who poured a lot of money in the country, so there was a lot of bilateral money coming in. You have to remember this was the height of the cold war, which factored into the United States' concerns at the time. We did not cut Tanzania off. Tanzania had very large aid flows. They did not end up in corrupt practices, but because of the type of economy that Nyerere tried to put into place, it was essentially money down the drain.
Now in respect to Margaret's point about rip-offs, the World Bank, the IMF and the other donors set during hard conditions for Tanzania, beginning in the mid-1980s, after initially cutting off aid, and it's been a slow climb back. It's been 20 years, but I think it's important to point out that the last two or three years, Tanzania's growth rate has been over 6 percent. There's been substantial reform of the public service, of the privatization of these companies. Foreign investment is flowing into Tanzania.
It didn't flow in before, so there could not be any exploitation of companies, as she suggested. No one wanted to go there. Tanzania today is very much a success story because it's put its economic house in order, and most important, it has embraced a very broad set of institutional reforms of its civil service, of local government, of the legal sector, which have not been totally successful, but nonetheless have moved that country forward.
CONAN: Let's get another caller in. This is Sina(ph). Sina's calling from Boston.
SINA (Caller): Hello?
CONAN: Hi. You're on the air. Go ahead.
SINA: Hi. I'm not--I don't really have an opinion per se on the debt relief to Tanzania. I was actually born there, but my concern really is sure, you can provide debt relief to Tanzania, but what about all the nationalization that took place a number of years ago? Is there going to be any relief to those parties that were involved? I'm considered a minority in Tanzania anyway, but, you know, there's that aspect, too. So do you have a comment on that?
CONAN: Would that be your ballpark, Joel Barkan?
Prof. BARKAN: It would be, to some extent. I think what the caller is referring to was the nationalization of some firms owned by the Asian minorities in the 1960s and particularly after the Arusha declaration in 1967. It's true, some family firms were taken over, but very few of them were really large firms of any significant type. Where most of the money went was in the creation of large manufacturing enterprises, textile mills, a railroad that doesn't work, takeover electricity and the like. That's what became a drain on the public purse. So there hasn't--in respect to the privatization, those firms that were nationalized long ago, I really can't provide you the details, the extent to which went back to its original owners, but they were really small potatoes to begin with.
CONAN: Steve Radelet, can you help us out?
Mr. RADELET: Yeah. Joel's made the right points. It's very difficult to unwind those things historically. It can be done, and some countries do try to restore some of those past nationalizations, but it's very, very difficult to do. The key thing for Tanzania is that in the last few years, they have begun to change those kinds of practices so that they're not so exploitive in terms of their own people, their own resources and, in fact, have policies that have led to stronger economic growth and people beginning to work their way out of poverty. So the end of sort of the strong socialist regime and the nationalism has brought on this--beginnings of new growth, but it's going to be very hard to unwind some of those past injustices.
CONAN: Here's an e...
Prof. BARKAN: I'm going to come...
CONAN: Go ahead. I'm sorry.
Prof. BARKAN: Yeah. I might come in here. I was recently in Dar es Salaam and what strikes you, visiting that country today compared to five years ago, is the extent of the vibrancy in the economy, particularly in the small business sector. That's now spreading to the rural towns. The big problem is the extent that it will spread to the agriculturalists who still make up the majority of the population; that is to say the peasant farmers.
CONAN: Here's an e-mail from Smart Bytani(ph)--and I hope I'm pronouncing that correctly--a Tanzanian living in Minnesota. `Can you ask your guests to elaborate on the story I read in Foreign Policy magazine that Tanzania is, quote, "receives too much aid and has no capacity to absorb the aid in development projects"? This is a big paradox to me. As a native of Tanzania, I see every day thousands of people without basic services, but yet I read the country cannot absorb all of its aid. Will the debt cancellation make any difference? Don't you think there's a systematic problem that needs to be addressed first over and beyond debt cancellation?' Steve Radelet.
Mr. RADELET: Well, as usual, there's a nugget of truth in the statement, but it's one that's often made that I think is overstated. It's true that there are bottlenecks, as with any country, with any government, where money is channeled through certain government institutions that may not be particularly effective, and it is certainly true that some of the aid has been wasted. But there's no doubt that some of the aid has worked fairly well, that the level of disease has come down. Life expectancy, as you mentioned, is fairly low, but it is higher than it once was.
These are very difficult circumstances where you have endemic disease, low quality of soils, very difficult geographic situations, very far distanced from markets, and it's very hard for people to begin to struggle to get out of poverty. So the person who's sending the message is absolutely right that there are opportunities. There are certainly lots of needs. What--the key here is going forward, the donors have to do a better job of finding the right opportunities and getting the money more directly to those that can use it. We're doing better in the last 10 years or so, especially the last five years, of donors being able to get the money to folks that can use it, so that it can be used more effectively, and to the extent that we can do that, Tanzania can absorb a lot more money and be successful in fighting poverty. It's striking that balance between ensuring that the funds are used well and, on the other hand, making sure that not too much of the money is wasted so that we can continue to see Tanzania make progress going forward.
CONAN: And an e-mail question from Omar(ph), who's sending from Columbus, Ohio: `The ambitious goal of Tony Blair excludes the poor countries who are suffering the most, such as Somalia. What,' he asks, `is the point of helping Africa if we are not helping the countries who need it the most?' Joel Barkan?
Prof. BARKAN: Well, the problem goes back again to absorptive capacity, and I think it's important to keep in mind that there are many Africas. One could classify African countries in roughly four categories: those that are performing well, those that are making progress and are performing better than they were before, those that are going nowhere, and those that are failed states. And Somalia, although it's trying to put its state back together, is very much in the latter category. So when it comes to a state which must be present, really, to make any deep impact on alleviating poverty at the rural levels, you have a situation where the state just isn't there.
I want to return to the previous question, though, in respect to Tanzania and the question of absorptive capacity. Tanzania can certainly absorb more aid in terms of the need. The problem is the institutions that provide the delivery mechanisms for basic social services, particularly at the rural and local level--education and health--Tanzania has streamlined its civil service. It reduced its civil service from roughly 360,000 to 200--well, it's about 280,000 now. But most of that civil service is composed of people with relatively limited education. Less than 10 percent hold college degrees. And a major challenge that Tanzania has is to restructure now its civil service, bringing in higher-quality personnel. That depends on pay reform. That is to say paying better salaries, higher salaries so it can return--retain its most talented civil servants. And that in turn is a political issue that's being thrashed out in the cabinet at the present time, Tanzanian cabinet.
CONAN: We're talking about debt relief and the country of Tanzania. Our guests are Steve Radelet, a senior fellow at the Center for Global Development, and you just heard from Joel Barkan, a professor of political science at the University of Iowa and a consultant at the World Bank.
You're listening to TALK OF THE NATION from NPR News.
And let's get another caller on the line. This is Joseph. Joseph's with us from Kansas City, Missouri.
JOSEPH (Caller): Hello?
JOSEPH: Yes. I'm actually from Cameroon, and I've seen money coming into Cameroon from overseas very well. ...(Unintelligible) that this money actually goes to the people. OK. It's coming to Cameroon from Europe and the (unintelligible) are sending it back to the European banks. My point is, why don't the IMF or the world body make NGOs in Cameroon who are on the (unintelligible) and staffing and let them carry out the work they want to carry in the country with their own money, rather than giving it to the government? Because the government, I believe, will never do anything for the people, except for themselves. And that...
CONAN: And, Joseph, I'm going to say thank you because your phone line has been betraying you, but thank you very much for the question. We'll get an answer for you. Steve?
Mr. RADELET: It's a really good question, and I think he's absolutely right. I think there are two ways to think about that. One is that aid that does go through the government itself, we have to be much more results-oriented and be very clear as to what the goals are that the government is supposed to achieve, what the targets are, and when the government actually does it, we should reward them, and when they don't, we've got to seriously penalize them. And we don't do that very well. We claim that we are asking for results with our aid, and when countries don't achieve it, we keep funding it, and that's a problem with a lot of the aid that goes through governments. We're doing better, but we need to improve that.
Secondly, though, this whole question about absorptive capacity, the caller is absolutely right. One way to expand the absorptive capacity is to find new channels to direct the aid, and it should not all go through governments. It should--we should be able to fund NGOs, clinics, schools, private schools or foundations, organizations that can be effective conduits to get the money more directly from the aid agencies to those on the ground that can use it, and the donors are not very good at that. There are a few that are beginning to do it. The US government does some of its money that way. The World Bank does none of its money that way. The new Global Fund to Fight AIDS, TB and Malaria, which is in Geneva, provides a fair amount of its money through--directly to NGOs, and there's the beginning of a trend out there. But the more we do that, the more we can go around the bottlenecks in the government, and I think we can be more effective in reducing corruption.
CONAN: Joel Barkan, I'm sure you have something to add on that point, but I--we've only got a minute left, and I wanted to ask you whether you think in 10 years' time we may not be at the same point that we are now?
Prof. BARKAN: Well, hopefully we won't. Hopefully there'll be more good performers, and hopefully those that have performed well but are beginning to slip back, such as Uganda, can be turned around. I would repeat again that the point that Steve Radelet has made about the need for greater selectivity is one that just must be pursued, both by the multilaterals and the bilateral donors. They come at this in different ways. The bilaterals have done a better job. I think the real problem here is on the multilateral side.
In respect to more aid by NGOs, this is a very tricky question. First of all, which NGOs? Northern NGOs that come into these countries? Local NGOs which sometimes line up and are just simply a cottage industry financed by the donors?
CONAN: And those are fine questions, but I'm afraid we don't have time for them, as I suggested a moment earlier. But Joel Barkan, thank you very for your participation today.
Joel Barkan is a professor...
Prof. BARKAN: Thank you.
CONAN: ...of political science at the University of Iowa and a senior consultant on governance to the World Bank.
Steve Radelet, thank you for joining us here in Studio 3A. Appreciate it.
Mr. RADELET: My pleasure.
CONAN: Steve Radelet, a senior fellow at the Center for Global Development.
When we come back from a short break, we'll talk with the new president of Mothers Against Drunk Driving. He's the first father to head that group.
This is TALK OF THE NATION from NPR News.
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