Debt for Democracy

Tuesday, January 30, 2001

From a humanitarian perspective, few international policy proposals appear more compelling than debt relief for the world’s poor. The poorest countries have seen their external debts spiral to the point where interest payments are crowding out desperately needed investments in roads, schools, sanitation, health care, and other social services. The majority of their people live below the poverty line, struggling to survive on a dollar or two a day. Average life expectancy is well below 60 years and declining in many countries because of AIDS. Lacking access to safe drinking water, preventive medicine, and basic education, as well as to markets, credit, and justice, people live needlessly short and degrading lives.

At this moment of global prosperity, a growing chorus of religious leaders, rock stars, international bankers, and prime ministers is calling on the international community to write off the debts of the several dozen poorest countries. The campaign for unconditional debt relief is morally inspiring and politically timely. But it is profoundly flawed, for it does not address the fundamental cause of poverty and underdevelopment. The root cause is not the debt itself. It is not exploitation by international lenders or an unfair world system. It is not a lack of sufficient economic aid. It is not even the accident of geography or natural resources, for that cannot explain why Botswana, even with its diamonds, has achieved rapid economic growth while other mineral-rich African countries have imploded. It cannot explain why Thailand has developed while Burma and Cambodia have remained desperately poor.

If international donors and churches and moral crusaders want to lift countries out of poverty, they must focus first and foremost on the political conditions that foster sustainable development.

The indispensable key to development is good governance. Countries will do better with smarter economic policies. But policy is only relevant if it is implemented. If the real goal of political leaders is to extract wealth from their own society and distribute it to themselves and their cronies, no formal policy direction—and no amount of foreign aid—can turn the country around. Only when political leaders are motivated to use a country’s resources to develop the country rather than enrich themselves is development possible.

As Bruce Bueno de Mesquita and his colleagues show in their recent book, Governing for Prosperity, bad economics can actually be good politics for autocrats who, often behind the facade of competitive but fraudulent elections, depend on only a small support base to survive politically. In such autocratic systems, from Cameroon to Cambodia, from Egypt to Uzbekistan, leaders stay in power by distributing corrupt largesse to their narrow circles of supporters, rather than by providing the schools, clinics, markets, courts, roads, and other public goods that could eventually make the whole society rich. To stay on top while running their countries into the ground, they also have to violate human rights and the rule of law.

There is no way to fix such a system with debt relief or more aid. Aid to African states grew at more than 5 percent a year during the last quarter century, and the average African country now derives more than 10 percent of its GDP from foreign aid. As a result, aid is simply relieving the state of key functions, now accounting for a third to half of all education and health expenditures in Africa.

Nor will lasting change come from the current more assertive donor approach—to condition aid and debt relief on careful monitoring to ensure that funds are spent for their intended social purposes. Money is fungible. Even when aid goes for social services, it still leaves dictators free to loot the rest of the national treasury for themselves. True economic development will only come when the survival of political leaders depends on delivering the goods for the society as a whole, not just for a small band of fellow soldiers, cronies, ethnic kin, or party hacks. If international donors and churches and moral crusaders want to lift countries out of poverty, they must focus first and foremost on the political conditions that foster sustainable development.

We need a new global bargain: debt relief for democracy and development for good governance. Relief of debt and official economic assistance (other than emergency humanitarian aid) must be conditioned on freedom of the press, freedom of association, judicial independence, electoral accountability, and independent institutions to audit public accounts and monitor and punish corruption. A bill requiring just such conditions for relief or cancellation of debt owed to the United States was introduced in the House of Representatives in October by Congressman Frank Wolf. Titled the Responsible Debt Relief and Democracy Reform Act, it also urges the president to instruct the U.S. executive directors of multilateral financial institutions to press for the same conditions to be applied for relief of debt owed to multilateral banks (such as the World Bank).

The international donor community must not be satisfied with the creation of institutions that merely give the appearance of meeting the new standards of accountability. Governments like the United States, and multilateral donor institutions like the World Bank, must demand that oversight bodies in recipient countries be committed to strictly monitoring compliance and enforcing the country’s laws against corruption and abuse of office. Public officials in countries receiving debt relief must be required to declare their assets on taking office, every year thereafter, and on leaving office, and anticorruption agencies must investigate the veracity of these declarations. Wrongdoing in office must be exposed and punished. Indebted countries must know that the donors will demand results—in particular, a dramatic reduction in public corruption.

The international community must make these conditions binding, not offer a onetime reward for political concessions that can quickly be withdrawn or undermined once the check is issued. Instead of canceling debt outright, the major creditor states and multilateral banks should suspend debt repayment for poor states that provide democracy, accountability, freedom, and a rule of law. Their debts could then be retired at 10 percent a year for every year they adhere to these conditions. Poor countries that kept these political institutions in place for 10 years would see their existing debt completely retired. But, more important, they would see that when political leaders are held accountable for delivering the public goods of development, people can climb out of poverty.

It is not enough to require that countries move to meet these conditions as they receive aid and debt relief. This has led to a hopeless cat-and-mouse game with cynical dictatorships such as the Moi government in Kenya. Effective conditionality requires that states substantially meet the conditions with binding and credible institutional reforms, in advance of any debt relief and as a requirement for any continued aid.

Many regimes will have to change the entire way they govern in order to qualify. Initially, a number will not do so, for it would mean their leaders and ruling cliques would have to give up the power they have held for decades. But this will be a temporary setback. Most regimes in the poorest countries cannot survive indefinitely without international assistance. When it becomes clear that the international community is serious—that debt relief requires democracy, development assistance, and good governance—pressure will mount from within these societies for fundamental change in the political system. It has already happened in some African countries. It just recently happened in Serbia.

Out of misplaced idealism and humanitarian concern, many governments and organizations will condemn these new conditions as neocolonialism or undue interference in the internal affairs of another country. But in lending money to corrupt, unaccountable, and repressive governments, and thereby perpetuating them in power, we are already intervening in their domestic affairs. The real question is, on behalf of whose interests will we intervene: those of a narrow and venal ruling elite, or those of the people who are being cheated out of genuine opportunities for development?

The United States must take the lead internationally by imposing these conditions for the relief of any debts owed to itself and by using its voting power on the boards of the World Bank, regional development banks, and other international institutions to lobby for these conditions to be formally adopted as policy and to oppose debt relief for corrupt and unaccountable governments.

If the real goal of political leaders is to extract wealth from their own society and distribute it to themselves and their cronies, no formal policy direction—and no amount of foreign aid—can turn the country around.

The decision on which countries are substantially meeting, or are in the process of making dramatic reforms to meet, these conditions should be removed from conventional political considerations and turned over to an independent commission like the one that handled the military base closings in the United States. A commission of independent experts—some appointed by the president, and some by each house of Congress—could review the political performance of each indebted country and make a judgment on whether it is substantially complying with the conditions for good governance. That judgment would then determine whether a country qualified for the debt relief program (suspending debt service payments and writing down the debt owed to the United States at 10 percent a year), unless it was overridden by both houses of Congress.

The same judgment about compliance with the conditions for good governance should determine eligibility for government-to-government development assistance. However, some exceptions should apply. Economic assistance should still be offered to noncompliant countries if the president certifies that it is for emergency humanitarian relief or in the national security interest of the United States (but Congress should still be able to override these presidential determinations). And political assistance should be offered to any states willing to make use of it to develop and improve the institutions of governance, so that they can meet the conditions for economic assistance and debt relief.

There is also much that we can do to aid nongovernmental organizations and independent mass media in developing countries. Financial and technical assistance to civil society organizations, such as that offered through the U.S. Agency for International Development and the National Endowment for Democracy, can do much to strengthen a society’s ability to act as a watchdog and advocate for cleaner, more responsive, and accountable government. Corruption and abuse of power will not be controlled unless the demand for better governance comes loudly and continuously from citizens themselves, organized effectively to pressure their leaders, as well as from the outside.

Indeed, those countries that meet or exhibit a serious intention to meet the conditions for debt relief and aid should receive expanded institutional assistance to train, equip, and empower the judges, lawyers, accountants, auditors, administrators, and ombudsmen, as well as the civic leaders and journalists, necessary to bring about lasting improvements in the rule of law and the quality of governance. Political assistance should also help acquire the infrastructure and technology necessary to make these institutions function effectively.

The regimes in most poor countries are hooked on international aid to support their expensive, destructive, predatory habits. We in the donor countries have been the enablers of this sickness. A new infusion of aid, in the form of unconditional debt relief, would be like giving a drug addict a huge wad of cash. It will just produce further license, a new orgy of waste.

There is only one way to end the addiction: a "tough love" approach that demands results and puts forward freedom and accountability as the indispensable foundations of human development.