Debt Relief – Should We be Relieved?

The late breaking announcement that the US and UK have agreed on the cancellation of the debt for 18 mostly African countries should be seen as the successful culmination of years of activism. At the same time, it would be foolhardy not to see this as only a small piece of a larger struggle fought by democratic forces against the corporate imperialism of the United States and its allies.

The British government-sponsored Commission for Africa Report blames Africans for most of their problems: “internal factors have been the primary culprit for Africa’s economic stagnation or decline over the past three decades.” Then the report mentions that “external forces have been an important influence too,” including the debt “incurred by dictators…who were supported during the Cold War by the very countries now receiving debt repayment.”

The decision to cancel the debt should be publicized as an admission that the loans were never legitimate, but were given under “odious” circumstances. According to the Christian Science Monitor, “Since the United States has already persuaded other countries to forgive loans made to Iraq under Saddam Hussein, the logic goes, then debts made under other former dictatorships, from Nigeria to the Philippines, deserve similar treatment.”

“We are looking for 100 percent debt cancellation without conditions,” said Marie Clarke, national coordinator of Jubilee USA Network. When the rich aid the poor, however, it is never a case of “no conditions.” In a June 7 press conference with George W. Bush, Tony Blair made it clear that the debt relief package “is a two-way commitment” between “the African leadership” and its benefactors. “What we’re not going to do is waste our country’s money,” he said. Associated Press quotes him as adding, “It’s not a something-for-nothing deal.” White House Press Secretary Scott McClellan said, “We believe that it’s very important that in return for getting this kind of assistance, this debt relief, that those countries need to be moving forward on good governance and transparency and rule of law, and promoting economic growth, free market policies.”

The main instrument that the US uses to enforce “free market policies” in Africa is the so-called “African Growth and Opportunity Act.” Any debt relief for African countries should be seen in the context of this piece of legislation. Among other things, the AGOA is a subtle push to weaken the African textile and apparel industries and force African countries to produce items which do not compete with those made in the US. The AGOA allows unlimited exports of textiles from Africa, provided they are made from fabrics and threads produced in the US, but the Act limits the amount of exports made from fabrics produced in Africa or elsewhere. African-made fabrics will not be allowed at all after 2008. And just in case the African industries get too successful, a “tariff snapback” allows the US to impose tariffs on African textiles “in the event that a surge in imports…causes serious damage or threat …to domestic [US] industry.”

AGOA came online under the Clinton administration, about 8 years before the 2005 expiration on WTO quotas on textile trade. This end of quotas makes it harder for African producers to compete with the mass production abilities of more advanced industries in China, India, and other Asian countries. The US Trade Representative’s 2005 report on AGOA insists that “AGOA-eligible countries must move beyond apparel and diversify their exports to maximize AGOA benefits by producing any of the over 6,000 products eligible for duty-free treatment.” The US is not only dictating economic policy for African nations, but what industries they should shift to.

Meanwhile, apparel manufacturers are cutting wages and firing workers in an effort to stay competitive . In the case of Kenya, according to the East African Standard, “relatively high wages coupled with high-energy costs, …have fast edged out Kenya from the lucrative US market.” This business perspective on Kenyan wages contrasts with the fact that, in the poorly-regulated “Export Processing Zones” set up under AGOA, workers earn as little as $2 a day. The Nation (Nairobi) noted in 2003 that “strikes by Export Processing Zones employees have raised questions about the Government’s stand on labour interests against the need to attract foreign investment.”

If current events are anything to go on, foreign investment is a much higher priority for the Kenyan government than labor interests. The following is from a press release of the Kenyan Association of Manufacturers (KAM):

“Now that the quota is no more, it is important to take steps to reduce the cost of doing business in Kenya by 20% to ensure that there are enough firms located in Kenya to attract buyers from the US,” asserts KAM chief executive, Ms. Betty Maina.

Singling out labour as the highest production cost, the sector is asking the government to freeze ceremonial wage increases announced on Labour Day and be allowed to introduce performance-based piece-rate wages…

The apparel manufacturers add that labour productivity is affected by unprogressive attitude of trade unions that promotes withholding of labour, under-performance and a tendency to seek increased payments through over-times without commensurate productivity.

The Kenyan government recently complied with KAM’s demand and rescinded its annual minimum wage increase:

the [apparel] sector received respite when the finance minister revealed the government has applied the brakes on the annual wage increment, which had threatened to drag the firms to their deathbed. [East African Standard]

In addition the Kenyan apparel sector recently cut 2000 jobs. If I were optimistic, I would hope that the debt relief would free up government money to restore the wage increase and the lost jobs. More realistically the money will probably be used to “reduce the cost of doing business in Kenya by 20%” and accomplish other “free market reforms.”

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