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Ethiopia: the price of indifference

About the author
Ann Pettifor is a Director of PRIME Policy Research in Macroeconomics, whose work and writing has concentrated on the international financial architecture, the sovereign debts of the poorest countries, and the rise in sovereign, corporate and private debt in OECD economies.

In 1984, the rock musician Bob Geldof launched Band Aid – the worldwide music benefit to raise money to feed starving people in Ethiopia – with the memorable words: “Doing nothing for Ethiopia would mean you were complicit in murder.”

Almost twenty years later, and one year after Ethiopia’s worst drought in history, creditors of the rich G7 countries are busy “doing nothing” for Ethiopia – despite their own commitments and rules which fully entitle the poorest country in the world to substantial debt relief.

Why does this, no less than in 1984-85, mean complicity in murder? Because of a simple, deadly sequence: Ethiopia is in the process of being denied additional debt relief it has been promised; this will deprive its government of $1 billion in new money; as a result, the government will be forced to divert $35 million annually to service existing debt repayments to much richer creditors.

This $35 million could instead be used to provide care for women in childbirth, Aids drugs for the many thousands of Ethiopians affected by the epidemic, and sanitation facilities for the elderly and infirm. To deny Ethiopia debt relief is to foreshorten the lives of all these people.

How a scam works

In late 2003, a joint team from the International Monetary Fund (IMF) and the World Bank visited Ethiopia. It undertook a detailed assessment of the country’s solvency and appraised its need for debt “relief”. Ethiopia, the team concluded, was indeed insolvent: it needed far more even than the basic debt cancellation already offered by her international creditors.

Ethiopia, these experts argued, had to be “topped up” with an additional $700 million of debt write-off – or else it would continue paying $35 million a year in debt service it could ill afford. If, moreover, Ethiopia were not granted this extra sum, it would become unsustainable under the stringent definition of “sustainability” set by (no surprises here) the IMF and the World Bank – and would therefore be barred from receiving any new money. This would particularly affect the promise of $1 billion in a new concessional (low-cost) loan from the World Bank.

The team that made the assessment returned to Washington with the news, and conveyed it to its masters in the treasuries of the United States, Germany and Japan. It did not take long for the response to filter out: the US would not accept a better deal for Ethiopia. Rather than have its proposal rejected, the team did not even formally submit its recommendations. As a result, Ethiopia remains in suspended animation – burdened by debts which World Bank and IMF staff acknowledge are unpayable except at great human cost.

Read the profile of and interview with the filmmaker Sorious Samura, who lived among poor people in Ethiopia for his film Surviving Hunger

$700 million of debt relief would have a significant impact on the Ethiopian economy. It represents almost twice the revenues from national exports per year. If $35 million in foreign debt service payments can each year be transferred to Ethiopia’s budget for health, education, water and other vital services, lives will be saved. Furthermore, if Ethiopia is to achieve its Millennium Development Goals for halving poverty – goals set by creditors like Germany and the US – additional debt relief, new loans and aid now are urgently needed.

Why is Ethiopia in such trouble? Despite remarkable success in achieving the tough “austerity” conditions laid down by her creditors, external shocks – over which she has no control – have seriously affected Ethiopia’s economic recovery, and her ability to service debts. These shocks are as follows:

  • The price of her major export, coffee, has fallen 73% in the last twenty years and the climatic conditions of the continent seem to deteriorate every year

  • Because of the fall in coffee prices, the present value of Ethiopia’s debt in relation to exports has increased by around 20%

  • The Ethiopian drought of 2003 was one of the worst in history and cut agricultural production and exports dramatically – as well as necessitating costly food imports

  • The fall of the dollar worsens the situation too, since the value of Ethiopia’s revenues from exports (denominated in dollars) has fallen, in line with the dollar; while her debts (which are not denominated in dollars but in currencies like the Euro and the Yen) are rising
Ethiopia suffers from one other great misfortune: the East African country is of little geopolitical importance. Unlike Iraq, she holds out no hopes of rich gains for her creditors. As a result these creditors, in particular the United States, are not doing for her what they are doing for Iraq: contorting themselves in ideological reversals – and cancelling debts.

Iraq and Ethiopia: contrasting attitudes

Official figures on Iraq’s debt are unreliable, but estimates vary between $120 billion and $200 billion. While there is a noticeable difference between Iraq and Ethiopia in terms of gross domestic product (GDP) per capita – Iraq’s GDP per capita is $2,400; Ethiopia’s is $89 – other poverty indicators in the two countries are not dissimilar. For example, 32% of Iraqi children are deemed to be malnourished and infant mortality is 107 per 1,000 – only slightly lower than Ethiopia’s indicators.

The dramatic difference between these poor countries lies in their respective economic outlooks. According to Forbes’s newswire, Iraq’s revenues from oil could rise to $16.6 billion in 2004 and these revenues are projected to reach $21.1 billion in 2005.

In comparative terms, oil revenues in Iraq for 2003 are projected to be almost three times Ethiopia’s total GDP and 35 times the value of Ethiopia’s exports in 2002. Despite this reality, Iraq’s creditors (which include Germany) will grant the country substantial debt relief – while they do nothing for Ethiopia.

Words and lives

The double standards applied by western creditors to these two debtor nations expose the reality that debt relief does not conform to a set of rules agreed by the international community under its own creation – the Heavily Indebted Poor Country Initiative (HIPC). Instead, debt relief is subject to arbitrary geopolitical considerations.

In the German city of Köln in June 1999, Gerhard Schröder, Tony Blair, Bill Clinton and others pledged in the face of 35,000 protesters to deepen and broaden debt relief for countries like Ethiopia. In his turn, George W. Bush promised to uphold that commitment.

Instead, these world leaders are reneging on promises made at the turn of the millennium. Behind closed doors, they are doing nothing; and by doing nothing they act as accomplices in the murder of innocent Ethiopians.

Ethiopia has a population of almost 70 million. Nearly half live below the poverty line.
  • GDP per capita is as low as US$89 per year. This compares with the United States’ GDP per capita of US$36,300 and Germany’s of US$26,200 per year

  • Overall GDP, despite recent growth, is still lower than it was at the beginning of the nineties

  • The country is almost last on the United Nations Development Programme’s human development league: 169th out of 175

  • Life expectancy at birth is 42 years, compared with 46 years average in the rest of the sub-Saharan Africa; 77 years in the US; and 78.5 in Germany

  • Infant mortality is as high as 116 per 1,000 compared to 6.7 per 1,000 in the US and 4.2 per 1,000 in Germany
In Ethiopia even for those who survive, life is a daily struggle:
  • 47% of children under 5 years old suffer from malnutrition, compared to 1% of children in the US

  • Ethiopia has the third largest number of people living with HIV/Aids of any country in the world
  • Only 24% of Ethiopians have access to water sources, while all US and German citizens do


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