Africa's Debt: Who Owes Whom?

Abstract

External burdens have forced sub-Saharan African countries to divert scarce resources from health, education, and other pressing social needs in order to pay service. Despite bearing heavy social costs for two decades, most countries in the region have become ever more deeply indebted. To a large extent, their plight stems from the fact that the original loans often were not used productively. Instead borrowed funds were captured by African political elites and channeled abroad as capital flight. Responsibility for the resulting transformation of public liabilities into private assets falls not only on past African governments, but also on their private and official creditors. One way to resolve to Africa's present crisis would be to cancel all debts. But apart from the political impediments to such a solution, this would simply set the stage for a new round of borrowing, capital flight, and eventual crisis. An alternative strategy is for African governments to repudiate debts selectively, by invoking the doctrine of odious debt in international law to reject responsibility for the repayment of loans whose proceeds were diverted abroad. In addition to easing today's burdens, this strategy would promote more responsible lending in future years.