PAUL JAY: Welcome to The Real News Network. I'm Paul Jay in Washington. This is the second
part of our series of interviews based on the book Africa's Odious Debts: How Foreign
Loans and Capital Flight Bled a Continent. One of the things the book points out is that
Africa spends more on servicing its external debt than it does on health care. Now joining
us to talk about the human cost of Africa's odious debt are the authors of the book. Professor
Leonce Ndikumana. He's--teaches economics at the University of Massachusetts Amherst.
He's a research associate at the PERI institute. And Professor James K. Boyce. He's director
of the program on Development, Peace Building and Environment at PERI institute in Amherst.
Thank you both for joining us again.
JAMES K. BOYCE: Thanks, Paul.
LEONCE NDIKUMANA: Thank you.
JAY: So, Leonce, talk a little bit about the issue of the human cost of Africa's debt.
NDIKUMANA: Thank you very much. Again, we would not be spending this much time analyzing
the issue of external borrowing and capital flight if it didn't have any impact on people.
And, unfortunately, the impact of irresponsible external borrowing and misuse of externally
borrowed money and capital flight is dramatic. The simple logic is government--governments
are entrusted to provide basic services to their populations, including education and
health care, whereas African countries have made substantial progress in providing access
to health services. The problem is it's still limited. It's--in many countries this objective
is not going to be reached by the MDG target. And as--when you look across the country,
you--across the continent, you find many countries which are endowed a substantial amount of
resources that could finance basic services such as education and health and--but at the
same time, you find a large majority of the population with no access to these services.
Countries like Equatorial Guinea, country that's like the Republic of Congo, are countries
where you find stories of hospitals which have no medicine, which have no equipment.
There is a story in our book where we talk about a hospital in the Republic of Congo
where the elevators don't work, so people have to carry the sick people across the stairs
on their backs. And the only part of the hospital--in that hospital that works at full capacity
is the morgue, because people are not being treated. So you have a situation where resources,
national resources are being used for private purposes, for spending purposes, where at
the same time children are not immunized, hospitals don't have the supplies. And in
our simple calculation, we find that Africa is spending as much money on servicing the
debt as on health care.
JAY: Right. One of the examples you give in your book is the son of the president of Equatorial
Guinea spends $35 million on a mansion in Malibu, while the country's--has twice the
average African rate of malaria deaths, and most kids don't have mosquito nets to sleep
with, which seems kind of ridiculous.
NDIKUMANA: Yes. And that example is very, very, important, because countries that have
focused their resources on combating malaria with simple means as mosquito--anti-mosquito
nets, we have seen a dramatic decline in mortality due to malaria. So countries like Equatorial
Guinea which have the resources could make huge impact on health outcomes by spending
more money on public services.
JAY: James, this--Equatorial Guinea is kind of a particular example of the corruption
of that regime. But the more systemic problem across Africa is this servicing of the external
debt. What are the numbers on that?
BOYCE: Well, Paul, if you think about the impact of foreign loans being partially diverted
into capital flight, which we talked about in the first segment of this series, you would
still have some money that remains in Africa initially, unless 100 percent of the money
turns around and goes back out the door, which doesn't usually happen. Something's left in
Africa. So one might look at that and say, well, at least Africa's getting, you know,
$0.40 on the dollar or something like that; isn't that a good thing? And the problem is
that these are loans and that the loans have to be repaid. In fact, they have to be repaid
with interest. And so the real net drain on Africa happens when that interest is paid.
We make the following calculation. We go through it in our book. First we estimate, as we said
before, that over half of the money that enters Africa as foreign borrowing exits in the same
year. So there's more than half of the debt service being paid on those loans is servicing
debt that fueled capital flight. Next we look at the relationship between debt service payments
and public health expenditures and Africa. We don't assume that if it weren't for the
debt service payment all of that money would go into public health. What we do is we simply
look at the observed relationship from the observed behavior of African governments and
estimate statistically what's the relationship between how much a country's spending in debt
service and how much it spends on public health. As you'd imagine, there's a negative relationship;
there's a crowding out. If you're spending money on debt service, it's not available
to spend on other things. And what we estimate is that for every dollar of debt service paid
by sub-Saharan African governments, those governments reduce their public health expenditure
by $0.29. So there's a pretty big crowding out effect; it's not a marginal one, it's
a big one, in terms of impacts on public health expenditure. Next we look at the relationship
between spending on public health and infant mortality as one way to look at the actual
human costs of this process, and we find that an additional $40,000 worth of public health
expenditure in Africa is associated with one less infant death. So if you put these pieces
of the puzzle together and look at the total amount of money flowing out in debt service,
the fraction of that that fueled capital flight, the resulting diminution of public health
expenditure, and the resulting loss of lives through infant mortality linked to that reduced
health expenditure, we estimate that about 75,000 infant deaths a year in sub-Saharan
Africa can be explained by the debt service payments on borrowing that fueled capital
flight. So this gives a new meaning to the phrase "blood money", Paul. We're talking
about serious human costs imposed on people who were in no way, shape, or form complicit
in the financial chicanery that resulted in these odious debts.
JAY: Leonce, you--in the book, you found--you tracked the relationship between these loans
and capital flight. How did you do that, and what conclusion did you come to?
NDIKUMANA: We--in fact, as you said, because of the magnitude of these outflows, we naturally
wanted to understand what is the factors behind these outflows and looking at the different
factors that could cause capital flight. And one of the one--one of the factors we focused
on was external borrowing itself. So the analysis is a very simple analysis where we look at
how the inflows of external borrowing are associated with outflows of capital flight.
And we find that for every dollar that comes into the continent, about $0.60 goes out of
the country--out of the continent the same year. And in the subsequent years, more money
flees the continent, about $0.04 in the subsequent years.
BOYCE: Per year.
NDIKUMANA: Per year in the subsequent years. So this is what gives you this accumulation
of capital flight over the years that we noted.
JAY: Right. I mean, one of the important things, I guess, about this is that the capital flight
isn't primarily, like, people who made money doing legitimate businesses in Africa and
then want to park their money in a safer place. This is skimming loans and leaving the country.
BOYCE: Yeah. I think, Paul, you know, it's difficult to say exactly what the proportions
are, but clearly the fact that there's such a strong correlation between inflows of foreign
borrowing and outflows of capital flight, year-to-year correlation, suggests that the
skimming of foreign loans through kickbacks, through padded procurement contracts, sometimes
through simply the transfer of money from public accounts into private accounts, all
of those sorts of skimming operations are an important part of the story. Now, to be
sure, there are some legitimate businessman who may move their money abroad as well for
fear that, you know, the regime is going to steal their money. There also, as Leonce mentioned,
a lot of capital flight that takes place through trade mis-invoicing, often conducted by multinational
corporations. So money that should be received by African governments in taxes and royalties
instead gets parked offshore in tax-secrecy jurisdictions, where--tax havens, where the
money's not available to Africa. So you've got a combination of a number of different
sources of the looted funds or the capital flight. But certainly criminality is a major
piece of the story, outright criminality and actions that are in that gray area between
what's legitimate and what's illegal.
JAY: So in the final analysis, the IMF, the World Bank, Wall Street private banks, European
banks loan all this money, and they know that when they loaned it they were loaning it primarily
to dictators, to kleptoccrats. They knew that it was going to be to a large extent used
not just for personal wealth but to buy arms to repress the people of these African countries.
So the question is: then why the heck should the people of Africa repay such, quote, odious
loans? And it turns out in international law there is some precedent for the African peoples
to say, we won't pay back these loans. And in the next part of our series of interviews
we're going to dig into the whole issue of law and the odious debts of Africa. Thanks
for joining us. And join us for part three on The Real News Network.