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Greece And Niger: A Sorry Tale Of Unfairness

Greece And Niger: A Sorry Tale Of Unfairness
  • PublishedJuly 20, 2012

The severe economic crisis currently gripping Greece and some other European countries is not dissimilar to the situation in Africa in the 1980s. But the global response has been vastly different. ‘What is the basis of this blatant unfairness?’ asks our guest columnist.

Christine Lagarde, the IMF Managing Director, received one of the fiercest attacks of her relatively short stint at the helm of the Fund when she contrasted the plight of children in Niger with the stance taken by Greece over the EU/IMF-crafted package of reforms accompanying the economic bailout conditions.

For months, Greeks, who had been living well beyond their means, vociferously and at times violently opposed the implementation of reforms and austerity measures underpinning the proposed EU-IMF bailout. Three different governments were sacked over the last two years, before the centre-right New Democracy party won with a very narrow margin last month (June) and agreed to the bailout package.

This resistance from the people of Greece has caused considerable uneasiness among European leaders, fearing the risk of contagion and the possible break-up of the EU and policy makers across the Atlantic concerned with implications for global growth.

Reflecting that mood, the IMF chief made the following remarks in an interview to the London-based newspaper, the Guardian: “I think more of the little kids from a school in a little village in Niger who get teaching two hours a day, sharing one chair for three of them, and who are very keen to get an education. I have them in my mind all the time. Because I think they need even more help than the people in Athens.”

This contrast between Greece’s conundrum of the last few months and the plight of Niger, one of the poorest countries in the world, which went through years of austerity measures, drew a barrage of criticisms from the Greeks and other European officials, even though the government of Greece has received one of the largest-ever rescue loans in the history of the IMF.

In effect, the $161bn, second IMF-EU bailout approved in 2011 is by far the largest package ever put together for any single country, especially given that the disbursement profile spans a relatively short period of time, less than three years. The first bailout estimated at $145bn was agreed between EU and IMF in 2010, raising the total package to $306bn. And there is no guarantee that more resources will not be needed.

To put things in perspective, it is more than six times the total amount contributed by donor countries for development assistance to low-income countries (81 countries with a combined population of about 2.7bn), in the context of the IDA-16 replenishment over the next three years (about $49.3bn). The proposed bailout is over 13 times the total amount of external assistance allocated to sub-Saharan Africa under IDA-16, for a total population approaching a billion.

And since Niger has been used as the benchmark, the Greek bailout is approximately 567 times the amount of foreign assistance allocated to Niger under IDA-16, even though at over 16.5m, the total population of Niger largely exceeds that of Greece (10.7m).

In per capita terms, while each person in Niger is expected to receive about $33 under IDA-16 allocation, each Greek is projected to receive $28,598, approximately 866 times more under the proposed bailout.

Even accounting for additional assistance from bilateral donors, the level of resources going to Niger is incommensurate with its myriad of development needs, including information and communication technology, infrastructures, education and health and particularly high under-five mortality rate.

Downsizing government

The critics have called Greece’s bailout a trade-off between growth and austerity, arguing that the reduction of fiscal deficits will be achieved at the expense of growth. Sure enough, successful implementation of the bailout hinges on the capacity of the Greek government to slash expenditures and raise more revenues to pay interests on foreign debt. Still, the contours of the proposed Greek bailout are not markedly different from the plethora of structural adjustment programmes which were indiscriminately implemented across sub-Saharan Africa throughout the 1980s and most of the 1990s.

They included direct cuts in public sector wages. In one of the most emblematic cases that led to a general drop in living standards in the mid-1990s, austerity measures in Cameroon included a 70% cut in public sector wages.

Salary cuts came on top of months of unpaid civil servant wages and a 50% devaluation of the CFA franc in foreign currency terms, which is also an implicit wage cut, especially in a country that heavily relies on imported goods even for basic consumption.  

The restructuring of Greece’s sovereign debt, which resulted in a significant reduction of debt owed to foreign creditors and financiers, was part of the initial package, reducing the size of government liabilities and, hence, of future interest payments.

In what has been called the biggest debt restructuring in history, private investors agreed to write off 85.8% of Greece’s private debt in March 2012. The deal also included a debt swap whereby lenders committed to exchanging the rest of the bonds they hold for new ones worth less, with a longer maturity of up to 30 years and with less interest.

By contrast, debt restructuring was considered at a much later stage in sub-Saharan Africa. It was considered within the framework on the HIPC Initiative in the late 1990s when foreign debt reached unsustainable levels. Naturally, the delay in debt relief and restructuring extended the life cycle of austerity measures and increased the overall economic and social costs of the programme across sub-Saharan Africa. 

The economic and social costs of this delay were significant for countries in the region. Lagarde rightly pointed out some of the most obvious ones in terms of the quality of educational infrastructure to children in Niger.

However, these costs were far broader and included drastic cuts in public investments and a deterioration of economic infrastructure largely responsible for the sustained economic contraction and the rising levels of poverty in the region.

Dichotomy between austerity and growth

The 1980s are often referred to as the lost decade in sub-Saharan Africa, in reference to the overall average negative economic growth rate, the sustained deterioration of living standards, and the rising poverty in the region. The growth rebound recorded over the last decade has been partly attributed to post-HIPC investment boom, although favorable terms of trade – rising prices and global demand for primary commodities and natural resources – also played a catalytic role.

Despite the magnitude of these costs, international development experts and the mainstream media have never assessed IMF-supported adjustment programmes from the standpoint of a dichotomy between austerity and growth. The trade-off between growth and austerity, which has dominated the economic debate since the 2007 global downturn was not part of the policy debate then and had even less chances of prevailing.

Adjustment programmes were generally viewed as the natural path to growth, although that view was more popular among free market fundamentalists.

The biggest irony and lesson from the euro crisis is that the same free market fundamentalists who were absolutists of contract execution and programme implementation during the adjustment era are also the ones who are now calling for the implementation of expansionary fiscal policy in the eurozone area.

In particular, they are arguing that austerity measures will prolong the crisis and result in unbearable economic and social costs/hardship for Greece and other countries where people have already made huge sacrifices. It is ironic that at the height of the structural adjustment era the same free market fundamentalists never established a correlation between prolonged austerity measures and deterioration of living standards in sub-Saharan Africa.

However, their about-face in the context of the euro crisis either suggests that they might well have come out of their ideological bubble or points to an asymmetric response to hardship in developed and developing countries.

The discriminatory treatment of agricultural subsidies, which continue to be in effect in Europe, penalising small African farmers who have seen their governments dismantle support structures as part of WTO compliance, is another example of double standards and asymmetric policy prescriptions.

There are many other areas where policy prescriptions have not been consistently applied in developed and developing countries.

Moving forward, one can only hope that, after the IMF chief’s mea culpa highlighting the social costs of adjustment to the poor children of Niger and inequality in the distribution of limited resources at the global level (whereby a small peripheral economy in Europe can receive more resources than the whole continent of Africa), logic will henceforth prevail in the design and financing of growth and poverty reduction programmes. 

Dr Hippolyte Fofack is a fellow of the African Academy of Sciences.

Written By
New African

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