PAUL JAY: Welcome to The Real News Network.
I’m Paul Jay in Washington. A new book titled Africa’s Odious Debts: How Foreign Loans and
Capital Flight Bled a Continent begins its conclusion with the following. During the
past four decades, sub-Saharan Africa has experienced a financial hemorrhage. We estimate
that from the thirty-three countries for which we have data, capital flight between 1970
and 2008 amounted to $735 billion in 2008 currency. Including imputed interest earnings,
the drain of resources amounted to $944 billion. These sums far surpass the same countries’
combined external debts, which stood at $177 billion in 2008. This means that sub-Saharan
Africa is a net creditor to the rest of the world. If this is true, why are so many of
Africa’s people so poor? The answer, of course, is that the subcontinent’s external assets
are private and in the hands of a narrow and wealthy stratum of its population, whereas
its external debts are public and therefore borne by the people as a whole through their
governments. Our statistical estimates indicate that half or more of the money flowing into
Africa as foreign loans exited in the same year as capital flight. Now joining us are
the authors of the book: Professor Leonce Ndikumana, who teaches economics at the University
of Massachusetts Amherst and is a research associate at the PERI institute, and Professor
James K. Boyce, director of the Program on Development, Peace Building and Environment
at PERI institute. Thank you both for joining us. JAMES K. BOYCE: Thank you for having us, Paul. LEONCE NDIKUMANA: Thank you very much. JAY: So this is the beginning of what’s going
to be a three-part series. In part one, we’re going to talk about the roots of this debt
crisis in Africa. In the second part, we’re going to talk about the human costs of the
crisis. And in the third part, we’re going to talk about solutions and just what the
word “odious debt” refers to. So, Leonce, can you give us some background on what you
mean by this odious debt, some of the historical roots of this debt? NDIKUMANA: The simple way to think about the
historical root of the issue of odious debts in Africa is that African countries have–at
least they thought they were counting on the rest of the world to help them finance development,
whereby they borrowed money or their governments money from lenders, private and public, which
were, arguably, intended to finance projects. But in practice, a large amount of the money
that was borrowed by African governments never financed any of the projects, the intended
project. In contrast, the money ended up in private pockets of government officials with
the help of the financiers, the private–the banks, whereby the government officials deposited
the proceeds of the loans sometimes in the same bank that issued the loan to the government.
And then you have a situation where the development projects are not being financed, but at the
same time, the people of African countries are saddled with servicing these same debts. JAY: James, a lot of this took place in the
years that you studied during the Cold War. You looked, I believe, at from 1970 to 2008.
And much of this was part of a Cold War strategy of installing and supporting dictators, a
strategy by the US and the West in the name of fighting the Cold War, although it was
also, I think, a large–to do with with the scramble for the riches of Africa. In your
book you begin with the sort of poster boy for this kind of strategy, Mobutu, in the
Democratic Republic of Congo, which he renames Zaire. Can you give us a bit of that background? BOYCE: Sure, Paul. By the early 1980s it was
very, very well known in the international community and in the banking community that
the Mobutu regime in Zaire was thoroughly corrupt. In response to the problems of corruption
there, the International Monetary Fund, or IMF, took the very unusual step of installing
its own team of experts in the Central Bank of Zaire to try to clean things up. By 1982,
the team had written its report and gone home in disgust. And in its report, Erwin Blumenthal,
who headed that team, said that there was no chance at all that the creditors would
ever be able to recover their loans to the government of Zaire. The money was down the
drain. Despite that, creditors continued to lend money. Although the private bankers were
getting increasingly nervous, the official creditors, the governments of the West, the
international financial institutions, continued to lend money to Zaire. And by 1989, the debt
had grown, and the Mobutu regime was facing a financial crisis, because the interest and
debt service payments that were due on past loans were no longer fundable with the money
that was continuing to come from the increasingly nervous creditors. In ’89, Mobutu flew on
the Concorde jet, the supersonic jetliner (he had build a runway for that jet in his
home village in the northern part of the country), flew to Washington DC, where he was the first
African head of state received by President George Bush in the White House. Mobutu was
coming basically in order to tap his old friend, Mr. Bush, who he’d known for a number of years,
in hopes that more financial assistance would be forthcoming for his corrupt regime. Bush
accommodated. At the meeting in the White House, he announced that the IMF would be
making a new loan to Zaire. The World Bank followed shortly with additional money as
well. This is years after the Blumenthal report had thoroughly exposed the corruption of the
regime, at a stage where nobody, no private creditor in their right mind would have been
lending money to this particular government. Why did they do it? Well, it’s very hard not
to see the geopolitical motives here. Mobutu was often praised in Washington by President
Reagan before President Bush as one of America’s great friends in Africa. And what that meant
was that in the Cold War contest between the US the Soviet Union, Mobutu was considered
a reliable ally, and all of his financial crimes were overlooked in the name of supporting
that alliance. JAY: Right. It’s not a problem he’s a dictator
and it’s a kleptocracy, as long as it’s, quote, our dictatorship and kleptocracy. And I guess
just to quickly remind people that don’t remember, Mobutu came to power as a result of a CIA-backed
coup overthrowing Patrice Lumumba, who was a legitimately elected prime minister. Leonce,
Mobutu’s not unique in this story, though. What are some of the other examples that still
repercussions exist today? NDIKUMANA: The story of Mobutu is not unique.
In fact, you find, because of the underlying motives, both financial and political-strategic,
you’re dealing with a financial system with very perverse incentives, whereby the bankers
have the incentives to keep lending because they have–they generate the profits. In fact,
they make the profit on the loans themself: they make the profits on the deposit of the
stolen money. You have the official lenders who have the motives of keeping the lending
going to support their allied regimes. So political motives sustain this lending, although,
as Jim has indicated, in some cases you have clear evidence that the money is being embezzled,
it’s not being–is not finding the development project. We have heard–we have–many [incompr.]
have read in the news about massive amount of money that have been stolen from Nigeria
by governments of–past governments and the Abacha regime. The government have–the country
has never been able to recover a fraction of those stolen loans. In all these cases,
it’s a combination of stealing foreign external–the proceeds of external borrowing, but also it’s
a story of embezzlement of the proceeds from natural resources, as in the case of the Congo,
especially in natural resource rich countries, you have a lot of money that goes missing
because of the [incompr.] invoicing between the sellers and the buyers. And with these
huge deals, in very complex contracts, where government official–African governments many
times find themselves at the short end of the deal because of lack of capacity, the
opacity of the nature of the transactions, and massive amount of wealth then is channeled
out of the country. So the Congo is not alone, and Mobutu is not the only one that can be
identified as having been responsible for bleeding and the hemorrhage of the–the financial
hemorrhage that the continent has suffered. JAY: And when we talk about the amount of
capital flight in comparison to the entire external debt, we’re talking to a large extent,
you know, dictators, their families, and the loyal elites parking their money in Swiss
bank accounts and other safe havens. So these are individuals that have enriched themselves
with billions of dollars they’re sticking in these accounts. And I urge people to get
this book, because it’s a good narrative of this, but also the data is very rich. But,
James, it’s not just about parking money. The banks that loan this money to, like, Mobutu
and others like him, they knew not only was this going to be individually put in their
pockets, but that a lot of this money was going to be spent in arms. And arms manufacturers
and sellers were a big piece of this whole story. And as we know in the Congo, it led
to millions of deaths. Maybe you can speak a bit about that. BOYCE: Yeah. I mean, one of the motives–there
are a number of motives that explain why lenders would be providing money for projects of dubious
merit, uses of dubious benefit to the population of the recipient countries. And one of the
motives, as you mentioned, Paul, is that in some cases these loans were intended to finance
imports of weapons or of other materiel from companies that were themselves clients of
the lending banks. So that segue between lending money and then the money flowing back into
purchases from bank clients is one piece of the story. Another important piece, however,
is that if you think about the incentive structures for the loan officers in the banks, the way
that they are rewarded, the way that they’re promoted is above all based on how quickly
they can move the money, how quickly they can get the money out the door. And there’s
a good reason for that, or I suppose you could say it’s a bad reason, but it’s a reason,
which is that the ways that banks make their profits are twofold. One is by charging fees
or commissions on the initial transactions, just like when you take a mortgage on your
house, often you pay points, loan origination fees. The other is by the spread between what
the bank charges in interest and what it pays to the depositors that are providing capital
to the bank. Well, unlike the spread, which takes years to materialize and pay back, the
fees are bookable as profits on the bottom line of the bank in the same quarter that
those fees are received. And so from the standpoint of a myopic institution, which many institutions
are, those upfront fees become a very important motivator for doing business and a very important
piece of what people get rewarded for doing. The result of that is that a lot of loans
get made for purposes that are really very risky at best, sometimes just utterly dubious.
So this is a theme that you find not only in the lending to Africa, where loans were
made for bogus projects, for projects with inflated price tags, for purposes where the
money was basically cycling back out through this revolving door, linking borrowing and
capital flight. You can also find this same phenomenon of irresponsible lending being
driven by the incentives to book those fees and get those promotions and bonuses at the
root of the subprime crisis that broke out in the United States in 2008; you can find
it in many of the financial problems in Europe today, where again irresponsible lending fueled
booming real estate markets in countries like Ireland and Spain, where again ultimately
the bubble pops and the taxpayer ends up holding the bill. JAY: Well, in the next part of our interview,
let’s talk a little bit about the ongoing cost of this odious debt. I mean, it’s bad
enough that these kleptocratic dictators pocketed all this money and that the banks made all
these fees, and it’s bad enough so much of it went to spend on military expenditures,
but the real cost is in the years afterwards, which is servicing this odious debt. And in
part two of our series, we’re going to drill into that. Thank you both for joining us.
And thank you for joining us on The Real News Network.