Solutions to Poverty?

1. Solutions to Poverty? CGW4U

2. African Debt • Why are many African countries so deeply in debt? • What is the impact of Africa’s massive debt? • What would be the main reasons for and against forgiving all or some portion of Africa’s debt?

3. Forgiving the Debt • In the late 80s/early 90s, the World Bank and some countries began to forgive portions of debts owed to them by African countries • By 1994, more than $15 billion of African debt was forgiven • The region still owed $235 billion to foreigners, including donor countries, banks and multilateral institutions

4. Forgiving the Debt • In 1996, the World Bank and IMF created the Debt Relief for Heavily Indebted Poor Countries (HIPC) Initiative • Qualification for this program is contingent on the country introducing certain economic reforms • For example restructuring and privatization of state-run enterprises • By 1998, only two of the 40 eligible countries received actual debt cancellation, due to the stringent requirements

5. Forgiving the Debt • In 2005, based on public pressure, the G8 agreed to 100% cancellations of debt owed to the African Development Fund, the World Bank, and the IMF by 18 countries who were eligible for the HIPC initiative

6. However… • The total debt forgiven is $40 billion, but this actually accounts for just $1.5 billion per year in repayments • Africa’s total external debt stands at $300 billion

7. Foreign Aid • What does “foreign aid” mean?

8. Foreign Aid • The average country spends about 0.28% of its GDP on foreign aid • The U.S. spends about 0.16% • Canada is 0.31%

9. Tied Aid • When receipt of aid is tied to conditions • Up to 40% of aid is made conditional on its being spent on goods and services purchased from the donor country

10. Tied Aid • Ex: insisting that Africa’s governments purchase anti-AIDS drugs from the United States instead of buying cheaper generic products from South Africa, India or Brazil • US brand name drugs cost up to $15,000 a year compared with $350 a year for generics • Ex: Prior to 2010, the Canadian gov’t required that at least 90% of food aid be sourced in Canada (now 50%) • Food from North America is more expensive to produce and transport, and takes longer to get where its needed than locally sourced food

11. Tied Aid • Over 70% of US foreign aid is required to be spent on US goods and services • At least 75% of US food aid must be shipped by US vessels • Preference given to in-kind food produced in the US and to the US shipping industry makes US food aid the most expensive in the world. The premiums paid to suppliers and shippers combined with the increased cost of food aid due to lengthy international transport raise the cost of food aid by over 100 percent compared to local purchases • Frederic Mousseau, Food Aid or Food Sovereignty? Ending World Hunger In Our Time , The Oakland Institute, October 2005

12. Tied Aid • Besides being more expensive than purchasing locally produced food, what would be some other consequences of this type of tied aid?

13. Food Aid • Is food aid helpful, or harmful?