Maravi

Falling into the debt trap

Falling into the debt trap
By Editor
Monday May 19, 2008 [04:00]

The debt write-offs we have so far received do not guarantee us anything. They instead offer us the opportunity to succeed as well as the risk of failure. These debt write-offs are then a promise and a challenge. They are a promise in the sense that if we manage our affairs well or prudently, we stand a better chance of making economic progress as a nation.

They are a challenge because the realisation of the benefits of these debt write-offs rests upon our shoulders as citizens of this country and on no one else. If we don’t manage our affairs prudently, we will be back into heavy debt in no time.

We shouldn’t forget that our debt that has been written off was not acquired overnight and by stupid people. It was acquired by well-meaning people trying to react to the challenges and expediencies of the moment.

They had opportunities to contract debt and they did so. With these debt write-offs, the debt capacity of our country has increased. There are today many institutions that are offering us opportunities to borrow and borrow and borrow.

It is good that we have a Minister of Finance, Ng’andu Magande, who appears to be more prudent when it comes to borrowing. We are being offered money to borrow to finance consumption even by institutions that were previously very critical of our indebtedness.

But today these same institutions are pushing or encouraging us to borrow for all sorts of stupid things or projects. It is understandable that they are in the business of lending money. If they don’t lend money, they will be out of business.

But it is our duty to know when to borrow and for what to borrow money. If we don’t, we will in no time be back to square one. We say this because if we borrow money for things or projects that do not grow the economy in one way or another, our capacity to repay will be very low and in no time we will start to accumulate heavy debts.

This is totally not desirable and should be avoided at all times. Prudence and transparency should be encouraged to the maximum when it comes to borrowing. Let us not forget where we are coming from and how we had gotten there.

The deformation of the economic structures that foreign domination has imposed throughout history on our poor countries has meant that our people have been faced with the impossibility of generating, on their own, the financial resources that are indispensable for overcoming backwardness.

For some years now, it has been evident to the international community that the only way to overcome underdevelopment is by obtaining foreign financial resources under fair conditions. That has not, however, been the main motivation for the flow of financial resources to our poor countries in recent years.

The sharp worsening of our countries’ international economic relations while an appreciable volume of surplus capital was available in the developed world created the conditions for turning flows of financing into a generator of even greater indebtedness, dependence and domination for our poor countries.

An objective analysis shows that this foreign financing – which has often been termed “for development” simply because it is directed to our poor countries – has not contributed at all to overcoming the aftermath of colonialism and neo-colonialism.

In fact, the uncontrollable growth of our countries’ external debts is not a reflection of logical consequences of a development process which necessarily involves foreign financing imbalances. It is rooted in the growing deterioration of economic relations between the most advanced countries and the peoples of our poor countries.

The developed countries’ control over world trade, the reduced diversity of our poor countries’ exports and our great dependence on imports have kept our countries from increasing their export income and forced us to accept unfavourable terms of trade.

It should be pointed out that the drain in the form of servicing operations continues to contribute greatly to the unrestricted, uncontrolled activities of the transnational corporations, through remittances of profits from our poor countries where they are located to their parent companies in other parts of the world. In other words, far much larger amounts of money left our countries in profits for every dollar invested, thus strengthening the balance of payments of the developed countries.

Foreign investments have therefore been an important factor of deterioration in our poor world’s balance of payment and an element contributing to its external debt.

Just as financial resources transferred to our poor countries have served only to compensate in the short-term for the disequilibriums in our balance of payments and have not had any real weight in the process of development, a growing process of indebtedness has been generated in our countries.

The burden of this indebtedness is such that it is crushing not only all possibilities for economic growth but also the possibilities for guaranteeing the low levels of consumption that are characteristic of most of our underdeveloped countries which are very dependent on imports.

The very dynamics of the process of indebtedness, however, while making it possible to cushion the effects of the crisis on the economies of our countries to some extent, has itself become a source of enrichment for transnational finance capital. This is clearly expressed in the evolution of debt servicing.

Given these realities, we have no alternative but to ensure that when we borrow, we only do so for projects that will enable us to pay back the money. It is not, in principle, wrong to borrow. What is wrong is to borrow for expenditure that will not enable us to grow our economy and, at the end of the day, to meet our debt obligations.

If we don’t stick to this, it will not be long before we start seeking another series of debt write-offs. In short, we will never be able to get out of the debt trap if we are not prudent in our financial dealings. The institutions lending us money are not benevolent organisations out to simply help us.

They are institutions out to make money out of us. And for every dollar they lend us, they will take out far more than they have advanced us. This is what motivates them to lend us money. Let’s be aware of this at all times and avoid unjustified debts. But to avoid this, there is need for us to quickly implement a debt management strategy, policy and legal framework that will enable us to deal with our debts in a more efficient, effective and orderly manner.

Labels: DEBT

posted by MrK @ 5:30 AM