Africans Relate To Greek Debt Crisis 2015-07-22

Been there. Done that.

Many Africans say they feel Greece's pain, a reminder, they say, of their own so-called structural adjustment programs.

Budget cuts were meant to open economies to investment, downsize overstaffed and inefficient governments and encourage the creation of private sector jobs. But they also led to a reduction in public spending on health and education and economic contraction.

That changed when the IMF permitted more spending on social needs, and international debt relief efforts allowed money once targeted to creditors to be channeled into investments.

Debt forgiveness

Critics say there's not much hope for growth for Greece, or any other government, without forgiving or restructuring debt. Germany has ruled out writing off Greece's debt, although the IMF is urging debt relief and some form of investment to spur economic recovery.

Elizabeth Sidiropoulos, the head of South African Institute of International Affairs in Johannesburg, says Africans have learned that policy makers must balance belt-tightening with social justice.

"While in the Greek case a degree of austerity is important and necessary," she said," at what point are the outcomes we were hoping to achieve are actually destroying the very patient, or very country it's hoping to help?"

"These are issues with African states were tackling when you had IMF prescriptions really weakening state institutions in education, health, etc., that's now only beginning to right itself in a number of low income countries on the continent," she said.

On the other hand, she said developing countries are themselves contributing financial support to the IMF. And as much as they recall the pain of austerity on their own economies, they would not want to see what they consider to be a developed European country get special treatment.

"The IMF," she said, " should not be seen as willing to pump money into industrialized countries while adopting different criteria or implementing it in different ways in developing countries."

Keeping spending under control

Another lesson from the Greek crisis is the difficulty of establishing an EU-like monetary union in Africa that includes scores of countries at very different levels of economic development.

Kenyan economist James Shikwati of the Inter Region Economic Network in Nairobi says they would likely have the same problem as Greece which is wrestling with strict European Union rules on keeping debt levels low as a percentage of gross domestic product.

Shikwati said African governments, like Greece, also struggle to curb debt and contain expenditures.

In many African countries, government spending is increasing. In Nigeria, critics are urging strict monitoring of federal funds approved in a bailout to states that have overspent; in Kenya, Shikwati says the government is struggling to provide funding for 47 counties created by the new constitution.

South Africa's opposition Democratic Alliance says the country, like Greece, is fighting "a pervasive culture of corruption and disregard for rules that govern society that keep the economy functioning. It compared the mismanagement of Greece's public sector with what it called the "financial black hole" of the South Africa's government-run power company."

Scaling back ambitions

Shikwati said these issues and the dispute among European Union members on budgetary rules are giving Africans second thoughts about the continent's own financial integration. Already, he says, African governments are failing to carry out less ambitious agreements and rules to ease border controls and to reduce restrictions that promote trade.

He said a monetary union based on the EU is a "romantic idea" that ignores reality.

"If we look at what's going on in Europe," he said, "there are warning signals that we need not rush into a monetary union for the romantic or aesthetic aspect of "one Africa." We need to take a hard look at how we manage our own resources.

"Kenya," he continued, "still has a big challenge just accounting for its public funds. What will become of the continent or an sub-region if we have a united front of countries that are poor mangers of their funds that we put in one bag? I think that would be an even bigger problem than what we are witnessing in Europe."

Shikwati said the example of Greece is also leading Africans to reconsider debt relief deals that focus on imports and trade, especially with creditor nations. He says they often require debtor states to purchase goods and services from lenders. They do not encourage development in debtor countries.

"In terms of imports and exports," he said, "we have had the argument that there is an attempt to turn all of Africa into huge supermarket, a shopping mall import everything, produce noting, export less. If you look at the challenges facing Greece, it has been importing twice as much as they export. The productivity equation on how Africa relates to its lenders has to be addressed."

An example for Africa?

African economists say their own governments must have a greater say in structuring loan agreements with the international lenders.

Many in the African press approved of the recent Greek referendum in which voters disapproved of the EU's offer of continuing austerity. A press release from the Congress of South African Trade Unions said the EU deal would "suck the blood out of the Greek people" and that the voters had shown Africa an alternative path to development that "serves the people and their societal needs."

Others say it's not clear that Greece has charted a new direction for developing countries, including those in Africa: despite voters' rejection of continued austerity, the new deal looks a lot like those agreed to in the past.