Seven years after the International Monetary Fund (IMF) suspended Zimbabwe’s voting rights multi-million dollar debt, the Fund acknowledged the significant economic improvements taking place in Zimbabwe and restored their voting rights on the Executive Board.
At its February 22nd Executive Board meeting, the IMF restored Zimbabwe’s voting rights citing improved macro-economic management of the economy under the stewardship of new Finance Minister, Tendai Biti. This follows seven years of Zimbabwe’s suspension due to arrears. Voting rights on the Executive Board are based on a quota system derived from the size of a country’s economy in proportion to the global economy. This system gives developed nations a monopoly on the decision-making process, allowing them to make unilateral decisions that negatively impact billions of people in the Global South who have little to no voice in the decision making process.
Zimbabwe continues to be ineligible for financial assistance from the IMF, despite the restoration of its voting rights. Until the country fully settles its $140 million Poverty Reduction and Growth Trust (PRGT) arrears, it will not have access to the General Resources Account (GRA).
In particular, the restoration of Zimbabwe’s voting rights does not address the urgent need for an immediate moratorium on all debt repayments to creditors until an audit validates the country's debt and sets in motion cancellation of odious debt. Civil society in the U.S. and Africa has long called for this.
Africa Action stands in solidarity with civil society groups throughout the Global South who oppose IMF and World Bank policies that further entrench developing countries in crippling indebtedness. Today, many developing countries are unable to deal with serious crises such as poverty and HIV/AIDS because a debt burden that siphons off millions of dollars a day in debt service to the developed world. A comprehensive debt audit will reveal that countries of the South are in fact creditors of a historical, social and ecological debt that wealthy countries refuse to recognize. As a matter of economic justice, Africa Action calls on illegitimate debts in Zimbabwe to be cancelled.
How Much is Too Much? Zimbabwe’s Debt and its Effect on the Economy Zimbabwe’s external debt originated decades ago, when Western nations and multilateral financial institutions began to provide loans to Zimbabwe and later introduced structural adjustment policies (SAP). In 1990, after SAP’s were introduced, three years later, UNICED reported that the quality of health services had declined by 30 percent. Consequently, twice as many women were dying in childbirth in hospitals in Harare -compared to 1990- and fewer people were visiting clinics and hospitals because they could not afford the fees.
Currently, Zimbabwe owes $1.3 billion to the U.S. Its total debt to external creditors, including the IMF, World Bank, the African Development Bank, and other international financial institutions stands at $5.7 billion. This represents over 192% of the country’s GDP in 2009; analysts predict that this total debt to creditors could balloon to $7 billion by 2011.
The effects of this debt on Zimbabwean people are clear: debt-servicing obstructs the country’s ability to address urgent health crises such as HIV/AIDS, and consequently one in seven adults is currently living with HIV/AIDS. In other vital areas such as education, literacy rates have been steadily decreasing since 1995, even though Zimbabwe has one of highest adult literacy rates in Africa (approximately 90%).
There is an urgent need for the international community to support a debt audit that differentiates between legitimate and illegitimate debt, or debt acquired by the government that has not benefited the people. This process requires transparency, engaging all stakeholders, including civil society and Zimbabwean citizens. The audit should conclude:
The original terms of the loan
How much interest has been paid
What the (loan) money was used for, including any percentage that was misappropriated
Who borrowed the money, and in whose name
The role and identity of the lender.
Until such an audit takes place, Africa Action demands an immediate and comprehensive moratorium on payments not only to the Paris Club debt –but also to the IMF, World Bank, and other creditors.
From 1980 forward, after insistence from the IMF and the World Bank, Zimbabwe adopted an Economic Structural Adjustment Program (ESAP) sponsored by the same two institutions. A decade of disastrous experimenting with ESAP plunged the country into a severe social economic crisis: a ballooning debt, rising inflation, depreciating currency, de-industrialization, thousands of job losses, crumbling health care and a generally crippled social service delivery system.
Today Zimbabwe’s $5.7 billion debt to external creditors is a result of these policies imposed by the IMF and World Bank, and it also incurred due to high interest rates and poorly designed and underperforming projects.
Debt Cancellation: Going Beyond HIPC Zimbabwe’s Finance Minister Tendai Biti has recently proposed that the country joins the Heavily Indebted Poor Countries initiative (HIPC). The HIPC initiative was launched in 1996 by international creditor institutions (lenders) such as the International Monetary Fund (IMF) and World Bank (WB) in an effort to address perpetual external debt overhang problems of heavily indebted poor countries.
Africa Action, along with civil society organizations in Zimbabwe, have voiced opposition to HIPC, saying that it imposes structural adjustment economic “recipes” and ignores the question of illegitimate debt. HIPC has consistently proven to fail at its primary objective of assisting poor countries to exit permanently from the debt crisis rescheduling. In reality, it has actually curtailed efforts to improve access health, education and other social services.
African nations that have completed the HIPC process have had few success stories. Overall the HIPC has failed to achieve “a robust exit from unsustainable debt.” This is primarily because its focus is on economic measures to assure continued debt servicing rather than on social measures to meet the needs and unique challenges facing poor country’s marginalized communities.
Africa Action calls for a debt relief initiative that leads to poverty eradication and development. Such an initiative must be based on principles of social justice and human rights, and alternative approaches to failed IMF and World Bank policies. This is crucial for countries like Zimbabwe to meet the Millennium Development Goals (MDG) as endorsed by the United Nations.