Zimbabwe’s debt burden, that has seen the country fork out more in repayments since 1980 than it has received in loans, reinforces poverty and undermines democracy – but something can be done, says Tim Jones, Policy Officer at the Jubilee Debt Campaign, in this guest blog for Progressio...
At Zimbabwe’s birth in 1980, the country inherited a $700 million debt from the Rhodesian government of Ian Smith. The loans had been used to buy weapons in the 1970s in an attempt to put down the liberation struggle. The new government led by independence hero Robert Mugabe came under international pressure to take on the debt, whilst being promised over $2 billion by western governments for reconstruction and development.
Most of the aid money never materialised. Instead new loans were taken out to pay the Rhodesian debts, fund post-war reconstruction and cope with a drought in the early 1980s. Zimbabwe’s large debt burden was created.
Trapped in a debt cycle
The country was now trapped in a debt cycle, where the only way of meeting repayments of hundreds of millions of pounds every year was to take out more foreign loans.
The UK gave ‘aid’ loans tied to Zimbabwe buying products from British companies. Spain lent money for military aircraft. Hundreds of millions of Marks and Francs were lent to buy German and French exports, though the files on what was bought remain closed.
By the end of the 1980s Zimbabwe was spending a quarter of government revenue on debt repayments to foreign governments, financial institutions and private banks.
What was the money used for?
At least some of the inequality of the Rhodesian and colonial eras had begun to be addressed. Infant mortality and malnutrition had fallen. The average number of years children spent in school almost doubled during the 1980s.
But the World Bank was not happy about the amount of state involvement in the economy. They lobbied the Mugabe government about the need to open-up, deregulate and reduce government spending, and made more lending dependent on liberalisation. The government were attentive listeners, and in 1990 began a large scale and rapid structural adjustment programme.
The promise was higher growth and falling unemployment. But the promises rang hollow. Between 1991 and 1997 economic growth fell by a third, unemployment almost doubled, and a trade deficit was created as cheap imports flooded into the country and manufacturing collapsed. By 2004 even the World Bank was admitting that the 1990s liberalisation had “largely failed. Social progress slowed, per capita incomes declined and poverty increased.”
Economic crisis increases
In the mid-1990s there were food riots, strikes, devaluations of the Zimbabwe dollar. Yet by 1998 almost $1 billion was being lost in debt repayments – a gigantic 15 per cent of national income. Meanwhile more loans were being given, until Zimbabwe defaulted on repayments in 2000, and the cheque book was closed.
Since 1980 Zimbabwe has been lent $8 billion but repaid $11 billion. Despite this it is still said today to have a debt in excess of $7 billion.
By 2008 Zimbabwe had reached a nadir, with hyperinflation of 230 million per cent a month and disputed elections. Since the adoption of the US dollar in 2009 some stability has returned, and the coalition government between Mugabe’s ZANU-PF and Morgan Tsvangiri’s MDC has avoided a breakdown into civil war.
Negotiations have now started between the government, particularly MDC Finance Minister Tendai Biti, and western powers on what to do with the debt burden.
But with the country having been in default for the last decade, the western-led debt relief process would actually cost Zimbabwe money, as it would be required to start making repayments. The interest of the government – and lenders – in debt relief is to be able to borrow and lend again, which threatens to repeat the disastrous debt cycle.
What to do
The Zimbabwe Coalition on Debt and Development – a coalition across civil society and unions – argue that parliament should setup an official audit of Zimbabwe’s debts. As has taken place in Ecuador, an audit would identify where all the debt comes from, who loans did and did not benefit, and so whether they should be repaid or repudiated.
An audit would be a vital step in building genuine economic democracy for the Zimbabwean people, in the fight for the country’s undoubted wealth to be invested in building the economy and providing jobs, rather than looted out of the country by elites through debt repayments, company profits and capital flight.
Zimbabwe needs a debt audit rather than debt relief to help pave the way for a genuine break with the failed economic policies of the past.
Tim Jones is Policy Officer at the Jubilee Debt Campaign which published the report Uncovering Zimbabwe’s debt: The case for a democratic solution to the unjust debt burden in November 2011.
Photo: A woman selling produce at the market in Chigondo, near Wedza in Zimbabwe. (Photo © Cathy Scott/Progressio)