The Debt Crisis in Arab & African Countries
By: Dr. Khodeir Hussein Khodeir
Reviewed By Samia Mashaly

As is obvious from its title, this book deals with the debt crisis in Africa and the Arab world. It focuses however on the period from 1980 to the mid-1990s. The reasons can be summed up as follows:

* The heavy burden and the disfigured structure of such debts.

* The growing trend towards debt-rescheduling, not so common in 1970s.

* The many initiatives tabled seeking a solution of the problem.

* The numerous complaints made about how complicated IMF rescheduling terms are.

In this book, the author, Dr. Khodeir investigates the causes, symptoms, and ways, rescheduling inter alia, of dealing with the debt crisis. He has chosen three countries, DR Congo, Cote d'Ivoire and Egypt, to serve as study case. The book falls in ten chapters. In Chapter One, Dr. Khodeir deals with the volume and structure of Arab debts. He finds long-term debts occupying first place with a relative value of 87.6 per cent; in second place comes short-term debts valued relatively at 9.9 per cent; finally tailing the list come IMF credit facilities at 2.5 per cent. The principal reasons for increased indebtedness are also investigated, the most prominent of which are found to be restrictions placed by the donor countries as to how loans will be used.

The numerous projects and donors are also deemed an impediment. The reasons why countries seek loans do however vary from one case to the other. The key debt-promoters, nonetheless, may be summed as follows:

* Declining oil prices.

* Increased borrowing on difficult terms as a result of lack of financial assistance.

* Rising general state budget deficits.

The author holds that increased borrowing will inevitably lead to the debtor countries being unable to pay their dues on time and thus be forced to reschedule.

In Chapter Two, Dr. Khodeir reviews the debt volume and structure in African countries in the period from 1980 to the 1990s. His emphasis is on DR Congo, Cote d'Ivoire and Egypt, his three study cases. IN DR Congo and C™te d'Ivoire debts are found to have more than trebled in volume; in Egypt, however, it has only doubled. Indicators of the debt burden are then examined. African countries are categorised in terms of average earnings and debts due. 26 African countries are thus found to be among the world's most heavily indebted countries.

According to World Bank categorisations, low-income heavily indebted countries are those where per capita income is averaged at US$850 of GDP. Accordingly Egypt and DR Congo are categorised as such. Cote d'Ivoire, on the other hand, while heavily indebted has a per capita income ranging between US$850 and US$6000, which puts it in a higher category.

Again according to World Bank categorisation of developing nations as considered in terms of the debt burden, 27 African countries are found to be low-income heavily indebted states. These include DR Congo, Cote d'Ivoire, Ethiopia, Nigeria and Sudan, among others. Only The Gabon stands in the category of average-income heavily indebted countries.

7 countries are categorised as moderately indebted low-income countries including Kenya, Senegal, and Zimbabwe; 5 as moderately indebted countries of average income namely Algeria, Equatorial Guinea, Mauritius, Morocco and Tunisia; two as low-income countries with an average debt burden namely Eritrea and Lesotho; 7 as average-income countries with the least debt burden, namely Botswana, Cape Verde, Djibouti, Egypt, South Africa and Swaziland.

Dr. Khodeir then deals with ways to assess the debt burden. He cites the following as indicators:

* The debt-to-export ratio.

* The debt-to-GDP ratio.

* The high debt servicing rate.

* The high rate of export earnings lost to debt interest rate payments.

* The growing per capita share of the debt burden as compared to the per capita share of GDP.

* The accumulated arrears in the cases of DR Congo, Egypt and Cote d'Ivoire. Chapter Three deals with the rescheduling of debts and the terms of the London Club (LC) as compared to those of the Paris Club (PC). Given that African debts are mostly governmental or such-like, it was thus natural that the rescheduling would take place within the Paris Club, the London Club being mainly concerned with commercial debts.

The amount of African debts rescheduled over the period from 1980 to 1990 ranges between US$531 million to US$ 707 million. African debt rescheduling operations within both PC and LC also varied in terms of number. In 1980, the number stood at 4 operations; in 1989 it rose to 18 and then in 1990 it declined to only 10.

In Chapter Four, the author investigates the process of rescheduling as implemented by DR Congo, Egypt and C™te d'Ivoire, his three study cases. He first deals with the tough negotiations preceding rescheduling together with the terms and modalities adopted. He also discusses the process of barter within the context of the rescheduling operation.

Chapter Five investigates the concepts and motives of both debtors and creditors; the bargaining processes, and the connection between the balance of payments and rescheduling.

Chapter Six discusses the terms and procedures of the rescheduling of both governmental and commercial debts.

Chapter Seven examines the difficulties faced during rescheduling negotiations either at the multilateral level within PC or at the bilateral level between individual debtor and creditor states. Other modalities for solving the debt crisis are also investigated here; e.g. barter operations, debt buy-offs and the trading of debts for development projects. The feasibility of the latter in redressing balance-of-payment deficits is further explored.

Chapter Eight deals with the effects of rescheduling on the economies of African countries in general and of those of DR Congo, Egypt and Cote d'Ivoire in particular. Dr. Khodeir maintains that the process has contributed to further exacerbating the debt burden. The following manifestations are cited to support his argument:

* The growing number of states resorting to rescheduling.

* Individual states often reschedule more than once.

* The growing volume of debts despite rescheduling.

* The maintained balance-of-payment current-account deficit.

* Despite repeated rescheduling, due debt servicing far exceeds previous debt servicing.

In Chapter Nine, the author reviews elements affecting debt rescheduling. These are classified into those pertaining to the rescheduling process itself; those relating to international circumstances, and others relating to debtor countries.

Chapter Ten investigates projected setbacks in respect of both the rescheduling process and the debtor states. African debts rescheduled under the PC umbrella are estimated to have risen from US$60 million in 1980 to some US$ 0323 million in 1990. In respect of African countries having rescheduled their debts, the number is put at 6 for those that have rescheduled only once. The number of African countries having rescheduled from 2 to 4 times stand at 17; from 5 to 7 times at 7; more than 7 times at only one country. In respect of commercial debts, the number of countries having rescheduled only once is put at 7; from 2 to 4 times at 9; from 5 to 7 times at only 2.

Dr. Khodeir also deals with debt buy-offs within the framework of the rescheduling process. He cites several examples: Nigeria, DR Congo and Sudan. Trade-offs for investment projects are also mentioned; e.g. Madagascar, Zambia, Ghana and Nigeria.

In the period from 1989 to 1994, the UNICEF has carried out debt trade-offs for development projects in the fields of child and health care, water resources and education, among others. Examples mentioned include Sudan, Madagascar, Zambia and Senegal.