Can debt relief
do more for development than the language of rights?

Can debt relief do more for development than the language of rights?

Is there a right to economic development?

In the 1970s, James Ferguson wrote a seminal book, The Anti-Politics Machine, on development as experienced in Lesotho. Western development practitioners, he wrote, had latched on to Lesotho as a country with “all the right deficiencies, the sort that ‘development’ institutions can easily and productively latch on to.” The result was a monstrous alphabet soup of development projects in the country, some with missionary overtones. These projects, Ferguson argued, did not work in the way that the agencies intended. Their most important but unintended impact was in expanding the power of the state by extending the range of services that the government was expected to provide.

The frenetic development activity in Lesotho has had, at best, a marginal long-term impact. In 2019, the country scored 133rd out of 167 in the world on the Legatum Prosperity Index, and has dropped three places over the last decade. In terms of access to health services, only four countries in the world score worse than Lesotho.

Development, many of the agencies in Lesotho implicitly or explicitly assumed, was a right. If there is such a right, it seems one that the outside world has very weak power to enforce. A right, of course, creates a responsibility on someone else to protect and ensure that right. Who is responsible for Lesotho’s development? And how can they be held accountable if they are not up to the job?

For a while, microfinance was seen as the way to square the circle. Pioneered by Grameen Bank in Bangladesh in the 1980s, granting small loans to the very poor was seen as a way of increasing economic autonomy at the micro level. But the track record of microfinance is mixed at best. Mass suicides by microfinance borrowers in India in 2010 after drought left them unable to repay their loans caused many to reassess their optimism.

The tension between profitable lending and economic empowerment is clear. Charging interest rates of 20% or more is defended by lenders as necessary to be able to deliver “financial inclusion” at scale. Yet that means borrowers are paying not just for their loan, but also the set-up costs for establishing a new kind of financial-services industry. Statistical studies have found no clear evidence that microfinance reduces overall poverty, but plenty of evidence that it increases the dangers for the very poorest of falling into a debt trap.

Ferguson’s own answer, given decades later in his book Give a Man a Fish, is simple: promote economic development by unconditional cash transfers to the poor. Development for many African individuals and small businesses hinges not on abstract rights, but access to cash. Yet if there is a right to a cash transfer, who has the duty to provide it? Making the cash payments large enough to be meaningful means much bigger tax bills for someone.

African development pace, of course, was not created in a historical vacuum. It is in part a consequence of colonialism, which imposed a world economic order from which many countries, still dependent on cheap raw material exports, have never been able to fully escape. Africa countries themselves, notably through the Africa Continental Free Trade Agreement (AfCFTA), which came into effect at the start of this year, have the capacity to do much more.

On the macro-economic level, and in the context of COVID-19, debt relief from Western private-sector lenders is a concrete step that can promote development. In November, Western holders of Zambian eurobonds rejected the government’s request for debt relief. That will make Zambia’s post-COVID economic recovery and development much harder. A right to debt relief in demonstrated cases of economic crisis would start to make up for the West’s historic failures in promoting economic development in Africa.