Escaping Debt Slavery: Ethiopia, Africa, and the IMF
TRANSCEND MEMBERS, 22 May 2023
Ann Garrison | Black Agenda Report – TRANSCEND Media Service
In 1987, at the Organization for African Unity, Thomas Sankara said, “Debt is a cleverly managed reconquest of Africa.” Ethiopia might actually be better off if the US keeps the IMF from signing off on its latest loan request.
17 May 2023 – The US is holding up Ethiopia’s request for a $2 billion loan from the International Monetary Fund (IMF) for postwar reconstruction and development. I spoke to Robert J. Prince, Retired Senior Lecturer at the University of Denver’s Josef Korbel School of International Studies , about Ethiopia, Africa, and the IMF.
ANN GARRISON: A source who preferred to remain anonymous told me that the US is holding Ethiopia’s loan up, demanding accountability for wartime atrocities, but that their real goal is to force Ethiopia to distance itself from Russia and China, but most of all from Eritrea. That sounds plausible, but what do you think?
ROBERT J. PRINCE: I’m not at all surprised that the loan request is in limbo, as Washington has been putting all kinds of pressure on Ethiopia for some time. And this is just another form of pressure. Indeed, putting all the pieces together, Washington has been engaged in nothing short of hybrid warfare against Ethiopia ever since Abiy Ahmed came to power in 2018. The games being played with the IMF loan are simply one element of that.
Concerning Washington’s claims of Ethiopian government atrocities, Washington is well aware that the Tigray People’s Liberation Front (TPLF) tried to regain power militarily and failed. The TPLF has essentially been Washington’s proxy in the region.
This was a two-year war, and in war, unfortunately, atrocities are committed, but most of the documentation that I have seen places the atrocities on the TPLF side of the fence, and they have been, quite frankly, horrific.
Having failed to overthrow the Abiy government and bring the TPLF to power, the United States tried to control the outcome diplomatically, through the Pretoria peace agreement, which Washington orchestrated from the sidelines to save the TPLF from complete defeat. The pressure that is being put on them through this IMF agreement is an example of that.
Let’s just look for a moment at the comment about Eritrea. In my mind, there’s no doubt that one of the main targets of Washington in the Horn of Africa is the Eritrean government. We need to keep a couple of things in mind, given the wall of bad press that Eritrea gets in this country. One is that Eritrea is the only country in Africa that has refused to collaborate with AFRICOM, the US Africa Command.
And the other thing, less known and less appreciated, is that Eritrea also refuses to accept IMF and World Bank loans with their structural adjustment aspects. I don’t think there’s any other country in Africa that has done that either. So these are really the main reasons for Washington’s hostility towards Eritrea.
But you have to add something else. To back up a little bit, I was recently reading a book about Ethiopia called The Lion of Judah in the New World . The author is Theodore Vestal, an Oklahoma State University professor. And in that book, he makes a comment about Henry Kissinger’s policy towards the Horn of Africa. We’re talking 1972-1973, but it really sets the stage very nicely. And what Vestal notes is that in some National Security Council secret document, Kissinger said that the best thing for Washington’s policy in the Horn of Africa was to keep the region divided and pit one side against another.
Think about what’s happening now, the carving up of Sudan over 10 years ago, the splitting up of Somalia that you’re reporting on these days, and then the ethnic conflicts that continue to hurt Ethiopia. That is classic Kissinger divide-and-rule kind of stuff.
And the opposite of that is Ethiopia, trying to make regional alliances, both for economic and political reasons. And from what I can tell, the strength, the real key to economic and social dynamism and development in the Horn of Africa is the Eritrean-Ethiopian connection. So of course that’s something that Washington wants to break up. It’s another reason Eritrea gets all the bad press it gets.
It’s very difficult for me to analyze what’s fact and what’s fiction in US reporting on Eritrea. I don’t follow much of it because I feel it’s so one-sided.
AG: Okay, the same source, who prefers to remain anonymous, said that China is Ethiopia’s largest bilateral creditor. So therefore, the US thinks that China should take on more responsibility in terms of the bailout package. However, the Chinese want the IMF to foot the bill. Could you interpret?
RJP: We need to remember certain things about the IMF and the World Bank. While they claim to be international organizations, and of course to a certain extent they are, they are US run and dominated. And since the late 1970s, early 1980s, the IMF has attached conditions to its loans. And those conditions are known as structural adjustment, which has been discredited by academics all over the world for the past 35 or 40 years. It doesn’t lead to development, but it does lead to greater debt.
So how would this particular proposal be any different from other IMF proposals? I don’t know.
But in terms of the broader geopolitical question, let’s just be frank about what’s happening in the Horn of Africa. And here I would like to take a specific example that relates to foreign aid and major funding. And that has been the West’s attitude towards the Grand Ethiopian Renaissance Dam (GERD), which has the potential of really creating a kind of economic dynamism in the Horn of Africa which hasn’t existed until now.
Ethiopia went on several occasions to the IMF and the World Bank asking for financial aid to help build the dam, but they didn’t get it. And, in fact, most of the funding for that dam has come from the Ethiopian people themselves, which is quite moving. So this is their dam. And this is their dam, whether they’re Amhara, Oromo, Tigrayan, Somali, or any other Ethiopian ethnicity. It doesn’t matter. It’s their dam.
The creation of this dam is one of the few counterbalancing forces that I see to all this ethnic tension and dissent. Everyone has a place in that dam. And not just Ethiopia, because this dam, when completed, and it’s near completion, is going to provide electricity for the entire region. And without electricity, development is difficult, difficult to impossible.
Now, where do the Chinese fit into this? The Chinese are the only major foreign country to my knowledge that have played any role in funding this dam.
AG: I believe they invested in the electricity delivery infrastructure.
RJP: That may be. I haven’t seen the statistics for a couple of years, but as I remember, Ethiopians had invested about $6 billion and the Chinese had invested about $1 billion.
So you’ve got that big project. And in the midst of all this ethnic tension that we’re seeing, the dam brings Ethiopians together and brings the Horn together, but what has the US and the World Bank position been on the dam? They’ve opposed it, they’ve opposed it down the line. They’ve thrown monkey wrenches into it. This is the kind of project that the IMF and the United States refuse to fund. But this is the kind of project that the Chinese in particular welcome and help. So there’s that part of it.
When I look at this Chinese, Russian, and American competition for Ethiopia, and for Africa in general, what we’re really seeing is the reemergence of the politics and division of the Non-Aligned Movement of the 1950s. If you really get down to it, very few countries want to take sides in this New Cold War.
They want to be able to deal with both China and the United States, but this is unacceptable to the US. This whole thing is being played out worldwide. It’s being played out in Africa, and the people of Africa are making it really clear that they don’t want to take sides, and that both sides have a possibility to engage in their development.
How could US policy towards Ethiopia change to make it more constructive? I don’t see that happening, by the way, but if it did, they would invest in infrastructure. All this US/AFRICOM military buildup that we’re seeing in the region is only causing more conflict.
If the US wants to compete with the Chinese in developing Africa, that can be done. The United States still has tremendous resources and has the ability to do it. Then ask the Ethiopians what kind of aid and investment they want. Ask Africans. That kind of competition would be a win-win situation for everyone. There’s no need for it to be anything else, but I don’t see our government moving in that direction at all.
AG: No, they don’t fund development. They fund aid, which creates dependency.
RPJ: Yes.
AG: For those not so familiar with the IMF, could you explain what structural adjustment means, what the IMF demands in exchange for these loans and bailouts?
RJP: Good question. Structural adjustment means laying down conditions that countries must accept in order to get the money that they need, often that they’re starving for. That means that they’re forced to open up their economies to foreign intervention, whether it’s investment or markets. And for a country that’s trying to develop economically—it really doesn’t matter whether it’s on a capitalist or socialist model—some kind of protectionism is almost required in the initial stages of development, for a certain amount of time.
Structural adjustment eliminates the possibility of a young, emerging economy developing to the point where it can compete globally. One part of it is allowing goods to be imported into the country at prices that local manufacturers can’t compete with.
Economies still recovering from colonialism are weak. So they need some form of protectionism. and some form of government support for their economic development.
Structural adjustment severely limits the role of a government in helping a country stand up. That’s really the heart of the matter.
Conditions include cutting government support for education, health care, transportation and other forms of infrastructural development. Then these areas are taken over by foreign players. As that happens, it’s inevitable that these countries can’t compete, their debt grows larger and larger, and therefore they have to come back to the IMF or the World Bank for further aid. And they get caught in a debt cycle. So this is the problem of structural adjustment.
AG: Don’t they typically wind up using the money they borrowed to pay interest on the debt, giving it right back to the people who loaned it to them?
RJP: Yes they do! Addis is applying for an IMF loan for debt relief, to service its increasingly heavy interest payments. Ethiopia’s debt distress level is rated as high and that’s probably one of the key factors behind this loan application. Between 1970 and 2006, Ethiopia’s debt levels were somewhere between $1 and 10 billion. Since 2006 those debt levels have risen precipitately. Just since 2020, when the TPLF’s failed attempt at a military coup began, Ethiopia’s debt ballooned from $34 to 60.1 billion, a near doubling over three years. This is an increasingly unmanageable burden for Ethiopia to bear, cutting into development possibilities not just for Ethiopia but for the entire Horn of Africa.
Virtually all Horn of Africa countries are near “debt distress.” Sudan and Somalia are already in debt distress, meaning they cannot in any way pay off the loans they have acquired from multinational entities like the IMF and World Bank, or from private sources. Twenty-two African countries are now either bankrupt or at high risk of debt distress.
African debt remains at its highest level in over a decade. Debt servicing sucks up increasingly large proportions of budgets and revenues. As a result, a wave of defaults in the world’s most vulnerable countries is likely to occur and faster than expected.
The other thing that happens is there’s so much corruption that gets involved, given all the African despots we support, that a lot of this money just disappears.
So they’ve set up a system that’s very hard to get out of. It’s an endless cycle of growing poverty and social problems and greater economic interference from larger countries, but particularly from Washington and the Europeans.
I first looked at this policy 30-plus years ago, after serving in the Peace Corps. And then I couldn’t believe it could last this long because it’s so punitive. But now it’s finally coming apart. We’re seeing countries that don’t want to be dominated by the dollar anymore and will trade with China in yen. These are attempts to get off of exactly these kinds of policies.
And who is looking at IMF policies and saying we’ve had it? Well, virtually the entire Global South.
One last point on these policies. It’s much easier to impose them on poor countries. When the United States or the World Bank or IMF tried to do that with China and Russia, and even Iran, as they did, they did not succeed. So it’s been middle and larger economies that have danced with the IMF for a certain amount of time, until they realized this is not in their interest and pulled back.
AG: It sounds like it could be better if they don’t get this $2 billion loan in the long run.
What do you think might be the consequence if they don’t? Calling it a bailout makes it seem dire.
RJP: Whether Ethiopia gets the loan or doesn’t there will be pressure either way. One of those “damned if you do, damned if you don’t” situations for sure.
If they don’t get the loan – given the level of domestic turmoil the country is experiencing – their financial situation will be that much more difficult, forcing them to look for other creditors.
But it is not at all clear – given that the conditions the IMF is asking are not public – that even getting the loan could be problematic. For example,
One of the conditions for the loan to be processed is that Ethiopia give the IMF creditors and development partners guarantees for the $2 billion, which will be difficult for Ethiopia to come up with and add considerable pressure on Ethiopian finances should they be unable to pay on time. Nor is there any assurance that even if such conditions were met, that the loan would be granted.
So pressure both ways: if they get it, depending on the conditions, and if they don’t get it, given the financial problems. All this needs to be placed in the broader context of Washington’s hybrid warfare against the Abiy government.
If you just look at the Tigray War, and now all these terrible massacres taking place in the Oromia Region and elsewhere, it seems like the country’s falling apart. But when you look at the economic indicators, you see that it’s not in spite of all of this. The Ethiopian economy is growing, and regional integration is taking place. This region is tired of war, of factionalism, of the kind of sectarian policies that have dragged it down for so long.
All these countries want to find common ground. And so is that approach going to win out? I believe that it will in the end, but not without a lot of pain and struggle in the years ahead.
AG: Okay, thank you, Rob Prince for speaking to Black Agenda Report.
RJP: My pleasure.
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Ann Garrison is an independent journalist based in the San Francisco Bay Area. She attended Stanford University and is a member of the TRANSCEND Network for Peace Development Environment. In 2014 she received the Victoire Ingabire Umuhoza Democracy and Peace Prize for her reporting on conflict in the African Great Lakes region. She can be reached at @AnnGarrison, ann@kpfa.org, ann@anngarrison.com.
Robert J. Prince is a retired Senior Lecturer at the University of Denver’s Josef Korbel School of International Studies and a political commentator at Pacifica affiliate KGNU-Boulder, Colorado.
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Tags: Africa, Control, Debt, Ethiopia, IMF, USA, World Bank
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