Much has been written in recent weeks about Live 8, a series of concerts that will take place on July 6 in London, Paris, Berlin, Rome and Philadelphia. The name refers not only to the original Live Aid concerts that took place in 1985, but is also a reference to the G8 meetings that will be taking place in Edinburgh, Scotland at the same time as the concerts. G8 organizers are planning for massive protests which have been urged on by concert organizer Sir Bob Geldof, who has called for one million people to show up in Edinburgh to call for increases in aid and trade reform for Africa.
Geldof’s goals are threefold: “By doubling aid, fully cancelling debt, and delivering trade justice for Africa, the G8 could change the future for millions of men, women and children.”
Yesterday, Geldof participated in a conference call with a number of bloggers spanning the political spectrum, all of whom came away impressed with his knowledge of and passion for the issue of African poverty. Most interesting to those of us concerned with free markets is the fact that Geldof is placing a heavy emphasis on trade as a potential solution to Africa’s problems.
As I noted in an earlier post, there is good reason to be skeptical of claims that increased government-to-government aid is the cure for what ails Africa, and Live 8, like many other well-intentioned efforts, suffers from too much emphasis on that same old “solution” that hasn’t worked in the past. But in the sense that Live 8 introduces a free-trade element into an advocacy mix that has, in the past, been totally leftist in outlook, it may be an event worth monitoring.
As for the Blair-Bush meeting, both leaders agree that forgiving the bad debts of the world’s poorest countries is the place to start. But Mr. Blair’s proposal, backed by Bono of U-2 fame, amounts to a mulligan for borrowers and the multilateral institutions (such as the World Bank) that lent money so wrecklessly. This do-over is not just debt “forgiveness.” It also seeks huge amounts of new capital to continue business as usual. The Bush Administration is right to want to try something new.
Some 38 nations qualify as “highly indebted poor countries,” or HIPCs. Despite $144 billion in bad loans, mostly from official lenders, their average per-capita income is more than 25% below where it was in 1980. Ending this misery starts with diagnosing the problem. And to that end, the British claim that “many countries have to choose between servicing their debt and investing in health, education, infrastructure and other areas” isn’t helpful — because it isn’t true.
Lenders stopped expecting repayment on this money years ago. In fact, since 1985 the HIPCs have been regular recipients of new funds to cover their debt service, as Carnegie Mellon economist Adam Lerrick shows in a new paper out from Congress’s Joint Economic Committee. This has put the HIPCs further into debt. But the process continues so the World Bank and International Monetary Fund can boast — preposterously — that they’ve never made a bad loan…
…There is a better way, as the U.S. is signaling. First, force the World Bank and its cousins to write down their bad loans and acknowledge their failures. Second, move to a model of performance-based grants that will raise accountability. Mr. Lerrick adds that the IMF ought to return the gold at the IMF to its owners; developing countries would get back about $10 billion, and even the HIPCs would receive $1 billion — all of which could finance development.
Rich countries could then use their $30 billion in returned gold profits to create an endowment to fund grants based on a country’s performance in meeting certain policy and development targets. Imagine: Poor country politicians would suddenly be accountable for aid they receive, and the rest of us wouldn’t have to repeat this “debt forgiveness” fiasco 20 years from now.