`Model' Zaire joins countries asking for debt rescheduling. With a $5.4 billion foreign debt, nation says it has no choice
The third-world debt dilemma took another twist recently when Zaire, a country that has diligently adhered to International Monetary Fund policies, decided it simply couldn't pay all its bills. On Oct. 29, President Mobutu Sese Seko announced that unless the financial community could ease Zaire's debt burden, the country would pay no more than 10 percent of its export earnings, or 20 percent of its government budget - whichever is less - in debt service.Skip to next paragraph
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Last year, a quarter of Zaire's revenues from exports and more than half of its outlays went to creditors, mainly the World Bank, the International Monetary Fund (IMF), bankers, and foreign governments.
Nguz a Karl-i-Bond, Zaire's former prime minister and now ambassador to the United States, says the country has no choice. ``Each year, we go to Paris and reschedule the debt,'' the ambassador said.
Other countries have tried similar moves of late, with mixed results. Peru limited its repayments on its $14 billion debt to 10 percent of its export earnings, which led the IMF in August to declare the country ineligible for new loans. Last month the Sudan announced it would not pay all of its $10 billion foreign debt.
Representatives from 35 developing nations, including the leading debtors, met in Lima last week to discuss easing the third world's $900 billion foreign debt burden.
But Zaire's case is different, says Richard Feinberg, vice president of the Overseas Development Council. In the last few years, the country has been a model case in following IMF policy: allowing its currency to fall and prices to rise, shrinking the size of government, lifting restrictions on imports, and paying its creditors on time.
``If a model adjuster turns around and says, `It's not working,' that's a very significant development,'' he says.
Also, while Zaire's $5.4 billion debt is small compared with Latin debtors like Brazil, Mexico, and Argentina, Zaire is one of the biggest debtors in sub-Saharan Africa. President Mobutu's speech ``certainly adds to the pressure within other debtor countries to take a more forceful position on debt,'' Dr. Feinberg notes.
However, he and others doubt that Zaire will get away with such unilateral action. And other countries may consider the consequences - a cutoff from future loans, a loss of credibility with public and commercial bankers - too high a price to pay.
Over the last four years, Ambassador Nguz says, Zaire has been assisting the West: It has sent out between $800 million and $900 million more in debt repayments than it received in new assistance from Western countries, the IMF, and World Bank.
Since Zaire adopted the IMF's austerity program in 1983, its currency has fallen almost 90 percent. While that makes the country's exports more attractive, it means Zaire receives less hard currency to pay foreign bills. Last year export volume increased 10 percent, while the value of Zaire's exports fell 17 percent.
And after the government agreed to liberalize prices, inflation shot up to 76 percent in 1983, racheting down to 30 percent last year. But wage increases, especially for city dwellers and government workers, have fallen far behind. Unemployment has risen and cutbacks in health care, education, child care, and other social programs are worrisome, Nguz says.
Such conditions have political consequences that no government - not just in Zaire but in other debtor countries - can ignore. ``The president is very concerned about the credibility of the country'' among creditors, says Nguz. ``But a government that cannot take care of its own people's welfare is not a government.''
Others aren't so sure that limiting debt payments will solve Zaire's problems. ``There has been no serious restructuring of the economy,'' says Michael Schatzberg, an associate professor at Johns Hopkins School for Advanced International Studies. He says that the country has not weaned itself from its dependence on copper and cobalt, the prices of which have plunged in recent years.