OF ALL the inappropriate and spurious transactions made by the west in developing countries over the past four decades, the 拢14 million investment in a chlorine factory at Fallujah, Iraq, in 1985 stands out as particularly ill-advised.
Built by Uhde Ltd, a British subsidiary of a German company, the project was underwritten by the UK government鈥檚 export credit agency (ECA), which funds or insures British companies doing business in high-risk areas. In 2003, the US and UK governments cited the existence of this factory as a major reason to go to war against Saddam Hussein. It was, they said, key to Iraq鈥檚 chemical weapons capability. Incredibly, in 1985 senior British government officials had acknowledged the 鈥渟trong possibility鈥� that Saddam would use the Fallujah factory to make mustard gas.
This was no flash in the pan. During the late 1980s, the British government underwrote sales to Iraq of fighter pilot training systems and other military equipment, and other governments gave their backing to similarly questionable projects. As a result, Iraq is now struggling to repay a debt to western governments of $50 billion.
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It is a familiar legacy. People in every developing country are paying the price of billions of dollars worth of reckless loans, made by western governments or their ECAs, or through the World Bank or International Monetary Fund, with no questions asked about the character of the regime they were dealing with. Saddled with paying off the debt, the recipient governments often cannot afford to fund basic services such as health and education.
The loans were directed at all manner of causes, but a significant proportion went towards industrial projects such as energy plants or chemical factories, or on the acquisition of weapons. You might think that the export of western technologies (weapons excepted) would bring great benefits to nascent economies, and it can, when done appropriately. The trouble is, many of these projects have brought little or no benefit. Worse, where there are no environmental, social or human rights safeguards 鈥� true in almost every case up to a few years ago 鈥� the consequences can be devastating.
Thus we have a situation in which Niger, the country with the highest infant mortality in the world, is made to pay more on servicing debt than it does on healthcare. Other countries, desperate for foreign exchange, have ended up razing their rainforests (Brazil, Ghana) or selling off their fishing rights (Honduras, Nicaragua).
The tragedy is that we haven鈥檛 learned from history. Loans are still made in a haphazard way. Take the Three Gorges dam in China, which has raised concerns about environmental damage (water pollution and substantial disruption to the Yangtze river ecosystem) and the displacement of 1.3 million people (it will drown 13 cities). It has been characterised by large-scale corruption and massive construction flaws. Numerous Chinese scientists, engineers and journalists have protested against it. Even the World Bank refused to support it. Yet it has already received almost $1.5 billion in loan guarantees from various European ECAs.
What should we do about all this? The first thing is to cancel debts that were knowingly made to tyrannical or corrupt regimes (it鈥檚 a matter of justice that people are not held responsible for debts they didn鈥檛 consent to), and debts whose burden prevents a country from meeting the basic needs of its people.
But to ensure that the money released by cancelling debts goes to the vulnerable people who need it and not to corrupt officials, I propose setting up National Regeneration Trusts, into which the money that would have been paid to creditors would be channelled instead. These trusts, which would be transparent and run by nationals and some outsiders with experience of development, would ring-fence the debt savings and ensure they went into education, health, poverty relief and environmental protection.
It might appear naive to suppose that African leaders would relinquish control of millions of dollars to a body outside their control. Yet the scheme would be in their interest, for it would be far less onerous to spend the debt on the interests of the needy 鈥� and this would be the only condition 鈥� than to carry on finding ways of repaying it in foreign currencies.
There is already a working model in Uganda鈥檚 Poverty Action Fund, into which 97 per cent of the country鈥檚 debt relief has been channelled. The results have been spectacular: the number of children attending primary school has doubled over the past two years, and significant funds are going directly to HIV/AIDS prevention programmes.
Finally, we need international regulations that determine what type of projects governments and their ECAs can fund, to ensure they do not act at odds with notions of sustainable development, poverty alleviation and human rights. It is time to ensure that developing countries benefit from western engineering and technologies rather than suffer because of them.