How did Uganda get into debt?
1970s OPEC raised oil prices increasing members' earnings
This money was banked with western banks
Western banks lent this money to developing countries for top down development projects (Akasombo dam, Ghana) or despot regimes for weapons (Idi Amin)
1980s interest rates doubled
Debt burden increased hugely
Uganda was not able to repay its debt service
Uganda and the SAPs: what were they?
What were SAPs?
The IMF created the structural adjustment packages in the 1980s to prevent the collapse of the banking system through the unpaid debt of developing countries
Uganda and the SAPs: did they work?
Advantages of SAPs:
- re-scheduled the loans to make them more affordable
- protected the world banking system
Problems of SAPs:
- IMF imposed cuts on government spending: Neocolonalism
- Spending on health and education was reduced in Uganda, particularly during the late 80s and early 90s
SAPs were abandoned in 1996 for the HIPC initiative
Heavily Indebted Poor Countries' Initiative
Created in 1996 following pressure from NGOs to reduce the debt burden of the poorest countries.
- 38 of the least developed countries with the heaviest debts
- consolidates multilateral debt from different lenders
- reduces not just refinances debt
How does it work?
- 3 years of poverty reduction policies
- Decision point: is the remaining debt sustainable?
- If no, debt relief is given.
HIPC Initiative: what are the conditions?
Uganda was the first country to benefit from the HIPC initiative
The Ugandan government had to demonstrate
- good financial management
- lack of corruption
- that the money saved was spent on poverty reduction: health and education
Out of a debt service of $2 million, the World Bank provided $1 million of debt relief