There’s a raging debate
on whether the loans Kenya has secured from China are good for us and whether
they are comparatively better than loans secured from the West. On the part of
the anti-Chinese loans to Kenya part of the divide, the stratagem seems to be a
largely fallacious attempt to paint a good image of lenders from the West.
The propensity to the
West has conveniently led to the ignorance of Kenya’s debt history, which was
predominantly from the West. History proves that loans from the Bretton Woods
Institutions were expensive, ineffective and a tool of political manipulation
while facts in the recent past suggest that loans from China; and specifically
from the Exim Bank of China are cheaper due to the amicable policies towards
Africa by the Chinese government.
Besides creating
dependence, most of the Bretton Woods loans are too low to enable any
meaningful progress. Many are also mainly destined to non-productive ventures
such as democratic governance, policy reforms or humanitarian aid. Indeed,
critics have coined the term “humanitarian alibi” to describe how humanitarian assistance
is used by Europe and America to appear that they have been doing something
when, in actual fact, they have not brought about any meaningful change in
economically promising countries like Kenya.
In the book, Confessions of an Economic Hit Man, John
Perkins exposes how deceptive foreign development assistance from the West has
been. He chronicles how the West deploys experts to convince developing
countries to accept loans that do not contribute to development and which they
have no capacity to pay. Consequently, such countries are forced to default
which places them at the mercy of the lenders. This could be one of the reasons
why Kenya had not implemented any large infrastructure project before going
East.
The Chinese approach is
seen a “win-win principle” in that aid is given only if it contributes to
China’s own national interests as well as those of the recipient country. In
addition, we cannot begrudge the Chinese for wanting to benefit from the loans
they give us. What we need to do is to ensure that we negotiate with them so
that they can subcontract our own engineering firms and local road contractors
even as we build our own capacity to international standards.
Unlike lenders from the
West, the Chinese government has explicitly stated in policy that it does not
interfere with the internal affairs of the recipient countries and that it “fully respects their
right (of such countries) to independently choose their own paths and models of
development.” We need to remember the havoc caused to our economic mainstays
after we agreed to adhere to the structural adjustment programmes imposed by
the IMF and the World Bank in late 1980s. This must be a constant reminder of
Kenya’s debt history and the best alternative offered by the Chinese.
Our debt-GDP ratio is
not as bad as we are persuaded to believe. We are at par with our peers in the
continent and there’s nothing wrong in surpassing prudential loan limits in the
short run; the real danger is when it is breached on a long-term basis. Indeed,
even the IMF acknowledges that it is practically difficult to pin-point what
constitutes a prudent amount of public debt.
A high Debt-GDP ratio is
not necessarily a sign of bad economic management Anis Chowdhury and Iyanatul
Islam in Is there an optimal debt-to-GDP
ratio?; rubbish the claim that high public debt causes lower growth saying
that this is “not grounded in robust empirical evidence.” What is important is
to ensure the loans go to fund productive ventures. There’s little doubt, even
amongst the naysayers that the development of large infrastructure projects is
likely to promote more economic growth.
It is therefore prudent
to bear in mind that there are no quick fixes to reduction in debt ratio. Indeed,
IMF reports show that bringing debt-GDP ratios to sustainable levels requires
unprecedented and long-term measures. It therefore means that for Kenya to
reduce its debt burden, then
it needs to expand economic growth –which is what the implementation of large
infrastructure projects are meant to achieve.
This Article has also been published on the following platforms
http://www.the-star.co.ke/news/2016/04/19/china-loans-our-best-bet_c1332003
http://www.mediamaxnetwork.co.ke/people-daily/214266/why-chinese-loans-offer-best-alternative-for-kenya/
http://www.capitalfm.co.ke/eblog/2016/04/15/chinese-loans-offer-best-alternative-kenya/
