Commentary
By Mohamed A. Jalloh, USA.
The following is an excerpt of one side of an exchange of views from Mohamed A. Jalloh to fellow member, Amadu Massally, on May 5, 2014, in the pioneering SALONEDiscussion Internet forum, founded in 2005. The forum’s membership is comprised of "[a] group of interested Sierra Leoneans and friends of Sierra Leone who, through a common forum, are committed to sharing their views regarding relevant events within Sierra Leone and in the Diaspora for the advancement of the country." The group’s motto is: "Discussing and Implementing Ideas to Uplift Sierra Leoneans."
Amadu,
Thank you for responding to my posting. I have amended the subject line of this thread to signal a new direction I wish to take by answering your two questions. Also, before getting to your questions presently, kindly permit me to fulfil a recent promise to one of the most articulate and creative writers I have seen lately, a member of this forum whom I have just met via Facebook, and who turns out to be a relative of mine. I will do so by briefly explaining the concepts of loans and grants.
A loan is a debt that has to be repaid. Usually, it must be paid with interest. So, to consider a simplified example, for a loan of $100, if it has interest at 5%, that means the borrower has to pay the lender $105 in order to meet her financial obligation to the lender. Ordinarily, a financial obligation is the only major one that the borrower has to the lender. Keep this in mind as we later discuss the IMF-World Bank tango that has so devastated our beloved country — since each and every IMF and World Bank loan always impose major obligations on the borrower in addition to the borrower’s financial obligation to repay the money.
Those additional obligations are a condition for the loan to be granted by the IMF/WB — hence the reference to them as "conditionalities." As you know — and as I have openly and publicly maintained since April, 1979, when my first article on the subject, "Devaluation: A Rich Man’s Cure," was published in We Yone, then the leading newspaper in a very different Freetown from the sorry caricature it now presents — in my opinion, the most harmful of those conditionalities is devaluation. The most notorious of the IMF/WB conditionalities are collectively referred to as SAPs ("Structural Adjustment Programs").
For an explanation of the catastrophic harm that devaluation has caused — and daily continues to cause — millions of innocent Sierra Leonean children, women and men over the last 35 years, please see my twin articles published in 2005:
"How the IMF Fooled the SL Government into Impoverishing SL"
http://news.sl/drwebsite/exec/view.cgi?archive=2&num=980&printer=1
"How the World Bank Helped the IMF Impoverish Sierra Leone"
http://news.sl/drwebsite/exec/view.cgi?archive=2&num=1127
A failure to repay a loan usually has serious legal and financial consequences. The technical/legal term for such a failure is a default. A default normally renders the entire remaining balance of the loan immediately due and payable. So, e.g., if you borrow $200 at 20% a year and agree to pay it in equal installments over a year, that means you have to repay a total of $240 or $20 a month ($200 borrowed plus interest at 20% of $200 which equals $40 interest for the year, making a total repayment of $240). If you pay in the first month and then fail to pay in the second month, you are in default. Usually, that means the remaining $180 owed becomes due and payable immediately.
The lender can take you to court and obtain a judgment for the $180 plus any court costs. So you would now owe more than the $180. Your bank account can be seized by court order to repay the new higher balance owed. In the US, your credit score could be negatively affected — you may have to pay a higher interest rate to borrow money in the future. A borrower can avoid paying his debt by asking the court to declare him bankrupt. However, that also negatively affects his credit score and may raise the interest he will pay if he is able to borrow money in the future.
Generally, countries, unlike individuals, cannot declare bankruptcy. Their option to avoid repaying (all) their debt is to ask the lender to change the terms of the loan (restructure the loan) to make it more affordable for the borrower to repay it. However, like individuals, countries can have their bank accounts or other assets such as buildings, export crops, future earnings, etc. seized to repay their debts. They can also have their credit rating downgraded (as happened to the U.S. during the needless 2012 debt-ceiling fiasco).
So, how does this relate to IMF/WB loans to countries? Typically, the IMF and WB do not take defaulting countries to court — they restructure their loans. Which means that in exchange for more IMF/WB-imposed conditionalities, the IMF/WB will make the terms of the loan "easier" for the borrowing country to repay — sometimes by extending the duration of time of repayment, but seldom by reducing the interest rate.
In rare cases, such as in 2006 when the IMF and WB "forgave" SL’s debt (you will understand why that forgiveness is expressed by me in quotes if you read my twin articles cited above), the two institutions say they forgive debts. This is how they disclosed their "largesse" to SL in their 2006 press release:
"The World Bank’s International Development Association (IDA) and the International Monetary Fund (IMF) have agreed that Sierra Leone has made sufficient progress to reach the completion point under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative. Sierra Leone becomes the 21st country to reach the completion point under the Initiative.
Debt relief to Sierra Leone under the enhanced HIPC Initiative will amount to US$675.2 million in 2000 net present value (NPV) terms1, equivalent to a revised 81.4 percent2 NPV reduction of Sierra Leone’s debt after traditional debt relief. This assistance is estimated to correspond to approximately US$994 million in nominal terms."
Let’s talk about grants now. Grants are gifts of money (or other items) that do not have to be repaid by the receiver of the grant. They are usually given with conditions. For an example outside of the current context, a scholarship is a grant of money awarded in exchange for the receiver’s promise to attend a prescribed program of study. So the condition for awarding the grant is that the recipient attend the program of study. As with loans, keep in mind that IMF and WB grants carry conditions. So, in this sense, my good friend, Amadu, grants from the IMF/WB, are not "free money."
I hope the above relatively abbreviated and much simplified explanation of what loans and grants are is helpful not just to the wonderful person who asked me, but to others like her who, while clearly accomplished in their different fields, need help with financial concepts. Now, let’s get to your two questions, Amadu.
You asked:
"So what is the World Bank trying to accomplish when they cite that a loan (has to be repaid) became a grant (seemingly free money?)?"
The short answer: The World Bank is thereby probably trying to continue to ensure that SL will forever remain dependent on the IMF/WB for its economic survival — the better to continue the massive fleecing of our country, which dwarfs by tens of billions of dollars the puny $25 million that it converted from a loan into a grant.
Here’s the long answer: Twenty-one years ago, I wrote about this well-known IMF-WB bait-and-switch fraudulent scheme that is typically executed with the self-serving aid of our irredeemably corrupt SL leaders, and which has permanently turned African countries like our beloved SL into practically child-like, catatonic dependents of the massively exploitative duo. I did so in my 1993 article, "Reforming IMF and World Bank Lending," published in African Profiles International (New York). Here is the excerpt that is the most relevant to the scheme cited in this paragraph:
"Obviously, corrupt and incompetent leadership explains much of the abysmal poverty in many third world countries today. Not so obvious, however, is the unwitting role of both the IMF and the World Bank in sustaining many a third world dictatorship. By lending billions of dollars to inept governments, particularly in Africa, the Fund and the Bank released those governments from the salutary necessity to harness and develop their own indigenous resources. Confident in their ability to borrow huge sums from an acquiescent IMF and World Bank, among others, third world despots have felt no need to restrain themselves from plundering their own treasuries." [Emphasis added]
In other words, when the WB gives a grant such as the relatively tiny $25 million it gave to SL, the WB is ensuring that SL will continue to be its totally dependent "slave" from whom it will continue to exploit billions of dollars more — which makes the $25 million grant a cruel insider’s joke known to all but the clueless victim, SL, and to those who do not get the joke and insist that it is a good thing for SL!
Or, to put it another way, my patriotic friend, the IMF and the WB have been acting like drug-dealing pimps to their drug-addicted hooker — our long abused country — aided and abetted by our country’s corrupt leaders. By giving the hooker drugs (loans/grants), they ensure that the hooker remains addicted to their drugs (and thus easier to control and manipulate to their sole benefit) and thereby guarantee that they will continue to make profits multiple times over as long as the hooker is kept alive (even if barely) and remains drug-addicted (loan/grant-addicted in the case of SL):
First, the IMF/WB (they are always a tango, that duo — through the provisions of their charter, as I note in my article, "How the World Bank Helped the IMF Impoverish SL) — profit through the interest on the loans; second, through the far more profitable "conditionalities" that are always attached to the loan/grant — of which by far the most profitable to them (and conversely the most devastatingly harmful to SL and its innocent people) has been the devaluation of the once stronger-than-the-dollar Leone in1979; third, through even more exploitative "conditionalities" when the SL government predictably defaults (as happened in the case under discussion, when the defaulted loan was kindly turned into a generous grant (laugh — or I would laugh were it not so serious a matter)!
So, from the single loan, the IMF and WB profit at least 3 times — which means that the people of SL get exploited not once, or twice, from the single loan, but at least three times! And it may get worse: It would become at least 4 times if, instead of turning the defaulted loan into a grant the IMF/WB restructures the loan and makes the repayment period longer while keeping the interest rate the same or making it higher — the better to generate more interest revenue for the IMF/WB over the longer lifespan of the loan!
I know that you, Amadu, did not make that surprisingly uninformed claim, but kindly permit me to ask you a rhetorical question: Does that look like a good thing for SL, my patriotic friend?!
Your remaining question was:
"So if the World Bank is saying that Sierra Leone ’is consistent in maintaining growth and the application of “Best Practice” transparency and performance’ how does that compare with what some of her critiques are saying?"
The short answer: That’s like the salivating, ravenous fox praising the hen just before the fox makes the "new and improved" hen its satisfying entre for dinner: "Congratulations, hen, on putting on such a hefty weight, my best friend forever!"
For the long answer, I will post another of my articles sometime later about who is actually aiding whom: The poor country which needlessly loses its mineral, agricultural and human wealth, as well as its people’s material, physical and mental health or the IMF and the World Bank which take what the poor country massively loses through the duo’s false pretenses, of which devaluation is the most brazen and calamitous?
Meanwhile, please read the following articles to find out the answer to the above question if it is not already obvious:
"How the IMF Fooled the SL Government into Impoverishing SL"
http://news.sl/drwebsite/exec/view.cgi?archive=2&num=980&printer=1
"How the World Bank Helped the IMF Impoverish Sierra Leone"
http://news.sl/drwebsite/exec/view.cgi?archive=2&num=1127
Best regards,
Moh’m
Editor’s Note: Moh’m Jalloh (photo), a Sierra Leonean living in Maryland, USA, whose views on economics and finance have been widely published in the U.S. and the U.K., first advised the SL government against devaluing our country’s currency in an article entitled: “Devaluation: A Rich Man’s Cure,” published in Freetown in the We Yone newspaper in 1979.
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