From: Biniam Haile \(SWE\) (firstname.lastname@example.org)
Date: Tue Aug 02 2005 - 11:44:13 EDT
Global Financial Crisis: lesson to be taken from Eritrea
By: Berhane kahsai , Jan 6, 2009
Recently, there have been many debates about the effects of the global
financial crisis and how this would affect many African countries
largely dependent on foreign aid. These debates are important for the
perspective they provide on global economic history since The Great
Depression. Apart from the establishment of institutions that would
foster global cooperation in regulating global supply and demand,
capital markets, international trade and the global monetary system, the
aftermath of the WWII also witnessed the proliferation of development
Particularly within the last four decades, the industrialized world has
been complaining of "donor fatigue" as they claim that Africa netted
billions of dollars in economic aid but has been unable to lift itself
out of abject poverty. The reasons why Africa has been a case study of
the failure of this policy have been manifold and while there is much
blame to go around, some of which falls squarely at the feet of the "the
donor community" and international financial institutions (such as the
International Monetary Fund and the World Bank), a large portion of it
can be attributed to the irresponsibility and mismanagement of African
The government of Eritrea has diagnosed the evil aid entails to the
economic development and nation building. Most of the development
projects, if not all, are self contained and internally driven.
Externally driven development agendas are doomed to failure, moreover,
the string attached by the donors work to the detriment of the recipient
countries. And the aid addicted countries are vicariously affected by
decision made in the other end of the world and are left stranded
seeking mercy of their masters. Eritrean government immunizes itself
from the susceptibility of aid addiction by mobilizing the people as a
center of its developmental goal.
To curb the problem of financial crisis; Eritrean government devised
viable strategy that discourage extravagance and encourage saving. Even
in the developed countries the custom of high consumption is the chief
cause of the economic difficulty. Eritrean government has been cautious
from the beginning.
The monetary policy followed by the government is very judicious. Every
convertible currency acquired from different quarters is invested in
capital goods that enhance development projects. The prodigality that
would deplete hard currency reserve is averted by making the people
conscious of what the consequences of depleting of hard currency is.
Having adequate hard currency reserve can prevent your financial
capability from trembling at best and make it bearable at worst, in
times of crisis.
With the industrialized world now in upheaval from the convulsions of
the global financial crisis, the main question facing Africa and
millions of its destitute and poverty stricken people is whether in the
face of a crisis that is predicted to worsen before it gets better that
developed countries such as the USA, UK, France and China would be able
to continue to donate and feed countries like Ethiopia, which are
largely addicted to aid. The World Food Program, for instance, estimates
that currently there are more than 10 million people who have been
affected by drought and 4.6 million people are threatened by hunger and
malnutrition in Ethiopia. What these figures indicate is that the
continent needs urgent humanitarian assistance is always there.
But with the current financial crisis striking cross three continents
hitting the financial systems of the United States, Europe and Asia, how
willing are donor countries to meet the urgent humanitarian call from
aid agencies operating across the African continent. There is neither a
straight nor an easy answer to this question. However, the bailout
packages being announced are colossal, to the tune of $586 billion in
China and $700 billion in the United States. And the hint is that as
these countries focus inward to address their financial woes, it may be
a matter of course that the already stemming flow of development
assistance to Africa will slow to a trickle.
Even before the collapse of the global financial system in October,
developed countries have been faltering on their promises to help
developing countries. This has been noted by Joshua Kurlantzick in an
article he published on Boston.com titled "The Ungiven Gift" on August
31, 2008. Kurlantzick recalled the G-8 Summit of industrialized
countries held in Gleneagles, Scotland in 2005, and the promises made by
the world's rich to double their aid to Africa, pledging to give some
$50 billion annually. Reflecting on the last three years since this
promise was made, Kurlantzick concluded that "A collision of factors,
from politics to shifting global wealth, has unraveled the consensus
among rich countries and allowed poorer nations to ignore their calls
for reform. Western nations have failed to deliver the money promised at
Gleneagles, casting doubt on the entire experiment - and leaving
development veterans deeply pessimistic about the future."
The current financial crisis coupled with the failure by the developed
countries to honor their promises signals that development aid is likely
to decelerate rather than increase. Moreover, if history could be of any
lesson in such circumstances, it shows that most countries affected by
such financial crisis tend to cut providing aid simply because they need
to fix their financial troubles at home. And with this crisis the
writing is on the wall that it is time for African leaders to take
development seriously and find creative, effective and indigenous
solutions to the many problems facing them. Wake up siren is wailing
reminding that, these harsh economic and financial crises should be
taken as opportunity by aid addicted African countries, such as
Ethiopia, to devise strategies for the long run.
The main challenge of most of African countries is fortifying one's
independence by self-reliant economic development. The remotely
controlled economic plans are destined to shake as the other end,
controller, economy trembles.
Eritrean government is a trendsetter in strategy of self-reliance that
can be taken as a model by African countries that are genuinely
interested in avoiding their dependence on foreign aid. After all, it is
the main reasonability of African people and governments to feed
themselves and devise long-sighted strategies to pull out themselves of
their current underprivileged position.
Self-reliance doesn't mean total denunciation of foreign assistance;
rather it appreciates the advantages obtained by bilateral arrangement.
However, it gives rise to master-servant relationship when the
engagement becomes one sided. Partnership is alternative way to observe
the shock inflicted by financial instability. In partnership, you share
the loses and benefits as well. In one sided engagement the poor or aid
addicted countries bear all the cost of financial turbulence.
Now is the time for African governments to embark and heed the Eritrean
policy of self-reliance, and rectify erroneous assumption they had with
regards to aid as means of economic development strategy. Aid has a
boomerang effect to those who depend on it.
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