When people talk about debt relief for poor nations, including erasing some or all debts held by wealthy nation’s govts and internat bodies, what would be the various effects? Presumably those nation’s could still borrow yet again on private markets and take institutional debts again, no? What else would happen besides retaining the interest payments?
Just this week, Argentina agreed to a plan to repay its bondholders a fraction of what the bonds are worth (I believe it’s about 1/3).
When such debt relief happens, the IMF (International Monetary Fund for those not playing along at home) takes notice. It’s hard for a whole country to go sneaking around accumulating debt it cannot repay without anyone noticing.
I’m oversimplifying here and someone who actually understands this stuff can give the gory details.
Here is one proposed approach to retiring debt over a stretch of a decade from a report I contributed to several years ago.
It’s not as if the way current debt relief is done and has been since the debt spiral crisis hasn’t been very much to the advantage of industrial nations. Structural Adjustment Programmes are generally imposed by the IMF/World Bank and related lending banks (they have a new 4-word name for this now I don’t recall, now that most people have caught on to the SAPs as being dettimental on the whole to countries being forced to adjust). Many of the requirements of the SAPs are extremely favorable to western business interests.
The issues are complex and well beyond my ability to give you an intro to here, but I’d suggest the following:
See Stephanie Black’s documentary *Life and Debt *.
Read some of the work of Susan George.
Check out the Bretton Woods Project and 50 Years Is Enough campaign websites.
Many countries’ governments are poor because they spend so much of their earned money trying to repay these huge debts. Relieved of said debts, they could better fund education, health care, or what have you.
That’s the same as saying a lot of Americans are poor because they’re spending so much of their money on credit card interest. Relieved of said debts, they could pay for health insurance, college, and what have you.
SO? Your pessimistic analogy doesn’t make any kind of valid point. The OP is looking for possible ramifications of effacing debt, and this is one. It’s an especially important one because it’s the ideal outcome. Whether or not it’s a palpable one is debatable, but such discourse doesn’t belong here.
When your debt is $200 for every $100 of your GDP, you’re not making any money (scroll down). What do you do? Borrow more? Pray for a boom?
And what happens in the meantime? Programs usually funded by the government (education, health care, law enforcement) lose out, causing even more trouble.
Third-World debt is differet from country to country. A country like Egypt is broke because Egypt is dependent upon a few export commodities (cotton, fruit) to pay its debts. When commodity prices decline, they have trouble paying the bills. Argentina is broke because the Argentine governmnt SPENT the borrowed funds to pay salaries for government workers (most of whom had no real function). Most African nations in debt borrowed money to finance a dictator’s lavish lifestyle, or to keep an elite in imported luxuries.
The German bondholders (of the Argentine debt) were quite justifiably pissed…when told they might get only 30% of ther money back…I wonder why?
Let’s faceit, there is a big reason why most of the Third World isin debt…its because of corruption and mismanagement. You have to be out ofyour mind to lend money tobasket cases. You also have to ask how a county like Argentina (self-sufficient in oil, able to produce surplusesof meat and grains) keeps screwing itself up.
I believe the only reason that these third world countries continue to occasionally make payments on their debt is to encourage others to continue lending to them. However, default is just a matter of time.
Touch, touchy. Remind me never to waste ;)'s on you again. :smack: