S. Africa’s external debt in 2005 (the last year I could find a number for) was only 25 billion (like 10% of their GDP), and presumably a good part of that was accumulated post-apartied. I don’t think there’s much argument that they’re currently being crippled by debts left over from minority rule.
Again, I’m not totally against debt forgiveness if the money was truly misspent by dictators and the like, but I think you need to put forward specific and convincing cases where that was the case, instead of vaguely gestering towards the entire debt load of the third world. S Africa doesn’t seem to be a great case.
For example, after the latest Iraq War, the US convinced several countries to forgive Iraq’s debts. This was in part because these countries had basically lent money to Saddam so that he could fight Iran and keep unrest down in his own country, because his Sunni neighbors didn’t want him being overrun by Shia. Once Saddam was gone, it seemed somewhat perverse to make the new Shia led gov’t repay the money that had been borrowed partially to finance their own oppression. In cases like that, I see a pretty strong case for debt forgiveness. If you want to get your money repaid, you shouldn’t lend it to shady dictators.
That the debt is being transferred to the next government is precisely the problem. In what way is any of this an argument against debt forgiveness?
As for the lenders, they knew what they were getting into, and that they were funding an oppressive, racist regime. If such debts were cancelled, it would give lenders an incentive to actually care about the consequences of their actions. Hardly a bad thing.
It’s not only the debts themselves, it’s also the dictating of the internal policies of these countries in the name of ensuring profits. South Africa being a great example of this, too.
Fair enough. I’ll add Honduras to South Africa for now. More later.
I understand that but that wasn’t what I asked. I asked, what’s to stop these 3rd world countries from simply defaulting on their loans? “Sorry, IMF, we’re simply not going to pay those loans back.” Especially, as you said, many of them don’t want IMF loans anyway because of the strings attached to them.
Note: I’m not fishing for a specific response from you or trying to grab you in an “ah-ha!” moment. I’m genuinely curious.
Except that not defaulting on debt just means that they can’t climb out of poverty because paying the interest on the interest on loans whose principle they repaid decades ago crushes them. They are better off not accepting loans from the international version of loan sharks, aka us and our friends the IMF. In the long run they will default on their debt or be forgiven their debts, even if they never see another penny of foreign money; they aren’t going to put up with eternal debt.
In what way is it a great example? Of what specifically? S. Africa doesn’t seem to owe that much money, I have trouble seeing why they’d agree to terms that they didn’t want to regarding their internal affairs to get loans.
OK, Honduras is… also a country? What is their debt situation, and why do you think it should be forgiven? Just throwing out the names of third world countries isn’t really informing the debate much
Even if the accusations are true, I don’t really see the relevance to what I said about Iraq’s debt relief (which was supporting your position, in any case.)
No, it’s a fair question, Odesio. I guess I have a couple of responses to it:
One is simply the moral one, that if these countries are poor, we owe it to raise them up, without exploiting the situation for our benefit.
But, along pragmatic lines, I suppose the argument would be that it would create new consumers:
As I said in the OP, “the credit-based consumer glut that’s been created in the U.S. necessitates consumption by people in other countries.” There was an enormous expansion of output that was based on the assumption of ever-increasing consumption, with Americans as the consumers of last resort. Now that the China-financed credit bubble has collapsed, and Americans can’t keep buying on credit, consumption must be fueled by other countries. Debt forgiveness would allow for the kind of economic growth that would permit the emergence of a middle class in these LDCs to fill that gap between production and consumption.
It would make sure the lenders never loaned money to these countries again. Would you loan money to a country if you thought that it would default the next time the government changed?
That chart has a guarantee of the money market funds (which aren’t guaranteed anymore afaik) of 3T when the actual cash cost to the government is a big fat zero as there haven’t been any defaults.
The fed has purchased hundreds of billions of interest bearing assets from freddie and fannie, but that’s not a “bailout” as those assets are paying money. The fed is actually earning a profit on them. So while it’s cash out the door now, the fed has interest bearing securities which are worth what they paid for them.
Well, that has to do with the arrangements that we made during the transfer of power between the de Clerk government, and the democratic one. The African National Congress leaders were so keen on merely gaining civil rights that they did not realize what they were giving away during conferences. Economic advisers actually did realize that agreeing to World Bank debt repayment terms would preclude the new government from redistributing wealth to address the economic inequalities that were the long-term consequence of the apartheid state. And they warned their political leaders. But, the concessions were nevertheless made, mostly due to exhuberance and lack of awareness.
The IMF only loans money to countries who can’t receive loans from anyone else, and it requires that the money from those loans be invested in projects that will make money so that the country can repay the debt, as well as reforming their economies.
What happens though, is that the governments take the money and then don’t follow through on the rest of it.
May I make a suggestion for a bit of light reading? Confessions of an Economic Hitman by John Perkins- it will make you think twice (or more) about the way we “spread democracy” to the rest of the world. Whether you agree or disagree, it’s a very good read.
Basically, poor countries are pressured to take IMF or World Bank loans we KNOW they cannot afford to pay back, ever (yes, I said WE- the US runs both). The contracts stipulate that certain infrastructure and other projects (that the countries actually DO desperately need) will be won by certain companies (KBR, Halliburton, etc), making those companies lots of money. Then, when the country defaults on the loan (as it must) or prepares to default, it is forced to give various concessions to the US as punishment… er, I mean, as security against the loan, usually involving land, mineral rights, oil licenses, military bases, UN votes, whatever.
We force the poor to stay poor, plus we extort them in the process. Nice.
But in that case the new gov’t agreed to the terms of the loans, against the advice of their advisors, even if it was a dumb idea for them to do so. Even if they did get a raw deal, it seems to be one they entered into on the level. A loan signed under the influence of “exhuberence” still needs to be repaid.
And in anycase, they appear to have paid most of them back at this point, so it seems even if the lonas should’ve been forgiven, the time for doing so is probably past.
Perkins makes a lot of unsubstantiated claims in that book, and there’s not much evidence that he actually told the truth about a lot of the things he was claiming.
I see. So the US should default on its debt every 4 or 8 years; after all it’s just debt transferred from the previous government. Care to make any guesses about what doing that would do?
“Reforming” meaning “twisting them into an economy designed to benefit the wealthy countries, regardless of the harm done”. Which is one reason why so many don’t want the IMF’s money; they aren’t interested in becoming the subjects of economic imperialism.
And they’ll never rise out of poverty if they are kept in permanent debt, either. They’d be more likely to succeed without such poisonous loans.
Incorrect. We still have the same government, we are simply choosing its next incarnation in a democratic process. Whereas the change from white-minority oligarchy to democracy really is a change in government.
I’m sure lots of developing countries would like the loans with fewer strings attached. Who wouldn’t? Name three countries who’d rather have no loans at all and “be able to manage their own affairs.” It seems to me like that’s an easily solved problem; don’t accept the loans.
Poor countries are poor largely because they’re badly run. There’s a remarkably strong correlation between a country’s poverty and its level of corruption, political instability, economic stupidity, and the number of its leaders who wear military uniforms.
Look at sub-Saharan African countries. Botswana, which is 70% desert, struggles with AIDS and isn’t any more blessed in natural resources than most of its neighbours, has a per capita GDP about ten times higher than many other African countries. Not coincidentally, Botswana’s been run by a stable, practical, non-corrupt civilian government more or less from the day it became independent.
And yet developed nations often have very high levels of debt and don’t look like Malawi.
For all the “poisonous loan” talk, there’s a curious lack of examples. What countries - please be specific - have these poisonous loans? And what, might I be so bold to ask, is their level of foreign aid acceptance?