I understand that Bono is concerned with Third-World debt relief, and that at one time he had some Southern Republican senator (Jesse Helms?) on board.
What does this mean, exactly? If the U.S. loaned Outer Slombovia $10 billion in 1991, does that mean that Outer Slombovia is paying us huge interest payments (and thus exacerbating its people’s poverty)? If we forgave that debt, would O.S. thus have more money to invest in its own infrastructure? Furthermore, I’m assuming so insignifigant an amount of money would have a neglibible effect on our economy?
I also read somewhere that all of those international “loans” the U.S. has made over the decades have actually been more like “gifts,” and that no nation has ever paid us back.
So, again without debating, what exactly is Bono asking for when he campaigns for third-world debt relief?
I don’t know how the debt owed the U.S. is carried on the books, so I don’t know what it does to our bottom line to write it off, but, yes, the idea is for the creditor nations to absolve the debtor nations of responsibility for the debts.
I don’t think we’d need to send them 1099s or pay a gift tax (to whom?).
As monies sent have not always been received as intended, there might be some merit to the idea - but, that’s a debate.
It’s difficult without getting into debate territory because, I think, you have to begin with a working definition of ‘debt’.
For example, country A is an old-style 1970s non-aligned African ex-colony – that means it’s neither within the US ‘sphere of influence’ or the USSR ‘sphere’.
But both want it because it has, say, strategic importance.
So both back different factions in a super-power manufactured civil war and supply expertise, weapons, etc.
One wins – say the US-backed faction – and assumes power. These non-democratic dudes (who may or may not bother to promise elections somewhere down the road) borrow zillions of $US to, in theory, rebuild the country – and crucially the US is happy to lend it because the country has strategic importance and you want your boys to keep control.
So you give e’m the cash and they blow it on limos, gambling, women and real estate in Florida.
And, 20, 30 years down the road, the now democratic but desperately poor and abused country still owes the accumulated debt to the US – even though the good ol’ boys are now living the high life in Florida.
that’s not a case study but a generic developing world story.
I guess that’s debt if you want it to be debt, but the point people make is that there’s a lot of dubious morality associated with much developing world debt e.g. how many times can we fuck the same people over.
You’ve pretty much got it exactly. Since the 1970s, the world has loaned developing countries hundreds of billions of dollars. Unfortunately, corrupt regimes have squandered that money. For countries that now have better leadership, they are still required to make payments on those wasted loans, which can be a significant portion of their budget. Erase those loans – which basically requires far, far less money than the original value of the loans – and those countries will be free to spend the money on better things than repaying the richest countries.
An analagous situation would be if your ex-wife ran up tens of thousands of dollars on your credit cards, leaving you to pay it off. If Visa were run by nice guys, they might say, “Hey – those debts are your ex-wife’s fault. She’s in jail now, and you deserve a clean break. Stop paying us, and buy your kids some good books for school.”
To take one random example, Kenya has government spending this year of $3.5 billion, and revenue of $2.6 billion. The cost of paying its debts this year will be $580 million. If that debt were relieved, you can understand how lowering government spending by 16% through relief of its debts would be a great thing for Kenya.
A friend of mine used to say that physics gets less comprehensible the smaller the scale (whaddymean, it’s sometimes like a wave and sometimes like a particle?!) while economics gets less comprehensible the larger the scale (whaddya mean we owe $4.3 trillion?!)
Not relevant to the matter at hand, but I thought it was an amusing observation.
Since we’re talking about debt between sovereign nations, there’s absolutely nothing preventing these countries from saying, “Screw it, we’re not paying. The people who took out the loan aren’t in power now, and we’re not bound by their promises.”
…Except, of course, if a nation repudiates its foreign debt, it’s very very unlikely that anyone will want to lend them any more money. Ever.
And therein lies the rub. No one is going to be willing to lend large sums of money to a foreign sovereign government with decades-long repayment schedules unless they are quite confident that money is going to be paid back even if that government undergoes radical changes over the years. Meaning that if a government wants to maintain a decent credit rating, it has to take some responsibility for the debts of its predecessors, no matter how unpleasant they may have been. If it doesn’t, it has to start from scratch.
In theory a single jubilee–debtors and creditors spontaneously declaring a debt amnesty, clearing the books and starting over from scratch–can work. But there’s one big catch: it only works if no one expects to be able to bring about another debt jubilee again in the foreseeable future. Otherwise the less-than-fiscally-scrupulous governments–of which there are still plenty–will say, “Hmmm, we’ll roll up the debt for a decade or two, and then send out Bono to convince them to call it off again.” And if the creditors can foresee that happening, they’re not going to issue any more debt after the jubilee.
(One nifty way to get around this is to use some sufficiently rare random event beyond the control of any of the parties involved to trigger the jubilee, but you have to figure out what that event is and get everyone to agree to it.)
I guess a recent example would be Argentina defaulting on International loans about two years ago - currency becomes toilet paper, can’t buy imports, exports at giveaway prices, 1000% inflation, state employees not paid, 40% unemployment, banks closed . . . pick your consequences, really.
The matter is more pernicious than one government loaning money to another. As unpleasant as it might be for a direct US-government to somewhere else loan to be forgiven, it’s at least somewhat plausible (somewhat). The problem is that the vast majority of debt that is crushing various countries is not of this nature. Some of it is in the form of loans by major private banking corporations, often with US or other government guarantees. Thus, a guarantor government has to talk a corporation into writing off the loan or pony up the repayment.
Far worse and far more vicious are those loans from the World Bank. This organization may be more responsible than any other for the current economic state of many have-not nations. Its borg-like insistance upon timely interest payments in full, to the point of mandating wholesale domestic economic restructuring, can be traced to contributing to famine, infrastructure collapse, revolts, and much instability in victim–debtor, that is–nations.
Unfortunately, the World Bank is an “independent” organization, in the sense that nobody can be forced to take responsibility for what it does.
In my global issues class we watched a 60 minutes feature on debt relief and the world bank. The world bank loaned Zambia some outrageous amount of money to make it the most advanced copper-miner in the world. Shortly after, the global price of copper plummeted and Zambia was not able to pay back the loan. The goverment greatly raised the price of cornmeal to pay back just the interest rates on the loan, and now some people can only afford a bit of food and nothing else (at least, this was how it was reported in the feature).
I think you mean the IMF, not the World Bank. Most of the World Bank’s work is well-intentioned, though its development projects are miserable failures and generally cause more harm than good. It’s the IMF that makes large loans conditioned on governments following the economic and social policies it sets. Both institutions, by the way, are primarily controlled by the U.S.
It scares me that we all know so little about these institutions, which are probably the most powerful in the world today.
I’m not scared of the level of ignorance regarding the IMF and World Bank. I kind of expect it and am merely disappointed. Far more damaging and cumulatively influential are the ECAs. It was activism that curbed the behaviour of the former and yet the latter are still only on the periphery of activist actions and almost completely absent from public discussion.
Sorry, I forgot an important part. The World Bank would only lend them the money in the first place if they spent all of it on their copper industry.
I just re-checked my post and I didn’t say anything about evil-dictators or money lenders.
I don’t know enough about internat’l banking or economy, but it seems to me that what the World Bank did with Zambia is like lending a homeless person with no other choice money, on the condition they buy a bum stock, and then taking all the pocket change the bum has for the rest of his life.
Feel free to pick apart my metapor (if that’s even what it is).
Bingo. That’s been the World Bank (and IMF–I erroneously keep conflating the two) policy all along. If you want a loan, you are required to gamble your entire economy on ventures that, if they work, will get a lot of cash–invariably concentrated in a very few hands with nothing for the people. If they don’t work, you’re screwed.
Excuse me, I am a US taxpayer, and I don’t see WHY I should take it on the chin for corrupt 3rd-world dictators! WE all know what goes on with the crooks/leaders of the so-called 3rd world…they borro :eek: w and steal!
Take MEXICO, for example. It is a basiclly rich country (has as much oil as Saudi Arabia), but is infested with crooked politicians. A few years ago, the brother-in-law of the then Mexican president (Salinas de Gotari) was detained at Logan Airport(Boston), He had a suitcase with $3million in cash-he was on his way to stash the money in Switzerland.
So, if the holocaust survivors could force the Swiss banks to release the loot, why can’t WE recover OUR money, which was stolen by the crooks of the 3rd world?