Third-World Debt Relief; Wha?

Factual Questions
21

raplh - The argument is that, in effect, it wasn’t a ‘loan’, it was due payment to the goons in charge for being the USA’s poodles and for keeping internal opposition suppressed – e.g. the deal was done and the US already got it’s share of the bargain (de facto control of the developing country, and control of the natural recourses, contracts to supply with the money the US itself lent, servicing/maintenance contracts for decades to come, sole supplier of second generation military hardware, etc, etc, etc).

Some NGO types argue that, on average, the US gets $2 back for every $1 it either ‘lends’ or gives in ‘aid’ – I’m not even going to look for a cite on that (lies, damn lies and statistics . . .).

22

A couple of additional points to those raised above:

In many cases the borrowing country has a leader who embezzles the money (several instances in Africa), in other cases the government blows it on social programs (several instances in S. America) or has an economy that is overcome by hyperinflation on its own or as a result of one or both of the first two causes (S. Amer). So there are a variety of things, innocent and not innocent, that can cause a problems.

People on both sides of the issue will agree that the staggering debt load and the country’s inability to pay it is a problem. Among other things, it prevents new investors from investing in the country, with the result that everyone loses. The lenders lose because the country never has an ability to recover. The country loses, because it can’t repay the debt or recover. And outsiders are economically checked from risking new capital in the country because of the state of its economy.

Debt relief is controversial for two reasons. One is principle. If you let people out of their obligations, you encourage poor fiscal discipline. The other is principal. Often, the “lenders” are not governments but private financial institutions and investors. Who is the governmet or Bono to say they should take a haircut? I guess you can call that principle as well.

My point is there is common ground on both sides to the extent both will agree that relief is good for the country AND good for (new) investors. The disagreement is how you take property away from the lenders for the benefit of others. Sometimes this works by agreement of the lenders, called a ‘work-out’, because they would rather have the debtor making regular payments, even if its at 50 cents on the dollar, because then the obligation has liquidity and they can sell it.

I tend to be on the side of the original investors on this issue because I have never heard the debt relief advocates describe a plan that was fair or addressed any of the other reasonable concerns. Of course, that results in a stalemate where people suffer because of mistakes of the past.

23

In many cases the original loans have been paid several times over; it is the accrued interest which cripples the economies of some of the poorest countries.

And the tragic irony is that, were these countries companies (and note that many multinationals are financially bigger entities than these countries), they could declare bankruptcy and start again from scratch. We accept these occasional slate-cleanings so that people are not forever yoked to debts which were effectively created by other people.

24

Mexico doesn’t have as much oil as Venezuela, so I don’t know where you got that from. It has maybe 20% of the oil reserves of Saudi Arabia, while Saudi Arabia has maybe 20% of the population Mexico does.

You might have been confused because Mexico has the second largest oil field in the world in Campeche, but its total reserves are far less than the total reserves of several other countries.

But yes, there is significant corruption in Mexico and a lot of Mexico’s debt problem came by using its oil reserves as collateral against big loans from the US (at the US’s urging) prior to the oil price crash in the 80s. The fact that Pemex is hugely inefficient and hugely corrupt doesn’t help things, either.

I don’t advocate a wholesale debt forgiveness program. For instance, I see no reason to help out the thugs in Myanmar, but a stable, democratic country like Costa Rica should be helped out. And Costa Rica would only cost about $5 billion. Guatemala would cost about the same, and I think we owe it to them to help out a bit with that, too.

Someone like Mexico is a bit trickier since they have a huge external debt ($150 billion), but are still massively corrupt. I could see forgiving chunks of it in return for cleaning up sections of the government, but I don’t know how you would go about doing that.

25

I hate to break it to you, but were this a corporation they would be butchered and gutted by the courts stripping them of every possible asset to pay creditors. You might want to remember that SHareholders rank dead last in the heirarchy of who gets paid. In this case, the citizens are the shareholders. In fact, the people who generally come out best are the owners who may have lost everything, but come out even at least.

26

I could try to give a good rebuttal, but I’d rather give the truth. (Got your grain of salt ready?) :slight_smile:

Fact is, we (US anyway, though suspect other countries) give foreign “aid” to those we want to sate. Congress loves to bring it (debt) up in the very few debates we never hear of, but we (US at least) do it knowing we’ll probably never see the money again.

For US Dopers I can give some good news. No matter who has the majority, Congress has a “built-in loss-factor” whereby they figure how much money they can lose, then guarantee those loans.

This is why domestic deficits are nothing to worry about. The US ain’t going broke. Everyone knows it, that’s why we can run a high deficit now and then. And IIRC, the deficit in the news lately is what the debt is combined over a decade, or so. (Not sure, so if anyone can prove me wrong, please do, I’m probably wrong somewhere there.) But I do remember the “sky is falling” hysteria during the Reagan years. Remember the trillions in “debt” we were? Then somehow, under Clinton, we had surplusses. Giving him credit for the US economy has to raise the question, “Why isn’t he the richest man on Earth?” I mean, he’s good with money right?

Oh, back to reality. Congress has to vote on all spending bills. Between the House and Senate, you need a pretty good majority to pass any bill through both houses of Congress, and it’s more than the number of Republicans in the House and Senate. Therefore, by default, up to 25% of democrats have to vote for any spending bill to be approved.

CAVEAT: Fewer than 66% kills a spending bill in the Senate? I may be wrong, again. Either way, you need both parties to vote for it, seeing as the division is so close. If it passes, more Dems voted for it than Reps against.

Once more, any help?

The point of this post is that while the US gives a butt-load of money to developing countries, I suspect we make sure it isn’t enough to break the bank. We would prefer stable countries anywhere in the world. Out of 6 billion we want to target 4 or 5 people? Trust me, these countries will be more than happy for it in a few years.

circa 1954: American businessman in Tokyo, code-named Bob, talking to Japanese businessman named Li

(names made up to confuse the innocent)

Bob "Hi, I’m Bob. I hear you have some dedicated people whom want to break from the centuries old traditions and do something that may raise thier status. Now, I know you were raised to follow the Emporer (sp?). And this is no reason to follow a different faith, but let’s be honest here, you gotta think of another line of work.

Li: (thinking his Ruler may just be on the way out) “Well, we’re an intelligent people. We’ve come up with pretty neat stuff, but how does that help us? Hmmm…”

Bob: Ok, let’s see what happened here. I met this guy whom seems like a pretty good person, he has some ideas in electronics and, quite frankly, it sounds kinda cool!

Li: Damnit. Hirohito is screwing over my family by making me live by his rules for his benefit, while I…wait, he doesn’t have power anymore. But, I’m still afraid for my family. Where is Togo?

Bob: Man, this circuitry here sucks. Why the hell did they have to go union and force this crap on us? Now we have to accept what is forced on us, rather than what is superior? Oh, unions are to protect me? Fuck the Japanese!

Bob: signs the union papers (early days)

Li: brainstorming Let’s make a cheap, reliable car to sell to the Americans.

Fast forward 10 years.

Li: Great news! Honda and Toyota called this morning to praise us for our insight to the US mindset! Uh, hang on, I have a call coming in from Honda…

(Back to the conference) OK, Honda is in on the plan.

I think we can now work the market to our advantage. They want it!

Fast forward 20 years.

Bob: Well, it goes against my natural instincts, but I have to agree with less cylinders to help save the Earth.

(Fast forward)

The smaller body/engine sizes were born to save the Earth. Then, during Clinton’s admin, they were almost mandated by Kyoto. An international law that the US is villified for because “we” (Clinton) didn’t sign.

27

The US isn’t donig a lot to encourage foreign stability though, it gives half its aid as foreign aid in the form of good ol’ fashioned guns.

Debt is a tricky issue though. A problem is that if a country defaults on its IMF loan, the IMF sends in administrators to run its economy. They focus on getting cash, i.e. growing coffee, coco, or other such cash crops. Then the country has to import food, which ruins local farmers, and its totally dependant as a country on 1 or 2 crops, as soon as the recession hits, its back to square one.

28

Good job keeping it a GQ thread. :rolleyes:

When a country is so fiscally out of hand that it is about to collapse, they go to the IMF. Simplistically, the IMF requires them to curtail their spending and bring their finances in line, and then makes up the spending shortfall by loaning money to the country in question. Additionally, by meeting the IMF eligibility criteria the country becomes a more attractive borrower to private lenders. Indeed, some countries make the efforts to meet the IMF criteria, with no intention of borrowing from the IMF, just so that they can generate more private loans.

That is what the IMF does. Whether they hurt countries is the debatable point. However, it is worth noting that some of the best doctors & hospitals lose the most patients and get the most lawsuits simply because they take on the patients who are in the worst conditions. Countries that go to the IMF do so because they are already in dire straits and it is more than reasonable to expect many of them to go off the deep end in spite of the IMF’s efforts. Then again, the IMF does have detractors who are quite qualified to criticize them coherently. You’re free to start such a thread in GD, I’m sure.

29

The above quoted statements are factually wrong.

  1. Congress does not precalculate how much it intends to lose on international loans.

  2. The debt is how much money the United States owes everyone, no matter when that debt was incurred. The debt only goes away when we pay it off. The Clinton budget surplus certainly did not erase the debt, because the debt and the deficit are two different things.

  3. You need only a bare majority for Congress to pass an appropriations bill.

  4. So long as funds are contained in the budget, it only takes a majority for the Senate to approve spending bills and adopt amendments to spending bills.

I have no clue about what the rest of that post meant.

30

Me neither.

Does duffer want to come back and explain what on Earth ‘Bob’ and ‘Li’ were on about?? Or will I regret asking? :confused:

31

Thank god their names were changed to protect the incoherent. :smiley:

32

This is astonishingly sensible, Neurotik.

I’ve always favored making foreign aid and debt relief dependent on whether, in our view alone, the government of the country in question was A) representing their populations best interests and B) doing so in a way we approved.

Ain’t no law says we have to loan money out. And I prefer human rights and ethical government strings to tie it on.

33

What doyou make of the case of the late African dictator Mobuto (Zaire). He is estimated to have stolen something in the region of $12.5 billion…and much of the money went to buy French chateaux, condos on the Riviera, etc. This thief was in power over 25 years, and literally stole everything that wasn’t nailed down. I didn’t see anything from the UN, the OAU, or anybody complaining about his depredations…most amusing to me, was the fact that the Swiss government lent money to Zaire. They knew full well that most ofit would come right back to deposits in Swissbanks.
So, yes, the third world ought to repay what they stole from me…if that means mining more copper, so be it!

34

Holy Shit!! :eek:

Would you beleive that last post made sense last night?!? Sorry, but I have no idea what I was trying to say.

This is so embarassing.

35

So, if the countries with loans were to consistently pay their loans back with interest, the result would be a flow of wealth from the debtor countries to the lending countries and institutions?

That is not the perception of most people.

Many countries do not in fact repay these loans or make the interest payments.
So I have a related question;

taking into account the defaulted payments,
is there in fact a net flow from the lending countries and institutions to the debtor countries or vice versa?

36

ralph124c, your anger is misdirected. Granted, you were stolen from and we rightly mourn your loss but bear in mind that it wasn’t the people we’re now exacting payment from that incurred the debt. It was Mobuto. And Mobuto was installed by the CIA for the benefit of your country, not theirs. This was presumably against the wishes of the people as the man he deposed won that country’s first democratic elections. You still feel the Congolese are morally obliged to repay such a debt?

Let me pick up your share of the bill. How much do they owe you.

37

Start electing PANistas in the states that you can. This is happenening. Kick the PRIstas out of the federal government. This is done in the executive branch, for now. Privatize PEMEX – Fox is trying to semi-privatize it, but the PRDistas and Greenistas and PRIstas cry about selling out to the Americans. So, kick the PRD (quasi-socialists), Verde (Green party, big scandal in Quintana Roo right now, suprise, suprise), and PRI (one party rule for 71 years speaks for itself) out of the bicameral legistlature. This’ll take some work because of the corruption – now we’re working in a circular fashion.

Next, take away immunity for political people. They can’t be arrested or charged with anything while they’re in office (the penultimate governer of Quintana Roo fled on his last day of office!, and there are a lot of ex-Presidents who don’t live in their own country!) – this is just an obvious problem waiting to happen. Look at the contrast – we impeached our President for telling a little fib!

38

I think we need to make a distinction here: the Big international “debtor nations” :The U.S., Mexico, Argentina, Korea, Brazil, Iraq – really don’t have a huge issue servicing the debt.

The Debt Relief Movement centers on are a number of countries, say 30, owing approximately $250 Billion U.S. known as “Highly Indebted Poor Countries”… most are in the Southern Hemisphere. Most of these countries are run by un-democratic jackasses & forgiving their loans – without demanding political, fiscal & civil reforms is, (admittedly GD territory) a bad idea: It really only makes it easier for the tyrants, their cronies and Western Mega-Business to repeat the consumption cycle.

It is easy to say It is unjust to make the poor countries of earth pay the rich when they cannot afford food, it is quite another to say that The ruler of Mali, his family & friends, and ADM/Boeing/Citibank Execs should have a big party at NATO/Aus/Japanese expense.

The Paris club, & the WB have a HIPC Plan put into place in the late 90’s: basically when a HIPC country reaches a certain fiscal point: Balancing the budget, and putting in free market reforms a substantial portion, but no where near all, of the debt is forgiven. I submit political reform must be part of the package as well – if it is I think the debt should be forgiven completely over a probationary period as the reforms, (real) political and fiscal, are met.

Here is the WB website on HIPC
http://www.worldbank.org/hipc/