February 8, 2005
IS THERE A DOCTRINE OF PREEMPTIVE DEBT RELIEF?
Canada offers debt-relief plan (Doug Saunders, Globe and Mail, February 8th, 2005)
Finance Minister Ralph Goodale is vowing to win the world over to Canada's debt-relief plan for Africa's poorest countries, after the collapse of an ambitious British version.Before the weekend, the Group of Seven leading industrialized countries was considering the British plan, in which the G7 would have taken over the debt payments of the world's poorest countries for 10 years -- a proposal that would have cost Canadians at least $175-million over five years.
But when Mr. Goodale showed up at the London meeting of G7 finance ministers, it turned out that he had his own plan, which varied widely from the British one. Most notably, Ottawa wanted to protect the Canadian gold industry by steering clear of Britain's proposal to sell off the gold reserves of the International Monetary Fund to help Africa.
Under Mr. Goodale's plan the rich countries would directly take over the principal payments on debts owed by 19 countries, leaving the IMF and other groups unencumbered and free to provide aid.
However, the Canadian government was by no means the only one with a plan.
When officials sat down Saturday, they discovered that the United States, France and Japan also had alternative plans for helping Africa, and nobody was willing to listen to anyone else.
"It was a very tough meeting," a Canadian official in the talks said.
While all seven governments agreed that debt relief is vital for pulling sub-Saharan Africa out of its poverty, there was no sense of agreement as to how this bailout should be financed or organized.
Imagine you owe a lot of money to several different banks. All of them agree you shouldn’t have to pay it back, but because they can’t agree on exactly how you shouldn’t have to pay it back, you have to pay it back.
The problem with debt relief is twofold. First, if the Turd Worlders don't pay the money back, the loss comes out of somebody's pocket. And, contrary to the demagogues and the ignoramuses(ignorami?)who advocate 'debt forgiveness,' the 'bankers' aren't the ones who get stuck but instead depositers, shareholders and the taxpayers through deposit insurance schemes are the ones who get stuck with the bill.
Second, and more important than whose ox gets gored, what is to stop the Turdworlders from taking out too much debt all over again? In fact, the opposite, taking out excessive debt because you know you can stiff the lenders, would seem to be encouraged.
I see tha carrots for the Guinea-Bissaus of the world, I just don't see the stick that enforces responsible fiscal behavior.
Posted by: Bart at February 8, 2005 6:29 AMHow about, the first country owed money that kills the bastard dictator running the country gets to keep his Swiss bank account and the others have to forgive the debt?
Posted by: Randall Voth at February 8, 2005 7:43 AMBart;
The stick is precisely the pain you describe, applied to the lenders. If loans to those nations become de facto uncollectable, we'd see either
1) A lot less lending
or
2) A slightly different way of distributing aid money
but in both cases, struggling African nations wouldn't have excessive debt burdens.
AOG,
If the lenders refuse to lend, then the 'developing world' is in the same shape it was in before people started lending. The one-worlders and the utopians pressured the banks to lend in the first place.
Frankly, I'm opposed to lending to governments in the Third World. My sense is we should compel them to impose regimes that respect property and contract rights, going so far as to actually pay for this to be done, and then encourage microlending by the bucketful to the millions of nascent entrepreneurs who would emerge from the morass.
Posted by: Bart at February 8, 2005 12:08 PM