July 16, 2005


G8 debt deal under threat at IMF (Steve Schifferes, 7/16/05, BBC News)

Even before the ink has dried on proposals to relieve poor countries' debts to international lenders, the deal agreed by the G8 at Gleneagles is under threat.

A number of European governments are apparently having second thoughts about proposals for debt relief which formed a key part of the help world leaders offered to Africa at last week's summit.

The Belgians have apparently proposed changing the terms of the deal to give lenders more leverage over poor countries than they would have if they simply wrote off 100% of their debt.

The reality is that the lenders have no leverage. If these nations just have sense enough to repudiate the debt no one can ever make them repay it and folks'll be lined up to lend them more.

Posted by Orrin Judd at July 16, 2005 9:46 AM

Given the complete disasters the Belgians left in their colonial wake in Congo, Rwanda and Burundi, and their Liliputian economic and military clout, you would think they would have the decency to just shut up.

Posted by: bart at July 16, 2005 11:45 AM

the French don't.

Posted by: oj at July 16, 2005 11:59 AM

All countries need to borrow at times, so repudiating debt would be a very, very bad thing to do to their economic futures.

Posted by: PapayaSF at July 16, 2005 12:09 PM


You pose a false choice.

Posted by: oj at July 16, 2005 12:32 PM

Maybe I'm a bit slow this morning . . . I don't understand what you mean by "false choice."

Posted by: PapayaSF at July 16, 2005 1:57 PM

Repudiation would not negatively affect their future borrowing. Indeed, being debt free would facilitate it.

Posted by: oj at July 16, 2005 3:28 PM

Oh, yeah? Declaring bankruptcy doesn't negatively affect a credit rating? That's news to me. Can you point to any evidence of this?

Posted by: PapayaSF at July 16, 2005 3:32 PM

the USSR. Donald Trump. New York City. Chrysler. Britain. France. Argentina. The next batch of loans will follow within weeks of repudiating the last.

Posted by: oj at July 16, 2005 3:43 PM


While I think OJ is being a bit optimistic on the time scale, the historical fact is that it never takes more than a decade and generally quite a bit less before a repudiation is "forgotten" and lenders are ready to come back. It took about ten years after the big wave of defaults in Latin America. Argentina was back in the borrowing business within 3-4 years.

However, it would probably be an economically good thing if most African nations couldn't borrow. That money's never improved anything, it's just one must pound of flesh extracted from the populace for the gratification of their rulers and their cronies.

Bottom line: I just can't imagine any negative repurcussions to those nations from sub-Saharan nations repudiating their debts.

Posted by: Annoying Old Guy at July 16, 2005 8:32 PM

The lending of any money to governments in the Third World is generally a bad idea. What should be done is to pursue the kind of microlending to individuals and small business supported inter alia by Hernando de Soto. The problem here is that much of the Third World does not have the legal infrastructure or traditions of respect for property and contractual rights that make this work.

Latin America does for the most part.

Posted by: bart at July 17, 2005 8:49 AM

Never overestimate the intelligence of a bank or senior bankers. I recall a friend in the eighties telling me about his friend who was an EA to the president of one of the bigger banks here. Made Trump look self-effacing. He'd be reading his paper in the limo in the morning and learning about how the competition was lending more to Poland. By noon everyone knew they'd be toast if they didn't find a way to shovel gazillions to Poland by sundown.

Posted by: Peter B at July 17, 2005 12:45 PM