Sunday, January 16, 2005

Doing something about third world debt

Third World indebtedness is one of the great problems of our age. Developing countries struggle to pay off crippling levels of debt - often racked up by military dictatorships in exchange for guns to point at their own people - but because of extortionate interest rates, they never seem to make any headway. And of course the money going to overseas lenders as debt servicing is money that cannot be spent on economic development or on serving the needs of their own people. So it's good to see the UK doing something about it; they have forgiven their share of Mozambique's debt and will pay 10% of its debts to the IMF and World Bank. There is a string attached, but on that isn't too onerous: the money saved must be spent on health, education, and infrastructure - all things that help a country stand on its own two feet.

It doesn't end there, either - the UK is planning to do the same for the entire developing world. In other words, they are serious about the problem and want to do something real about it, rather than simply wringing their hands. The trick as always is going to be getting other nations to follow suit.

The right will probably decry this move as "setting the wrong incentives" and "encouraging financial profligicy" or similar, but no doubt the pentakosiomedimnoi said the same to Solon before the seisachtheia. And they would be defending exactly what the rich of Athens wished to defend: debt-slavery. The only difference is one of scale.

If the moral argument does not convince, then consider this: debts that can never be repaid provide an incentive for only one thing - default. If creditor nations do not take steps to lift this burden, then debtor nations may one day simply refuse to carry it any further. And as Argentina shows, the consequences of that are far worse for creditors than debtors. Better then to try and manage the transition smothly, and possibly get something (even if only good will) rather than holding out for a hundred percent of nothing.


Forgiving debt is just another form of aid - but a sort of aid that must go through a presumably poorly run government (governments that are well run tend not to get huge debt problems).

Posted by Genius : 1/16/2005 04:59:00 PM