It's worth it just for the schadenfruede

Wednesday’s Wall Street Journal has an article by Susan Lee about Iraq’s foreign debt in which she argues against repudiating it (not online as far as I can tell). I found the arguments rather weak.

Russia didn’t do this for Soviet debts

So what? Russia could have, but decided that it was in their best interests not to. Is Lee seriously suggesting that Russia accepted the debts because of any moral concern with legality or international law? One also notes that it was Russia that decided to honor the debt, not the debt holders.

Repudiating odius debt is a good/bad idea

I can’t make any sense of Lee’s position here. She says it would be good because

the notion that the mere possibility of repudiation would stop lending to such tyrants in the future has merit

and that it would be bad because the

retroactive application would scare the pants off creditors to China. The effect would likely be to freeze lending to countries with dubious forms of government. At the very least, debt repudiation would cause risk premiums to rise.

Uh, isn’t the second point the enforcement mechanism of the first? Isn’t repudiation of odius debt by definition retroactive? I can’t see how one would repudiate debts that didn’t already exist.

Debt repudiation would not help Iraq regain its place in the global financial system

It wouldn’t help, but I don’t see that it would hurt much. Moreover, Iraq doesn’t really need any loans at this point in time so any loan problems would be put off at least a few years. And beyond that, isn’t this exactly what people said about the Latin American debt crisis of the 1970’s? That prediction doesn’t seem to have panned out. As far as I can tell, money lenders are willing to over look a lot in order to lend money. I’m frequently stunned by how willing, so it’s hard to view this as a real long term problem.

And then, suddenly, she’s done. That’s it, those are essentially the only arguments, not one of which is even mildly persuasive. Is the WSJ deliberately putting up substandard arguments for policy positions they disagree with? If this is the best the non-repudiation side can come up with, I’m more convinced than ever that t’s time to scare off lending to corrupt, dictatorial regimes. Repudiate the Iraqi debt.