Defaults away!
Posted by aogSaturday, 10 July 2004 at 16:34 TrackBack Ping URL

Little Green Footballs is complaining about Jeffrey Sachs recommending that African nations default on their debt if the lenders don’t cancel the debts. I have to agree with Sachs - I think it would be a wonderful idea.

LGF doesn’t specify why the default would be a bad idea, so I can’t directly argue the claim. Among the commentors, the objection seems to be that the African nations would starve, not get more loans, or both. The flaw in this view is the implicit presumption that previous loans have been beneficial to the debtors. This is quite debatable and my view is that overall most (if not all) African nations have been strongly harmed by their ability to get loans. The money either ends up in the kleptocracy’s pockets, destroys the environment / local industry, imposes additional tax burdens on the populace or some combination of all three. Africa would probably be much better off today if it had never gotten any loans.

The forces against the default are primarily the looting class in Africa and various NGOs (such as the World Bank) which are staffed with people who’d be out of a job if Africa didn’t get new loans. I can’t say, frankly, that my heart bleeds for any of those people.

Finally, the idea that defaulting African nations wouldn’t get loans in the future is simply laughable. I would put it at no more than five years, if that, before lending was starting up again. What might do some good is for the USA to endorse the repudiation of debt incurred by a non-democratic regime by a successor democratic regime. If this meant that banks wouldn’t lend to dictators to line their pockets in exchange for immiserating their populace it would be a definite improvement.