51. Against Foreign Loans

Plum Local IV ::: Part IV
National Finance: Debt and Taxes

== chapters 51 - 78 ==

=== look to right column for direct links to chapters ===

51. Against Foreign Loans
Bob Komives
::

Poor countries continue to go into debt to other countries and international banks. They must repay their debt using one of the world's hard currencies --their own, considered too soft. Too often, some lucky citizens in the debtor nations manage to hoard hard currency that comes in through loans, while their governments hoard only the debt. Such problems hobble government and exacerbate the dichotomy between rich and poor in debtor nations, but damage is not restricted to debtors. The world suffers waste. Immense resources, including human effort and intellectual talent, pour into the system that supports international debt. Assume for a moment I can convince you that the system is invalid. Imagine the benefits we would reap if we divert this waste of resources into productive endeavor --endeavor that improves investment within nations and the trading of resources among nations.

As 1987's September turned to October. The members of the International Monetary Fund and World Bank met in Washington D.C. confronted by continuing crises in world finances. They started their meetings with little hope that they would devise a solution to the international debt problem. Their pessimism proved justified. By Christmas, banks in U.S. America had begun to write off large parts of their international loan portfolios as bad debt. If international debt gets less popular attention today than in 1987, perhaps the novelty is gone. International debt is an old problem that still stymies financial leaders.

Certainly some international debt comes from ill-conceived loans on bad projects, but other debt piles up from projects that were good-but-slow-to-prove-it. Money leant to enhance ecological, educational and social systems, for example, may return manifold profit in increased wealth, but the profit may come too slowly to cover the interest on the loan. Other projects may return profits quickly to society in general but too slowly to the marketplace. The market, not reflecting true benefit and detriment, declares the project a failure. Internal, national investment can accept some inflation as tradeoff for long-term and non-market benefits from good-but-slow projects. Instead of paying off the debt directly, the nation lets its money lose a little value --achieving the same end. An international loan, however, requires prompt payment to avoid geometrically escalating debt. Any country that embarks on good-but-slow projects by borrowing foreign money invites default --unnecessary default.

Much in life is unnecessary but quite acceptable, even enjoyable. International debt is unnecessary, but also harmful. I reach the same conclusion if the lender is a private bank or a multinational institution such as the World Bank or the Interamerican Development Bank. I reach the same conclusion even for projects that promise to be good-and-fast. I am against foreign loans.

:: Bob Komives, Fort Collins © 2006 :: Plum Local IV :: 51. Against Foreign Loans ::
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