fatvegan

I wrote this months ago, but forgot to post it.

I have an idea for reducing third world debt. A few people have commented on my "drop the debt" t-shirt in recent times. They'd say things like "That's a really good idea" or "You're an idiot". Things like that. My usual response is something like "Yeah. I think so. But I'm not sure. I'm worried that debt-cancellation would result in poor countries being unable to get future credit....." And so on.

Then this morning I was reading John and Jane's "The No-nonsense Guide to Globalization". It's good. And very balanced and thoughtful for the New Internationalist doohickey. Predictably there are bits that I don't like. Can someone please explain Ricardo to me? I was sure that "comparative advantage" was the theory that it was good to trade stuff even when you didn't have a "natural advantage". Sometimes, even when the other guy is better at making something than you, it's still good for you to make it and trade with him for other stuff. But every book I've read has described comparative advantage as using natural advantage. Which strikes me as silly, because often people won't have any natural advantage except by dropping their quality of life. But that's not what I'm meant to be writing about.

What I want to write about is the idea of creating an international credit rating organisation that has the capacity to rate debt retrospectively. Like existing credit rating organisations that evaluate proposed loans, this organisation could evaluate how sensible past loans were. Based on their evaluation countries could select which portions of their debt they felt obligated to pay back. Castro suggested that third world countries simply refuse to pay their debt. But it's not a super idea because any country that did that would never be able to get another loan. And next time there was a recession or natural disaster lots of people would die of starvation and disease.

However, if Poor Country A says to Rich Country V, we aren't going to pay back Dodgy Loan C, because this international organisation has decided that lending that money to us was irresponsible - then there would be a basis for cancelling some debt. Responsible lenders wouldn't be afraid to offer future loans, because they could first obtain the sanction of this organisation, then safe in the knowledge that the loan's legitimacy wouldn't be invalidated in the future. And it would discourage lenders from lending money to dictators and bad governments, because there'd be no guarantee that it would ever get paid back. You don't need the consent of any major financial or political body. All you need to do is show financial institutions that dropping this particular debt, won't make future loans less secure.

Interest rates would probably go up slightly, but with money going to much better places. Far more accountability within the international loans industry. And third world debt would probably be halved. The third world's ability to pay off it's reasonable debt would be increased, so you may well even get the backing of the more responsible lenders.

Yay.