fatvegan

I've been thinking a lot about debt lately. It's such an ugly thing when it goes wrong. And I think that debt repayments are one of the most tragic things happening in poor countries and the moment. I have to write an essay about why Latin American countries didn't join together and collectively default on their debt. It would be so marvellous if they were able to. They are all in far better shape than they have been for a long time, bar the odd socialist revolution which was typically a vast but short-lived improvement. I was wondering how they could do the default so that they didn't get cut of from foreign lending. A major part of the problem appears to be the bankers cartel, who apparently have all agreed to refuse loans to any country that defaults on its current debt. But I reckon that if the five of the largest Latin American countries banded together and agreed to guarantee each other's debt, then they could approach bankers one at a time and offer to collectively default in return for a large loan program.

A collective default would be a huge impact on the international financial system regardless of the response of the bankers. I seriously doubt that bankers could afford to stay out of Latin America, if the five or so countries were able to make a convincing case for their future. And even better, instead of IMF economic adjustments, you would have mutual accountability. Any of the five (or so) countries that shifted towards authoritarianism would be pressured by the other five countries to shift back. It would eliminate the conflict of interest that the IMF has. It is has to foster international financial stability, but also to "help" countries in need. Normal self-interested national policy will not always foster international stability, as the US has proved, so the IMF has an impossible conflict there and shouldn't manage both tasks. The IMF should definitely not be advising both the international bankers and the debtor countries.

Bankers are not stupid. They must understand that loans made during the last 50 years have not contributed to growth. When the loan money was stolen, the banks were ripped off as well as the countries from whom the money was taken. Except the poor countries have had to cover the losses of everyone. For that and other reasons, I'm not particularly upset that the banks have lost out, but surely they must see that their loans were foolish. I would think they thank god daily that they haven't yet been forced to pay for their stupidity. I think even the most mentally impoverished banks will understand that they have a much better chance of being repaid loans that generate economic activity than they do loans used to buy fancy foreign cars and expensive wine and cheese. I'm assuming that's what most corrupt politicians did with the money, because that's what I'd do. So there's no reason the countries should even be denied future investment. I'd invest in a healthy Latin American democracy, and I reckon that even after the impending default most of these banks will have more money to invest than I do.

I think that this post will become the gist of my essay. I hope I don't upset my tutor too much. I suspect he'd rather we wrote about the inevitable socialist revolution instead.