What a relief

Also in your newspapers this morning, a report of the G-7 meetings held over the weekend in Washington. The main story seems to be that they are still not supporting debt relief for third-world countries. Which is actually good news.

It's not that the Cranky Economist supports trapping poor nations in obscene piles of foreign debt. Quite the contrary -- I'm deeply suspicious of the World Bank/IMF method of "development financing." Why, you ask? Well for starters, after fifty years of doing it that way, where's the development? These loans have a nasty habit of propping up despots who then embezzle the money for their own purposes (worth remembering lest anyone think Oil-for-Food was an isolated event). And under the loan regime, officers at the Bank and IMF have perverse incentives to make loans without any consideration for whether the country will be able to repay. Just read Tropical Gangsters, the account of a World Bank officer in Equatorial Guinea. It climaxes with a long meeting at the end when Bank officials gather and start fudging numbers to be able to give the counry a loan. No wonder there's a debt problem.

But the debt wouldn't necessarily be a problem if the countries were growing fast enough to pay it off. They aren't doing so because the developed world finds plenty of other ways to keep them barefoot, pregnant and in the kitchen, as it were. Such as blocking agricultural trade with them.

I'm uneasy about the idea of debt forgiveness because a.) it's a dodge that keeps the first world from tackling the root causes of third world poverty, and b.) because it will only help the bad political leaders who benefited from the loans in the first place.

Don't get me wrong -- the debt is a big problem. But erasing it might not be the best solution.