The LA Times tells us that the Group of 8 (that's the US, UK, France, Germany, Italy, Japan and Russia) has voted to forgive $40 billion worth of debt to 18 of the world's poorest nations. Bono and Bob Geldoff must be thrilled and Gordon Brown's political stock just shot up a zillion points. But seriously: did anyone bother to consider the possibility that this isn't a good idea?
First of all, this sends a bad message to third-world countries. Instead of (gasp) cutting aid or perhaps even tying it to policy-based incentives, this sort of carte-blanche debt relief basically says if you are poor enough and a few rock stars sympathize with your plight, you have nothing to worry about. The more developed nations of the world are paying the tab at the IMF and World Bank. Instead of treating these impoverished nations as equal partners in world affairs, we are offering them the presumption of fiscal incompetence. Fear not Africa, the white, Western world is here to rescue you.
In addition to this gross paternalism, paying for debt relief is only going to enlarge the U.S.'s budget deficit. Perhaps we should give thought to paying off our own debts before we tackle Ghana's.
None of this would matter, of course, if debt relief actually did what it was supposed to do. After all, you can't put a price on curing poverty. But since when does forgiving debt mean that poverty will automatically be cured? Remember, we aren't pumping capital back into the economies of these countries; all we are doing is letting them off the hook for money they already owe. Assume for a moment that most of these countries have corrupt governments that set bad policies that resulted not only in accruing billions of dollars of debt, but poverty, famine, oppression, etc. Now suppose we say to these governments, "OK....you're off the hook." What's really changed? And, given that, why should we expect anything to improve?
The world will be a better place if I'm wrong about this. Sadly, I don't think I am.
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