G8 - Debt forgiveness for poorest nations

[Tingkai]

Originally posted by Lawrence of Arabia
and youre right, but the IMF only gives emergency loans. they are for countries ALREADY in debt, and who have defautled.

Not always.

Loans are often given to prevent a defaut or to "stabilize" an economy.

In the 1997 crisis, most of the Asian government had been operating fiscal surpluses, none of the governments had defaulted on any loans.

Originally posted by Lawrence of Arabia
they'll just sit around waiting for the next round of debt forgivness. plus you assume a good government. good governments dont get into debt inthe first place. history shows us that debt forgivness has NOT worked.

I'm surprised you wrote that. Usually you know your economics.

The idea that "good" governments don't get into debt is ludicrous.

Debt makes financial sense in many cases. It would be crazy, for instance, for a government to pay cash on the barrel for capital projects, like schools, hospitals, highways, etc. In these cases, it is far more prudent to borrow money for the projects. Governments around the world do this on a routine basis.

[chequita guevara]

Originally posted by Lawrence of Arabia
mexico defaulted in 1995. im talking about 70s or 80s. read william easterly - "the elusive quest for growth." he has a whole chapter on how debt forgiveness does not work.

Wrong, Mexico defaulted in 1983. It's currency collapsed in 1995, but it didn't default. I need to see some examples of debt forgiveness during that period.

[Lawrence of Arabia]

Not always.

Loans are often given to prevent a defaut or to "stabilize" an economy.

In the 1997 crisis, most of the Asian government had been operating fiscal surpluses, none of the governments had defaulted on any loans.

I'm surprised you wrote that. Usually you know your economics.

The idea that "good" governments don't get into debt is ludicrous.

Debt makes financial sense in many cases. It would be crazy, for instance, for a government to pay cash on the barrel for capital projects, like schools, hospitals, highways, etc. In these cases, it is far more prudent to borrow money for the projects. Governments around the world do this on a routine basis.

ya, youre right twice. i dont know whats gotten into me I guess I meant unsustainable foreign debt service (more then 25% of the value of exports)

Wrong, Mexico defaulted in 1983. It's currency collapsed in 1995, but it didn't default. I need to see some examples of debt forgiveness during that period.

and you're right too . my god, im 0-3. i think i should retire as an economist.

"the data on debt relif from the World Bank's World Debt Tables go back only to 1989. The relationship between debt relief and new borrowing over this period is interesting: total debt forgiveness for forty one highly indebted poor countries from 1989 to 1997 totallted $33 bn, while their new borrowing was $41 bn. This seems to confirm the prediction that debt relief will be met with an equivalent amount of new borrowing.
New borrowing was the highest in the countries that got the most debt relief. There is a statistcally significant associationg between average debt relief as a percentage of GDP and new net borrowing as a percentage of GDP. Consistent with the mortgaging the future hypothesis, governments replaced forgiven debt with new debt" (Easterly 128.)

the 41 countries are:Angola, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Repbulic, Chad, Congo (Democratic Republic), Congo, Cote d'Ivoire, Equatorial Guinea, Ethiopia, Ghana, Madagascar, Malawi, Mali, Mozambique, Mauritania, Myanmar, Nicaragua, Niger, Rwanda, Sao TOme and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Vietnam, Yemen and Zambia.

[Kidlicious]

Originally posted by Lawrence of Arabia

and you're right too . my god, im 0-3. i think i should retire as an economist.

You're just a student who doesn't know the difference between micro and macroeconomics.

[Lawrence of Arabia]

when you get to advanced micro, give me a call.

[Kidlicious]

Originally posted by Lawrence of Arabia
when you get to advanced micro, give me a call.

How do I go back in time about 10 years.

[Lawrence of Arabia]

How do I go back in time about 10 years.

give Michael J. Fox and Christopher Lloyd a shout.

[Saras]

IMF did a spectacular job in Lithuania.

[Tingkai]

The fact that countries borrow money after getting debt relief is not in itself a problem. Governments need money to develop an economy, particularly infrastructure projects.

The more important question is whether the country can service the debt, are they getting over their heads again?

So a random selection of the 41 countries LOA mentioned, (every 5th one) looking at debt service as a percentage of exports

Angola: 26.8% in 1999, 14.9% in 2003
Burandi 47% in 1999, 65.8% in 2003
Congo: 1.4% in 1999, 4% in 2003
Madagascar: 17.1 in 1999, 6.1 in 2003
Myanmar: 4.9% in 1999, 4.2% in 2003
Senegal: 14.5 in 1999, 10.4 in 2003
Togo: 8.9 in 1999, 1.9 in 2003
Zambia: 16.1 in 1999, 27.8 in 2003

For data, go here

http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/0,,pagePK:180619~theSitePK:136917,00.html

click on country>data & statistic> country data profile

So for eight countries, two exceed LOA's 25% guideline.

Burandi has been plagued by ethnic civil war.

I'm don't know what has happened in Zambia

[chequita guevara]

Zambia has been clobbered by AIDS. So has Burundi, not to mention that whole genocide thing (it wasn't just confined to Ruwanda).

[Lawrence of Arabia]

so two out of eight, or 25% of countries who had debt forgiveness and were HIPCs, went straight back to 'unsustainable' foriegn debt service. (btw, it doesnt matter what the reasons are, since its a sample of the total, and we are not interested in why they went back to the levels that they were at before, only if they did or didnt)

"There is a statistcally significant associationg between average debt relief as a percentage of GDP and new net borrowing as a percentage of GDP. Consistent with the mortgaging the future hypothesis, governments replaced forgiven debt with new debt" (Easterly 128.)"

"Despite ongoing debt relief, the typical present value debt to export ratio rose strongly from 1979 to 1997" (Easterly 128)

"The per capital income of the typical HIPC declined between 1979 and 1998. This is worrisome first of all because two decades of debt relief failed to prevent negative growth in HIPCs. This is not good news for Jubilee 2000 campaigners who claim that debt relief will bring growth" (Easterly 129.)

[of course, there may be other reasons why they didnt grow, but this certainly is a good point to be made. the erasing of debt does not corrolate with growth increase in the 41 HIPCs.]

[Tingkai]

Originally posted by Lawrence of Arabia
so two out of eight, or 25% of countries who had debt forgiveness and were HIPCs, went straight back to 'unsustainable' foriegn debt service. (btw, it doesnt matter what the reasons are, since its a sample of the total, and we are not interested in why they went back to the levels that they were at before, only if they did or didnt)

But using this sample, we can't say that old debt will automatically, or likely, lead to new debts.

75% of the countries that received debt relief now have the ability to grow their economies, which would not have been possible had they still been servicing massive debt.

Still, I think Easterly raises a good point about the dangers that can happen after debt elimination, and I wouldn't be surprised if the World Bank has taken his research and incorporated it into their poilicies.

Originally posted by Lawrence of Arabia
"The per capital income of the typical HIPC declined between 1979 and 1998. This is worrisome first of all because two decades of debt relief failed to prevent negative growth in HIPCs. This is not good news for Jubilee 2000 campaigners who claim that debt relief will bring growth" (Easterly 129.)

That's disturbing information. Without relief for debts, HPIC economies cannot grow, and I would have expected that debt relief would have created some growth. And I can't see any reason why debt relief, in and of itself, would shrink an economy.

Something else must be happening and I suspect that we would have to look at IMF policies enforced on these countries.

Interesting. I'll try to pick up Easterly's book.