The Morality of Third World Debt

I have a question for the small army of intelligent people with whom I share Facebook.  Over the years the Western World has made loans to nations of the developing world, the enormity of which are matched only by the level of corruption practiced by the kleptocracies which have run those countries in the past and in many cases continue to do so today.  A vast percentage of that money was drawn off into the private accounts of family, friends and political allies of whatever gang of thugs happened to be running those countries at any particular time, most of which accounts may be found in European and other offshore and out-of-country banks.  The numbers, in many cases, are staggering.

The unfortunate result of this practice is that people who live in places like Guyana, Burkina Faso, and a host of other garden spots retain these debts when the local dictators mercifully die off or, as is more likely, are deposed by characters no more savory than those who preceded them.  Western lenders insist on maintaining the fiction that the dollars or pounds or Euros or whatever form of currency that was ‘lent’ went into development of the borrowing country was legitimate however, and that the money lent should be repaid at interest out of the resources of that country.

Of course, precious little development ever went into those countries and the lenders (smart people, all of them) never really believed that any development would.  Instead, a drain of natural resources flows out of those countries as payment for loans which nobody ever really expected would be repaid while new kleptocrats negotiate new loans which, again, have no chance of repayment.  This is a process well understood by loan sharks and credit card companies.  These debts insure that the indebted nations will never achieve any sort of development, not that most are likely to do so under any circumstances.  The people who live in those countries are therefore forced to live under conditions of exploitation by foreigners of their natural resources, crushing debt that will never be repaid, and national ‘leaders’ who are not at all likely to do anything to alter this picture.

In these circumstances there is little that Westerners can do to ease the suffering of citizens of those countries.  Their lot is indeed hard and devoid of much in the way of hope.  We in the West cannot march into those countries and run them for the native’s own good; a form of that idea was tried in the nineteenth and first half of the twentieth centuries, the negative consequences of which continue to be felt to this day.  The selection of leadership of those countries and the use and allocation of their resources must largely remain issues to be settled by the citizens of those countries by whatever means they chose.  It may not be pretty but it is, for the most part, not our business.

What we can do however, is address the problem of their debt.  I do not believe that there is much argument that loans were made to the governments of those nations in order to obtain access to natural resources at bargain basement prices or for geopolitical advantage, or both.  The welfare of the people was rarely a factor in the advancing of those loans.  I therefore propose that it might be a good thing to investigate a process of forgiving all or part of those loans as a means of lifting at least our part of the crushing burden which lies across the backs of many of the suffering citizens of the third world.

Of course, it is wrong to paint all nations and governments of the developing nations with a broad brush.  Some countries are actually making gains and are responsibly paying back loans as their improving economies permit.  In these cases, it might be proper to forgive loans on a graduated basis.  To simply forgive a loan to a nation which is honorably engaged in developing it’s people’s well being would, in my opinion, disrespect that country.  To greatly reduce it’s debt burden however would better reward it’s efforts while respecting it’s national pride.

Of course, there would be a financial impact here in the United States and the West and, God forbid, in my own 401K.  I, for one, could stand that blow.  Those loans were made to known thugs, in my opinion, and have no more legitimacy than a 40% loan to a Cosa Nostra loan shark.  There is no honor in benefiting from the tragedy that is life in the very difficult places of the earth.

But this may just be sentimental nonsense.  I am no economist.  I am a Christian who believes very much in the commandment to “Love my neighbor as myself”, but I may be taking that out of context.  I look forward to the response of any folk who are more conversant with economics out there to help me understand if I have got it wrong.  I eagerly await your input.