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G8 writes off 100% of Nicaragua's external debt
Submitted by mandaladon on Sat, 2005/06/11 - 14:30.
G8 the group of the seven richest countries of the world plus Russia agreed on Saturday to condone the debt by value of more than 40 billion dollars to 18 countries, among them are Bolivia, Honduras and Nicaragua.
This is what I call interfering with one's sovereignty.
Quick toughts
Some of the criticism of debt relief is that years after the debt is written off the debt becomes unsustainable once again. This is what has happened with Bolivia, they had their forgiven and it grew back upto unsustainable levels but they just got lucky again.
Nicaragua recently got 80% of its debt forgiven and apparently now the remaining 20%. However, the government (Bolanos) and its economist know that the debt might grow unsustainable. To prevent the debt from mushrooming again they are encouraging the growth of exports and other foreign exchange earnings (like tourism). So far both have grown over 20% in the first quarter.
They were also trying to promote the increase in foreign exchange reserves. However, Ortega wants to divert the funds to fund other "needs" such as subsidies to transportation, etc.(in other words please his constituents).
My 2 quick comments....
1---Do I understand correctly that the most mismanaged and poorest countries get a 100% rebate, while the best managed, but "second poorest countries" get a zero % rebate???
Ain't social engineering great....
2---If the G8 forgave billions in past debts, did they at least get in return that the local dictators sell their existing palaces and turn the cash over to the local poor people?
.....
Subsidizing incompetence & failure...
How many countries have ever paid back a mega-loan? Seriously, have any, ever? Poor countries are bribed into doing whatever half-ass thing a rich country wants. The then-current President or "mayor" pockets the respective bribes and makes off with the loot, only to then bemoan the fact that corruption exists, and presents himself as the one man who can fix the corruption problem - even though he knows full well he is representative of the problem. The fundamental problem with most poor countries is not poverty per se, but corruption; they cannot be fixed, not becuase they are poor, economically, but because they are fundamentally dishonest, with a measurable part of the population also being morally bankrupt. When you hear that a former military chief or whatever has absconded with massive government monies, and fled to Paraguay, do you assume he is more likely from Norway, or El Salvador -- Ireland or Ecuador -- Finland or Mexico? Everyone knows the reason(s) they assume the latter; the difference is that some people do not want to admit it, perhaps in fear of violating some insane poitical correctness statute...
Touche'
You hit the nail on the head with that one, Adrian. This thread has a lot of insight to it. Not too many solutions though, and frankly I'm at a loss as to what can be done. A more representative government, much smaller and leaders under the scrutiny of the governed with their own powers to remove them from office by force, legally. Monies being kept locally and not going to federal coffers only to be handed out like candy at Halloween. Actual "free trade" not some scam run by the big players aimed at keeping the poor down. Decentralized voluntary military where the soldiers actually never leave home to fight people they don't know but exist to guarantee the civil rights of all. I've never seen a government that had to answer to the populace until a revolution, and then it's not pretty and things have gotten so far out of hand it takes decades to recover if ever. Sure you can vote them out sometimes but the systemic deficiencies still exist and power is still centralized. One corrupt man or woman is replaced by another "Made Man" so to speak. It boggles the mind. Mike
Corruption + Inefficiency
I have to agree that the biggest problem facing poor countries is government corruption. Nicaragua is good example,being ransacked by Somoza then the Sandinista Comandantes and then Aleman. Among them they stole hundreds of millions. I also believe that government bureaucracy and inefficiency are major contributors.
The million dollar question is: What can be done to change this?
Smaller government
In general, most governments are pretty inefficient at representing people. Further, most governments don't want to represent people and those being governed actually encourage that. For example, one big concern when Washington state went from two very senior Senators to zero was that Boeing would get all the pork it was used to. It doesn't seem to occur to most people that not paying for a lot of pork and they trying to get your share is a lot less efficient than not paying for it in the first place.
In any case, I think the smaller you can make the receiver the more likely it is to actually do some good. Or, at least if it doesn't it is the fault of a smaller, more well-defined group of people for not watching what their government is doing.
Here in Estelí, local government seems to actually be pretty good at listening and at spending on what makes sense. Why not start with the basic concept of the sister city programs where you actually have interested parties listening on each end.
Loan terms
While I can't argue with leaders pocketing the money (Somosa and Aleman being two great examples here) you should look at the loan terms and concitions. The most common one is requiring privatization of essential services. Again, water and electricity in Nicaragua.
We can argue government inefficiency all we want (and I can offer some ways that work--Seattle City Light and the Public Utility Districts of eastern Washington, for example-where you can address efficiency concerns without adding businesses to the mix) but adding a for-profit entity to the mix can't be the best answer for the country itself.
Those for-profit entities are almost always delivering the profits to people outside the country.
You also need to look at what bigger, richer countries have done. Argentina, for example, realized it was getting the shaft and flatly said it wasn't going along with the game anymore.
Thus, I don't think forgiving the debt from the poorest countries means only giving them a handout. I think it mostly means you can let them survive and go back to trying to get larger countries to accept some pretty bad terms.
"Turning Tail" is the Problem.
Phil commented: "Those for-profit entities are almost always delivering the profits to people outside the country."
Usually the lack of profits and wasteful spending are the problems.
The biggest problem is when foreign investors take over a utility and then "suck" out all available money and let all the infrastructure "go to hell" and the foreigners "turn tail and haul ass" and leave the people basically no service. This is exactly what happened in Corn Island in 1999-2001 when the light company was privatized.
In Corn Island for the period of about 1991 -- 1995; many problems existed with the light such as limited hours and other problems. In 1996, the light was given from ENEL to the alcaldia and there was light for 24 hours and not many problems. The light was privatized in 1999 and now the people have light for only 6 hours per night. ____________________________________________________________________
Looks Like "Aid" & "Aids" are Attachments..
Looks like "strings attached". Looks like now the G-8 -- USA (America) and other 7 countries -- have gone in a half-day from 40 billion USA (America) Dollars to 55 billion USA (American) Dollars in forgiveness. The "Aid" string (accept more) and the "AIDS" string (spend more) and "corruption" string (stop it) are firmly attached to this forgiving gesture. __________________________________________________________________
http://www.cnn.com/2005/WORLD/europe/06/11/uk.g8.africa/index.html
"What we have decided today, conscious of the poverty that we face, is a decision of 100 percent debt cancellation for the poorest countries backed up by greater trade justice, by a doubling of European aid, by a commitment to provide AIDS treatments for people by 2010," said Brown.
LONDON, England -- Finance ministers from the world's wealthiest nations have agreed to a historic accord to cancel up to $55 billion worth of debt owed by the world's poorest nations. ____________________________________________________________________
Your "Loan Shark"?
Branch office Posted by padredemumi on 11 June, 2005 - 13:27. My "guy" (the barrio loan shark) is a 72-year old WOMAN! Dona Edda has more $$$ than I (or my bartenders) will ever see! ;-) __________________________________________________________________
Does your local Boaco "Loan Shark" woman ever do this debt forgiveness sort of thing? What interest rate do "Loan Sharks" charge? These debt-forgiven countries were supposed to be paying 5% interest on the debt and that interest is forgiven and so is the debt; but, only if these countries do what the G-8 tells them to do with the strings attached. ___________________________________________________________________
Story in English (American).
http://www.cnn.com/2005/WORLD/europe/06/11/uk.g8.africa/index.html
I had some of my questions about this "forgiveness" answered in this article. ____________________________________________________________________
Help -- I Don't Understand.
I am seriously not joking with this question. (oxymoron)!
1st -- I don't understand 40 Billion USA (American) Dollars and if you want to know the truth; I don't understand a One Billion U$ (American).
2nd -- Since Nicaragua would probably have never paid the money back anyway to whoever; what difference does it make?
3rd -- Is the difference that Nicaragua will be able to receive more credits now on imports or foreign aid or what is the main benefit to Nicaragua and to the USA (America) and the other G-8s? ____________________________________________________________________
financial markets
"2nd -- Since Nicaragua would probably have never paid the money back anyway to whoever; what difference does it make?"
Makes some difference in the financial markets. Although most (85+%) was already written down as non-performing loans, it will clean up the books at a lot of financial institutions. I don't entirely recall the protocol for doing it, but the lenders receive partial tax credits for continuing to carry the credit facilities. Now they take the write-offs and again benefit (moderately) on the tax side.
Debt
Nicaragua and all debtor countries have been paying millions in interest on this debt. Now those millions can be used for other things.
Plus of course...
now that they don't have any outstanding debt anymore, their rating will go up a notch or 2, so they can apply for fresh new billions in loans....