New Lending to Southern Countries: Learning from the Past

By Jean Merckaert, Aldo Caliari
English

"The behavior of creditors who litigate against poor countries or cause them to incur new debts is clearly outrageous as it denies these countries the benefit of debt relief. The response by rich creditor countries to this phenomenon seems inappropriate, however. Defining debt sustainability thresholds is a good idea, except that they ignore the social cost of debt; they are set without consultation with the debtors; and only a few creditors are bound by them. Promoting responsible lending practices also sounds good in theory, but the G8 has little credibility to do so unless it acknowledges its own share of responsibility for Southern countries' debt. In fact, G8 countries give the impression that they always respond under pressure, without learning from their past failures, and without addressing the root causes of debt crises. A lasting solution to the debt problem in Southern countries requires, firstly, more expansive debt cancellation than is contemplated in existing plans, and a massive increase in aid in the form of grants to finance recurrent expenditures, such as health or justice. Secondly, debtors' and creditors' responsibilities need to be much more clearly defined through the implementation of consistent and legitimate rules that are binding for all."

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