Friday, August 05, 2005

When Countries are Bad Credit Risks

Many think that forgiving the loans of third world countries is a good thing to do. They forget that people (or companies, or countries) that do not pay on their loans do not get new ones.

Mugabe rebuffed by China
"While they (the Chinese) are willing to provide infrastructural help on generous credit terms, they are not willing to throw huge amounts of money at us," according to an anonymous Zimbabwean official who was party to the talks.

Chinese officials fear the loan would never be repaid. Mr Mugabe had offered China farming concessions and even stakes in foreign-owned mines in his country but this was not enough, the paper said.

In the past, Mr Mugabe has tried to swing similar deals with Libya, offering generous cuts of the farming and mining sector in return for petroleum and hard cash. Three years ago Libya abruptly suspended trade with Mr Mugabe because the promised concessions never materialised, leaving the north African country with a sizeable debt it is unlikely to recover.
To forgive all loans to the third world, rather than assist in developing an economy, will condemn millions to continued misery.

Of course the subject country must be willing to develop a free market.

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