Forgive Us Our Debts

[TatonkaJames]

Do we ever learn anything ?

Just five days before the start of the Berlin conference, more than 400 commercial banks showed that they were capable of orchestrating a significant reduction in Latin American debt. They agreed on a plan that could slash Brazil's $110 billion debt load by $18 billion within five years. Some of the loans will be exchanged for equity stakes in Brazilian businesses. The banks will suffer losses, although technically Brazil did not default on any of its loans. As the bankers view the transactions, the loans have been reduced but not forgiven.
The so-called Baker plan of 1985 aimed to provide a long-term solution to the debt crisis. The initiative called for $29 billion in new loans from commercial banks and lending agencies like the World Bank. There was one important condition: the debtor nations had to modernize their economies and institute financial reforms. Baker hoped that economic growth would provide the debtors with sufficient capital to repay their loans, bringing the level of total debt down to a more reasonable level.

In three years the debt has only grown, increasing from $950 billion to $1.2 trillion. Brazil, Mexico and Argentina owed $283 billion at the end of 1987, some $30 billion more than they had when the plan was announced. In the meantime, economic growth has stagnated for most debtor countries. Concludes New Jersey Senator Bill Bradley: "The Baker plan is dead. Let us do the decent thing: bury it and start anew."
The borrowers suffer from what is called debt fatigue. When capital flows between borrower and creditor are measured, the harsh fact is that much more money is moving from debtor to banker than the other way around. In the past two years, 15 of the most indebted borrowers made a net transfer of $58 billion to their creditors. And it is not just commercial banks that have been collecting the cash. In fiscal 1988 the IMF took in $5 billion more in interest and principal payments on outstanding loans than it disbursed in new loans.


http://www.time.com/time/magazine/article/0,9171,968641,00.html

[dkf]

1. Like the $2.2 trillion the treasury owes the social security fund?