Of Development and Debt

by Daniel on January 25, 2008

note: I originally wrote this for the Dani Rodrik seminar. As it grew, though, it became apparent that it didn’t really have much to do with “One Economics, Many Recipes” and that it was thus a bit unfair to ask Dani to comment on it. On the other hand, I liked it too much to kill it altogether – dd

“One Economics, Many Recipes” makes a lot of useful and constructive suggestions about how to attack the central problems of economic development. However I don’t think it gives enough emphasis (fundamentally because I don’t think it’s possible to give enough emphasis) to international debt as a constraint on development. Nearly all of the success stories in the book relate to countries which started their periods of development without a large debt burden, and the presence or absence of large net external debt is certainly one characteristic which matches up well to the motivating stylised fact in the book – the distinction between those countries like Argentina which followed all the standard policy recommendations but didn’t develop and those like China which ignored them and did. In this essay, I’ll try and flesh out a few provocative views on the financial aspects of development policy, which in my view are just as important real-world constraints as the institutional real-economy factors that are the main subject matter of the book.

Actually, just as I don’t think it’s sensible to carry out international comparisons of crime rates without taking demographics and urbanisation into account, I don’t think that any kind of comparative analysis of developing economies can be carried out at all without conditioning on the debt burden. It’s that important. When you have a situation in which a country’s capital account is dominated by contractual flows payable in foreign exchange, that is far and away the most important fact about that country’s economy. This is because as long as the debt service constraint is binding (and I discuss what happens when it isn’t, below), then unless the country is receiving massive net transfers from abroad, the entire economic development program is going to end up being twisted toward a capital account constraint which almost certainly has nothing to do with a sensible locally-based development plan of the kind that Dani advocates.

And when you do base your analysis on debt as the “first fact”, all sorts of other problems start appearing in a new light. In Manzano & Rigobon’s analysis, for example (carried out using cross-sectional regressions, so appropriate caveats apply as I still don’t really like cross-sectional regressions when they agree with me), “Natural Resources Curse” disappears when you condition on the amount of debt outstanding. I’ve also argued elsewhere that there’s good reason to believe that a lot of the governance problems in developing countries have their roots in the debt burden – when a balance of payments crisis at least once every ten years is more or less written into the numbers, it is much more difficult to develop a stable government, and the incentive is much greater for incumbent rulers to get while the getting’s good.

And, sticking to the analysis of “One Economics, Many Recipes”, debt makes everything more difficult. Seen as a piece of economic cybernetics, Dani’s point is that the conditions for development are those that you would expect to hold for a planning system – a predictable basis upon which to make plans (law and order), predictable feedback from plan to planner (a price mechanism), and compatibility of goals for the planner (appropriability of profits) . It isn’t difficult to see how a debt burden interferes with this. A debt burden immediately creates a wedge between returns on investment and appropriable returns to the decision makers. It distorts price signals, not least by creating a special demand for foreign exchange which needs to be satisfied by the production of export commodities.

And finally, it’s in the nature of debt gearing that it increases the riskiness of any financial system. Not only does this undermine the basis for planning, it also interferes with a fourth precondition for development – the reinvestment of the proceeds of successful investments into new projects. In general, Latin America’s growth underperformance of the last hundred years hasn’t been due to a slow rate of growth during normal conditions – it’s been the result of periodic crisis which have meant that Latin American economies haven’t enjoyed the benefit of compounding.

So debt is bad stuff. I’d also argue that debt makes a good “first fact” because, and this is the controversial bit, it’s one of the aspects of a developing economy which it is more sensible to regard as exogenous than many others. In general, whatever choices are available to the new government of a third world country, the choice of an outstanding stock of foreign debt isn’t one of them. As you install yourself in the Presidential palace, the outstanding debt figure is waiting for you on your desk, as is the general assumption that it’s your job to pay it. Thanks to the miracle of compound interest, it isn’t even usually true to say that most developing countries even have all that much control of their debt path over time. For the sake of being provocative, I would even say that overseas debt plays an important part in the kernel of truth at the centre of the vast nut of nuttiness which is the “bastard-Chomskyite”[1] theory of development – the surprisingly widespread belief that underdevelopment in the third world occurs as the result of an intentional policy on the part of OECD countries, and that rich countries’ economic growth occurs at the expense of poor countries.

What do I mean? Well, as I type, it does not currently say on Amazon that “People Who Bought ‘One Economics, Many Recipes’ Also Bought ‘Confessions Of An Economic Hit Man’ “, but maybe it should. John Perkins’ book was flawed – I can sort of see the commercial idea behind the decision to intersperse an interesting account of Big Development in the 1970s with a psychosexual memoir, but I think it was terribly unwise – but in all the chucklemouthed dismissals of it as “conspiracy nonsense” that came out in the reviews, I didn’t see one single person who was prepared to deny that the firm Chas T Main did exist, that it did offer consulting services to developing world governments bidding for large debt-financed projects and that Perkins did work for it in the role he said he had, and therefore was at least as well-placed to comment on the ethical standards it observed as, say, Michael Lewis was to tell us about the bond department of Salomon Brothers in “Liar’s Poker“.

And his central case (stripped of a lot of unsupported and probably intrinsically unsupportable assertions about intelligence agencies) is that a substantial proportion, perhaps even the greater part of the debt of many poor countries to multilateral organisations is the result of high-pressure salesmanship, often with bribery being an integral part of the process, and often with high-level political support from rich country governments promoting domestic business interests. This is a fact – it’s actually so well-substantiated a fact that it was quite an achievement on Perkins’ part to make it look like a wild self-aggrandising piece of conspiracy theory.

Furthermore, a lot of those domestic business interests were in the resources sector, so it can certainly be argued that this is a big cause of the ganglion of problems described as “natural resources curse”. And this explanation of “natural resources curse” can even make a testable prediction – it would predict that Honduras, Guatemala and the Dominican Republic, none of which has significant natural resources, but all of which have been the subject of the same kind of treatment as the resource states from developed world business interests, would each of them have a big debt burden and a set of governance and development problems pretty similar to natural resource curse. And guess what, the prediction works; the banana republics are about as bad as you’d expect them to be[2].

To put it plainly, a lot of the problem of development which needs to be solved has to do with a specific problem called debt which has been inflicted on the developing world from outside by people who wanted to expropriate a lot of wealth from them – it isn’t an intrinsic problem of those economies, any more than a bond trader whose Porsche just got keyed has been made a victim of “nice car curse”. But the good thing about this problem is that it has a really easy solution.

I honestly think that Mohammed Yunus’s Nobel Peace Prize ought to have been given to Nestor Kirchner of Argentina, for doing something much more radical which will potentially have a lot more impact on the development of the poor world. Before the Second World War it was not unknown for debt obligations of poor countries to be enforced by gunboat. After the war, this was unfeasible, and so the obligation was enforced with the threat that any defaulters would be starved of overseas capital forever. This was never a credible threat in the game theory sense, and Kirchner was the guy who definitively called the markets’ bluff. He defaulted on Argentina’s debt, and nothing very bad happened – I don’t think anyone will seriously argue that Argentina’s future access to capital markets is going to be any different from that of, say, Thailand, which has never defaulted.

Which means that my second bite of the cherry in this seminar is rather tangential to the book. I do think that it’s more or less impossible to get a full understanding of development issues without recognising the central importance of debt, but on the other hand, it’s a problem with a single solution and an easy one – if you don’t like it, don’t pay it.

[1] “Bastard Chomskyite” in an analogous sense to Joan Robinson’s use of “Bastard Keynesian” to refer to people who used a misunderstanding of Keynesian economics to advocate for inflationary fiscal policy in the 1970s.

[2] In other words, “natural resource curse” is just a special case of the tendency of developing countries in the twentieth century to attract predatory overseas capitalists like dogs attract fleas. The Seven Sisters were the masters of playing the political-industrial game, but there were others; lots of otherwise inexplicable collapsing development paths can be explained just by noticing that the economy in question caught a nasty case of ITT, Dole Fruit or the Vestey family.

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{ 47 comments }

1

John Emerson 01.25.08 at 6:57 pm

Kernel of truth at the centre of the vast nut of nuttiness….

Until I read your [1] I was going to say something different, but now I don’t know what you actually meant.

I’d just like to say that it was a disastrous turning point when liberals decided that they wanted to be in dialogue with “rational conservatives” rather than with the “rational leftists”.

The “rational conservative” has gone the way of the pileated woodpecker, and who cares if there’s still one hiding in some swamp somewhere? They’re not a factor in American life.

When I say that the rational conservatives are either extinct or else trying deperately to become properly demented Republicans, people accuse me of being closed-minded. But I’m open-minded in the other direction, and over the last few years I’ve found that most Democrats and liberals aren’t. Usually Nader’s role in the 2000 election is given as the reason, but the exclusion of the left happened long before that, as early as 1988, and Nader’s candidacy was an effect, not a cause.

As for your post, it looks good to me, and I’ve heard it a hundred times before. You might have mentioned that some of the debt was blown on military toys, and that a lot of the leaders taking on the debt ended up expatriating to the Riviera with their boodle, but otherwise what you said seems fine.

2

abb1 01.25.08 at 7:19 pm

Hmm, if you agree with Perkins that intentional policy on the part of OECD countries is to promote domestic business interests at the expense of poor countries (“often with high-level political support from rich country governments“), how come this “surprisingly widespread belief” simultaneously constitutes “the vast nut of nuttiness”?

3

John Emerson 01.25.08 at 7:43 pm

Come on guys, let’s get a debate going here. Me ‘n’ Abb1 are lonely.

We’ll leave if people find our presence disturbing.

4

dsquared 01.25.08 at 7:51 pm

Bastard Chomskyism is the belief that there is an intentional policy of immiserating the third world for private interests, carried out by an ill-defined ruling elite and working through arms of the state in a systematic and planned way. The sensible view is that something similar happens, but not deterministically, with plenty of exceptions and as the largely unintended outcome of a very complicated system.

5

Dave 01.25.08 at 7:56 pm

Unintended? Or not-given-a-shit-about-as-long-as-there’s-profit-in-it? Not quite the same…

6

John Emerson 01.25.08 at 8:03 pm

That thing about agency comes up all the fucking time. Apparently the wrong thing about conspiracy theories is that they ascribe intentionality.

Someone might say, “You can’t ascribe intentionality to complex organizations and groups of complex organizations”, but they don’t need to do that, because you’re not even supposed to ascribe intentionality to single individuals.

There ain’t no intentionality nowhere. Meme of the decade, I guess, though I first heard it in 1970.

7

roac 01.25.08 at 8:12 pm

Re no. 1, it’s the ivory-billed woodpecker whose continued existence is conjectural. Pileated woodpeckers have a pretty good tolerance for human activity and are widespread and doing OK.

With the substitution, I will sign onto the analogy with enthusiasm.

8

abb1 01.25.08 at 8:14 pm

Obviously there is no secret committee for immiserating the third world. Doh. The result is achieved by garden variety lobbying and maybe IMF deputy director’s brother-in-law has a 250K/year no-show job at Halliburton.

9

John Emerson 01.25.08 at 8:21 pm

Yeah, I would understand it as a situation in which a large proportion of the decision-makers and key players at various levels had agendas and interests irrelevant to or inimical to third world development. For example, while the Soviet Union was around, American aid was almost always keyed to the Cold War and distributed mostly to strategic nations. Resource industries have had an enormous influence on U.S. policy toward certain countries, e.g. the Congo. I don’t know when it started, but most American aid has a “buy American” provision, if I’m not mistaken. And this is all before various profiteers and grafters among the middlemen and recipients get to work.

There’s a lot of intentionality there, and a lot of indifference to the proclaimed goal, but it’s true that there’s no central group of evil conspirators meeting in a rom to gloat about how bad they’ll screw the Africans.

10

John Emerson 01.25.08 at 8:25 pm

Note that I say nothing specific about the IMF, World Bank, or the WTO. But I assume that nothing has changed much, and that’s what Palast and Klein say. The big issue seems to be insistence on complete openness to trade of all kinds, which is not the method that the successful developing nations of East Asia used.

11

Random African 01.25.08 at 8:27 pm

I don’t buy the idea that debt is not the result of governance problem. AT ALL.

And I don’t think the high-pressure salemanship was about so much about creating opportunities for both creditors and contractors as it was about deciding who the contractors were.

12

Random African 01.25.08 at 8:33 pm

Resource industries have had an enormous influence on U.S. policy toward certain countries, e.g. the Congo.

I wonder how you would make sense of the nationalizations enacted by Mobutu in the early 70’s..

13

John Emerson 01.25.08 at 8:44 pm

Putting the mines in his own hands so he could deal with the companies himself? Between Mobutu, Tshombe, and Lumumba, the mining companies were looking at a pretty non-ideal situation, and they seem to have gotten what they wanted in the end — stability and access to the mines.

14

Random African 01.25.08 at 8:56 pm

Sure but he was the americans’ man and kept being until the early 90’s..

What I meant to say was that I think the Cold War was way more important than the ressources companies’ interests. If it was up to them, an independant Katanga would have been the easy solution. Controlling the rest of the country was to fight off the communists.

15

John Emerson 01.25.08 at 8:58 pm

14: I can’t argue against that. I remember the events, but I’ve never studied them in any detail.

16

Random African 01.25.08 at 8:58 pm

And he nationalized the mining companies, not the mines.

17

John Emerson 01.25.08 at 9:04 pm

Pinochet also kept the mines nationalized, I think.

Both in Chile and the Congo the outcome was better than the alternative from a resource point of view. In the case of Chile I remember that an end user (AT&T?) was pressuring the government, not just the mining companies.

18

Random African 01.25.08 at 9:08 pm

ITT. A telecom company. They were involved in a bunch of places. Their involvement in Nigeria had Fela write a song called “I.T.T.”: http://www.dailymotion.com/video/x1ickl_fela-ransome-kuti-itt_news

19

John Emerson 01.25.08 at 9:10 pm

Perhaps the end users had more pull than the mining companies, and didn’t care who they paid the royalty to.

20

Random African 01.25.08 at 9:16 pm

May be. Or the Cold War was more important.

21

John Emerson 01.25.08 at 9:18 pm

Outside my area of competence, but ITT was a big player in Chile.

The mining companies in the Congo weren’t American, either, IIRC.

22

P O'Neill 01.25.08 at 9:19 pm

There’s a chicken-egg issue on debt and governance. Does debt impede good governance or does bad governance lead to debt? Maybe you’re right about Kirchner but that would be Argentina’s 5th bite at the cherry in terms of telling international capital markets to sit and spin so whatever worked this time wasn’t working so well before. But there is this paper by Rogoff and Reinhart from a little while back on serial default and debt intolerance. On the one hand it’s perhaps a bit unhelpful in that it says avoiding the problem is mainly a matter of avoiding debt, which is a bit like saying that you win the match by scoring more goals. But it does get at the idea that debt is an intrinsic part of the development cycle.

23

Random African 01.25.08 at 9:24 pm

No the mining companies were belgian but it’s quite hard to know how much of those belgian companies were american-owned as Belgium had a more open approach when it came to investment in their colonial companies.

24

John Emerson 01.25.08 at 9:26 pm

I’ve already said more than I know, so I’ll quit. Thanks.

25

SamChevre 01.25.08 at 9:39 pm

A question so I understand the argument; when you say debt, what do you mean?

Is it government debt? Only government debt denominated in another currency? Or all debt owed by enterprises in the country? (In other words–when American railroads issued bonds and British investors bought them, was that part of America’s debt burden in this analysis?)

26

seth edenbaum 01.25.08 at 11:33 pm

“That thing about agency comes up all the… time”
Agency is a grey area in organizations, as to regulation and law.
It is not a grey area when it comes to one’s own behavior.

The “scientific” study of groups is one thing, one’s personal behavior is another. Laws and Obligations are two distinct categories of human interaction. Why not study the latter for once?

Q: Should economic hit men be held responsible for their actions?
Q: Would you want your son to become an economic hit man?

Two different questions, perhaps with different answers. But does that second private response have no social [public] aspect? As I began saying years ago, DeLong the economic thinker is not DeLong the loving father. A conflict he ignores, in posts like this. BD: a humanist at home, anti-humanist in public life.

The question is how to reintegrate the private and the public sphere without doing an injustice to either or both. That’s the question both Tony Judt and Slavo Zizek are asking; as are a lot of others. Schmucks like DeLong and believers in technocratic menschlichkeit, including most of the people on this site, miss the point.
Good post by D2

27

dsquared 01.26.08 at 12:25 am

26: in principle, because debt is fungible, the entire foreign currency debt of the country. In practice, any country with a development problem tends to be in a situation where that is all government debt of the sort described.

28

soru 01.26.08 at 12:27 am

Bastard Chomskyism is the belief that there is an intentional policy of immiserating the third world for private interests, carried out by an ill-defined ruling elite and working through arms of the state in a systematic and planned way.

And utter-bastard Chomskyism is that belief, coupled with the add-on that the believee is part of that elite, that their way of life would not be possible without somebody reluctantly doing the hard, unglamorous but necessary work of immiseration.

Cheney, I suspect, is a secret utter-bastard Chomskyite. Greenspan openly is.

29

Yarrow 01.26.08 at 1:01 am

dsquared at 5: Bastard Chomskyism is the belief that there is an intentional policy of immiserating the third world for private interests, carried out by an ill-defined ruling elite and working through arms of the state in a systematic and planned way. The sensible view is that something similar happens, but not deterministically, with plenty of exceptions and as the largely unintended outcome of a very complicated system.

Reminds me of Roger Zelazny’s Lord of Light:

If by demon you mean a malefic, supernatural creature, possessed of great powers, life span and the ability to temporarily assume virtually any shape—then the answer is no. This is the generally accepted definition, but it is untrue in one respect.”

“Oh? And what might that be?”

“It is not a supernatural creature.”

“But it is all those other things?”

“Yes.”

Then I fail to see what difference it makes whether it be supernatural or not–so long as it is malefic, possesses great powers and life span and has the ability to change its shape at will.”

It’s not so much I fail to see what difference it makes if it is systematically planned for the purpose of immiserating the third world–so long as it does immiserate the third world for private interests, it is carried out by an ill-defined ruling elite working through the arms of the state, and large chunks of it are systematic and planned–as that I think speaking that way is a closer to reasonable shorthand than to a “vast nut of nuttiness.”

Using that shorthand can make the problem seem even more formidable than it actually is, but at least it acknowledges that the problem exists.

30

Tom T. 01.26.08 at 1:34 am

How large is a large debt burden? I.e., what percentage of GNP?

31

Sortition 01.26.08 at 4:13 am

To add my voice to the reasonable voices above: It seems a shame that the author feels that it is necessary to distance himself so vociferously from a position that is not only quite close to the position he explicitly takes, but is also, unless taken to obvious extremes, quite defensible empirically.

32

SJ 01.26.08 at 11:21 am

32: Dan likes to think that he’s not a dirty f**king hippie, notwithstanding any evidence to the contrary.

33

Ravi 01.26.08 at 4:05 pm

33: dsquared famously opposed the Iraq war. By definition, he’s a dirty f**king hippie and I’m pretty sure he knows that.

34

Ravi 01.26.08 at 4:28 pm

I should add that I think there’s been too much focus in the intentionality part of the “bastard-Chomskyite” theory. The part, to me, that reveals the core of “the vast nut of nuttiness” is the idea that “that rich countries’ economic growth occurs at the expense of poor countries.”

Poor countries are, at the end of the day, poor. That means they are a relatively small part of the economic universe of rich countries. It has been documented plenty of times before that the vast majority of global trade is between rich countries. And in the two greatest development successes of my lifetime, China and India have started trading more with the rest of the world… and they’re developing and getting richer. And before them, Japan and Four Asian Tigers followed that path.

Rich countries aren’t rich because they exploit poor countries. They’re rich because workers are productive in rich countries. And part of the reason workers productive is that there are formal and informal institutions and frameworks that help those workers become more productive by trading with other countries (selling the widgets they make globally instead of locally, for example). In fact, I’d argue that the poverty of poor countries makes rich countries poorer (not richer) – since it means that there are fewer opportunities for mutually beneficial trading.

I’m not going to argue that there aren’t individual people in rich countries who benefit from exploiting poor countries (of course there are). And I even probably agree that such people have too much influence on rich country development policy. But the important point is that these machinations, in the time-honored tradition of many other scam artists, make rich countries poorer, not richer. And believing otherwise is nutty.

35

Sortition 01.26.08 at 6:13 pm

Poor countries are, at the end of the day, poor. That means they are a relatively small part of the economic universe of rich countries.

In the same way, I guess, that slaves in the US South were poor, meaning that they were a relatively small part of the economic universe of the South.

Regurgitated dogma about the wonders of Trade is no substitute for making sense.

36

abb1 01.26.08 at 6:37 pm

Rich countries aren’t rich because they exploit poor countries. They’re rich because workers are productive in rich countries.

Rich countries are rich for many different reasons, but I don’t think there is any doubt that they exploit poor countries – their natural resources and their labor.

As far as workers in rich countries being productive and trading with other countries, that is not a very convincing explanation. Workers in rich countries mostly produce services (for each other) and they typically consume much more stuff (real, industrial stuff) than they produce.

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_sector_composition

37

Quo Vadis 01.26.08 at 7:12 pm

One thing you should consider when comparing some of the more populous countries like China and India with other developing countries is that the larger countries are not just sources of raw materials or cheap labor, they are vast underdeveloped markets for goods and services. Foreign investors are banking on substantial returns on increasing domestic demand as much as they are on international demand.

In other words the return on the investment depends more upon increasing affluence of the domestic population than on exploiting their resources or labor. This is a completely different strategy than any of the Chomskyite variations.

38

abb1 01.26.08 at 7:42 pm

QV, assuming low level of protectionism, why should your banking on increasing domestic demand in China entice you to invest in China? I mean, you hope to sell your product in China, yes, but you might as well build your factories in, say, Haiti or Bangladesh if the labor cost is lower there, no?

39

seth edenbaum 01.26.08 at 7:44 pm

“Foreign investors are banking on substantial returns on increasing domestic demand as much as they are on international demand.
…This is a completely different strategy than any of the Chomskyite variations.”

China and India ran protectionist economies for decades. Only defensive nationalism protected them from the vagaries of the “free” market. The creation of a middle class in China and India are the result of government policy.

40

Quo Vadis 01.26.08 at 8:23 pm

assuming low level of protectionism

Don’t assume this. China has something more to offer investors than raw materials and labor and they use this to their advantage. If a foreign company wants to do business in China, they do so by China’s rules. The Chinese are leveraging access to their enormous markets to develop their economy. The increasing wealth generated by domestic economic development increases the value of market access. I didn’t see this factor addressed in Daniel’s post, and it’s antithetical to Chomskyite thinking.

And, yes Seth, this is government policy, but policy alone can’t produce wealth.

41

abb1 01.26.08 at 9:02 pm

I suppose Chomskyite thinking will say that (quite obviously) developed, powerful nations are constantly pressuring the weaker ones to abandon protectionism (much to their peril), while keeping their own protectionist apparatus intact. That’s the game, basically. China, of course, has a better chance than some poor country in desperate need of financial assistance.

42

John Emerson 01.27.08 at 12:26 am

Rich countries are not rich simply because they exploit poor countries, and rich countries are not rich because wealth has been transferred from the poor to the rich countries. I agree, and some bastard Chomskyians don’t.

I do think that underdevelopment is in considerable part the result of rich countries’ control of the global economy and world politics, and that over the last 60 years seemingly well-meaning attempts to help the third world didn’t always help, in part because various players were doing some looting and otherwise fulfilling their won agendas.

43

Gabriel 01.27.08 at 12:56 am

Actually I do think that Thailand’s and Argentina’s access to the markets is and will remain quite different.

Personally I find Kirchner quite a buffoon but opinions differ. Argentines are happy now because the economy is better but if commodity prices take a turn down opinions will change pretty quickly.

44

dsquared 01.27.08 at 11:03 am

Argentines are happy now because the economy is better but if commodity prices take a turn down opinions will change pretty quickly

whereas in the neoliberal era when they were paying a huge interest bill, the Argentine economy was completely insulated from commodity price shocks? The fact that they’ve now had seven years of strong growth which would otherwise have been a pretty nasty depression is quite important in and of itself.

45

Gabriel 01.27.08 at 4:11 pm

yes, yes, I don’t disagree with that. But you (appear) to take a very cavalier attitude towards default and while I agree it is sometimes necessary I also think countries pay a huge price for it, going beyond the simple higher interests. But in the case of Argentina I agree default was unavoidable.

I’m only sorry for all the poor Italians that bought Argentine debt retail.

46

notsneaky 01.27.08 at 9:51 pm

I don’t wanna get into this right now, but just wanted to say that from a purely aesthetic point of view, independent of whether I agree with it or not, CoEH is the second worst book I’ve ever read. The first worst is of course the DaVinci Code and in fact both of these books share a lot of stylistic similarities and read as they were both written by the same guy.

Um ok. The fact that when debt forgiveness has taken place, many of the forgiven have promptly gotten themselves back in debt suggests that there’s a lot of causality going from bad governance to debt. The reverse channel might be there but governance surely has an important and independent role to play.

47

Luis Enrique 01.28.08 at 4:57 pm

This is a fact – it’s actually so well-substantiated a fact that it was quite an achievement on Perkins’ part to make it look like a wild self-aggrandising piece of conspiracy theory.

This is a genuine request as opposed to ‘oh yeah, prove it’ … can you supply a few other sources that substantiate this high-pressure salesmanship story? I’d love to read them. (I ought to read Perkins’ book too – I have a bunch of other development industry ‘insider’s stories’ sat in my Amazon queue).

my tuppence: I would think poor countries can end up getting in a lot of trouble via debt funded development projects, even if those projects are sincere attempts to help, just if these projects fail to result in an eventual increase in tax revenues, as would be needed to repay the debt (either because the project itself doesn’t produce the return or because the infrastructure to capture the return via taxation does not exist). You can even ascribe this to do-gooding development lenders not being hard-nosed enough about returns (i.e. they lend where a commercial lender would not) – it doesn’t have to be about money grubbing bastards (although I don’t doubt that goes on too).

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