Friday, October 19, 2007

Achtung stalling, baby!

Doing his best to keep debt forgiveness on the front burner, U2 frontman Bono yesterday called the International Monetary Fund's failure to keep its promise to write off $800 billion in Liberian debt an "IMF-ing outrage." Speaking to the Financial Times, the singer went on to lambast a system that requires developing nations to "waste time fighting with IMF modalities, 'bureaubabble' and unaccountable distant red tape in DC".

I like Bono a lot, and I can see the that the real value of a statement like this is that it is embarassing to the IMF. Questions of legitimacy are never far from the minds of these bodies and they should be called to task when their promises are not kept. In this case, it seems clear that a commitment was made and has not been fulfilled. But, the ramifications of loan forgiveness are complex. Bono might just as easily offer to take care of Liberia's debt out of his own pocket. That would solve this problem too, after all. But he won't, of course, and he shouldn't -- it wasn't his money that was lent in the first place. And that's it in a nutshell. States are equally, if not more, prone to moral hazard than individuals. If debt is to be written off, it must be handled in a way that avoids encouraging other borrowers to default. It would be nice if the IMF was taking its time in order to get this tricky balance right.

Alas, this is not the case. As the FT story points out, the foot dragging all boils down to the question of "Who's gonna pay?"
"The delay is aggravated by a three-way split inside the IMF, according to people familiar with the discussions. Managers at the fund are insisting shareholder governments need to put up more cash to meet the full cost of the relief. Middle-income countries argue richer members should be contributing more, while wealthier countries argue the fund itself has the resources to meet the gap."

1 comment:

Evan O'Neil said...

Another question is who's gonna pay the salaries of IMFers? An editorial in the Washington Post points out that, on top of legitimacy issues, IMF coffers are getting empty as more countries pay back loans ahead of schedule. With high administrative costs, the organization might be in for a little structural adjustment of its belt.