Magazine article Foreign Policy in Focus

Toward a New Foreign Policy

Magazine article Foreign Policy in Focus

Toward a New Foreign Policy

Article excerpt

For countries that have endured decades of severe indebtedness, poverty, and subordination to the IFIs' economic policies, cancellation of substantial portions, if not all, of their outstanding debt, as urged by Jubilee 2000, is necessary if their resources are ever to become available for development and if their people are ever to gain a sense of ownership of their economic destiny.

The U.S. government should ideally take the lead in such a program of cancellation, first by canceling its bilateral debt with the poorest countries, and then by using its position at the IFIs to urge cancellation of multilateral debt. Even if that were to occur, a system for treating national debts independent of the IFIs is still necessary. With such cancellation not forthcoming, such a mechanism is all the more necessary.

University of Vienna economist Kunibert Raffer has suggested a process for according partial insolvency to national governments. Rafter cites provisions in U.S. law permitting debts of local governments to be treated like those of a company or an individual who has gone bankrupt, but essential services provided by the municipality are not affected. Although Raffer maintains that this process could occur without the creation of a new international agency--he suggests a panel of arbitrators with equal creditor/debtor representation--it is hard to imagine that the World Bank and the IMF would have adequate incentive to participate without the creation of some new regimen. This would require that the United Nations or the G-7 establish a body with authority over both the IFIs and debtor governments.

Once constituted, the new international bankruptcy body would function much like courts in the U.S. adjudicating cases of insolvency or bankruptcy. It would be empowered to instruct creditors to accept a portion of their claims and demand no more, and it would establish a process for cleansing a country's credit record, so that nation could reenter the global economy on its own terms. This new entity would not have the power to insist on particular economic programs as a condition for debt reduction.

Objections to such a body are easy to imagine: the IFIs would fret that their status as preferred creditors would be threatened if decisions on debt relief were removed from their control. …

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