pumpkinstrokemarrow

Guardian getting itself into a state yesterday over the activities of some unsavoury looking debt collectors, debt collectors whose business plan seems to be to buy up debts of poor countries at a massive discount and then to try and recover the money from said poor countries through the courts, at a rather smaller discount. The difference netting them millions of dollars at a time. A business which might be called debt factoring if you shy away from debt collecting.

Much wailing and gnashing of teeth at the Guardian, and it is indeed rather a dirty business. But I don't see how you are going to stop it. A poor country wants something and borrows money to get it, perhaps issuing IOU's in the form of bonds. Come payback time, all the dosh has vanished into the great leader's cadillacs and harems. Bonds near worthless and traded amongst the riff raff of the free world. Enter the debt collectors who know how to work the system to their advantage.

The trouble as I see it being, that if the poor country wants to play on the world stage in the hope of becoming less poor, it has to respect the property rights which prevail on that stage (except in China, where they seem to manage with a sort of low grade property rights which make our property rights lawyers very unhappy). If it issues bonds it must expect to be expected to pay, with debt collectors being fully part of these expectations. And if it defaults it might have trouble borrowing any more; be reduced to a barter economy.

Banks are not charities. That is the job of governments and international outfits like the UN or the IMF.