Obstacles to altruism
The tsunami disaster prompted a generous debt payment moratorium proposal from the G7. But, factors such as debtor reputation and comparability came into play, taking the shine off the good deed.
FREE MARKETS HAVE been blamed for many things, but last month they were implicated in something new: blocking debt relief for tsunami-hit countries.
The problem arose after G7 finance ministers decided that to help out the affected countries they would not expect debt repayments from them for at least a year. Since they owe the Paris Club of bilateral creditors $5 billion this year, the gesture was more than merely symbolic.
Yet doubts were soon raised about the likelihood of full implementation. France's finance minister, Hervé Gaymard, told Radio France Internationale: "Some countries, for example Thailand, do not wish to benefit from this moratorium simply because ... they don't want their name to be downgraded on financial markets."
Meanwhile, the Economist said of Thailand that "to delay its repayments may send the wrong signal to the capital markets, it fears, suggesting that [it] is a mendicant country unable to carry its debts. This might deter new creditors and investors." Fitch Ratings issued a press release warning of "unintended consequences from a sovereign rating perspective".
In the end the fears proved to be largely unfounded. However, they did demonstrate vividly a significant weakness in the international financial architecture.