Where Credit is Due

Noreena Hertz is an economist whose writing is not only clear - it’s often lively. Hallelujah!

Her book is essential reading for anyone who cares how vast swaths of the developing world got buried under unpayably large debts. In part, The Debt Threat is a story of Cold War superpowers that showered loans on military allies with no thought of whether they were able to repay - but then started demanding just that when the Cold War was over. It’s a story of private banks in the 1970s that, flush with petrodollars, irrationally pushed loans at developing countries without doing the repayment math - sometimes offering loans to countries, such as Bolivia, that were already in default to the bank on other loans.

It’s also the story, as Hertz lucidly explains, of how private investors often enjoy profits while shuffling off the risk. For example, when skyrocketing interest rates ended the 1970s lending party, private banks got bailed out by the World Bank and International Monetary Fund (IMF), which became the creditors and started imposing often-harmful conditions on debtor nations. Another, ongoing form of corporate welfare is the Export Credit Agency, often used to fund arms sales and other bad moves. "Much like a department store that provides its own charge card so that people on credit can buy the store’s own products," Hertz explains, "government ECAs facilitate loans for foreigners so that they buy the lending country’s own products." If the buyer doesn’t pay promptly, the ECA pays its exporter and takes over the job of debt enforcer.