Monday, April 23, 2018

A “Public Sector Borrowing Charter”, in order to really mean something significant, needs to be matched by a “Public Sector Lending Charter”

AFRODAD “Aware that African countries face tremendous problems in loan contraction and approval processes and public debt management contributing to unsustainable debt level” is proposing: "The African Borrowing Charter" (The link is to a previous version of the one I read during World Bank and IMF Spring Meetings April 2108)

It is a great initiative and all countries could in fact need something similar. If authorities were just forced to clearly identify in any spending bill, the direct marginal consequences on its public debt levels, that should help to inspire more responsibility. Public borrowings when authorized should come with a clear recognition that a part of their nation’s strategic borrowing capacity is being consumed. As is, it is way too easy for politicians to show great generosity and understanding for today’s needs, by just pushing the repayment of it on future generations.

That said a “Public Sector Borrowing Charter” stands little chance of fulfilling its goals if there’s no parallel “Public Sector Lending Charter” to which all lenders had to sign up to and against which the citizens could hold them accountable.

Imagine if for instance in the case of all those shamefully mortgages to the subprime sector in the US that were originated and packaged into AAA rated securities we were to hold the debtors for signing “odious debt letting the real culprits, with their “odious credits” off the hook.

US Treasury Secretary Steven T. Mnuchin referring to the humanitarian crisis going on in Venezuela recently stated: “Creditors, whether private or public, that provide new financing to the Maduro regime are lending to a government that lacks legitimacy to borrow in the name of Venezuela.”

Do not tell me that Lloyd Blankfein, and all those in Goldman Sachs, were so naïve so as to believe the Maduro regime would give good use, along the lines of a reasonable Public Sector Borrowing Charter, to the credit they awarded Venezuela just about two years ago... and for which they have yet not apologized to the Venezuelan people.

What if violating a Public Sector Lending Charter could cause the credit to be declared illegitimate, and its collection not enforceable? Would that not be of great help for our children and grandchildren?

PS. I hear that the World Bank and IMF are again to raise the issue of Debt-Sustainability-Analysis. I pray the do not mention "sustainable debt levels" but concentrate on pointing out what consideration all debt should fulfill in order to be sustainable contracted.

Next to credit ratings, or perhaps even more, we need ethic and transparency ratings!