Thursday, September 30, 2010

Not for sovereigns...

From this article in Reuters.

"You can find a quick fix -- borrow some money and make this structural problem even worse, and then the next government comes in and you will have a debt crisis... there could be short-sightedness in borrowing," she said.

The principles will guide both borrowers and lenders, as a loan is a two-way contract and those providing the money must do their due diligence to ensure it can be paid and used correctly.

Who provides "money" to whom when sovereigns are concerned and covertibility to a commodity is not an issue? This conceptualization is misguided as sovereign states do not need to "get" money in order to spend the currency they themselves issue.

Iceland's president, Olafur Ragnar Grimsson, discussed his country's debt crisis at the Xiamen meeting and said that principles to avoid reckless lending and borrowing should be encouraged, UNCTAD said.

The project, funded in part by the Norwegian government, aims to create rules to prevent irresponsible lending to states and enable courts to test the legitimacy of debt when disputes arise.

It is realistic to finish revising the principles next year even though a lot of technical work remains to be done, and not all governments and institutions fully understand the detail of what has been proposed so far, Li said.

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