Wednesday, May 02, 2007

National Bankrutpcy debate?

Want to start a debate? Bring up the idea of national bankruptcy.

For instance James Kazoun writes over at ArabicNew.com that
Iraq and Lebanon should declare bankruptcy:
"I am not aware of any such bankruptcy laws for countries, but there should be one as well. But in such absence, setting precedence should do it. Now that Iraq supposedly have a democratic government, this government should declare bankruptcy and clear its citizens from all financial commitments they had no say in. Not doing so, would be highly irresponsible.

Such acts are usually discouraged by saying that a country reneging on its debts would not be able to get future loans from lenders. That is not likely to be the case, but if that is the case, that would be very healthy for Iraq."
The US experience aside (see Alexander Hamilton's arguments), the idea of a national bankruptcy does appear to make much economic sense and it is nothing new (for instance back in an old FinanceProfessor.com Newsletter the following was reported:
" The IMF endorsed a national bankruptcy law that would allow nations who are unable to make their debt payments the ability temporarily suspend their payments while they negotiate with creditors. (If you think about it, a bankruptcy is little different from a “time-out” in basketball-designed to allow the team to regroup). Several countries, most notably the US, is still opposed to the plan.
http://news.bbc.co.uk/2/hi/business/2638741.st"

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