Relieve yourself

Debt Relief, mostly for third world countries, gets a fair amount of airplay from time to time. Less so now that the developed world has realised maybe it could do with a little debt relief itself.

Debt relief can make sense from a few different directions, arguably for good reasons such as:

  1. As a form of wealth redistribution, because at some point, some people feel uncomfortable about the huge wealth, income, health and education gaps between rich countries bad poor countries.
  2. It can be because improved trade relations, more stable countries, more stable international relations, fewer refugee problems can potentially be massaged into existence if poor countries have a lower debt burden and can therefore manage their economies better.
  3. Most interestingly, it can be because it is morally reprehensible to force the current citizens of a country with a currently elected government to repay the money borrowed and squandered about previous, illegitimate governments. Nowhere is this more true than Zaire / DRC.
  4. It can buy influence and encourage increased exports to the country that had its debt written off.

Now, South Africa is writing off R1bn of debt to Cuba (after having written off nearly the same in 2008).  The income, poverty gap between Cuba and South Africa is not that huge. Cuba has virtually no way of affecting South Africa from a political or economic perspective.  The current government of Cuba has its own share of bad decisions and the historical debt we’re talking about doesn’t relate to a previous, corrupt government.  Finally, the total trade with Cuba is close to meaningless and in no danger of becoming significant.

So the South African government is giving away other people’s money because they can and because it feels good. Forget about the houses that could be built, the teachers that could be trained and housed and fed and paid, forget about the encouragement and investment in small businesses, forget about the promotion of decent internet access.  Forget about all those needs and wants and desires of South Africans, let’s rather buy some press and some feel-good self-importance.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.

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