On Fri, 23 Aug 2002, Daniel Davies wrote:
> > And that therefore the risk of loss outweighs the probability of gain
> > and countries should be advised not to do things this way for the same
> > reason that a poor person should be advised not to put her money in a
> > shaky banking system that was w/o depositor insurance and prone to
> > runs. But that's a very different argument, it seems to me, than the
> > one Stiglitz himself is making.
>
> Yes it is, and a much better one unless I'm missing something. I
> personally would square the circle by suggesting the reason that we
> don't need an international lender of last resort is that it doesn't
> matter as much if countries default as if banks do, but I admit that my
> views on sovereign default are heterodox (though becoming less so; a
> mate reports that Martin Wolf of the FT is coming round to the idea that
> if a country's bonds trade at a 10% premium to Treasuries, it ought to
> default once every ten years).
Well if yours became a widespread view and countries began to follow your Simple Rules of How To Default, that would of course that would of course change everything. As you once put it, it would make their debt into something like equity.
And come to think of it, abolishing the IMF would probably greatly increase the odds of countries taking that route and normalizing it. So do you think then maybe there's absolutely nothing to fear about the prospect of the IMF? That the "worst case" scenario -- a system of widespread and regular sovereign default -- would be downright good for average long-term poor country growth prospects?
Hmmmmm!
Michael