When Debt Experts Talk, It Can Be Hard to Listen

How to solve the Third World’s $1.2-trillion debt problem?

In the jargon of the International Monetary Fund, a prescription might go something like this:

“The Enhanced Structural Adjustment Facility will maximize rescheduling potential for the least developed areas, while set-asides from debtor purchases of the fund’s ordinary resources, in terms of special drawing rights, can be devoted to operations on the secondary market and a percentage of quotas will be available for interest support.”

What?

The experts tackling the issues of Third World debt really talk that way. Sometimes, it may be because they are so wrapped up in their specialty that the terminology seems natural.

In other cases, someone may be trying to hide something.

Robert J. Schaetzel, president of a private group known as the Council for U.S. International Trade policy, says even he often has trouble understanding what the experts are talking about.

“Banks have made unwise loans and don’t want to admit it,” he said. “They try to offload the responsibility, either on the borrowers or on creditor governments. It’s a combination: There’s pride in using words few people understand, and you don’t bring so much criticism down on your head.”

U.S. Rep. Jim Leach (R-Iowa), a former diplomat, couldn’t resist putting it this way:

“The hocus-pocus of econometrics is analogous to doctor-patient linguistics, giving the upper hand to the verbosity of verbal syllablization.”

Pressed, he acknowledged that “syllablization” was his own invention.

“The IMF’s particularly arcane language is intended perhaps to create the mystique that surrounds an enigmatic oracle,” said Richard Feinberg, vice president of the Overseas Development Council.

But Rodney Eldridge, professor of international finance at George Washington University, offered a defense of some of the jargon. He said new words have to be invented all the time to keep pace with financial developments. He cited “securitization,” meaning the issuance of a new form of bond instead of making a loan.

“Five years ago that would not have been a word,” he said. “It is now.”

Now, about how “the Enhanced Structural Adjustment Facility will maximize rescheduling potential for the least developed areas, while set-asides from debtor purchases of the fund’s ordinary resources, in terms of special drawing rights, can be devoted to operations on the secondary market and a percentage of quotas will be available for interest support.”

In something of a translation, that means the fund will have about $10.5 billion to lend to the poorest countries at almost no interest. It will ask the rich countries to stop nagging them to pay old debts, provided the debtors promise to put in new austerity programs.

It means further that big debtors such as Mexico and Brazil can also borrow from the fund and use some of the money to buy back part of their debt at bargain prices, now that almost nobody expects it to be repaid in full. Some of the borrowed money can be used to guarantee commercial banks that they’ll get the interest owed to them, at least for a while, on the debt that remains.