We need more transparency and accountability. And a new international financial architecture to rein in reckless international lending and borrowing. Western governments, their Export Credit Guarantee Departments, the IMF and World Bank make bad loans to corrupt dictators without fear of loss. They're confident money can always be squeezed out of taxpayers in debtor nations.
Our domestic financial system imposes discipline through bankruptcy law. Badly-judged loans lead to losses. For bankrupts, the stigma and losses are damaging. However, through arbitration by a receiver, debtors are protected from creditors. Creditors are protected from other creditors, ensuring equal treatment of all.
There is no such legal framework for international debtors and creditors. Instead creditors, all represented by the IMF, are in charge. They make bad loans; grudgingly re-schedule payments from effectively bankrupt nations; and can never agree to write off debts. The IMF plays the role of plaintiff, judge and jury in the court of creditors. They drive debtor nations into the ground.
We need to stop this reckless international lending and borrowing. We need to discipline both. We could do this by giving debtor nations the right to declare effective bankruptcy. A small independent and transparent court of arbitration would then negotiate between debtors and creditors. It would do so transparently, introducing accountability to taxpayers in both debtor and creditor nations.
Corrupt dictators would lose the oxygen of new loans; and Western financial institutions would be disciplined for bad loans. Both sides could put past mistakes behind them, and enjoy a fresh start.