Joseph Stiglitz's How Globalization Works - Chapter 8

The problem that is looked at in this chapter is that poor countries receive too many loans, which they are not able to pay off. Stiglitz proposes the question, “Who is to blame? The lenders or the debtors?” He goes on to answer that both are to blame, however lenders should be held a bit more responsible. The goal of reform according to Stiglitz would be to have poor countries borrow less and have more of the risks shifted to the lenders.
Dr. Luis Maria Drago stated a century ago, in regards to Venezuela’s debt problems, that military intervention should not be considered a manner in which lender countries may seek repayment from debtors. This is based on the concept that all countries are sovereign and that lenders should create contracts that create incentives for repayment. But he goes on to say that Argentina defaulting on its debt got it to growth faster than any other policy would have. So he’s demanding that lenders give better terms but telling major debtors to default. This seems a bit lopsided in favor of the debtor.
Stiglitz also writes that countries should not be required to pay back odious debt and that an international bankruptcy court should be established.
Some of his ideas seem sensible, but it’s a cause for worry that nearly all of his suggestions are bent toward helping borrowers and hurting lenders. Also, his suggestion to create an international bankruptcy court may seem nice, but it is simply more wishful thinking to believe that such an institution would be efficient and/or authoritative.