Where Credit is Due.

The Debt Threat, by Noreena Hertz. HarperBusiness.

Noreena Hertz is an economist whose writing is not only clear--it's often lively. Hallelujah!

Her book is essential reading for anyone who cares how vast swaths of the developing world got buried under unpayably large debts. In part, The Debt Threat is a story of Cold War superpowers that showered loans on military allies with no thought of whether they were able to repay--but then started demanding just that when the Cold War was over. It's a story of private banks in the 1970s that, flush with petrodollars, irrationally pushed loans at developing countries without doing the repayment math--sometimes offering loans to countries, such as Bolivia, that were already in default to the bank on other loans.

It's also the story, as Hertz lucidly explains, of how private investors often enjoy profits while shuffling off the risk. For example, when skyrocketing interest rates ended the 1970s lending party, private banks got bailed out by the World Bank and International Monetary Fund (IMF), which became the creditors and started imposing often-harmful conditions on debtor nations. Another, ongoing form of corporate welfare is the Export Credit Agency, often used to fund arms sales and other bad moves. "Much like a department store that provides its own charge card so that people on credit can buy the store's own products," Hertz explains, "government ECAs facilitate loans for foreigners so that they buy the lending country's own products." If the buyer doesn't pay promptly, the ECA pays its exporter and takes over the job of debt enforcer.

Hertz has done her homework, and she has dug up some damning evidence indeed. For example, here's a quote from an internal U.S. memo written as the Cold War superpower was cheerfully sending massive loans to its military ally, brutal dictator Mobutu Sese Seko: "the [corruption] in Zaire with all its wicked manifestations is so serious that there is no (repeat no) prospect for Zaire's creditors to get their money back."

THEN THERE'S THE $2 billion Bataan Nuclear Power Plant. It was never used because it was built on an earthquake fault line, but the people of the Philippines still have to pay back the U.S. export credit agency and others who green-lighted the loans for this fantastically bad idea. And don't forget the 14 million [pounds sterling] chemical factory (almost $26 million at today's rates) that Britain's ECA bankrolled in Iraq in 1985, despite warnings from British government officials of a "strong possibility" that the plant would be used to make chemical weapons. (The British public is probably footing most of the bill for that one, given the partial debt cancellation the United States brokered for Iraq last year.)

And there's much more: Hertz explains middle-income countries' growing move away from loans to bond sales, the fatal flaws in past debt cancellation efforts, and the way that the poverty of poor countries leads to health crises, narcotics production, and environmental disaster.

The great thing about the timing of this book is that readers can immediately do something about the problem. It looks as if, with some last-minute prodding by Jubilee activists, the rich countries of the world may finally stop sitting on their hands and, at the July G8 meeting, cancel the debts owed by some of the poorest countries to the World Bank and the IMF. To get involved, look up your home country's Jubilee group (if you are in the United States, that would be Jubilee USA, to which Hertz gives disappointingly short shrift).

But don't throw away the book after July, because many of the problems it describes--the corporate welfare of export credit agencies, the dangerous effects of the unstable bond market on poor countries, and the insanity of some conditions imposed by the World Bank and IMF on debtor nations--are, sadly, going to need much more attention from world citizens in the years to come.

Elizabeth Palmberg is assistant editor of Sojourners.