There are several reasons. First, because if the borrower does not see
fit to pay interest on the loan or repay it when it falls due, there is
no process of law by which the lender can recover. If I borrow from my
banker and then default on my debt, he can put me in the bankruptcy
court, and sell me up. Probably he will have protected himself by
making me pledge securities that he can seize if I do not pay, a
safeguard which cannot be had in the case of international borrowing;
but if these securities are found to be of too little value to make the
debt good, everything else that I own can be attached by him. The
international moneylender, on the other hand, if his debtor defaults
may, if he is lucky, induce his Government to bring diplomatic pressure
to bear, for whatever that may be worth. If there is a political purpose
to be served, as in Egypt, he may even find himself used as an excuse
for armed intervention, in the course of which his claims will be
supported, and made good. In many cases, however, he and the bondholders
who subscribed to his issue simply have to say goodbye to their money,
with the best grace that they can muster, in the absence of any law by
which a lender can recover moneys advanced to a sovereign State. With
this essential difference in the conditions under which a banker lends
his depositors" money to a local customer, and those under which an
international house lends its clients" money to a borrowing country, it
follows that the responsible party in the latter case ought to exercise
very much more care to see that the money is well spent.
cleanroom
