Simone Wapler – La Chronique Agora (France) –
The advantage of small, even corrupt, governments is that public debt is smaller than in big government countries.
At the end of 2017, the IMF had to look into the case of Congo Brazzaville. The government of Denis Sassou-Nguesso, which has more than 30 years in power, has offset the decline in oil by the public debt rather than reducing its lifestyle.
Congo’s debt is now equivalent to Denis Sassou-Nguesso’s personal fortune. $ 10.4 billion, or 110% of the country’s GDP, says the blog Brazzabuz.
The IMF asked for some accounting clarification before granting assistance.
“Personally, I do not think the IMF experts are coming to save us . No country in the world has grown thanks to the IMF. But if it can help us improve the management of public finances, it would be something that has been won. “
Didier Galebaye, spokesperson of the Union of Higher Education Teachers (Synesup)
Finally, if you look closely, the oil windfall is more like a curse. It encourages governments to live on a rent from activities managed by others (the big international oil companies) and does not push people to develop their own productive economy.
Oil or not, a poorly managed country remains a poorly managed country.
In Europe, if you look closely, the situation is not so different for countries with mismanagement like France. There is no oil windfall to finance stupid expenses, but the implicit guarantee of a mass of docile taxpayers. And if the taxpayer snorted, there is still the recourse to the debt, placed by banks complacent.
Les Echos of March 19th:
” The banks lend to the states in exchange for an implicit promise that the latter will save them, if need be, with the money lent “, laments Thierry Philipponnat.
Thierry Philipponnat is head of the Friedland Institute, a think tank created by the Paris Chamber of Commerce and Industry.
This institute intends to “contribute to the public debate on the conditions necessary for business development and to inform the decision-making of economic and public decision-makers. “
Nothing has changed since 2007: at that time, the banks “too big to fail” largely subscribed to the loans of their State of guardianship, which put the deficits like pearls.
Thierry Philipponnat does not exhort the government to spend less and therefore to borrow less from banks; it would be as futile as pretending to dissuade pharaohs from practicing incest or incite Denis-Sassou and his entourage to lower their lifestyle.
The already unsustainable public and private debt in 2007 has increased, exceeding the human capacity of two generations of taxpayers; it will have to get rid of one way (inflation) or another (the default).
In the absence of inflation, the preparation of the jubilee begins.
The idea of Thierry Philipponnat is therefore that governments can issue junior debt whose guarantees are lower than the senior debt.
“We propose that states be obliged to issue 40% of their bonds in junior form, whatever the circumstances, explains Thierry Philipponnat. And in case of difficulties, this junior debt will be automatically erased. A mechanism quite similar to that imposed on banks. “
The aim is to strengthen market discipline by forcing creditors to make a real risk analysis for the sovereign bonds they buy, but also to facilitate restructuring.
For Thierry Philipponnat, ‘there will always be investors willing to buy riskier securities. And the strongest countries should not register a significant difference between the rates of their junior and senior titles. ‘ “
By and large, since junior debt is not guaranteed by the European Central Bank’s buy-backs, the credit risk analysts would have to think and do their job …
The junior debt rates would then live their lives, regardless of the maneuvers of the ECB.
But the important sentence is in case of difficulties, this junior debt will automatically be erased . Holders of this debt (depositors through super booklets) would lose everything. In the long run, 40% of a country’s debt stock would become erasable.
That’s it, the jubilee.