BY ROBERT J. BARR0 MY LUNCHEON WITH BONO y Harvard colleague Jeff Sachs does cially those that originated from sensible com- many interesting things, but I was mercial transactions. But he and Sachs ar- M surprised when his secretary called to gued that most of the international debt of invite me to lunch with him and Bono, the African and other poor countries stemmed lead singer of the rock group U2. Bono want- from badly designed projects conceived by ed to discuss the Jubilee 2000 campaign, the World Bank, other international organi- which is a global movement aimed at cancel- zations, and donor countries such as the U. S. ing the international debts of the world’s Many of these loans had been made to cor- poorest countries. My first instinct was to rupt dictators who diverted the funds for decline, but I decided to check things out personal gain. They noted that these debts with my daughter, Lisa, who is an expert on could never realistically be repaid and that rock stars. She said: “Dad, this is the coolest the overhang of interest payments prevented thing imaginable. I finally appreciate the new international financing of sound invest- fringe benefits from having a father who is a ments. Bono said that the whole idea of the famous economist. Of course you have to go.” term “Jubilee 2000” was that it was a one- Since I never miss a chance to impress one of time happening and would therefore not en- my kids, I naturally went to lunch. courage default on future debts. (I was a bit At the lunch, I said that I was an unlikely worried here, because the Bible says that ju- DEBATE: candidate to support Jubilee 2000 and that bilees are supposed to occur every 50 years.) some leftist economists would be much more IMF FARCE. Sachs was instinctively more sym- The U2 rock promising. Bono said that was precisely why pathetic than I to the campaign because he he wanted to talk with me. He wanted to has never thought debt default did much see whether hard-thinking conservative econ- damage to a country’s reputation. While not star has a good omists could be convinced of the soundness of persuaded on this point, I was impressed the campaign. In particular, he was not in- when Sachs argued that we should assess grasp of terested in another global welfare project, the debt relief not so much from the stand- such as Live Aid in the 1980s, but rather point of the borrowers, who would be getting economics- wanted to push debt relief as a way to pro- money for nothing, but rather from the per- mote sound economic policies. He even said spective of the lenders. These creditors, es- but he can’t that the relief would be contingent on a coun- pecially the World Bank and the Internation- try’s commitment to use the freed-up money al Monetary Fund, would be forced to write convince me for productive investments in a transparent down their Third World loans to realistic mar- economic environment. ket values. This requirement might then in- that debt TOP 10 LIST. I was shocked to hear these duce the international financial institutions to kinds of arguments from a rock star Never- make future loans on a sounder economic ba- forgiveness for theless, I recovered sufficiently to say that sis. Of course, the worst charade about debt this commitment would be unenforceable and valuation would not be covered by the Jubilee poor nations is that debt relief would not be on the Top 10 list campaign-the latest IMF loan to Russia. The of policies for growth promotion in poor coun- IMF agreed recently to lend another $4 billion a panacea tries. More important were well-functioning to Moscow just to finance an interest pay- legal institutions, pro-market policies, education, ment on the country’s outstanding debt to and macroeconomic stability. I mentioned the the IMF. This allows the IMF to pretend that musical line “money for nothing” (sung by the loan had not been defaulted on. Sting, accompanying Dire Straits) and said In the end, I was not persuaded to put that it applied to a number of ways in which a debt relief on the Top 10 list of growth-pro- country obtained unearned resources. These moting policies for poor countries. But the included debt relief, debt default, foreign aid, arguments I heard were better than I had an- and even natural resources, such as oil. Expe- ticipated. Therefore, I am pleased to offer rience showed that all of these eases of free two restrained cheers for Jubilee 2000! money were harmful for economic growth. I Anyway, at the close of the meal, I also argued that growth would be encouraged swapped two of my books for something much if a country gained a reputation for honoring more valuable-Bono’s autograph on four CDs, Robert J. Barro, is a professor of eco- foreign debts and other agreements. one for each of my children. So, the lunch nomics at Harvard University and a Bono agreed that it was important for a clearly succeeded in making me a hero with senior fellow of the Hoover Institution ([email protected]). country to fulfill its debt obligations, espe- my kids. What’s more important than that?

22 BUSINESS WEEK / JULY 12, 1999