Many countries need debt relief

WITH DEBTS looming and dollars scarce, Zambia has wrestled in recent months with a predicament. It knew that failing to pay bondholders would be damaging. But paying only them, having failed to pay others in full, could be worse. Other creditors would “blow off my legs”, the country’s finance minister said. So on November 13th Zambia became the sixth government to default on its bonds this year—after Argentina, Belize, Ecuador, Lebanon and Suriname. Others may follow. Although financial markets have regained much of the composure they lost in March, many countries still have more debt than they can comfortably handle. Thirty-eight governments have a credit rating that denotes a “material” risk of default or worse, twice the number at the end of 2009.The debts of poor countries would be less daunting if they were not such a tangle of competing claims. The 73 poorest owe almost a fifth ($102bn) of their foreign debt to private creditors, from bondholders to banks, a similar amount to China, $76bn to other governments and the rest to multilateral lenders like the World Bank (see ). And that is just the stuff that international institutions can count. Crafting equitable debt-relief deals from such a hotch-potch is difficult. Three changes in particular would help: a more joined-up approach by government lenders, tougher legislation to curb awkward private creditors, and greater use of flexible instruments that align repayment more closely with a borrower’s circumstances.