Home > posts > National Sovereignty vs. National Solvency?
October 31st, 2009 11:09 am
National Sovereignty vs. National Solvency?

So, what happens when a country increases government spending, enlarges its deficit, and causes an international lender to consider stopping payments for what it sees as an abuse of discretion? No, it’s not the Chinese trying to reign in the Obama Administration. But Ukraine’s decision to raise pension payments and its minimum wage is putting pressure on the International Monetary Fund (IMF) to decide whether its lending guidelines have any teeth.

At first blush, the IMF appears to be meddling in the internal affairs of a sovereign country. On further reflection, though, the IMF is really just a lender of other people’s money trying to get an increasingly bad borrower to stop charging the international community’s credit card. The dilemma posed by governments that spend money as though there is no consequence for perpetual deficits is that unlike private parties, a government cannot be foreclosed, bought, and sold. At least, not yet. Ukraine isn’t yet a failed economic state, but if the IMF decides to cut off lending it could be. Who knows; perhaps the Chinese government officials holding all that American debt are taking notes on how to control a client’s spending.

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