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Prepaid Cards? Caller Beware (Int'l Edition)


International -- Readers Report

Prepaid Cards? Caller Beware (int'l edition)

You painted a very rosy picture in lauding the service of European telephone companies in issuing prepaid phone cards ("Cell phones for all," European Business, July 12).

But how about getting the true story by speaking to some consumers of these prepaid cards? Then you will come to know what con men all these telephone companies are.

In Spain, we have Telefonica and Airtel, both of which are laughing all the way to the banks.

That's because these companies don't have to justify the charges they make to the consumer: There is no end-of-the-month invoice detailing calls made. When you're busy making phone calls, before you know it, you are shocked by the telephone informing you that your card has no more credit remaining on it. This has been confirmed by all my friends who bought this scam and have now converted back to the monthly contract.

R.K. Nawalrai

Las Palmas

Canary Islands

SpainReturn to top

It Takes Two Parties to Make a Bad Loan (int'l edition)

Allow me to venture my opinion on "My luncheon with Bono" (Economic Viewpoint, July 12). First, I must make a confession: I am not an economist. I am just a business executive in one of the "borrower" nations.

No lenders, whether government or private, are in the charity business. They must lend to viable projects. Viability here includes credibility of the borrower managers. The reason you and the promoters of Jubilee 2000 [a campaign to forgive international debts of poor countries] miss the point is a matter of language. You both start from the premise that these nations were lent commercial loans, are presently unable to honor their obligations, and would like to be forgiven. That's wrong!

In every commercial relation that exists between a lender and a borrower, it is taken for granted that each of the two parties is a responsible entity, that the borrower requires funds for an economically viable specific undertaking, and that the lender appraises the project, confirms its viability, and commits the required funds.

The responsibility of the lender does not end at the point of committing and availing the funds. The project documents form part of the loan agreement and hence their faithful execution should be part of the fulfillment of the loan agreement to ensure that the cash flow stream will, mutatis mutandis, be faithful to the projections and thereby facilitate repayment as agreed.

All responsible lenders and borrowers accept the moral responsibilities and the hazards that arise from each loan transaction.

The current debt question of the so-called poor nations is not an economic question. It is a commercial one with a moral hazard overhang.

As a start, these nations are not poor. They have resources: people, land, water, minerals, etc., which are mismanaged, stolen, and manhandled by the so-called local leaders with the support of governments and multinational companies from the creditor nations.

Second, most of the lender bodies knew or had reason to believe that the large amounts of the funds they were lending to these nations were being stolen and banked in numbered accounts with their member banks or countries. Little if any of these loans ever ended up in the countries for which they were meant to fund self-sustaining, income-generating projects that could pay back. The World Bank, International Monetary Fund, Western governments, etc., all had experts on the ground who knew or should have known what was and is still happening.

David Fredrick Amakobe

Bungoma, Kenya

I read Robert J. Barro's article and couldn't help disagreeing with you in your position about poor-country debts. We have to differentiate the debts of resource-rich countries such as Russia and Brazil from those of countries such as the sub-Saharan ones.

The former could make ends meet and manage the debts anyhow, which is not at all out of hand. But the latter (Togo, Mozambique, etc.) could not, even with the soundest policies, reach a minimum level to get their economies running. Barro, as a right-wing economist (but not always right), has to understand that the majority of the poor countries may never reach the goods that globalization can provide, so primitive are their economies. Being a good payer is not always the solution--like the case of Romania under Nicolae Ceausescu.

On the other hand, countries such as Bolivia had part of their foreign debt forgiven and managed to curb hyperinflation and permanent crisis. When a country is rescued from the pit, certainly the impact on the world economy is positive. So, for those countries that didn't reach minimum levels of development, the science of economics has to come down from the pedestal and assume more favorable postures. And that includes him.

Luiz Eduardo Oliveira

Belo Horizonte

Minas Gerais State

Brazil

While at first glance even the most educated observer may be inclined to agree with Bono's Jubilee 2000, the analysis cannot stop there.

Consider the case of someone called Skinner, an illiterate man who signed a contract with a bank for a loan. He later attempted to rescind the contract on the basis that he was unaware of what he was signing. At first, we would like to revel in his hardship and allow the rescission, but we would fail to see the extremely harmful repercussions. That is, the banks would cease to make loans to persons with physical and mental hardships, resulting in the nonavailability of credit for uneducated persons.

Another helpful case involves an installment-payments contract where a poor lady purchased certain appliances. She had all but paid off the loan when she bought yet one more item. This item was included in the previously purchased products as a "basket" loan. When she failed payment on just the TV, the store repossessed not only the TV but also all the other loan items that were all paid off. While most would hastily peg this loan as unconscionable, they again would fail to see the repercussions. If stores are no longer able to make these types of loans, then they would fail to make credit available to persons of economic hardship. Again, this would cripple growth.

This is to say that credit availability in the long run is wholly dependent on creditors' ability to recoup their investments. If this debt forgiveness is allowed, then why would a bank loan to at-risk countries?

And how do you separate the intentions of those who intend to welch on a contract and those who legitimately need the credit and wish to repay? Credit availability is what spurs economic growth...Economics 101.

Mike Massey

Mexico CityReturn to top


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