by Brian Meyer

Created on: April 21, 2008

What is the best way for an underdeveloped or developing country to pay down its burdensome foreign debt?

There are those who believe the creditors should cancel the debt. Former British Prime Minister Tony Blair is among them. Such an act, cancellation of debt, shall not help the debtor country in long term economic development. Loans and the re-payment of them are economic transactions meant to build a strong economic base. Forgiving or canceling debt is an act of charity. Strong economic bases are not built on charity.

So what is the proper remedy for the debtor country? A solution allowing creditor countries to receive re-payment and the debtor country to pay down debt, accompanied with long-term economic expansion is ideal.

Such a solution is possible.

Shortly after the swearing in of George Washington to the Presidency of the United States, the first Secretary of the Treasury confronted a challenge. The United States agreed to honor any and all debts acquired during its Revolutionary War. The time to honor those debts had come but the country did not have the money.

Hamilton's solution included granting individual creditors with exclusive ownership of parts of the Ohio Wilderness and the related natural resources. This creative solution satisfied investors who agreed to the deal in exchange for not demanding currency payments for their loans.

The investors then developed the natural resources into for-profit business activity.

Hamilton then refinanced the remainder of his countries debts.

Many of the underdeveloped countries abound in natural resources. Many of the developing countries not only abound in natural resources but the governments also own state industries.

The current day solution is simple.

The creditor country would allow the debtor country to transfer primary responsibility of its debt payment to private sector for-profit investors. The debtor country holds an auction for the exclusive rights to its natural resources.

The winning investor agrees to accept primary responsibility for payment of debt owed to the creditor countries for the amount determined at the auction. The debt is then refinanced with the creditor countries.

The investor utilizes the profits from the sale of the natural resources to pay off the acquired debt.

A common problem with international investments in a debtor country occurs when the country violates its agreements with investors. Nationalization, regulation, and tax code changes are examples. Any government action breaching

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