When the Bush administration recently forgave $7.1 billion in debts owed to the United States by Egypt and another $2.6 billion owed by Poland, the reasons seemed credible and even compelling. But the action has created a precedent that could come back to haunt America.
As part of the inducement for Cairo to take part in the U.S.-led coalition against Iraq, President Bush canceled the $7.1 billion owed by Egypt for weapons. Egypt's presence made the coalition more than just a handful of Persian Gulf states and gave the alliance more stature in the Arab world. Forgiving the debt could be justified as a war expense.In the case of Poland, the debt was a crippling burden on Warsaw's new democratic government. Just servicing the debt would have stalled the Polish economy for perhaps 20 years. Lifting that burden was a reward for Poland's switching to a free-market democracy as well as a boost toward making the transfer a success. Again, it seemed like a reasonable investment.
The trouble is, such actions have given other countries the same idea. In many instances, the arguments for debt forgiveness seem just as compelling.
For example, Turkey, which owes the United States some $2.8 billion in loans, also backed the alliance and shut down Iraq's oil pipelines. Likewise, Pakistan, a strategic ally because of its proximity to the Soviet Union, also backed the war effort and could use forgiveness of some of its $3.5 billion U.S. debt.
Many nations in Latin America are crippled by debt, owing a total of more than $12 billion to the United States alone. Like Poland, many of these fledgling Latin democracies are drowning in obligations piled up by former military regimes.
However, as the world's biggest debtor nation itself, the United States is hardly in any position to be forgiving all of the $64 billion owed to it by other countries.
Where does the United States draw the line on forgiving debt? Having once said "yes," it becomes very hard to say "no," for what appear to be very similar circumstances.
Generosity is all well and good, but the president and Congress had better get busy and figure out how to repay some of America's own foreign debt. The first and most important step in that process is to balance the federal budget - a chronically slippery and elusive objective.