Senior Fellow Todd Moss's piece on developing countries and debt was featured in Bloomberg Businessweek.
From the article
Imagine, for a second, that your son has just graduated college. You’ve generously agreed to pay off his student loans. His immediate reply is: “Thanks, Dad! You’re the best. Now I’m going to borrow $100,000 more!” Is this good news or not? It depends, of course. If it’s to pay for business school—presumably raising his future income and allowing him to pay off the loan himself—then this is wonderful news. That B-school loan could be the spark to build a career and a happy, independent life. But if that $100k merely enables your son to sleep late, watch TV, and buy a sports car, then it’s a disaster. The loan isn’t a springboard but rather the beginning of dependency and financial trouble. You are probably going to have to bail him out again.
The same goes for countries. Whether government borrowing is a good investment or a way to avoid hard choices depends on how the capital is deployed. Using new long-term debt to build highways and power plants that will contribute to rapid growth and exports might be a terrific idea. The future income should more than cover the payments and the country is better off for having borrowed. Yet if the loan capital is merely used to avoid laying off excess government workers or to subsidize failing state-owned companies, new borrowing just delays tough decisions and sows the seeds of debt stress.
The unresolved debt crisis in Greece, which threatens to smother the global economic recovery, destroy the Euro, and hasten the demise of the European welfare state, is a fresh illustration of the downsides of debt. To extend the analogy above, Greece is a version of your deadbeat son. The country piled up nearly half a trillion dollars in debt it cannot repay. It deferred hard choices for years, until its economy teetered on the edge of collapse. Even after its neighbors coughed up more than 100 billion euros in aid last year, Greece still couldn’t get its house in order and had to go back for more. European governments have again agreed to contribute additional billions to help Greece, but that deal is stuck because some of its neighbors insist on some kind of collateral. So much for Greece’s credibility to make real changes. How long the Greeks can put off the day of reckoning is anyone’s guess.