One of the crucial lubricants of the credit card business is the ubiquity of insurance. Say somebody steals your card and runs up big bills in your name. You don't have to pay, as long as it can be shown you weren't complicit in the theft.

A key strut in this system is the existence of a bureau with a sophisticated data bank that warns merchants when stolen cards are being used without their owners' permission. All you have to do is report the loss and they do the rest.

The system isn't perfect. To avoid detection for longer periods of time, members of a gang who were arrested this week for rifling gym lockers in New England health clubs frequently would take just one credit card of many from every wallet and even leave the cash in most.

But credit card insurance works pretty well to keep the market functioning smoothly. Banks lend freely. Losses remain a relatively small fraction of the total volume of trade. Interest rates are lower as a result.

What if a similar device were available to protect citizens of poor nations from unscrupulous dictators who run up big public debts until they are displaced? Wouldn't we all be better off -- starting with the big commercial banks?

Such lending to sovereign scoundrels is common enough to have a well-worn name. Legal scholars call it "odious debt" -- as when the apartheid government of South Africa borrowed heavily in the '80s to finance its military and police; or when Anastasio Somoza looted something between $100 million and $500 million from Nicaragua in the '70s before he was overthrown.

Ferdinand Marcos of the Philippines, Jean-Claude Duvalier of Haiti, Mobutu Sese Seko of the Congo (formerly Zaire), Franjo Tudjman of Croatia: All were thought to have looted substantial sums before, one way or another, they checked out.

Almost certainly the volume of odious debt could be reduced, say Michael Kremer of the Brookings Institution and Harvard University and Seema Jayachandran of Harvard. In a new paper, available at www.imf.org/external/np/res/seminars/2002/poverty/mksj.pdf, they propose a new mechanism to declare debts odious, and therefore not legally collectible.

Some authority should be empowered to formally declare certain debts odious, and therefore not legally collectible. In a perfect world, they say, this authority might be a carefully selected judicial body, like the International Court of Justice in the Hague. In reality, a careful coalition of non-governmental organizations probably could achieve the same thing.

The key wrinkle: such an institution would have to rule only on future debts. Otherwise those making such judgments would temperamentally be inclined to blame lender banks overmuch and forgive new governments too easily. Lending to the poorer, less stable nations would dry up if they did.

The formal analysis underlying the idea is game-theoretic: to introduce new information into a game before it starts may cause it to play out to a different conclusion.

The doctrine of odious debt originated in 1898 in negotiations at the conclusion of the Spanish American War. The victorious United States argued that Cuba's debts should be declared null and void. They had been incurred without the consent of its people. The proceeds had benefited almost entirely the rulers of Spain. Cuba reneged and in the end Spain paid the banks, rather than have its credit rating suffer.

The problem is that defaulting on debt can have ruinous consequences for a modernizing nation that wants to continue to knit into the international order. Their assets are seized abroad and their credit ratings are trashed. Reputation is at the heart of the problem that Kremer and Jayachandran want to address.

A case in point: a large portion of South Africa's borrowing in the '80s went to pay for severely repressive policies. Yet even though both the Truth and Reconciliation Commission and the Archbishop of Capetown argued that the debt should be repudiated, future president Nelson Mandela signaled in 1993 that South Africa that it would be repaid, and the credit markets remained open to South Africa after its government changed.

The citizens of a nation whose government is borrowing odiously have little recourse by themselves, notes Jayachandran, They can't exactly complain to the lending banks., and in this sense they are not like individuals whose credit cards have been stolen.

Collectively, however, they can appeal to those in the international community who are concerned with violations of human rights. Limiting an odious government's ability to borrow amounts to a new form of sanction, she says.

Moreover, borrowing restrictions have advantages over more familiar restraints such as trade embargoes. When a country is prohibited from selling its products abroad, workers bear the burden, through job loss and lower wages. Meanwhile, third parties usually continue trading with sanctioned nations. Who cares as long as they have the cash to pay?

But private banks would think twice before lending to sanctioned nations if they knew that their loans had been declared non-binding by the world's leading powers, international finance organizations and international financial institutions. They would be especially careful if creditor nations took the additional step of forbidding the seizure of assets in case of failure to repay odious debt.

Who would qualify for the cold shoulder? Should the Mexican debt incurred during the long period of PRI domination be declared odious? What about US debts incurred before the passage of the Voting Rights Act of 1965? Mightn't the doctrine of odious debt simply become another opportunity for the rich to asset that "I've got mine, Jack?" -- a mechanism by which the sanctimonious rich could deny credit to the deserving poor.

Kremer and Jayachandran argue that there ought to be a strong presumption in favor of democracy. Not that democratically-elected governments never engage in looting -- Nigeria and Pakistan are the examples usually given. But quite aside from the presumption that voters in democratic countries get the governments they deserve, an automatic exemption from odious debtor status probably reduces the likelihood of coups.

What would prevent the mechanism from turning into just another routine tool of US foreign policy? The authors think some form of super-majority voting scheme would help. They mention the United Nations Security Council, where permanent members China, France, Russia, the United Kingdom and the United States each have veto power.

It is not easy to consider odious debt doctrine in a vacuum. But the next example is seldom far away. It isn't hard to imagine circumstances in which nearly everyone could agree to cut off credit to a flagrantly-misbehaving dictator.

Remember, no one makes money by not lending. The incentives to funnel capital to developing countries will remain quite strong. But commercial banks unquestionably lend too freely sometimes to shady characters in out-of-the-way places, relying to widely-shared "the rules of the game" to ensure that they will be repaid. Odious debt doctrine is no more intrinsically hazardous to the moral health of lenders and borrowers than is credit card insurance. Aggressive enforcement against theft is the key.

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