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Dictionary beginning with D

De Soto, Hernando

A Peruvian economist who advocates establishing formal property rights for the poor to help them rapidly escape from poverty. In books such as The Other Path and The Mystery of Capital, he argued that, in developing countries, capitalism will thrive in the long run only if legal systems change so that most of the people feel that the law is on their side. One of the best ways to achieve this is to give full legal protection to the de facto property rights that are observed informally by the poor, such as when a community recognises that a certain family is entitled to occupy a particular piece of land.

According to his research, carried out in several countries with his think tank, the Institute for Liberty and Democracy, such informal property rights cover assets (notably land and housing) worth many billions of dollars. Informal systems of property rights usually make such assets "dead capital", meaning that it is hard to use them as collateral for a loan, which might be used to start a business, for example. He argues with that an efficient, inclusive legal system preceded rapid development in every rich country and that bringing these rights into the formal legal system of poor, developing countries will unleash this hitherto dead capital and spur growth. His ideas have been much talked about but little acted upon.

Deadweight cost/loss

The extent to which the value and impact of a tax, tax relief or SUBSIDY is reduced because of its side-effects. For instance, increasing the amount of tax levied on workers’ pay will lead some workers to stop working or work less, so reducing the amount of extra tax to be collected. However, creating a tax relief or subsidy to encourage people to buy life insurance would have a deadweight cost because people who would have bought insurance anyway would benefit.


'Neither a borrower nor a lender be,' wrote Shakespeare in 'Hamlet'. Actually, the availability of DEBT, and the willingness to take it on, is a crucial ingredient of economic GROWTH, because it allows individuals, FIRMS and GOVERNMENTS to make investments they would not otherwise be able to afford. The PRICE of debt is INTEREST. Until recently, lending was an activity dominated by BANKS (although mortgages for individuals buying their homes have long been available from special housing SAVINGS institutions). Since the 1960s, debt has become increasingly available from other sources. Companies have sold trillions of dollars worth of BONDS to investors in the FINANCIAL MARKETS. Individuals have been able to borrow with credit cards, and for those who have nowhere else to turn there are pawn shops and loan sharks, which charge very high rates of interest. Total private-sector debt in 2003 was around 150% of GDP in the United States, compared with less than 100% in 1928. In most countries, by far the biggest single borrower is the state, through the NATIONAL DEBT.

Debt forgiveness

Cancelling or rescheduling a borrower's debts to lessen the pain of the DEBT burden. Debt forgiveness is increasingly viewed as the best way to relieve the financial problems facing poorer countries. Some of these countries have to pay so much in INTEREST each year to foreign lenders that they have little MONEY left to spend on the long-term solutions to their POVERTY, such as educating their workers and building a modern INFRASTRUCTURE. In 1998 the WORLD BANK calculated that around 40 of the world's poorest countries had an 'unsustainably high' debt burden: the present value of their total debts was more than 220% of their EXPORTS.

Debt forgiveness has potential drawbacks. For instance, there is a risk of MORAL HAZARD. If countries that borrow too much are let off their financial obligations, poor countries may feel they have nothing to lose by borrowing as much as they can. This is why policymakers often argue that debt forgiveness should come with a CONDITIONALITY clause, for instance, a requirement that countries have a track record of implementing economic reforms designed to prevent a repeat of the errors that first created the need for debt forgiveness. This is the approach taken by the World Bank's HIPC (highly indebted poor country) initiative, launched in 1996 and expanded in 1999. However, by 2003, only eight of the 38 poor countries eligible under the programme had made enough progress in reform to have some debt forgiven.


Failure to fulfil the terms of a loan agreement. For example, a borrower is in default if he or she does not make scheduled INTEREST payments on a loan or fails to pay off the loan at the agreed time. Judging the likelihood of default is a crucial part of pricing a loan. Interest rates are set so that, on AVERAGE , a portfolio of loans will be profitable to the CREDITOR , even if some individual loans are loss-making as a result of borrowers defaulting.

Demand curve

A graph showing the relationship between the price of a good and the amount of DEMAND for it at different PRICES. (See also SUPPLY CURVE.)