The cold calculation of war.

Despite the murder of Zoran Djindjic, prime minister of Serbia, on March 12th, the secondary-market price of defaulted Yugoslavian government debt has remained buoyant, at 50 cents on the dollar. Speculative buyers of the debt, mostly loans already restructured in 1998, are gambling that the Serbian government will ultimately pay them more--pending, among other complications, the resolution of a dispute between the creditors' agent bank, J.P. Morgan Chase, and the National Bank of Yugoslavia. Will speculators one day show the same relish for Iraq's loans? Some believe that Iraq is a safer long-term bet than Serbia, because it has oil and is not (yet) hostage to a business mafia. All depends on how long the war in Iraq lasts--and on how a future government deals with its legacy of debt. Who gets repaid, and how much, depends on which creditors a new Iraqi government would need most to help rebuild its economy. Above all, bankers argue, to return to the international capital markets, Iraq will have to show that it is at least willing to pay something towards its properly documented obligations. Trading, or even holding, Iraqi paper is loaded with traps. Its validity can expire every few years, according to the statute of limitations in various jurisdictions.