On Edge: International Banking and Country Risk

On Edge: International Banking and Country Risk

On Edge: International Banking and Country Risk

On Edge: International Banking and Country Risk

Synopsis

This book carefully examines the motives, objectives and strategies of the major players in the global lending game: creditor governments, bank regulatory agencies, the International Monetary Fund, and the Bank for International Settlements.

Excerpt

Since August 1982 when Mexico announced that it had run out of foreign exchange, the debt crisis has made front page news. the debt bomb is still ticking, threatening the international financial system. Import reductions in cash- strapped developing countries have meant losses of exports and thus jobs in the United States. the economic problems pale, however, compared to the political one: social and political upheaval in debt burdened countries is fertile ground for insurgency. Peru is struggling with a Maoist movement, the Philippines with communist insurgencies and Mexico's ruling party is weakening. Ultimately, instability could result in a flood of refugees that would be impossible to stem. Because of these concerns, the debt issue is high on the agenda of 1988 U.S. presidential candidates.

On Edge byEllen S. Goldberg and Dan Haendel should be read by everybody. It is an important and good account of the origin of the crisis and the current situation, and the interests of the parties concerned. the points of view of commercial bankers, debtors, regulators and governments are described in a balanced way. For the layman, the authors will help reconstruct the puzzle; for the academic, the book should serve well anybody interested in international affairs. Indeed, the book fills a vacuum which currently exists. On Edge gives a fair view of the problem we face and describes the various proposals that have been put forward to deal with the crisis.

The debt crisis is a long-term economic and political barrier to development that is slowly strangling world economic growth. One year after the Baker Plan was announced at the October 1985 annual meeting of the International Bank for Reconstruction and Development (World Bank) and the International Monetary Fund (IMF), creditors are more reluctant than ever to lend and debtors increasingly are wondering about the benefits of borrowing more. Latin Americans fear the backlash of prolonged recessions due to the strain of debt servicing. With interest payments alone consuming on average over 40 percent of exports, real per capita incomes have slipped back to their 1970 levels and the 1980s seem like a lost decade for development.

Although its magnitude is unprecedented, the debt crisis is not a new phenomenon. in the nineteenth century, nine state governments in the United States suspended their debt-service payments. Britain and France defaulted on payments to the United States during the 1930s "on the grounds that their obligations to meet the needs of their people were greater than the legal obligations to credi-

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