The Foreign Debt/National Development Conflict: External Adjustment and Internal Disorder in the Developing Nations

The Foreign Debt/National Development Conflict: External Adjustment and Internal Disorder in the Developing Nations

The Foreign Debt/National Development Conflict: External Adjustment and Internal Disorder in the Developing Nations

The Foreign Debt/National Development Conflict: External Adjustment and Internal Disorder in the Developing Nations

Synopsis

"Carvounis reviews the debt-servicing problems of developing countries, focusing on the experience of nine cases, mostly in Latin America. He stresses the adverse impact on the development prospects of these countries resulting from the adjustment policies that they have been required to pursue. Carvounis criticizes the current austerity-oriented approach to restoring orderly debt-servicing, maintaining that his emphasis is leading to severe economic, political, and social problems within these countries. He argues that the economic capacity and political will of borrowing countries to continue this route is dissipating." Choice

Excerpt

This study examines the adjustment experience of indebted developing countries from August 1982 to the present. Before and during this period, dozens of developing nations failed to repay their international creditors on a timely basis. These external debt-service problems were the proximate and most pressing cause of the adjustment programs undertaken by the same group of sovereign borrowers. In most cases, adjustment programs have been conditional, including as formal elements a conditional adjustment loan from the International Monetary Fund (IMF) and commercial/official debt restructurings linked to the debtor's performance under Fund credit agreements. Because the IMF stresses contractionary monetary and fiscal policies as the primary means for achieving payments stabilization and improved debt-service capacity, adjustment programs under its aegis are termed austerity programs. As the Fund readily acknowledges, in the short term its approach to adjustment entails a suspension of the expansionary measures that Third World governments have typically used to accelerate national development. Consequently, within IMF-monitored adjustment processes, a basic conflict arises between the payment of foreign loans, on the one hand, and the pursuit of national development, on the other. This conflict serves as the study's central topic.

Much of the analysis focuses on the debtor countries of Latin America, particularly the three Latin nations having the largest external debt of all developing lands--Brazil, Mexico, and Argentina. Accounting for more than two-fifths of total developing-country external liabilities (with Brazil, Mexico, and Argentina holding a full one-quarter of aggregate Third World debt), Latin American nations are clearly the most critical geographical group by virtue of the sheer magnitude of their unpaid borrowings. Moreover, the bulk of Latin borrowing has been in the form of loans from international banks. The burden of servicing this portion of their foreign debt has been heavy for them, since bank loans are extended on harder terms than credits from official sources. Most significantly, it is in Latin America . . .

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