Newspaper article The Christian Science Monitor

Order Returning to Third-World Finance

Newspaper article The Christian Science Monitor

Order Returning to Third-World Finance

Article excerpt

THE developing country debt "crisis" is gradually fading into history.

The crisis broke in the summer of 1982 when Mexico, hit by the drop in oil prices, couldn't service its debts. The news alarmed world finance ministers, gathered in Toronto for the annual meeting of the International Monetary Fund. There was fear for the stability of the entire international financial system. Commercial banks quickly stopped making new loans to developing countries - except when forced to as debts were rescheduled. The major debtor nations in Latin America and elsewhere cut back dramatically in their imports from the United States and other industrial countries. The standard of living in many debtor nations fell back sharply in the remainder of the 1980s.

It was a mess.

Slowly, however, patience, purposeful delay, some forgiveness of loans, and economic reform and growth have diminished the importance of the issue. The systemic threat was probably gone by the mid-1980s, experts reckon. The danger for most major commercial banks was over by the end of the decade. They had set aside adequate reserves against potential defaults on the debt.

Commercial bank losses have so far totaled roughly $40 billion to $50 billion, estimates William Cline, an economist with the Institute for International Economics in Washington, D.C.

"It has altogether been a very disagreeable experience for the banks," notes John Haseltine, deputy managing director of the Institute of International Finance (IIF), an organization established by the major creditor banks to do research on the debt issue.

Now the importance of those debts is shrinking for many developing countries as well. Indeed, Richard Feinberg, president of the Inter-American Dialogue, says it's probable that by the end of this decade "most countries will be able to manage their debt service without undue strain."

On Tuesday, Argentina and its foreign bank lenders agreed "in principle" on a plan in which the banks will forgive as much as 35 percent of $23 billion in medium and long-term debt. In return, the banks will get safer bonds or other securities, backed by US Treasury bonds, equal to the remaining 65 percent. …

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