SPECIAL ISSUES IN INTERNATIONAL FINANCE: THE INTERNATIONAL DEBT CRISIS
The debt crisis is currently the most serious issue threatening the international economic system. A default by any of the major debtor nations could seriously jeopardize the foundations of the international monetary system. Furthermore, the debt crisis is not a short-term problem that could be eliminated by short-term changes in market conditions. The external debt is a long-term financial, monetary, trade, and development issue and its impact will be felt by all areas for a long period of time.
The United States has now become the largest debtor nation in absolute terms. Even though America's external debt is not significant relative to the size of the U.S. economy, nevertheless, substantive accumulation of America's foreign debt will soon become an important determinant for the dollar's parity with other currencies. And since the dollar is, and will likely remain, the unit of value of international transactions, any fluctuation in its parity will have repercussions far beyond the U.S. balance-of-trade picture. In Chapter 7, Barry Herman and Stanley J. Lawson analyze the U.S. foreign debt problem by raising some questions commonly asked in studies of the debtor developing countries. This analysis of the "net transfer of resources" embodied in the growth of U.S. foreign debt highlights the undesirable global allocation of financial resources in the 1980s. Projected growth of the U.S. foreign debt to 1990 is deemed feasible in terms of "solvency" and "liquidity" as interpreted for the U.S. case, although uncertainty about achieving the forecast results and keeping the confidence of dollar asset holders makes the outlook somewhat risky. The authors' conclusion is that a smooth unraveling of the U.S. foreign debt situation may well occur, but there are many imponderables and a foreign debt "crisis" for the United States cannot be ruled out.
In Chapter 8, George E. Samuels and Raul Moncarz examine the ongoing debate concerning the role of the International Monetary Fund in the management of the external debt problem of the developing countries, with particular reference to Latin America. They maintain that the criteria on which IMF assistance is based have proven extremely difficult to implement in Latin America. The authors further argue that the Fund's conditionality has been unsuccessful in its task of encouraging payments and adjustment. Therefore, they conclude that to succeed, IMF policies should be more flexible, and its programs solution oriented and more related to the causes of payments problems--in contrast to the relief remedies applied in the past.