International Finance and Financial Policy

By Hans R. Stoll | Go to book overview

13
An Overview of the International Debt Crisis

ROBERT SOLOMON

The debt crisis began in the summer of 1982, when Mexico found itself unable to maintain its debt service. The outbreak of the crisis capped a decade of substantial lending by commercial banks in the industrial countries to governments and private entities in the more advanced developing countries, particularly those in Latin America. The crisis is now in its seventh year, and it has spawned a large outpouring of books and articles that both analyze the problem and suggest ways to cure it.

This paper will therefore not attempt to set forth either the initial causes or the evolution of the crisis. Rather, it will focus on the present status of the problem and on current proposals for its solution. The three main sections of the paper deal with the nature and dimensions of the debt crisis today, the factors responsible for its persistence, and solutions under way and proposed.

The developing countries with which this paper is concerned are those that are highly indebted to commercial banks. They are referred to as the "Baker 15" because they were the focus of the Baker Plan announced in 1985. They are, for the most part, middle-income developing countries. Ten of them are in Latin America and the others are the Ivory Coast, Morocco, Nigeria, the Philippines, and Yugoslavia; the ten Latin American nations account for almost 90 percent of the bank debt of the 15 countries. (Some of the data used here refer to the World Bank's classification of 17 "highly-indebted countries," which adds Costa Rica and Jamaica to the list; these countries are identified here as the "World Bank 17.") The total debt of the Baker 15 to all creditors amounted to $477 billion at the end of 1988. Of this amount, about three-fourths was owed to commercial banks. Argentina, Brazil, and Mexico accounted for about three-fifths of the commercial bank debt.

Other troubled debtor countries exist, primarily in Africa. These "low in-

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