International Finance and Financial Policy

By Hans R. Stoll | Go to book overview

16
The Debtor Position in
Perspective

HELEN B. JUNZ

The key question is: "How do we get domestic policy adjustments going and how do we sustain them?" To me this is the question that underlies all the solutions people are looking for in the debt strategy. I am happy that I was asked to look at it from the debtor's perspective, mainly because the IMF usually is accused of being a creditor collector. So I'm glad that I'm trusted in putting the debtor's perspective forward appropriately.

The question from the debtor's point of view is: Countries like Mexico have tried to adjust, in fact have restructured the economy quite considerably away from a trade-restrictive to a liberal trading system; away from relying on one major effort commodity to several, and freeing up the economy at the same time, as well as trying to get rid of a number of the misinvestments of the past at an enormously high cost to growth and employment. Why has this not led to reentry into the markets and freer access? The question there, I think, goes back to some of things that other chapters have discussed, namely: How did one get into the debt problem to begin with?

In the 1970s we saw enormous assumption of debt at negative real interest rates on the premise that the inflationary environment would be maintained and that commodity prices would be high forever. When this inflation came, obviously a lot of the investments that had been made, even though they had not even begun to be paid off and some had not even begun to be taken into service, were for all intents and purposes already obsolete. And this doesn't include the diversion to consumption that had occurred also on the basis of borrowed funds. But it seems, under those circumstances, that what is needed is a restructuring of the balance sheet rather than an injection of liquidity, and that has been the argument of countries like Mexico and obviously a number of others. It has also led to a considerable loss of time in the adjustment pro-

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