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Solutions Abound: But Will They Work?
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10870 |
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CURRENT ISSUES
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7 / 1986 |
2,681 Words |
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Jose D. Epstein
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A by-product of the Great Debt Crisis of the 1980s has been the proliferation of the proposals to resolve it.
Without entering into the quagmire of the numbers game - which country owes how much to what type of creditor - it is indeed probable that a significant portion of debtor countries will be unable to meet their originally contracted debt service obligations in a timely fashion.
Economic history, however, contains sufficient examples of debt crises, including the defaults of Pennsylvania and Maryland on their interest payments in the wake of the depression of 1839-1843, and the subsequent repudiation of the U.S. debt before the 1848 gold discoveries.
In more recent times, the Argentine provinces defaulted in the early 1930s and had to be rescued by the national government. Political transformations such as the disappearance of Czarist Russia in 1917, the profound change in revolutionary Cuba, and the changes in Eastern Europe after World War II, brought about suspensions and sometimes repudiations of foreign debt.
The characteristic that distinguishes the 1980s crisis from its predecessors is its pervasiveness. In its early stages, the non-oil-producing developing countries appeared to be affected more severely than other nations. But in the aftermath of the oil glut even producer countries with relatively large populations appeared on the critical list.
At present, much of Latin America and the Caribbean as well as a large number of African countries confront debt-service problems. Some Eastern bloc countries do so, too. Sub-Saharan African countries include more than 20 of the world's lowest income countries, those with a per capita income of less than $400 in 1983.
Some of the earliest warning bells went off in Poland in 1981 and spilled over into Rumania and Hungary. But in general, the major concerns of creditors, both countries and commercial banks, concentrate on Newly Industrialized Countries (NICs) such as Brazil, Mexico, and Argentina, who account for a significant portion of the total debt of the Least Developed Countries (LDCs).
A New Industry - Solutions
The crisis has evoked a wide gamut of reactions ranging from the apologetic to the apocalyptic; it has also prompted many leading economists and financial experts to propose solutions.
A Royal Bank of Canada survey made for the Institute of International Finance in early 1984 lists over 40 proposals to resolve the debt crisis, and new proposals or amendments to existing ones appear regularly.
Former Assistant Secretary of the Treasury Fred Bergsten, now director of the Institute for International Economics, has performed a distinct public service when in a publication in April 1985, he classified the alternatives. (Bank Lending to Developing Countries: The Policy Alternatives, with William Cline and John Williamson, MIT Press, Cambridge, Massachusetts.) The book registers 24 options, systematized from the less rigorous Royal Bank of Canada treatment. Another author, Roland
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