In 1982, the Third World debt crisis dominated the front pages of major newspapers around the globe. Over the ensuing years, attention and concern shifted from the debtors to the lenders. At center stage was economic superpower No. 1, the United States, which has become the world's leading debtor nation. Some analysts made pointed references to glass houses while the more outspoken warned about shifting sands. Today, America's sizable liabilities notwithstanding, Third World debt has again become a critical issue. Some economists have used doomsday language, calling such debt a potential Fifth Horseman, rivaling the apocalyptic Four Horsemen of old.
Certainly, Third World debt problems are at the top of the industrialized nations' agenda for 1989, and Soviet leader Mikhail Gorbachev ranked them high in his address to the UN General Assembly last December. In response to the continuing crisis, THE WORLD & I presents the following special report which explores: (1) how and why Third World debt has become such an enormous problem; (2) what debtor nations and lending institutions must do to solve it; (3) how foreign aid can be more effectively used to help the Third World; (4) whether the Baker Plan helped or hindered the crisis; and (5) the long-range implications of Third World debt for the global economy.
Economist Christopher Kourth of the University of South Carolina explores the practice of overspending by Third World nations, the impact of the oil shock, and the failures of Bretton Woods and GATT. "Although the acuteness of the threat has declined," writes Kourth, "recovery remains too tenuous and the inaccessibility of the developing countries as a group to the private financial markets remains a serious problem."
Who is to blame for murdering the potential growth of many Third World nations? Stanford University scholar Alvin Rabushka writes that the U.S. government is an "especially villainous culprit." Since 1945, the United States has loaned billions of dollars to Third World governments "with the best of intentions but the worst of results." Rabushka notes that government-to-government aid rarely becomes productive investment. Instead, it is often used for wasteful, but politically attractive, public spending. Pace professor Eugene Sarver writes that the worst consequence of foreign aid is that in many cases it alleviates the need for recipient government to adopt pro-growth economic policies that would eventually increase both the standard of living and government revenue. Nevertheless, Nicholas Eberstadt, visiting scholar at the American Enterprise Institute, states that the United States must continue to give foreign development assistance, but keep this aid separate from security assistance while continuing to promote the democratic values that have enabled the United States, and other nations, to become so successful.
Rabushka suggests that the lenders replace, wherever possible, government-to-government assistance with policies of lending money to legitimate private sector enterprises. At the same time, foreign direct investment and pro-growth policies should be implemented to attact foreign investors.
Yet, despite the most insightful and sensible analysis of the debt crisis, nothing can or will be done without the necessary political will. Most economic indicators point to a potentially prosperous and expanding international economy if the right reforms are made without delay. The
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