One of the most serious international economic and political problems today is the enormous amount of amount of foreign debt owed by Third World countries. The burden of the debt problem, of course, varies significantly in different less developed countries (LDCs).
Some of these countries have indeed been able to avoid or overcome serious debt problems, thus creating a new category of new industrialized nations. Most of the success stories are in Asia--for example, Taiwan and South Korea. (Indeed, Taiwan has become a major capital exporter, and its government's international reserves are in excess of $70 billion.) However, most Third World countries are heavily burdened by their international debt.
Other LDCs, because of their extreme poverty and very poor credit prospects, share the dubious distinction of never having been able to borrow freely in the international private money and capital markets. Lenders, such as commercial banks and investors in the bond markets, have never found the prospects of returns attractive enough to make loans to these countries. As a result, these countries, "the poorest of the poor," have only been able to borrow from the governments of the wealthy countries and from international agencies, such as the International Development Association of the World Bank Group. Fortunately for those countries, loans from these official agencies are generally made on "concessionary" terms, with fixed, low-interest rates. Included in this group of the very poorest are such countries as Chad and Mali in Africa, Suriname and Guyana in Latin America, and Bangladesh and Burma in Asia.
Middle-Income LDCs
Most of the current concern about the welfare of the Third World countries tends to focus on the middle-income LDCs. Among these are most of the largest LDCs, including those countries that had been widely considered the most promising in the Third World--Mexico, Brazil, Argentina, Venezuela, the Philippines, Indonesia, and Nigeria.
It is this last group, the middle-income Third World countries, whose international financial status has deteriorated most markedly. They have been the subject of greatest concern in recent years. This will focus primarily on this group.
The 1960s and early 1970s: The watershed to the international debt crisis was the oil-price hike in December 1973. Prior to that time, both the magnitude of the debt problem and the relations between the major lenders, regulators, and borrowing countries were very different than they are today.
By recent standards, the borrowing needs of most developing countries, and their total international debts, were relatively small. Most of the international loans to all developing countries came from foreign governments and international agencies (such as the International Monetary Fund, the World Bank, and the Inter-American Development Bank), and from trade credits from suppliers. The LDCs were generally unable to borrow from commercial banks or in the bond markets. Even the Brazils and the Mexicos generally could not borrow from commercial banks.
In addition to having more limited international funding needs, the developing countries also
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