Abstract

The International Debt Crisis: Inventory and Outlook

In contrast to direct investments lending to developing countries represents a persistent burden to the Third World borrowers. On the one hand, the debtor countries are expected to meet the implied obligation of investing money in growth-promoting projects without any leakage of capital. On the other hand, the debt service usually demands a substantial amount of the foreign trade surplus which is small enough in developing countries. As long as borrowing countries are able to pay, even in the long run, there is little objection against indebtedness as a means of reaching a higher level of development. However, the recent past has shown that the actual ability to pay of numerous Third World borrowers is heavily overestimated by private lenders. Moreover, the insolvency problems of particular countries haven't been prevented but caused by inadequate credit conditions. In the early 1980s the international sharp decline in economic activity finally brought to light the profound economic crisis of many developing countries. The debtor countries' initial liquidity problem has become a problem of excessive indebtedness which cannot be solved by the developing countries on their own. So far the creditor countries' approaches to this problem did not succeed in bringing about a fundamental change of the situation. On the contrary, it is still demanded to find an adequate concept which combines public as well as private measures and market-based technical contributions, to reduce the debt burden, with government help for the poorest countries.