Abstract

International Debt - Ways Out of the Crisis

The efforts made so far to overcome the international debt crisis have been characterized by a large number of pragmatic ad hoc measures which were able to prevent the worst. It is doubtful, however, whether the crisis can be mastered in this way. A prerequisite for this would be the relieving effects of a revitalization of the world economy, the occurrence of which is uncertain. The currently discussed alternative solutions, which can be classified into three basic types, must be seen against this background of feared inadequate economic growth. In the case of the internal banking solution, the banks are expected to adopt pure banking approaches which call for helping out with new credits in the event of payment difficulties and for writing off old credits in the event of insolvency. The problems of this solution lie in the fact that more allowance for losses would be needed than can be coped with without spectacular bank failures, since at the present time probably every country that has defaulted ought to be declared at least partially insolvent. The conversion solutions set out to diminish the burden on the banks systematically against the writing down of problematical old debts by interposing conversion agencies, in order to make room again in the balance sheets for “traditional transactions” in the international sphere. The endeavours to find a comprehensive solution, however, have already demonstrated the danger of substantial losses of outstanding debts, which should dissuade the banks from new credit business. Furthermore, this approach involves considerable capital needs. Moreover, disincentive effects for the debtor countries cannot be excluded. In the case of the solution with supplies of liquidity, the object is to restore the debt-servicing capacity of the problem countries less by debt conversion and adjustment than by expansion. This approach is problematical, above all for political reasons, since the industrial countries will probably not agree either to money creation in favour of the developing countries or to anincrease in development aid. It follows then that continuation of the current pragmatic crisis management does not appear unreasonable, if the procedure is augmented by objective-consonant supplies of liquidity. The decisive factor for the success of all efforts, however, remains the enduring revitalization of the economy.