The debt crisis

Résumé du document

The debt crisis was triggered exactly 20 years ago when Mexico suspended its payments in 1982. This started off the worst financial crisis since 1931. Other than being a serious problem for developing countries whose Foreign Reserves and foreign investments withered away it also became a threat for the global financial system. The criticality of the crisis made institutional cooperation necessary to limit its consequences. The terrible social impact of the crisis and of its proposed solutions made it a sensitive issue.

Extraits

[...] This difficult economic situation put governments under pressure to promote their national industry and to export more to pay for the energy bill. As a result, most of them (especially the French governments) developed an aggressive mercantilist foreign policy. For instance Export credits grew by an average of 35% a year in OECD countries from 1976 to 1978. It is a period in which northern countries signed many “huge contracts” with southern countries. Northern countries used their co-operation networks with southern countries to push for their realization without much regard for the coherence or for the profitability of these investments. [...]

[...] This is the famous recycling of the “petrodollars” in southern countries. Together with a remarkably high level of inflation, the excess of liquidity on world financial markets made real interest rates remarkably attractive for southern countries. Real interest rates where below which made run into debt completely unpainful for developing countries The policies of creditor countries As a result northern commercial banks started to lend excessive amounts of money to southern countries' governments. Many of these loans were granted without the necessary expertise to assess the political and economic risks of borrowing countries. [...]

[...] The terrible social impact of the crisis and of its proposed solutions made it a sensitive issue, one that is very politicised and mobilizing as the Jubilee 2000 campaign has shown. Besides, the understanding and interpretation of this crisis dramatically evolved over time. So it seems important to assess the causes of the crisis and its consequences and to evaluate the different solutions that were proposed by public and private lenders and multilateral institutions. Can we say that the crisis is over now? Is it over for all its stakeholders? [...]

[...] -Borrowed funds channelled for high-priority activities. -External borrowing must, over time, enable the debt to be serviced directly or from surpluses generated elsewhere in the economy. In fact, effective debt management requires policies to improve the efficiency of investment and the long-term growth prospects for the economy, besides achieving external and internal balance. Conclusion As we have seen, the causes of the debt crisis are systemic and cannot be explained by the bad management of third world countries alone. One has to take into account the long-term cycles of the world financial markets and the attitude of lenders. [...]

[...] However, one cannot reduce this issue to this single factor. This general description should not distract us from the fact that each country has its own specificities and that what we call the debt issue is in fact a very heterogeneous phenomenon. For instance, most of Zaire debt has been contracted to public multilateral institutions, whereas Nigeria, an oil exporting country, borrowed most of its foreign capital to commercial banks. Whereas these two countries borrowed huge amounts of money and benefited from the rise of oil and copper prices, Madagascar, which never exported that much, was lead to insolvency despite modest borrowings. [...]