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Published online by Cambridge University Press: 26 October 2009
No assessment of new or recently re-established democracies in Latin America can overlook the threat to these regimes posed by debt service obligations that are often heavier and more durable than the reparations imposed on Weimar Germany. No discussion of the weakening of the liberal international economic order (the trend towards trade protection, chronic instability in currency and financial markets) can disregard the extreme pressures to export, to compress imports, and to conserve foreign exchange that shape the economic policies of the heavily indebted LDC nations. No analysis of the scope and limitations of monetary policy in the developed countries (and especially in the United States) will be complete unless it takes into account the consequences for the major banks of a sovereign debt exposure which remains even now very large in relation to shareholders' equity, and which still frequently appears in bank accounts at an unrealistically optimistic valuation.
1. Recent examples include Dornbusch, Rudiger, Dollars, Debts, and Deficits (Cambridge, Mass., 1987);Google ScholarThorp, Rosemary and Whitehead, Laurence, Latin American Debt and the Adjustment Crisis (London, 1987);CrossRefGoogle ScholarCline, William R., Mobilizing Bank Lending to Debtor Countries (Washington, DC, 1987);Google Scholar and Feinberg, Richard E. and Ffrench-Davis, Ricardo (eds.), Development and External Debt in Latin America: Bases for a New Consensus (Notre Dame, 1988).Google Scholar
2. For example Kaufman, Robert R., The Politics of Debt in Argentina, Brazil and Mexico: Economic Stabilization in the 1980s (Berkeley, 1988).Google Scholar
3. Karen Remmer, ‘Debt and Democracy? The Political Impact of the Debt Crisis in Latin America’, Paper delivered to an International Conference on Financing Latin American Growth at the Jerome Levy Economics Institute, Annandale-on-Hudson, New York.
4. An interesting and constructive recent example of this approach is provided by the Chairman of American Express, Robinson, James D. III, ‘A Comprehensive Agenda for LDC Debt and World Trade Growth‘ (Overseas Development Council, Washington, DC, 02 1988).Google Scholar
5. One useful collection is Kahler, Miles (ed.), The Politics of International Debt (Ithaca, NY, 1986).Google Scholar
6. Part One of the UNCTAD Trade and Development Report 1988 (New York, 09 1988)Google Scholar is a good, up-to-date example of this genre, from the debtor countries' point of view.
7. Kuczynski, Pedro-Pablo, Latin American Debt (Baltimore, for the Twentieth Century Fund, 1988)Google Scholar reprints the text of Baker's speech as an appendix.
8. Calder, Cf. Bruce J., The Impact of Intervention: The Dominican Republic during the US Occupation of 1916–24 (Austin, Texas, 1984).Google Scholar The corollary ‘sought, in the case of the Dominican republic, to eliminate the danger of another foreign government physically intervening to enforce the demands of its creditor-citizens by having the US act as a collecting agent … to satisfy the claims of foreign bondholders, both European and North American … the Dominican Customs Receivership, headed by an appointee of the President of the United States, would ‘collect all customs, keeping 55 per cent of the total revenues to pay off foreign claimants and remitting 45 per cent to the Dominican government’’ (p. 4).
9. Barbara Stallings reports considerable evidence that in the 1970s many private bankers perceived an implicit US government guarantee or ‘safety net’ for their sovereign lending to Latin America, even though Washington had made no explicit commitments of that kind—other than to endorse the IMF system of stand-by lending with rising levels of conditionally. Banker to the Third World: US Portfolio Investment in Latin America 1900–86 (Berkeley, 1987), p. 144.Google Scholar
10. Compare Faber, Mike, Beware of Debtspeak (Sussex, 1988).Google Scholar
11. Kraft, Joseph, The Mexican Rescue (New York, 1984).Google Scholar
12. In the UK, for example, the ‘Big Four’ clearing banks took £3 billion in provisions for Third World loans in the first half of 1987, at an estimated cost to the British taxpayer of £850 million. Financial Times (London, 5 01 1988).Google Scholar
13. Enders, T. and Mattione, R., Latin America: The Crisis of Debt and Growth (Washington, DC, 1984)Google Scholar and Kaletsky, Anatole, The Costs of Default (New York, 1985).Google Scholar
14. Corden, W. Max lays this bare in ‘An International Debt Facility’, IMF Staff Papers, xxxv, 2 09 1988.Google Scholar The most crucial problem about all such schemes concerns ‘the interests of the potential owners or underwriters of the facility’ (i.e. the Bank and Fund) because any scheme large enough to ease the overall debt problem would involve ‘a large transfer or risk internationally from private banks to the underwriting governments or multilateral institutions’ (p. 420).
15. In January 1989 the Institute for International Finance, a Washington-based organization reflecting the view of the major banks, published The Way Forward for Middle-Income Countries hoping to influence the debt policies of the Bush administration. ‘The debt problem has gone on too long for the governments of industrialised countries to view it as something that can be worked out just between the debtor countries and their banks’ it argued, calling for creditor governments or the World Bank to guarantee interest on principal, and for the easing of tax rules and banking regulations.
16. There is a lengthy history of joint consultations among Latin American debtor governments with the aim of establishing common ground. The most substantial effort was made by eight civilian elected presidents, who met in Acapulco in November 1987 to propose collective negotiations with the region's creditors on the basis of a halving of the debt service burden. The follow-up meetings a year later had scant progress to report.
17. Compare O'Donnell, Guillermo, ‘External Debt: Why Don't Our Governments Do The Obvious?’ CEPAL Review, xxvii (Santiago, 12 1985).Google Scholar
18. Kuczynski argues knowledgeably that in any case the will is lacking. He mentions ‘middle class voting strength’ as an indicator of this, but since he wrote inflation and recession have intensified in many countries, and in 1989 fear of a radicalized electorate has become a major argument for concessions from the creditors.
