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- Title
Managing the LDC Debt Crisis.
- Authors
Sachs, Jeffrey
- Abstract
The article focuses on the management of the debt crisis by the creditor governments, especially the U.S. The debt crisis of the developing countries is now entering its fifth year. Since August 1982, when Mexico declared its inability to service its debts, more than forty developing countries have experienced crises in external finance. For the U.S., Japan and other creditor government, the debt crisis opened up the prospect of a major world financial crisis. With the world's largest commercial banks holding claims on the debtor countries that typically exceed 100 percent of bank capital, any wholesale repudiation of debt by the leading debtor countries would threaten the solvency of these banks and push the world economy into treacherous and uncharted waters. Most foreign and economic policy initiatives on the debt by the creditor governments and the multilateral institutions have been designed with that objective at the core. The creditor governments have used their leverage to make sure that rescheduling of bank debts owed by foreign governments involve neither an interruption of interest payments to the banks nor a reduction in the present value of the debtor countries' future obligations to the banks.
- Subjects
PUBLIC debts; FINANCIAL crises; DEBTOR &; creditor; REPUDIATION (Public finance); BANK capital; ECONOMIC policy; INTERNATIONAL relations; DEVELOPING countries
- Publication
Brookings Papers on Economic Activity, 1986, Issue 2, p397
- ISSN
0007-2303
- Publication type
Article
- DOI
10.2307/2534478