The Debt Issue — A Historical Perspective

The debt issue has a history. More immediately, it goes back to the large financial surpluses of oil producing countries upon the two explosions of oil prices in 1973 and 1979. These oil surpluses flowed into the commercial banks of the United States, the United Kingdom, Switzerland and other industrial countries. Other scenarios would have been possible: the surplus could have been used to establish a financial basis for extended South-South trade, considering that the OPEC countries thought of themselves as members of the Third World; or they could have gone into supplies of cheap oil for developing countries; or directly into real estate or other fixed investments, and so on. But, by and large, they went into commercial banks and since at that time in the 1970s the industrial countries, taken as a whole, did not have balance of payments deficits, the money was available to be ‘recycled’ into developing countries. This helped them to maintain their growth rate, in spite of deteriorating terms of trade as a result of higher oil prices and also in spite of the reduced growth rate of industrial countries. At that time, during the 1970s, this seemed a viable system and everyone, World Bank, IMF, OPEC governments, OECD governments and commercial banks, were patting themselves on the back and congratulating themselves on how well the world financial system was coping.