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Dealing with Debt: The 1930s and the 1980s

  • Eichengreen, Barry
  • Portes, Richard

The debt crisis of the 1930's illustrated the difficulty of global plans for resolving the debt crisis and underscored the importance of market-based debt-reduction schemes. The crisis of the 1980's differed in fundamental ways from that of the 1930's, but the earlier crisis illuminated the current crisis in several ways. The authors conclude that: (a) economic variables alone do not explain the incidence and extent of default; (b) implications of different debt-management strategies for macroeconomic performance remain difficult to isolate; (c) there is little evidence that countries that defaulted in the 1930's suffered reduced access to capital markets after World War II; and (d) the readjustment of defaulted debts entailed a protracted negotiation process. They further conclude that: (e) Government intervention in the 1930's and 1980's differs less in extent than direction in terms of pressure placed on debtors and creditors to maintain service on their debt; (f) global schemes to short-circuit the protracted process of bilateral negotiations proved unavailing; and (g) unlike global plans, market based debt reduction helped to resolve the debt crisis of the 1930's by reducing the overhang and eliminating marginal creditors.

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Paper provided by Department of Economics, Institute for Business and Economic Research, UC Berkeley in its series Department of Economics, Working Paper Series with number qt7666n7r4.

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Date of creation: 01 Feb 1989
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Handle: RePEc:cdl:econwp:qt7666n7r4
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  1. Fishlow, Albert, 1985. "Lessons from the past: capital markets during the 19th century and the interwar period," International Organization, Cambridge University Press, vol. 39(03), pages 383-439, June.
  2. Eichengreen, Barry & Portes, Richard, 1988. "Settling Defaults in the Era of Bond Finance," Department of Economics, Working Paper Series qt1x20r17d, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  3. Barry Eichengreen & Richard Portes, 1987. "The Anatomy of Financial Crises," NBER Working Papers 2126, National Bureau of Economic Research, Inc.
  4. Sule Ozler, 1988. "Evolution of Commerical Bank Lending to Developing Countries," UCLA Economics Working Papers 497, UCLA Department of Economics.
  5. Stanley Fischer, 1987. "Resolving the International Debt Crisis," NBER Working Papers 2373, National Bureau of Economic Research, Inc.
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