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A Retrospective on the Debt Crisis

  • Michael P. Dooley

In this paper I argue that the international debt crisis of 1982 can best be understood as a prolonged negotiation between commercial banks and their own governments over who would bear the economic losses generated by loans made to developing countries. This interpretation of the debt crisis is contrasted with the more familiar approach that emphasizes conflict between debtor countries and their creditors. The main conclusion is that the failure of governments of industrial countries to resolve this conflict with their banks transformed an unremarkable financial crisis into a decade-long economic crisis for debtor countries. The analysis also suggests that recent capital inflows to developing countries are less likely to generate the same economic costs for debtor countries even if changes in the economic environment generate similar losses for investors.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4963.

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Date of creation: Dec 1994
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Publication status: published as Understanding Interdependence: The Macroeconomics of the Open Economy, Peter B. Kenen, ed., pp. 262-288 (Princeton: Princeton University Press: 1995).
Handle: RePEc:nbr:nberwo:4963
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  1. Jeremy Bulow & Kenneth Rogoff & Afonso S. Bevilaqua, 1992. "Official Creditor Seniority and Burden-Sharing in the Former Soviet Bloc," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 195-234.
  2. Dooley, M. & Svensson, L.E., 1990. "Policy Inconsistency and External Debt Service," Papers 467, Stockholm - International Economic Studies.
  3. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1993. "“Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," MPRA Paper 7125, University Library of Munich, Germany.
  4. Kletzer, Kenneth M, 1984. "Asymmetries of Information and LDC Borrowing with Sovereign Risk," Economic Journal, Royal Economic Society, vol. 94(374), pages 287-307, June.
  5. Michael P. Dooley & Richard D Haas & Steven A. Symansky, 1992. "A Noteon Burden Sharing Among Creditors," IMF Working Papers 92/21, International Monetary Fund.
  6. Michael Dooley & Mark R. Stone, 1993. "Endogenous Creditor Seniority and External Debt Values," IMF Staff Papers, Palgrave Macmillan, vol. 40(2), pages 395-413, June.
  7. Elhanan Helpman, 1989. "Voluntary Debt Reduction: Incentives and Welfare," IMF Staff Papers, Palgrave Macmillan, vol. 36(3), pages 580-611, September.
  8. Edmar L. Bacha, 1991. "The Brady plan and beyond: New debt management options for Latin America," Textos para discussão 257, Department of Economics PUC-Rio (Brazil).
  9. Krueger, Anne O., 1989. "Resolving the debt crisis and restoring developing countries' creditworthiness," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 30(1), pages 75-114, January.
  10. Kenneth A. Froot, 1988. "Buybacks, Exit Bonds, and the Optimality of Debt and Liquidity Relief," NBER Working Papers 2675, National Bureau of Economic Research, Inc.
  11. Robert Solomon, 1977. "A Perspective on the Debt of Deveoloping Countries," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 8(2), pages 479-510.
  12. Richard N. Cooper, 1992. "Economic Stabilization and Debt in Developing Countries," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031876, December.
  13. Daniel Cohen, 1992. "The Debt Crisis: A Postmortem," NBER Chapters, in: NBER Macroeconomics Annual 1992, Volume 7, pages 65-114 National Bureau of Economic Research, Inc.
  14. Claessens, Stijn, 1990. "The debt laffer curve: Some estimates," World Development, Elsevier, vol. 18(12), pages 1671-1677, December.
  15. Claessens, Stijn & Diwan, Ishac & Fernandez-Arias, Eduardo, 1992. "Recent experience with commercial bank debt reduction," Policy Research Working Paper Series 995, The World Bank.
  16. Jonathan Eaton & Mark Gersovitz, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Oxford University Press, vol. 48(2), pages 289-309.
  17. Michael P. Dooley & Elhanan Helpman, 1989. "Tax Credits for Debt Reduction," NBER Working Papers 3137, National Bureau of Economic Research, Inc.
  18. Jeremy Bulow & Kenneth Rogoff, 1988. "The Buyback Boondoggle," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 675-704.
  19. Michael P. Dooley & Eduardo Fernandez-Arias & Kenneth M. Kletzer, 1994. "Recent Private Capital Inflows to Developing Countries: Is the Debt Crisis History?," NBER Working Papers 4792, National Bureau of Economic Research, Inc.
  20. Claessens, Stijn & van Wijnbergen, Sweder, 1990. "Secondary Market Prices Under Alternative Debt Reduction Schemes: An Option Pricing Approach with an Application to Mexico," CEPR Discussion Papers 415, C.E.P.R. Discussion Papers.
  21. Borensztein, Eduardo, 1990. "Debt overhang, credit rationing and investment," Journal of Development Economics, Elsevier, vol. 32(2), pages 315-335, April.
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