Economic development and the debt crisis

Since it was first recognized in August 1982, the international debt crisis has dominated economic policy making in the developing countries. The prolonged debt crisis of those highly indebted countries whose debts are owed primarily to the commercial banks has resisted all the creative financial engineering efforts of the last few years. Fundamental changes in the debtor countries have been slow in coming. Reforms will be more likely if the debtor nations can be sure that financing will continue over several years. The benefit of such an approachis that it moves toward a longer term solution to the debt crisis, enabling governments to concentrate on domestic economic management rather than debt negotiations. This paper reviews the debt strategy followed since 1982 and recent developments in the debt crisis. The paper goes on to evaluate alternative solutions, and to discuss the actual and potential roles of the World Bank and the IMF.