Third World Debt Resolutions
Solutions/ Recommendations
[1]One fact is undeniable: Someone is going to have to pay for past debts. It could be the people in debtor countries, or the banks, or the people in advanced industrial countries. Most likely it will be some combination of these three groups. In the last ten years, there have been a variety of proposals which, unfortunately, usually reflect only the special interests of the groups proposing them. Generally speaking, these solutions fall into three categories: repudiation, minor adjustments in repayments, or reduction. Debt repudiation, in the sense of a unilateral cessation of repayment, occurred in a number of countries: Bolivia, Brazil, Costa Rica, Dominican Republic, Ecuador, Honduras, Nicaragua, Panama, and Peru.With the exception of the Peruvian cessation, however, most of these actions have been taken with assurances that the stoppages were only temporary. Peru announced that it was unilaterally limiting its debt repayments to a percentage of its export earnings; and since Peru took this action, other nations have indicated that they will act similarly. There have been no serious proposals for a widespread and coordinated repudiation of global debt. The economist Jeffrey Sachs offers several reasons for this absence of a general repudiation.First, debt repudiation is a dramatic and abrupt act. Most nations would prefer to defer such decisions as long as there are advantages to muddling through, and growth prospects are sufficiently ambiguous to make this muddling a viable course. Second, debtor countries fear retaliation from commercial banks. If the banks were to cut off nondebt related activities, such as trade credits, the situation could be made even worse. Third, the debtor countries fear retaliation from creditor governments and multilateral lending agencies. Grants from development banks could be affected, and trade relations would probably be seriously disrupted. Finally, the leaders of most of the debtor countries
[1]One fact is undeniable: Someone is going to have to pay for past debts. It could be the people in debtor countries, or the banks, or the people in advanced industrial countries. Most likely it will be some combination of these three groups. In the last ten years, there have been a variety of proposals which, unfortunately, usually reflect only the special interests of the groups proposing them. Generally speaking, these solutions fall into three categories: repudiation, minor adjustments in repayments, or reduction. Debt repudiation, in the sense of a unilateral cessation of repayment, occurred in a number of countries: Bolivia, Brazil, Costa Rica, Dominican Republic, Ecuador, Honduras, Nicaragua, Panama, and Peru.With the exception of the Peruvian cessation, however, most of these actions have been taken with assurances that the stoppages were only temporary. Peru announced that it was unilaterally limiting its debt repayments to a percentage of its export earnings; and since Peru took this action, other nations have indicated that they will act similarly. There have been no serious proposals for a widespread and coordinated repudiation of global debt. The economist Jeffrey Sachs offers several reasons for this absence of a general repudiation.First, debt repudiation is a dramatic and abrupt act. Most nations would prefer to defer such decisions as long as there are advantages to muddling through, and growth prospects are sufficiently ambiguous to make this muddling a viable course. Second, debtor countries fear retaliation from commercial banks. If the banks were to cut off nondebt related activities, such as trade credits, the situation could be made even worse. Third, the debtor countries fear retaliation from creditor governments and multilateral lending agencies. Grants from development banks could be affected, and trade relations would probably be seriously disrupted. Finally, the leaders of most of the debtor countries