A Retrospective on the Debt CrisisIn 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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academic analysis Analytical literature Baker Plan bank debt Bulow and Rogoff buy-back capital flight collateral commercial banks concerted lending conflict contracts contractual value country risk credit risk creditor countries creditor governments currency debt crisis debt facility debt Laffer curve debt overhang debt prices debt reduction debtor countries debtor governments default developing countries dollars domestic economic performance ex post existing creditors existing debt expected value external debt Federal Reserve financial intermediaries floating rate loan gopher at nber.harvard.edu governments of industrial Historical review important industrial country governments instructions inside interest payments international lending International Monetary Fund investment lenders lending to developing LIBOR list of NBER loans to developing loss market price market value NBER Working Papers negotiations official creditors official debt Oil exporters Options Papers and Reprints Partial Subscription Policy private capital inflows real interest rates residents of developing secondary market side payments sovereign debt tax rate value of debt