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International payments imbalances in heavily indebted developing countries

  • Economics


International Payments Imbalances in Heavily Indebted Developing Countries Internatfonal Payments Imbalances in Heavily Indebted Developing Countries Norman S. Fieleke* For combined threat and tenacity, few economic problems compare with the developing-country debt problem. When the Mexican pay- ments crisis erupted in August 1982, it was the immediate threat to the stability of the international financial system that concentrated the minds of policymakers, at least in the creditor countries. However, the general hope, if not the expectation, was that the severity of the threat would diminish fairly quickly as the developing countries "adjusted" their economies, with the assistance of debt rescheduling and some new lending, so as to restore their creditworthiness and economic growth. Indeed, the threat has diminished, but not because of successful adjustment or restoration of creditworthiness in heavily indebted devel- oping countries. The threat to the financial system has eased as commercial banks have sharply reduced the share of their assets and capital exposed to the troubled debtor countries. The countries them- selves are no better off, however. The difficulty of the adjustment confronting the 15 heavily indebted countries--the tenacity of the debt problem--was generally under- estimated.i This paper analyzes the nature of the adjustment that has taken place between 1982 and 1987, and, after considering some indexes * Vice President and Economist, Federal Reserve Bank of Boston. Helpful comments were received from Michael Dooley, Steven Kamin, and Henry Terrell, but the author remains responsible for the deficiencies in this paper. Valerie Hausman provided compe- tent research assistance. 1 U.S. Treasury Department staff report that the "Baker 15" were selected as the 15 countries with the largest external debts, with debt owed primarily to commercial banks and also requiring rescheduling. They are listed in table 3. IMBALANCES IN DEVELOPING COUNTRIES 59 of creditwo

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