The West's response to the debt crisis of the Third World in the 1980's

Abstract

This thesis attempts to examine the debt crisis from a political and institutional perspective. Using the political-economy approach it reveals that the West's reaction to the crisis in international payments has not been an ad hoc process of "muddling through". Rather, it has been a carefully crafted response that has consistently put the interests of the banking community ahead of those of the debtor countries. The objective of this strategy has been to stabilize the international creditor banks by recycling LDCs' new loans back to the banks in the form of interest payments from debtor countries. In this way debts are serviced on time and banks avoid any major disruptions to their stock values or profit margins.

I have chosen the Banker and Brady plans and the International Monetary Fund to demonstrate the means by which the American have attempted to enforce their debt containment strategy. The Baker and Brady plans were diplomatic measures to renew voluntary lending to LDC's through stabilizing economies and sharing the burden of new lending between official and private lending institutions. The IMF's efforts to normalize and stabilize relations between debtor countries and their creditor banks have been an intrinsic part of the West's overall effort to maintain the flow of new capital to the debtor countries.

In conclusion, I suggest that debt and interest rate reduction must become the primary objective in the West's efforts to stabilize Third world debts. If it does not, the economies of the debtor countries will continue to erode as will their peoples' faith in their democratically elected governments.