Debt and the Banks: Rescuing the LDCs

During the past year a great deal of attention has been devoted to the accumulation of debt by the less-developed countries (LDCs). One recent publication estimated that the long-term public debt of 86 LDCs (including undisbursed amounts) exceeded $200 billion at the end of 1976; and that short-term and private debt amounted to another $50 billion for a total of $250 billion.1 Another publication estimated that the combined long-term, short-term, public and private debt of the non-OPEC LDCs (not including amounts undisbursed) would total $180 billion at the end of 1976, of which $75 billion was owed to commercial banks.2 About $45 billion of this is said to be held by the U.S. banks. These figures are generally 20 to 25 percent higher than comparable figures for 1975; indeed, they have been growing at such rates or higher ones since 1973.

For the first time in many years, a large number of people have begun to worry whether the countries could service all of the debt they are incurring and whether the banking system, particularly the large, international U.S. banks, could go on accommodating their increasingly strained financial position. One can reach different conclusions on this issue by pointing to different factors.

Those who are relaxed on the subject, including most of the largest banks, point to historical experience and case-by-case considerations. They note that very few losses have been incurred up to now in LDC lending, though billions have been written off in domestic real estate, corporate and personal loans. They note that the debt servicing burden of LDCs is proportionately not much greater today than five years ago. They show important distinctions within the total figures: some of the debt is short-term and self-liquidating; some is guaranteed by the Export-Import Bank (Eximbank) or its European or Japanese counterparts; much of the balance is guaranteed by or loaned to sovereign governments in the upper tier of the developing world. While certain problem areas can be identified, they are a small fraction of the total picture.

Register for free to continue reading.
Registered users get access to two free articles every month.

Or subscribe now and save 55 percent.

Subscription benefits include:
  • Full access to ForeignAffairs.com
  • Six issues of the magazine
  • Foreign Affairs iPad app privileges
  • Special editorial collections

Latest Commentary & News analysis