LDC Debt: Beyond Crisis Management

Over the past year, the problem of the debt of less-developed countries has been of intense concern not only to the private banks which hold most of that debt, but to the governments of the LDCs and of the creditor countries and to the multilateral institutions that have had to play a major part in a well-coordinated initial set of measures to stem the problem and bring it gradually under control. These efforts remain of the utmost importance for the continuation of a worldwide economic recovery and for the stability and progress of the LDCs themselves.

This article focuses on the longer-term aspects of the problem. Its thesis is simple. It is that the real problem regarding LDC debt, in the long or even medium term, is the source of future credit for their imports of capital goods. In the absence of increased public money, new mechanisms are needed to assure access to private funds. There is an urgent need for a system which would have practical political appeal, and we believe that such a system should seek to mobilize support from the export sectors of the industrial countries through joint financing by the national export credit organizations, private commercial banks, and the World Bank.

In exploring the need for such a system, and its possibilities and potential difficulties, we shall briefly look first at the present situation and the measures now underway, then at the needs of the LDCs and the potential sources of future credit, and finally at what a joint financing mechanism might look like. Its aim would be to tap private funds on a new basis that would effectively meet the needs of the LDCs, especially for imports of capital goods, and thus contribute greatly to their resumed growth and to the welfare of both industrialized and developing countries.

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