Pedro-Pablo Kuczynski

The debt containment policy conceived in 1982, under which repayments were financed by the creation of trade surpluses, has run its course. The question now is not only whether the big debtors will pay, but where the money will come from. There is an urgent need for innovative financial mechanisms. The new strategy should include economic reform in debtor countries, new capital in-flows and, if necessary, workable formulae for interest deferral.

The music has stopped. In August, Mexico, the largest single recipient of Eurocurrency bank credits in recent years, announced that it could not for the time being meet its scheduled repayments of principal on the external debt of the public sector. Service on the Mexican private sector and banking system debt is sporadic or interrupted because of the shortage of foreign exchange. Argentina has in effect been unable to meet its scheduled debt service since the time of the South Atlantic conflict. And, since mid-1982, international bank lending to Latin American countries has all but ground to a halt. As a result, Brazil may find it very difficult to meet its scheduled debt service, since, like the other countries in the area, it needs a constant inflow of funds to pay off old debt.