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.
The problem for such countries is in a sense as if the U.S. Treasury suddenly found itself unable to borrow. And, at the same time, most countries of the area, both large and small, with a few notable exceptions, face extremely difficult economic problems. These stem in most cases from the combined effects of the international recession and domestic fiscal deficits, which in turn originate in part from overly optimistic projections two years ago of what would happen to the international economy. Since the Latin American economies have been the largest borrowers in the Eurocurrency market, from a wide array of international banks, their balance of payment and debt problems are not just regional questions, but raise issues of great international economic significance.
In the last ten years, the growth of the Euromarket-consisting in large measure of dollars outside of the U.S. monetary system-has been one of the major developments of the international economic scene. World inflation and the need to "recycle" OPEC surpluses have greatly stimulated international lending, mostly from the Euromarket. Lending to developing countries, particularly the resource-rich and economically more advanced ones, absorbed roughly half of this lending-and in turn two-thirds of
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