Are the LDCs in over their heads. [Review of debt-servicing and borrowing problems]
Heavy borrowing on the part of non-oil less-developed countries (LDCs) raises questions about the lending and risk-taking practices of international banks and about future high demands for foreign loans. International banks with a balanced loan portfolio are generally cushioned against the risk of loss from unpaid loans and have premium interest rates for high-risk loans to provide insurance against loss. Measures to protect capital also include rescheduling debts to delay repayment. The rapid rise of LDC indebtedness is credited to a combination of high oil prices, recessions in the developed countries, and over-ambitious domestic policies. Results of economic modeling indicate a future decline in LDC debts relative to their gross national product and reveal that domestic economic policies have no significant impact on current account balances. A policy of gradual stabilization, based on depreciating exchange rates to eliminate deficits, would cause only a temporary slowdown but no effect on real growth or employment level. (DCK)
- Research Organization:
- Citibank, New York
- OSTI ID:
- 7321644
- Journal Information:
- Foreign Aff.; (United States), Journal Name: Foreign Aff.; (United States) Vol. 55:4; ISSN FRNAA
- Country of Publication:
- United States
- Language:
- English
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