van B. Cleveland, Harold; Brittain, Bruce
July 1977
Foreign Affairs;Jul1977, Vol. 55 Issue 4
Since 1974 when the oil crisis hit and the world recession began, a number of developing countries that do not export oil non-oil LDC's have been hot towing heavily in the international credit markets. Surprisingly, private banks, international agencies like the International Monetary Fund, IMF and the World Bank, have underwritten most of this massive debt buildup, as the table on page 734 shows. And this shift from traditional to non-traditional sources of financing, along with the sheer magnitude of the borrowing, has led to criticism of private banks for then handling of the situation. Banks, it is said, have overextended themselves in lending to LDC's. They have made bad loan decisions and are now being forced to absorb still more LDC debt in the hope of salvaging earlier credits. Major U.S. and European banks will therefore experience large losses on LDC loans, which would lead to a general financial crisis rio forestall that danger, official agencies should intervene to help reschedule loans. Henceforth, private bank lending abroad should be subject to closer official supervision and, in many cases, public lending should supplant private lending.


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