The Debt Crisis and the World Economy
Report by a Commonwealth Group of Experts
‘The message is clear. The present situation is not sustainable. The world’s financial safety is balanced on a knife-edge... There is no room for complacency. We sense rather that a recognition of the gravity of the issues and of the dangers posed by the debt crisis in an interdependent world is growing. Full expression is not always given to this recognition, perhaps because of fear seeming to aggravate matters. But the situation has now been reached where collective determination to take action is imperative. The knowledge that such determination has been mustered will itself be a factor for greater sustainability.’ – From the Report.
‘The capacity of developing countries to comply with demands by the IMF and banks for austerity measures has political limits. In the final analysis, these limits are represented by unrest and the threat of revolution. Before that point is reached, debtor countries will obviously refuse to meet the terms and conditions of contraction demanded of them; there is growing evidence that that point is fast approaching.’ – From the Foreword by Commonwealth Secretary-General Shridath Ramphal.
‘The capacity of developing countries to comply with demands by the IMF and banks for austerity measures has political limits. In the final analysis, these limits are represented by unrest and the threat of revolution. Before that point is reached, debtor countries will obviously refuse to meet the terms and conditions of contraction demanded of them; there is growing evidence that that point is fast approaching.’ – From the Foreword by Commonwealth Secretary-General Shridath Ramphal.
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Survey of the Debt Problem
The immediate causes of the present debt crisis lie in the onset of the recession from 1980 onwards in the industrial countries and the associated rise in interest rates. The seeds of the problem were already present, however, in the events following the first oil price rise of 1973-4, the explosion in the current account deficits of the non-oil developing countries and the financing of these deficits by private banks. The main burden of the counterpart deficits to the surpluses of the oil-exporting countries was shifted quickly from the industrial countries which were the major oil importers, to the non-oil developing countries.
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