What About the International Debt Crisis?

Abstract

Two international debt problems threaten the capitalist world — one is associated with the liabilities of Less Developed Countries (LDCs), especially those of Latin America, and the other involves the obligations of the world’s largest debtor, the United States. These two debt situations are, in one sense, unrelated in that they developed at different times and for different reasons. The Latin American debts of both oil producing and oil consuming LDCs are essentially the result of the oil price explosions of the 1970s; while the United States debt is primarily due to the Reagan recovery from the Great Recession of 1979–82 and the continued role of the US as the engine of growth for the free world. But in a more fundamental sense, these twin debt situations are inextricably tied together in that (a) they threaten the very viability of the international financial community and (b) their resolution will require innovative and unorthodox policies.