Jonathan David Aronson - Debt and the Less Developed Countries

Debt and the Less Developed Countries

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Westview Special Studies in International Economics and Business

Debt and the Less Developed Countries

edited by Jonathan David Aronson

Scholars and practitioners from the fields of economics, political science, sociology, and government discuss the nature and importance of debt in the international system and question whether international debt is a necessary element of international development or a potential root of international economic collapse (and of the demise of the dollar as denominator of the monetary realm). They then turn specifically to the impact of external debt on developing countries, exploring the potential for both positive and negative effects. In the final section of the book they look at the interactions between debtors and creditors when loans begin to sour.

Jonathan David Aronson is assistant professor of international relations and director of the Mid-Career Master's Program at the School of International Relations, University of Southern California.

edited by Jonathan David Aronson

Westview Special Studies in International Economics and Business

First published 1979 by Westview Press, Inc.

Published 2018 by Routledge
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Library of Congress Cataloging in Publication Data
Main entry under title:
Debt and the less developed countries.
(Westview special studies in international economics and business)
Bibliography: p.
1. Underdeveloped areasDebts, External. 2. Debts, External. I. Aronson, Jona
than David. II. Series.
HG4517.D36 336.3'435'091724 79-569
ISBN 0-89158-370-X

ISBN 13: 978-0-367-01503-9 (hbk)

For Zieb

He lived with passion and elegance, He cared for people and for justice, And he had the courage to try to help

It's a curious thing, this thing we call civilization.... We think it is an affair of epochs and of nations. It is really an affair of individuals.

William Dean Howells
The Rise of Silas Lapham

Debt's role in the transition from backwardness to dignity and appropriate development is subtle and complex. Too much debt or the inefficient use of borrowed funds can result in heightened dependence of less developed nations on their external creditors and to brutal and worsening inequity within those nations. Borrowed funds can also be used to build the structures needed to satisfy basic human needs and to make the dreams of people and nations a reality. Debt is neither inherently good nor bad. It is therefore desirable to examine the possibilities and the pitfalls that accompany the extension of debt to nations attempting to industrialize their economies and enter the modern world.

Debt and its relationship to less developed countries (LDCs) can be analyzed at several levels. Most straightforwardly, the magnitude of a single nation's or the world debt can be computed. Domestic and external debt can be compared and their relative rates of accumulation assessed. The sources and uses of funds can be categorized and the policies of official and private debtor and creditor institutions investigated. Past records of repayments and defaults can be noted and policies aimed to safeguard future debt servicing underscored. Such statistical and historical measures are the essential base from which political and economic analyses of debt and the developing countries must proceed.

A second level of analysis, too often ignored, focuses on the implications of expanding global debt, including LDC debt, for the stability of the world monetary system and for the growth and prosperity of the developed nations. The 1970s has been a decade of turmoil in the world monetary realm. The collapse of the Bretton Woods system has required a transition from fixed to flexible exchange rates. Inflation has become endemic throughout much of the world. The quadrupling of oil prices in the wake of the 1973 embargo sent bureaucrats scurrying to reconsider their overall growth strategies, created severe balance-of-payments discrepancies in many nations, and focused attention on the necessity of petrodollar recycling. Simultaneously, the Eurocurrency markets continued to expand, beyond the control of government regulators, at breakneck speed throughout the 1970s. Within this milieu, private banks became the major lenders to many of the wealthier non-oil developing countries, replacing governments and official institutions in this role. It is therefore important to consider the implications of debt for the stability of the entire monetary system and for creditors as well as for debtors.

A third perspective on debt and the LDCs requires a close study of the effectiveness of borrowed funds in helping achieve development objectives. Does the expansion of debt necessarily lead to fruitful improvements in the quality of life for the bulk of the population, or does debt exacerbate the divisions between the rich and poor in the dependent, developing nations? How could and should borrowed domestic and external funds be employed to improve the lot of people and nations? If debt is improving the welfare of the developing world, how might it be used more effectively and could more funds be efficiently used? If debt is creating growth without development, how might this situation be remedied? These questions are critical to understanding the role of official and private external debt in the process of development.