Abstract
From the vantage point of 1988, the 1982 judgment that the troubled foreign country debtors had a liquidity problem, not a solvency problem, appears to have been fiction. The fact is that troubled debtors did not use productively the resources they borrowed. Further loans to them only add to the burden of their existing debt. Retaining the loans at face value on the books of the creditor banks is a fiction that financial markets see though. Intervention by regulators and international lending agencies has impeded bilateral bargains between the debtors and the banks.
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