NO TITLE AVAILABLE

Abstract

No assessment of new or recently re-established democracies in Latin America can overlook the threat to these regimes posed by debt service obligations that are often heavier and more durable than the reparations imposed on Weimar Germany. No discussion of the weakening of the liberal international economic order (the trend towards trade protection, chronic instability in currency and financial markets) can disregard the extreme pressures to export, to compress imports, and to conserve foreign exchange that shape the economic policies of the heavily indebted LDC nations. No analysis of the scope and limitations of monetary policy in the developed countries (and especially in the United States) will be complete unless it takes into account the consequences for the major banks of a sovereign debt exposure which remains even now very large in relation to shareholders' equity, and which still frequently appears in bank accounts at an unrealistically optimistic valuation. However, serious literature on the debt issue has tended to isolate specific facets of the problem, no doubt reflecting the academic background or the policy concerns of individual authors. Economists have written extensively about the 'adjustment' process by which the economies of indebted countries are expected to adapt to the abrupt reversal of net capital flows. Some of the implications for long-run develop ment strategy have been studied, and a great deal has been written about short-term macro-economic policy, especially concentrating on fiscal balance and export promotion. Much of this literature treats the individual indebted country as the unit of analysis. Of course international economists, also consider the 'problem of aggregation' that arises when a large number of countries simultaneously attempt the same policy switch (perhaps competing against each other for a relatively fixed supply of external assistance).1 Political scientists have also contributed to the case-by-case approach, notably by discussing the political constraints on 'adjustment' in individual countries, and sometimes by speculating on the longer term political consequences of protracted austerity.2 Perhaps the most interesting result of their discussion has been a negative finding?it has proved harder than expected to identify clear political constraints to even the harshest forms of economic adjustment; there is as yet no strong correlation between protracted austerity and political authoritarianism; popular protest against economic hardship has been less widespread and less effective than anyone would have dared to predict five years ago.3 But these are very tentative results and in any case they are muffled by the intricate particularities of each national experience. From the other side financial analysts have examined the predicament of the creditor banks, carefully considering not only the accounting and regulatory frame work, but also the diverse interests and rival bargaining strategies of different types of bank?large versus small; American v. European v. Japanese; official v.