Transnational Bank Lending, Debt and Balance of Payments Deficits in Third World Countries

Abstract

ABSTRACT This paper attempts to dispel several commonly held misconceptions concerning the nature and origin of the current LDC debt crisis. It examines bank debt patterns and the relationship between debt and balance of payments deficits in a group of major debtor countries. The issue of financial transfer, the role of debtor country policies, and the stabilization role of bank finance are also addressed. Given the “rules of the game” which have governed bank lending to LDCs and the insufficiency of official international stabilizing mechanisms, the international community should not have assigned to the banks such a prominent role in the international payments adjustment process. The major debtor countries were likewise illadvised to have made transnational bank finance such a key ingredient in their development strategies.