chapter  2
13 Pages

Global Roots of the Lending Boom

WithRaúl L. Madrid

The lending boom of the 1970s was made possible by radical changes in the global economic environment. The seeds of the Third World lending boom of the 1970s were planted not in Latin America where they would blossom several decades later, but in New York, Paris and Beijing. Banks had little difficulty in satisfying the countries’ enormous financing needs because of another change in the global financial landscape—the emergence of the Eurocurrency market. The oil price shock also helped give birth to the lending boom by stimulating the demand for foreign credit among the developing countries. The foreign financing needs of developing countries had been rising even before the oil shock jolted their economies. The demand for foreign credit among the developing countries accelerated even faster after the price of oil began to rise sharply in late 1973. The oil price shock also hurt the non-oil-producing developing nations indirectly, by drying up their export markets.