chapter  8
33 Pages

Exiting the Third World Debt Crisis

WithRaúl L. Madrid

The efforts of US banks to reduce or convert their Third World loan portfolios have been an important part of the banks’ strategy to protect themselves against long term loss since 1987. The Brady plan expanded and institutionalized the banks’ efforts to reduce or convert their Third World loan portfolios. Banks began to sell and swap their Third World loans at the first sign of debt servicing difficulties in the developing nations in the early 1980s. Regional banks typically undertook swaps in order to consolidate their Third World exposure into a few large countries. Some regional banks also swapped their Third World loans for bad domestic real estate loans or credits to troubled companies closer to home. The amount of loans sold by US banks remained small in proportion to the banks’ Third World portfolios, however. Many banks remained confident that the debt crisis would eventually be resolved to their satisfaction.