ABSTRACT
The total debt of developing countries, short and long term, stood at more than US$800 billion at the end of 1983, according to one estimate. Mexico was the second-largest developing country debtor at US$80 billion and with proven oil reserves of seemingly unlimited value. Interruption in debt service threatened to provoke systemic financial instability. The chapter examines the origin of the problem in the disequilibrium of the international economy in the 1970s and in the responsive domestic policies of the developing countries. It considers the possibility of industrialized-country recovery as a solution. The chapter aims to evaluate the adequacy of the existing institutional framework for coping with the debt problem, and the financial needs of the developing countries, in the medium term. More gradual, debt-financed adjustment was therefore attractive to many countries, an option rendered the more alluring by its cheap cost. Not all countries were eligible.
