ABSTRACT
When Mexico suspended debt service payments in August 1982, creditor countries, led by the USA, responded promptly. Animated by concern about confidence in the banking system, not mere solicitude for the banks, they extended large short-term credits to Mexico and then put pressure on the banks to reschedule Mexican debt and lend more to Mexico, once the IMF had endorsed the policies that Mexico would follow to deal with its problems. This was the birth of the case-by-case approach to the debt problem. It was predicated implicitly on the belief that debtors faced a shortterm problem arising from an unusual combination of world-wide recession and high interest rates brought on by a shift in the policy stance of the major industrial countries. On this view, it was eminently sensible for debtors to take on more debt temporarily in order to pay interest on their existing debts.1
