ABSTRACT
Attitudes on LDC debt are changing. In the first years following Mexico's dramatic financial collapse in the summer of 1982, mainstream opinion in the banking community and capital-market countries, as well as at the multilateral credit agencies (the IMF and World Bank), remained adamantly opposed to any form of direct relief for heavily burdened debtor nations. Third World debtors were effectively illiquid, we were told, rather than in some sense insolvent. Their long-term ability to service external obligations was, in most cases, fundamentally unimpaired; their liabilities were inherently sound. The problem was simply to give LDC governments the time and encouragement needed to institute appropriate economic policy reforms at home while continuing to maintain full interest payments abroad. Assistance should be limited, at most, to periodic debt reschedulings plus some new lending in selected instances –all carefully tied to policy conditionality, administered formally or informally through the IMF and World Bank. The view was institutionalized in the multilateral debt strategy that has framed creditor-debtor relations throughout the decade – defended by its proponents as the only viable route back to creditworthiness for LDCs and denounced by its critics as little more than muddling through.
