ABSTRACT
The arguments of the 'liquidity school' which dominate official policy will be contrasted with those of the 'solvency school' which call for a more interventionist stance on the part of the international financial institutions. The 'liquidity school' approach can be characterized as a 'reactive' one: initiatives and reforms being taken only after the need for them is clearly established. Many critics hold that the debt crisis is one of solvency rather than liquidity, pointing to the unprecedented debt-servicing burdens to support their argument. Many advocates of debt recycling and debt relief see their proposals as prescriptive initiatives to deprive debtors of what Kissinger has termed their "capacity for blackmail." The emergence of the debt problem as a serious threat to global stability and the widespread crisis conditions in the Third World at this time, seem too many observers to provide a compelling case for the urgency of reform of the international monetary system.
