ABSTRACT
Medium and long-term lending to countries places the entire stability of the international banking system at risk should any one major borrower default. The banks are encouraging countries to finance their deficits instead of adjusting to them by means of demand management. Borrowing from the banks enables adjustment to take place over a longer period - between five to fifteen years – and with less disruption to the economy. With respect to maturities, one cannot contend that the commercial banks are able to offer maturities comparable to those of bilateral aid donors and the international development agencies. Banks are only one source of such borrowing, others include suppliers credits, and even World Bank loans are linked to commercial rates. A return to a more active role by the Fund, a greater volume of programme-lending by the World Bank, and larger flows of bilateral aid would all be welcome developments by easing the pressure on the banks.
