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Life After Debt
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17181 |
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Section : |
MODERN THOUGHT
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| Issue
Date : |
12 / 1990 |
2,643 Words |
| Author
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Norman A. Bailey
Norman A. Bailey joined Mobil Oil Corporation as an economist
and then founded and served as president of Overseas Equity,
Inc. This firm merged with another investment bank to become
Bailey, Tondu, Warwick and Co. Simultaneously, he was
professor at the City University of New York.
In 1981, Bailey joined the Reagan administration as the
director of planning and evaluation for the National Security
Council. He was later appointed special assistant to the
president and senior director of international economic
affairs at the White House.
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The twofold purpose of this essay is to briefly review the evolution of what is commonly referred to as the debt crisis and to offer a projection of the future of relations between creditors and debtors and to determine relevant policy implications.
The debt crisis is a catchall term for a course of events that can be conveniently divided into four phases. It is often unrecognized that the first phase took place before this phenomenon came to the world's attention in August of 1982. During the 1970s the collapse of the international monetary system and two oil-price shocks (1973 and 1978/79) released a flood of rootless financial liquidity. The force of this inundation made its impact by 1980 and crested in 1981 and 1982. Combined with the Federal Reserve - induced recession of 1980 - 82, this process left in its wake a steadily widening circle of debtors and creditors in a badly overextended position-starting in Eastern Europe and quickly spreading to Latin America and elsewhere. Poland was actually the first country in which it became manifest during the spring of 1981.
Most economic observers and governments failed to appreciate the dimensions of the problem or its policy implications. In particular, the U.S. government adopted an attitude that was characterized by the following elements:
· An unwillingness to believe that bankruptcy would spread beyond Poland - and later, that it would spread beyond the progressively affected countries of Eastern Europe.
· A resultant refusal to engage in contingency planning of any kind.
· A preoccupation with domestic events and policies, especially the domestic economic and financial effects of the Federal Reserve's disinflationary program.
· Extreme hostility toward international financial institutions and their funding requests, especially with respect to the IMF.
· A refusal to recognize or consider the possibility that anything was wrong with the international monetary system.
· An inclination to politicize the crisis, facilitated by the fact that it was at first centered in communist Poland - which, at the time, was experiencing social and political upheaval and was later placed under martial
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