International Debt Crisis

An external deficit develops for a country when the claims of foreign entities on the country's economy exceed the claims of entities in that country on the economies of other countries. A country's external debt is comprised of loans to both government and private sector organizations in the country. Loans to government entities involve sovereign risk, while loans to all other entities involve enterprise risk.

Loans involved in a country's external debt are extended by other governments, by international organizations (primarily the International Monetary Fund (IMF) and The World Bank), and by private sector lenders in other countries (primarily banks, but also by investors who buy bonds and other debt obligations). The International Monetary Fund (IMF), however, plays a special role in this loan activity, because it, for the most part, establishes the rules of the game for all parties, as well as extending loans on its own (Grosse & Kujawa, 1988, p. 174).

The world's press provides a continuing stream of reports relative to the external debt of developing countries. Little has been reported, however, on (1) the emergence of the United States (U.S.) as a debtor nation in 1985 (Rubenstein, 1988, p. 14), (2) the growth of the American external deficit to the point where the U.S.

. . .
en weaker in the face of continuing trade deficits, the Federal Reserve must either make massive interventions in the international currency markets, or it must further increase real interest rates. Although real interest rate increases would be welcome by foreign investors in corporate bonds and U.S. Treasury instruments, they would also tend to dampen the country's economic performance. Thus, with respect to the value of the dollar and interest rates, the U.S. finds itself, so to speak, between a rock and a hard place. At the beginning of spring in 1990, the American dollar is strengthening against the yen and the mark, and the major result is a worsening of the country's international trade deficit. THE STATUS OF EXTERNAL DEBT Most of the world's developing countries have a net external debt in 1990. Some of these countries, however, have a much larger external debt than do others. Table 1 presents the external debt for those developing countries whose net external debt exceeds US$20 billion. As the data presented in table one indicate, there are 14 LDCs with net external debts in excess of US$20 billion. The largest external debt among the LDCs is that of Brazil, which is nearly US$107 billion. In order to assess
. . .

Some common words found in the essay are:
Federal Reserve, Conditionality IMF, Countries OPEC, World Bank, Deficit Change, Trust Fund, Advisors CEA, Eighth Round, GNP Five, Grosse Kujawa, external debt, developing countries, external deficit, trade deficit, american external, american economy, balance payments, american external deficit, federal reserve, international trade, monetary fund, international trade deficit, international monetary fund, debt developing countries, external debt developing,
Approximate Word count = 4518
Approximate Pages = 18 (250 words per page)

More Essays on International Debt Crisis