The International Debt Crisis

The current international debt crisis formally began on Friday, 13 August 1982, when the Mexican finance minister journeyed to Washington to announce that his country could not continue to service its foreign debt as originally contracted. In the months that followed, many other Third World nations followed suit, mainly in Latin America and sub-Saharan Africa. Although by many measures the African countries suffered more under the debt burden, the Latin American region was of greater immediate concern to policy makers. On the one hand, Latin America's debt (US $333 billion as of end-1982) was almost five times that of sub-Saharan Africa ($70 billion). ¹ On the other hand, Latin America's debt was largely held by private banks, while Africa's was almost all owed to official (bilateral and multilateral) creditors. These differences meant that Africa's debt was more ‘manageable’ from the viewpoint of policy makers in the advanced industrial countries and multilateral agencies. Thus the notion of a debt crisis came to focus primarily on Latin America and a handful of countries from other regions. ²