The International Debt Problem, Insolvency, and Illiquidity: A Policy Proposal

The total volume of international debt of developing nations rose from about $340 billion in 1978 to about $640 billion in 1982. This increase of almost 90 percent over four years, even after adjustment for world inflation, has outpaced the debtor nations1 real growth. Interest payments measured in current dollars exploded from about $20 billion to approximately $66 billion over the same period. A marked increase in the average rate of interest payable on outstanding loans, reflected in a more than 300 percent rise of interest payments compared to the 90 percent increase in debt, aggravated the debtor nations1 real debt burden. Over the same four years the proportion of international reserves to imports of developing nations fell from 27 percent to 17 percent.