the international debt crisis.
THE ORIGINS OF THE INTERNATIONAL DEBT CRISIS
The less developed countries (LDCs), on the one hand, and the U.S., on the other hand, came to the status of debtor countries by different routes. In the 1970s, the LDCs required capital for development, and they had populations clamoring for some of the economic benefits enjoyed by the residents of the developed countries. At that same time, commercial banks in the developed countries were awash in money. The successful strategies of the organization of Petroleum Exporting Countries (OPEC) in the 1970s has resulted in the transfer of enormous volumes of money from the developed countries to the OPEC countries. The OPEC countries required safe havens for their newly acquired capital, and banks in the developed countries provided those havens. The banks in the developed countries, after acquiring the OPEC money, needed borrowers for massive amounts of capital. The union of OPEC money and LDCS, with western banks as marriage broker, thus, appeared to be heavenly sent. The banks, in their eagerness to loan money, made the most optimistic assumptions possible with respect to sovereign risk, with the result that (1) they loaned too much to risky borrowers, and (2) many countries borrowed too much. OPEC, all the while, was relatively safe, because (1) the western banks were responsible for OPEC money invested with them, and (2) LDC obligations were to the western banks. In their eagerness to earn a fee, the western banks, as marriage broker, assumed responsibility for the success of the marriage of OPEC money and LDC borrowing.
The IMF is extensively involved in the LDC external debt crisis. The organization has created special facilities, which deal primarily with LDCS. These facilities are as follows:
1. The extended financing facility was created in 1974, to provide for loans larger than tranche quota loans, and to provide for longer rep...