Skip to main content

[Latin America's External Debt to the U.S. Banking Industry]

Published: Sep 11, 1984. Publicly Released: Sep 11, 1984.
Jump To:
Skip to Highlights

Highlights

A speech was delivered at a National Hispanic Heritage Week meeting which described Latin America's external debt to the U.S. banking industry. The external debts of developing countries have been experiencing unprecedented growth, countries which poses a threat to the stability in international economic and political order. Nearly one-half of the debt is owed by four Latin American countries. Furthermore, both the ratio of debt to exports and the ratio of interest payments to exports are substantially higher for Latin American debtors than for other developing countries. Debt service payments currently absorb 50 percent of export earnings for large Latin American debtors, and some countries have rescheduled or renegotiated their external debt. However, the external debt problem is being accentuated by trade protectionism in industrial countries, declining commodity prices, and rising interest rates. GAO stated that the role of the International Monetary Fund (IMF) should be enhanced under these circumstances. Some of the steps which could be taken include: (1) IMF tapping of private capital markets; (2) buying up problem loans at discount through the issuance of bonds; (3) debt restructuring on a long-term, fixed-interest basis; (4) the establishment of a multilateral insurance facility to insure bank loans against political risks; and (5) IMF arrangement of new commercial financing at lower interest rates. The long-term solution to the external debt crisis lies in promoting export earnings and the economic growth of debtor countries. Finally, GAO noted that the risk of an international banking crisis has been increased due to the likelihood of a Latin American borrower default.

Office of Public Affairs