International Lending to the Third World

The main emphasis of this paper is on the debt repayment difficulties experienced by the Less Developed Countries (LDCs) in the 1980\u27s. These difficulties are a result of a combination of factors which have led to large accumulations of debt in these countries. The outstanding debt of the LDCs increased from $152 billion in 1975 to $850- $875 billion in 1985 (Meltzer, 1987). According to Dale and Mattione (1983), the major reasons country borrowers pursue foreign loans are: (1) Such loans allow both governments and companies to finance investments that will increase income or exports; (2) Foreign loans offer countries flexibility in their attempts to smooth the adjustment to permanent or temporary changes in economic conditions; and (3) Governments may borrow for political reasons, such as to retain or consolidate power. In all these cases, these countries can borrow against the capacity to pay out of future income and exports