Managing the less developed countries\u27 debt problem

The underlying problem in debt management has been the allocation of the global adjustment burden between the creditors and the debtors and to make them less sensitive to the colossal economic sacrifice attendant to the adjustment. The Brady Plan seems to strike a balance between the opposing interests of the parties involved. But the question of whether such a balance can be sustained in the long run is still open. All the debt management strategies evaluated in this work seem inadequate in so far as they could not abate the recurrence of the problem. But they nevertheless, appear to be the best that can be offered in the face of the reality of the world economic situation. The susceptibility of the Less Developed Countries (LDCs) to foreign indebtedness is rooted in the poor structure and relatively undiversified nature of their economies. Thus the economic growth of these countries seems a panacea to the debt problem. To this end, the LDCs have to ensure that their economies undergo vigorous economic reforms congruent with the present and prospective realities of the world economy, aimed at lifting supply constraints, attracting foreign investments and encouraging debt-equity swaps which seems to be making a considerable inroad to effective debt management in that it saves debtor countries steep foreign exchange commitment needed for international trade and debt servicing. The economic interdependence of nations makes the success of this strategy contingent upon a 3% minimum GDP growth rate in the industrialized countries to generate not only good market for LDCs’ tradeables but also to forestall exogenous factors that promote the recurrence of the problem. Clearly, this matter is not within the province of international law. The problem is basically economic and must be practically handled and resolved in the same context. In the context of the debt problem and management, international law cannot make possible what is economically impossible. Debtors are therefore advised to save themselves the problem of international indebtedness by matching expenditures with available resources at all times while the creditor countries themselves tamper their economic policies to check the exogenous factors which promote the recurrence of the problem