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PASTOR GENERAL'S REPORT, JUNE 10, 1983
PAGE 12
The "Second Wave" of World Debt Crisis
World bankers and economists are fearful now that the world debt crisis,
which lept into the headlines last year with the near bankruptcy of Mexico,
is heading into a new more fundamentally disturbing phase. The patchwork
rescue operations arranged in 1982 are coming unglued. The problems of
some debtor nations are so deep that long-term solutions seem unreachable-
short of social chaos in some countries should they try to live up to con
ditions for new loans. Here, from the June 8 WALL STREET JOURNAL is a back
ground piece on "The Second Wave":
...Discussions during recent weeks with bankers, economists and
government officials indicate a growing uneasiness [over the in
ternational debt crisis]. Many of them predict serious financial
troubles in additional countries, perhaps Nigeria, Venezuela and
Colombia. They note that some countries, Brazil and Chile for
example, haven't been living up to IMF (International Monetary
Fund ] agreements, thus endangering the IMF's credibility with
lenders. And they worry that efforts so far have only papered
� the problem� the long-term strategy they hoped for hasn't
materialized.
The result, these experts say, is that� second debt crisis, or
"second wave," is beginning, and is likely to become more pro
nounced soon. The second� is simply defined as what happens
when the initial rescue packages fall apart. Several countries,
including Argentina and Brazil, already can't make some of their
interest payments••.• Some financial experts fear that developing
countries will have to cut back even more on imports because they
can't get cash. That could further deepen the recession in these
countries, hindering world trade and slowing any international
economic recovery•...
Perhaps the most dangerous, and unpredictable, aspect of the
second wave is its potential for undermining confidence in the
world's ability to get out from under the debt crisis.
As
bankers watch these carefully constructed packages grow shaky,
they become increasingly reluctant to participate in future pack
ages, and their fears may turn into self-fulfilling prophecies.
It is all a far cry from the optimism that prevailed a few months
ago when the international financial community pointed with pride
to the effectiveness of its strategy•••• ( Mexico received various
loans totalling $10.5 billion.] All seemed to be going smoothly.
Only in the last month or so have several of the rescue plans
begun falling apart. Among the elements of the second wave:
--Brazil, the most indebted of the developing countries, with
debt approaching $90 billion, is trying to convince the IMF that
it is complying with its IMF agreement, although most outside ob
servers are skeptical. The country is nearly $1 billion behind
in its payments to foreign creditors. Many creditors believe
that it will need between $1.5 billion and $4 billion of new
money this year, on top of the $4.4 billion that banks already
have agreed to lend it••••