Third World Debt

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Abstract
The international debt crisis arose from imprudent borrowing, imprudent lending, and major shocks to the world economy from 1980 to 1982. The initial impulse in 1982 was to treat the debt problem as one of illiquidity and thus provide further lending while the debtor countries tried to adjust to the shock. This strategy produced massive recessions in the major debtors (mostly in Latin America) and led in 1985 to the Baker plan, the aim of which is to find ways to permit the debtor countries to resume growth while not defaulting on the debt. The Mexican case is highlighted.

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