Word: ldcs
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Dates: during 1970-1979
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OPEC Surpluses. The quickening flow of loans to those LDCS that do not produce oil is particularly bothersome. A study by Morgan Guaranty Trust Co. shows that net new international borrowing by these countries leaped by $109 billion from only 1974 through 1976. In all, the non-oil LDCS now owe about $180 billion. Such a huge expansion of overseas lending, mostly by private American financial institutions, heightens the possibility of a series of defaults that could cause panic to spread through international banking. So far, banks have managed to avoid this danger by renewing the loans or stretching...
Political Pressures. To keep this flood of cash moving and to make a profit, U.S. banks have been lending these funds to LDCs. But, Triffin believes, in taking on this responsibility the banks are making themselves too vulnerable to pressures from their oil-rich depositors. In any disagreement with U.S. policy, a bloc of OPEC nations could quickly withdraw its deposits, possibly leading to a dangerous disruption in the foreign exchange market...
...very least, more of the burden of lending to LDCs should be shifted to the World Bank and the International Monetary Fund. That, of course, would require additional funding by rich nations for these lending institutions. One major benefit of a strengthened IMF and World Bank: they could lay down loan conditions that would require borrowing countries to cut unnecessary spending and take other steps to reduce inflation...
Triffin's views are echoed by other critics. Congressman Henry Reuss, the influential Wisconsin Democrat who heads the House Committee on Banking and Finance, argues that the IMF should take over more of the burden of lending to LDCS from private U.S. banks. FRB Chairman Arthur Burns called on American banks to take a hard look at their overseas lending policies. Burns spoke of borrowings "that are uncomfortably large in relation to the debt-servicing capabilities of many countries...
...Harry Taylor, executive vice president of Manufacturers Hanover Trust: "Each lending bank regularly reviews conditions in a particular borrowing country and makes a decision about what the country's lending limit should be." Moreover, bankers point out, most of their loans are concentrated among richer and more productive LDCS where the risk of default presumably is lowest -such countries as Brazil, Mexico and South Korea. By contrast, countries like Pakistan, Peru and Ghana get little commercial-bank credit. Finally, bankers argue, a substantial cut in foreign loans now could lead to social and political disruption in some LDCs...