In spite of persistent crisis management, the world-wide debt crisis still threatens the international financial markets. The developments in Eastern Europe indicate that a new potentially explosive debt crisis has arisen. The major cause of the current debt crisis was the sharp rise in oil prices in 1973/74. The export revenues of the oil exporting countries were deposited with commercial banks and boasted the liquidity of the international banking system. Interest rates were subject to pressure. The developing countries took the apparently easy option of resorting to cheap foreign loans in order to meet their growing financial requirements. The restrictive monetary policies subsequently introduced by the industrialized countries led to a radical change in the situation of the developing countries. Due to the rise in interest rates, their debt service payments increased by more than one half (to a total of US$ 50 billion) within the space of a mere two years. The growing recession and the subsequent fall in the prices of raw materials immediately reduced the export revenues of the developing countries. In the period 1984 to 1989 their net losses (net financial transfers) amounted to $ 168 billion. By contrast, the developing countries had earned surpluses in the region of $ 12 billion between 1980 and 1983. The attempted solutions can be divided into four stages. Firstly, rapid financial aid was required in order to prevent the collapse of the international financial system. Secondly, rescheduling and stabilization agreements were concluded with the debtor countries under the leadership of the International Monetary Fund. Thirdly, the Baker Initiative aimed at solving the debt crisis by means of economic growth and increased export revenues. Fourthly, the Brady Initiative raised hopes that the crisis could be solved by means of extended debt relief. However, none of these attempted solutions has succeeded in defusing the debt crisis. In the 1990s the political and economic stability (both domestic and external) of the developing countries will depend on a policy mix consisting of – a general improvement in the condition of the world economy, – debt relief, – external financial aid, – energetic efforts on the part of the debtor countries. The most important prerequisite for solving the debt crisis is higher economic growth among the industrialized countries. A decisive impetus could derive from a sustained fall in world-wide interest rates. The debtor countries would benefit in two ways: their export opportunities would improve; and their debt servicing burden would be reduced. A further prerequisite is an increase in the global supply of capital. As the world-wide savings ratio is unlikely to rise, another possibility for increasing the supply in capital would be to grant Special drawings rights. Other necessary measures for defusing the debt crisis are the partial relief of outstanding debts and continued external financial aid. The measures must be backed up by convincing and sustained efforts on the part of the debtor countries. In short, the international debt crisis can be solved only by means of concerted action on the part of all the organizations involved in the debt management process.
