B. Reimer and M. R. Sesit, "The IMF is less and less able to stop the bleeding," BusinessWeek, October 10, 1983, p. 28.

The Main Point

The article argues that the debt crisis will continue into 1984 and the odds are the crisis will not be solved.

Summary

The world will continue to muddle through the crisis with a combination of emergency financing, austerity at the IMF, creative accounting and massive debt rescheduling. The authors think that 1984 may be a year of massive debt write-offs and ensuing bank losses.

The authors debunk the optimism of the U.S. Treasury Secretary, who thinks that world recovery will solve the crisis. Three indispensable conditions for managing the crisis are unlikely to be met. They are: 1)sustained economic growth 2) steadily falling U.S. interest rates and 3)willingness of banks to provide billions in new loans. They doubt U.S. rates will fall enough and think that it would take a growth rate of 7% for 5 years for countries to export out of the crisis. Also exports have been hurt by growing protectionist pressures.

Everyone had greatly underestimated the borrowing needs of developing countries. To cope with this strain on the IMF, ideas are being thought up to help get through the next year. Among them include using more bilateral trade agreements, insuring bank loans against political risks, expanding the IMF’s ability to allocate additional resources to developing countries by providing more special drawing rights and letting the IMF borrow in private capital markets.

 Summary by N. B. SCHWELLENBACH