The Debt Crisis and the Poor

The current economic crisis is global in nature and is not to be explained simply by mistakes made by borrowing countries or by lending institutions. That is not to say that some governments were not imprudent or that some banks did not make foolish loans, but the essence of the problem arises from the unsatisfactory performance of the world economy rather than from excessive international lending and borrowing. It is deplorable that part of the foreign debt has been used to finance a boom in imported consumer goods (as in Chile), or to pay armaments (as in Argentina) or to facilitate capital flight (as in Mexico), but borrowing for such purposes was not the cause of the crisis. The cause lies elsewhere. Indeed, had the commercial banks been incapable of lending the surpluses generated by the major oil-exporting countries and had other countries been unwilling to borrow abroad in order to maintain their capacity to import, there would have been a sharp decline in aggregate demand at the global level and the worldwide recession would have been even worse than it is.