Structural Change of International Capital Market Flows in a Historical Perspective

Over the course of this decade, the international financial system faced shuddering shocks from the external debt problem of developing countries. According to the World Bank estimate, their external debt amounted to over 1 trillion dollars by the end of 1986. I should mention here that the accumulating process of external debt of developing countries is closely connected with the international banking activities which were carried on in Eurocurrency markets from the late 1970s to the early 1980s, and the debt problem is inseparably interwoven with a structural change of international fund flow in today’s world financial markets. The net external debt position of the US most symbolically indicates a change of international fund flows. The US, whose currency the dollar has been a unique international key currency over the decades after the Second World War, changed its net international investment position to a negative figure of 107 billion dollars during 1985.1 Until recently, the external debt problem has been discussed only as a matter between the lending creditor banking concerns and debtor countries. This attitude was derived from the practical needs of banking business management: how to evade the country risk; how to treat demands of rescheduling from debtor countries; and how to restructure banking balance sheets. Certainly, these practical prescriptions are very urgent and important, but there remains a wider area to be studied on the relation between indebtedness and the system of international financing. In other words, the international financial system is the basic framework where international banks have lent money and the indebtedness of LDCs has overgrown.