The Debt Crisis: A Post Mortem

In the first part of the paper I calculate the returns on developing countries' debt obtained by their (private and public) creditors (when taking account of the transfers already generated and of the liquidative value of the debt) and show that they are satisfactory. I then evaluate the conflict of interest between private and public creditors and assess the role of the Brady Plan as a vehicle to achieving a `grand settlement' of the debt crisis. I argue that they are not as satisfactory. In the second part of the paper I show that the group of reschedulers did suffer from lower growth in the 1980s, but I also show that their rate of capital accumulation did not accelerate in the years before the debt crisis. I evaluate the extent to which sovereign risk, rather than low returns, explains the failure of foreign finance to accelerate capital accumulation in the large debtor countries.