N.I. Issue No 69: November 1978
Default, the nightmare word for international bankers has again crept into the conversations of the big money men from New York, Bonn, London and Zurich. Since 1973-74 the multinational banks have been madly peddling their re-cycling machines to keep the billions in OPEC oil dollars that are invested with them flowing through the world’s financial system. Third World countries without oil income have borrowed a lot fo the famous petrodollars to pay the rising import bills for oil and Western manufactured goods, and to meet the interest payments on previous loans. In the process Third World debt has risen to dizzying heights. No one knows the exact figures. But Irving Friedman, former Third World trouble-shooter for Citibank (one of the world’s largest multinational banks) says the total private and official Thud World debt is between $400 and $450 billion. Although international bankers flush with OPEC deposits want to invest quickly, the prospects are discouraging. Many of the smaller and poorer Third World countries can only stagger from loan to loan, paying off in dribs and drabs and re-scheduling the rest: hardly prime investment targets. Western countries too have been heavy borrowers. But with a recession snuggling in for the winter the bankers will find a shrinking loan market in Europe and North America.
The largest Third World countries with industrial clout - like Brazil, Mexico, Indonesia and Malaysia - owe the international banks so much that neither side can afford to relax. The banks daren’t stop lending to their biggest debtors in case past loans to into default, sending the whole international economic system into a tail-spin.
Rather than float new loans to highrisk debtor nations the banks would like to see more lending by the International Monetary Fund (IMF) and the World Bank. The IMF in particular is being urged to become more active in financing balance of payments deficits. With the IMF’s funds acting as a financial backstop, the banks’ loans would be virtually guaranteed and the risk of default lessened. For the international banking community it would be the perfect solution: using public money as a safety net for private investment and profit.
The IMF has expanded dramatically over the last few years. After an increase in member nations’ donations this year, the Fund will have more than $30 billion on tap for loans. But it will have to double in size if the global bankers shifted their burden onto its shoulders.
In 1980 Brazil faces a balance of payments gap of $12 billion; Argentina $2.7 billion; Turkey $2.5 billion; Thailand $2.4 billion; the Philippines $2 billion and South Korea $1.7 billion.
Whether the Third World is ready to accept the still conditions attached to IMF loans is another question. If they do, it will lead to severe reductions in living standards for the poorest 40 per cent. And if the social upheavals that accompany IMF conditions for government cut-backs are not to spoil investment ‘security’, we may well see more of the Third World military stepping in to ensure the bankers get their due.