Debt and danger: The world financial crisis Harold Lever and Christopher Huhne Penguin books ltd., London, 1985, 160 pp.
| Date | 01 October 1987 |
| DOI | http://doi.org/10.1002/pad.4230070417 |
| Published date | 01 October 1987 |
| Author | R. G. Ware |
412
Book
Reviews
interest; e.g. the international monetary system, GATT, sanctions, peacemaking (both
emotional enough, perhaps) and again the Cinema. It is to be hoped also (and this is
certainly the wish of the editors) that there will be more contributions from the Third
WorlcCthe great majority (reflecting maybe the present imbalance
of
academic interest
and resources) of the current contributors either come from,
or
are at present working
in,
the developed world.
Third World Affairs,
1986
is a real bargain at only
f20;
it will repay careful study by
expert and student alike. The more general reader will find it interesting and rewarding
browzing; but
if,
guided by the excellent introduction, he cares to apply
his
mind to it, he
will
also learn more about, and perhaps be inspired to try to support, the other objectives
of the Third World Foundation, namely to assist
in
the evolution
of
a fundamentally just
and equitable relationship between the Third World and the developed countries and to
create greater awareness of the causes
of
poverty
in
the Third World. SIR NICK LARMOUR
DEBT AND DANGER: THE WORLD FINANCIAL CRISIS
Harold
Lever
and Christopher Huhne
Penguin Books Ltd., London,
1985, 160
pp.
The timing of this book was impeccable. Its dedication
is
dated September last year and
barely three weeks’ later,
in
Seoul, James Baker (the
US
Treasury Secretary) announced
his new initiative for tackling the debt problem. Clearly post hoc and-while
not
literally
propter hoc-much of the analysis deployed
in
this book would have been well understood
by Baker and other western financial leaders
in
accepting the need for a new initiative on
debt.
The most valuable feature
of
the Lever and Huhne analysis is the clear exposition of
how the question of LDC indebtedness suddenly took on crisis proportions in
1982.
The
growth of bank lending
in
the 1970s-a novel source of funding for developing countries
compared with their previous reliance on official flows and private direct investment and,
even earlier,
on
the bond markets-was stimulated by both demand and supply factors.
On the demand side the huge financing needs created by two oil shocks were the primary
factor; and borrowing to ease the adjustment to the price rises was made especially
attractive by the fact that real interest rates were actually negative for some of the time.
On the supply side the growth of the Eurocurrency markets provided a ready pool
of
funds
(bankers are, after all,
in
business to lend); official encouragement was given to the
recycling process since
if
the oil exporters’ suddenly created surpluses were
not
spent the
world would suffer deflationary pressures; and bankers readily convinced themselves that
sovereign governments could not default.
The fruits of the extraordinary amount
of
bank lending to LDCs
in
the
1970s
became
ripe in
1982
when Mexico announced that its debts would have
to
be rescheduled. Since
then many others have found themselves
in
the
same position and, as
I
write this. its
various creditors are
yet
again in the process of finalizing a further rescheduling and new
money package for Mexico.
It is therefore only natural, as the authors
of
this book do, to claim that the attempts
hitherto made to resolve the debt crisis have been inadequate, and more radical approaches
must be adopted. Certainly their basic thesis-that net transfers from the poorest to the
richest countries
fly
in the face of economic (and moral) common sense-commands
respect. We are all faced with a genuine problem when, despite considerable retrenchment
in
various (though,
it
must be said, not all) developing countries which has led to significant
falls in per capita consumption, the stock of debt remains intractably large and increasing
sums are devoted to its servicing.
The Baker initiative mentioned at the beginning of this review recognized that debtors
had
to
be given some glimpse
of
light at the end
of
the tunnel if they were not to be
tempted into debt repudiation (this recognition was not totally altruistic and the book
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