International Debt Reexamined - by William Cline (Paperback)

Book Synopsis

The international debt crisis that erupted in 1982 threatened the world financial system and turned the 1980s into a lost decade for Latin America. But the crisis jolted governments throughout the region into adopting sweeping economic reforms. By the early 1990s inflation was lower, growth was reviving, the major debtors had reached "Brady Plan" workout agreements reducing bank debt in exchange for collateral, and capital was entering the region in unprecedented magnitudes.

This study tries to make sense of this historic financial episode and to derive lessons for future policy. Cline first returns to his 1983 projection models that figured importantly in the debate at that time, and reruns them with the benefit of hindsight to see what went wrong (e.g., capital flight) and what went right (e.g., revival of industrial country growth). He provides a critical survey of the voluminous economics literature that emerged from the debt crisis. The study evaluates performance of the evolving international debt strategy, which eventually succeeded brilliantly in preserving international financial stability and restoring debtor access to credit markets but failed to achieve debtor country growth in the 1980s.

The study reviews policy reform and Brady plan results for major Latin American countries; provides new analysis of today's debt problems in Russia and Africa; and analyzes the degree of vulnerability of Latin Americas capital market renaissance to such factors as overvalued exchange rates and a resurgence of US interest rates. It concludes with suggestions for institutional change and policy guidelines to help avoid future crises.

Review Quotes

Absolutely remarkable, well-informed and documented, balanced and extremely clear in its findings.--Jacques de Lárosière, European Bank for Reconstruction and Development

An outstanding piece of work.--Charles Dallara, The Institute of International Finance

The definitive book on the debt crisis.--Paul A. Volcker

About the Author

William R. Cline has been a senior fellow at the Peterson Institute for International Economics since 1981. During 1996-2001 while on leave from the Institute, Dr. Cline was deputy managing director and chief economist of the Institute of International Finance (IIF) in Washington, DC. From 2002 through 2011 he held a joint appointment with the Peterson Institute and the Center for Global Development, where he is currently senior fellow emeritus. Before joining the Peterson Institute, he was senior fellow, the Brookings Institution (1973-81); deputy director of development and trade research, office of the assistant secretary for international affairs, US Treasury Department (1971-73); Ford Foundation visiting professor in Brazil (1970-71); and lecturer and assistant professor of economics at Princeton University (1967-70). He graduated summa cum laude from Princeton University in 1963, and received his MA (1964) and PhD (1969) in economics from Yale University.