The 1980s Crisis in Syndicated Bank Lending to Sovereigns and the Sequence of Mechanisms to Fix It

This paper looks back to the 1980s and at how the international community addressed the debt crises of countries that were primarily indebted to international commercial banks. It describes how the initial policy, which emphasized concerted refinancing of obligations as they fell due, was superseded in 1985 by the ‘Baker Plan’, which sought multi-year relief packages and focused on fifteen countries in which the major banks had large exposures. The delayed recovery of the debt-servicing capacity of the debtor countries was no longer ascribed to the global recession of the early 1980s, but to the ‘structural’ problems of the debtor countries. This now required greater World Bank involvement, ‘structural adjustment’ lending, and longer-term debt rescheduling. However, economic recovery resisted these efforts too.