Working Paper: NBER ID: w2138
Authors: Rudiger Dornbusch
Abstract: The U.S. has significant interests involved in the world debt problem. It affects the profitability and even the stability of our banking system, but the debt problem also matters because debt service requires trade surpluses for debt- ors. Debtor countries have made their goods extra competitive, are selling in our market and are competing with our exports. The debt problem is therefore a part, though perhaps a small part, of the U.S. trade crisis. Finally we have a major foreign policy stake in the debt crisis in that debt collection brings about social and political instability. The paper sets out debt facts, followed with a brief look at the origins of the debt problem. The "transfer problem" is the general framework in which we discuss the problem of debt service for the debtor countries. We then discuss bank exposure and the quality of debts. The paper then addresses the trade implications of debt service and concludes with an overview of alternative proposals for solving the debt problem.
Keywords: Debt; LDCs; Banking Stability; Trade Surplus; Foreign Policy
JEL Codes: F34; H63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased debt burdens (F34) | reduced trade surpluses (F19) |
| reduced trade surpluses (F19) | U.S. banking system's profitability and stability (G28) |
| increased debt burdens (F34) | U.S. banking system's profitability and stability (G28) |
| debt problem (F34) | increased competition with U.S. exports (F69) |
| debt collection (H63) | social and political instability in debtor countries (F34) |
| social and political instability in debtor countries (F34) | U.S. foreign relations (F59) |