Recent Trends in Commercial Bank Lending to LDCs: Part of the Problem or Part of the Solution?

Abstract

The international financial system has changed dramatically over the past ten years. Less developed countries (LDCs) have experienced increasing balance of payments deficits and continue to borrow quite heavily from commercial banks to finance those deficits. The LDCs and the commercial banks now are locked into a debtor-creditor relationship of unprecedented magnitude. Although until recently this relationship played an important role as a buffer to world economic crises and cycles and as a source of development capital, it now has great potential for catastrophe.