Conclusions

Abstract

1. The ‘case by case’ approach to debt management was developed, particularly in the 1982–8 period, around the logic of preserving the book value of the loans over-exposed banks made to over-indebted sovereign borrowers. It required adjustment by ThirdWorld debtors so as to generate a current account surplus to meet interest payments and, following inspection by the IMF, the remaining financial gap in external obligations had to be met with ‘fresh’ flows. The sources were multilateral and bilateral institutions and the commercial banks themselves. The first step in cross-conditionality thus appeared as each lending institution tended to condition its participation in the package to the participation of the other agencies. A complex game of simultaneous negotiations had to be undertaken in which any one agency has been able to hold hostage either the country or other agencies in its reluctance to provide fresh funds or holding to a particularly dear element of conditionality the country was not prepared to accept. A second stage in cross-conditionality appears in the implementation of the individual programmes. The tight-jacket was finally woven in the loan agreements of the commercial banks which included as conditions for disbursements or reschedulings all possible conditions present in other programmes.

I should like to see the Board of the International Monetary Fund composed of cautious bankers and the Board of the World Bank of imaginative expansionists.

(John Maynard Keynes)¹