After World War II many less-developed economies started industrialization programmes which contributed to the achievement of rapid and sustained growth of income. Although industrialization meant a continuous reduction of the import propensity of their economies, growth also implied that the level of imports tended to exceed that of exports. This gap was covered by external indebtedness and, to a lesser extent, by direct foreign investment. During the 1950s and the early 1960s, credit was granted mainly by the governments of advanced economies and multilateral financial organizations. Starting from the mid-1960s, however, international indebtedness was increasingly dominated by private banking, reducing the element of aid implicit in previous arrangements. More importantly, this shift in the nature of credit flows was less conducive to the coordination of policies between industrial and developing countries, the consequences of which became apparent later on.
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