International Debt and Central Banking in the 1980s PDF
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INTERNATIONAL DEBT AND CENTRAL BANKING IN THE 1980s STUDIES IN BANKING AND INTERNATIONAL FINANCE Published by Macmillan in association with the Centre for Banking and International Finance, The City University, London General Editor: Geoffrey E. Wood Roy A. Batchelor and Geoffrey E. Wood (editors) EXCHANGE RATE POLICY Forrest Capie and Geoffrey E. Wood (editors) FINANCIAL CRISES AND THE WORLD BANKING SYSTEM Brian Griffiths and Geoffrey E. Wood (editors) MONETARY TARGETS MONETARISM IN THE UNITED KINGDOM Donald R. Hodgman and Geoffrey E. Wood (editors) MONETARY AND EXCHANGE RATE POLICY Zannis Res and Sima Motamen (editors) INTERNATIONAL DEBT AND CENTRAL BANKING IN THE 1980s Series Standing Order If you would like to receive future titles in this series as they are published, you can make use of our standing order facility. To place a standing order please contact your bookseller or, in case of difficulty, write to us at the address below with your name and address and the name of the series. Please state with which title you wish to begin your standing order. (If you live outside the UK we may not have the rights for your area, in which case we will forward your order to the publisher concerned.) Standing Order Service, Macmillan Distribution Ltd, Houndmills, Basingstoke, Hampshire, RG21 2XS, England. International Debt and Central Banking in the 1980s Edited by Zannis Res and Sima Motamen M in association with the Palgrave Macmillan MACMILLAN PRESS 0 Zannis Res and Sima Motamen 1987 Softcover reprint of the hardcover 1st edition 1960 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright Act 1956 (as amended), or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 7 Ridgmount Street, London WClE 7AE. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. First published 1987 Published by THE MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 2XS and London Companies and representatives throughout the world British Library Cataloguing in Publication Data International debt and central banking in the 1980s. - (Studies in banking and international finance) 1. Debts, External 2. Banks and banking, Central I. Res, Zannis 11. Series 336.3'6 HJ8015 ISBN 978-1-349-08331-2 ISBN 978-1-349-08329-9( eBook) DO1 10.1007/978-1-349-08329-9 Contents Foreword vii Notes on the Contributors viii 1 Introduction Zannis Res and Sirna Motarnen PART I THE 1983 CONFERENCE 2 Notes on the Problem of International Debt Allan H. Meltzer 3 A Central Banker's View about the International Debt Crisis 31 Brian Quinn 4 The Lessons of the Crisis: a Developing Country View 41 Carlos Geraldo Langoni 5 The International Debt Crisis - A Growth-oriented Management Approach 57 Paulo Pereira Lira 6 The International Debt Threat: a Way to Avoid a Crash Minos Zornbanakis PART I1 THE 1984 CONFERENCE 7 Properties of Monetary Systems Allan H. Meltzer Comment on 'Properties of Monetary Systems' 105 Geoffrey E. Wood vi Contents 8 The Costs and Benefits of International Banking Shelagh A. Heffernan Comment on 'The Costs and Benefits of International Banking' D. Fitzgerald Reply to Comments by D. Fitzgerald Shelagh A. Heffernan 9 International Lenders of Last Resort: Are Changes Required? Stephany Griffith-Jones and Michael Lipton Comment on 'International Lenders of Last Resort: Are Changes Required?' K. Phylaktis 10 The Theory of Last Resort Lending Michael Beenstock Comment on 'The Theory of Last Resort Lending' Lionel D. Price 11 Country Risk: A Model for Predicting Debt Servicing Problems in Developing Countries R. J. Taffler and B. Abassi Comment on 'Country Risk: A Model for Predicting Debt Servicing Problems in Developing Countries' Roy Batchelor Index Foreword In the late 1970s and early 1980s, the world became increasingly aware of the mounting problems of international debt, and the ability of the debtor countries to repay. This book is concerned with the international debt crisis and its solutions, particularly the role of Central Banks. The collection of papers, presented in two consecutive conferences, includes the views of central bankers, Euromarket leaders and economists spread around the globe from Europe to South America. Conflicts of interest between North and South are clearly identified and various authots propose policies which attempt to resolve such conflicts. There is no unanimity of views, only a genuine endeavour to avoid the collapse of the international financial system and learn from the mistakes of the past. Part I of the book has a sense of urgency focusing on how central bankers can avert a financial crash. Part I1 is more reflective, analytical and with a longer view in questioning the merits of monetary systems and central banking; contrast A. Meltzer's contri- bution in each part, Langoni's concern about debt repayments and Beenstock's views on last resort lending. Such multiplicity of views presented in this volume will, we hope, contribute to a deeper under- standing of the problems of international debt and the corresponding solutions. Phyllis Brand, Debbie Gill and Pat Baker provided valuable secretarial assistance in organising the conference and preparing the manuscript. ZANNISR ES SIMAM OTAMEN Notes on the Contributors B. Abassi is the Director of Planning and Projects at the National Enterprise for Production of Passenger Cars in Algeria. He was previously the Director of Planning at the Ministry of Heavy Industry. Roy Batchelor is Director of Research, Centre for Banking and International Finance, The City University Business School. Professor Michael Beenstock is EsmCe Fairbairn Professor of Finance and Investment, The City University Business School. Professor D. Fitzgerald is Visiting Professor, The City University Business School. Dr Stephany Griffiths-Jones is Lecturer in the Institute of Develop- ment Studies, University of Sussex. Dr Shelagh A. Heffernan is Lecturer in Economics, The City Univer- sity Business School. Professor Carlos Geraldo Langoni was formerly Governor of the Central Bank of Brazil. Michael Lipton is a Professorial Fellow at the Institute of Develop- ment Studies, University of Sussex. Professor Paulo Pereira Lira was formerly Governor of the Central Bank of Brazil. Professor Allan H. Meltzer teaches at Carnegie-Mellon University, Pittsburgh, USA. K. Phylaktis is Director of Undergraduate Studies, Centre for Banking and International Finance, The City University Business School. Lionel D. Price is Adviser, International Division, Bank of England. Brian Quinn is Assistant Director, Bank of England. Zannis Res is Director, Centre for Banking and International Finance, The City University Business School. Dr R. J. Tamer is Dearden Farrow Professor of Accounting and Financial Analysis, The City University Business School. Professor Geoffrey E. Wood teaches at the Centre for Banking and International Finance, The City University Business School. Minos Zombanakis is Chairman, CIGNA International Holdings. 1 Introduction Zannis Res and Sima Motamen This volume collects the proceedings of two conferences held at The City University, in October 1983 and May 1984. Both conferences were concerned with international debt problems. The first confer- ence examined the current problems, and solutions proposed for them, while the second was more analytical, examining the workings of the international monetary system and reflecting on how difficulties could be avoided in the future. This introduction summar- ises the main points of the chapters and sets out some general conclusions. THE 1983 CONFERENCE The 1983 conference was opened by Allan Meltzer, who disputed the view that the oil price increases of the 1970s were the main source of the debt problems of developing countries. He points out that while the oil price shock of the 1970s might have had something to do with the international debt crisis of the late 1970s and early 1980s, it would be misleading to regard the oil price shock as the sole source of the debt problem. He contrasts effects on countries such as Brazil, an oil importer, and Mexico, an oil exporter. Mexico was anticipating a rise in oil prices, perhaps to $80-$100 per barrel, and on that basis devoted a large share of its borrowed capital to investment in oil projects. Consequently, when the oil price fell, Mexico found itself unable to pay its debts. On the other hand, Brazil, which was an oil importer, undertook wasteful investments in nuclear power. Meltzer highlights the structural differences in the debt problems of various developing countries and points out the drawbacks of the IMF's proposed economic strategies for Latin American countries such as Mexico, Argentina and Brazil. These strategies, which advo- cate a reduction of imports by each country, ignored the strong trade links between the Latin American countries, and hence ultimately Z. Res et al. (eds.), International Debt and Central Banking in the 1980s © Zannis Res and Sima Motamen 1987
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