1. Aims of the NBER Project on Developing Country Debt

Latin America and Africa have suffered a collapse of living standards during the 1980s that in many countries rivals, and in some countries exceeds, the declines that were suffered during the Great Depression.’ The 1980s is widely regarded as “the Lost Decade” of economic development for large parts of the world, and even this appellation is too optimistic for many countries whose living standards have fallen back to the levels of the 1950s and 1 9 6 0 T~h~e collapse of living standards is intimately related to the external debt crisis that hit most of the countries of Latin America and Africa at the beginning of the 1 9 8 0 ~A. ~s shown in table 1, economic performance-in terms of per capita growth, inflation, and the rate of capital formation in total output-has been particularly disastrous in those developing countries that experienced debt-servicing difficulties at the beginning of the decade.

Few countries that fell into debt-servicing difficulties in the early 1980s have yet been able to extricate themselves from the financial crisis. Remarkably, at the end of 1988, after more than six years of the global debt crisis, not a single country in Latin America had regained normal access to loans from the private international financial market^,^ and countries such as Argentina, Brazil, and Peru were still caught in a dramatic process of collapsing incomes and exploding inflation.

The NBER Project on Developing Country Debt was initiated in 1986 to improve our understanding of four fundamental issues concerning the debt crisis. First, what were the forces, both within the debtor countries and in the international financial system, that contributed to the onset of the debt crisis in so many developing countries? Second, what were the mechanisms by which the debt crisis contributed to the decline of living standards in the …

Read the chapter