D Fryer

The Political Geography of International Lending by Private Banks
Author(s): Donald W. Fryer

Source: Transactions of the Institute of British Geographers, New Series, Vol. 12, No. 4 (1987),
pp. 413-432
Published by: The Royal Geographical Society (with the Institute of British Geographers)
Stable URL: http://www.jstor.org/stable/622793 .
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413
Thepolitical
lending
ofinternational
geography
banks
byprivate
DONALD W. FRYER
Hall 445,2424Maile Way,Honolulu,
University
ofHawaiiat Manoa,Porteus
ofGeography,
Professor
Hawaii 96822,USA
1987
15January,
Revised
MS received
ABSTRACT
andfora LessDevelopedCountry
Banklending
haslongbeenanagentofforeign
toforeign
(LDC)a
policy,
governments
bankloansbecamethelargest
sourceoffinancial
After
1970private
bankloanconfers
international
respectability.
private
inbanklending
wasinparta recycling
ofthelarge
Thisgrowth
inflows
intoallsuchcountries,
excepttheverypoorest.
in oil pricesduringthedecade.More
of oil-exporting
thesharpincreases
countries
through
developing
surpluses
oftheUnitedStatesinmaintaining
ofthenontheeconomic
andpolitical
itarosefrom
exigencies
leadership
importantly,
buthaveincreasingly
beenchalworld.American
bankshavethusdominated
communist
foreign
lendingthroughout,
bankloanscloselyreflects
Thegeographical
distribution
ofprivate
andotherforeign
banks.
lengedbyEuropean,
Japanese,
loanshavegonemainly
toLatinAmerica
theeconomic
andgeopolitical
oftheir
domestic
American
interests
governments;
withhighannualgrowth
ratesofGNP.
countries
andto 'newlyindustrailizing
countries'
(NICs)inAsia,'middle-income'
a similar
havebyfarthelargest
debtservice
Rivalbankshavebroadly
so thatsuchborrowers
strategy,
obligations
pursued
andsomeareinseriousdangerofdefault.
banks
Nevertheless,
countries,
theloansofnon-American
amongdeveloping
andnewpatterns
tothepast.
showbothvestiges
ofoldercommercial
orimperial
unrelated
interests,
WestGermany,
UnitedStates,
KEYWORDS:Banks,
Loans,Oil prices,
Debt,LatinAmerica,
Japan
Whoholdtheworldbotholdandnewinpain
Or pleasure?
Whomakepolitics
runglibber-all?
TheshadeofBonaparte's
nobledaring?
andhisfellowChristian
JewRothschild
Baring!
(LordByron,DonJuanXII,5)
The good newsis thatChaseManhattan

is goingto
mergewiththePolishNationalBank.The bad is that
Chaseisgoingtorunit.
(Wall St. story,1982)
The Mexican financialcrisisof August 1982 and de

factodefaulton obligationsto foreignbanksmarkeda
turning
pointinthepost-warhistoryofeconomicand
financial
relationsbetweenthedevelopedand developingworlds.By mid-1984theapproachof another
quarterlydeadlineforthe paymentby some major
debtor LDCs of its debt service was no longer
recordedonly in specializedtechnicalpublications,
but had moved onto the pages of the developed
world'spopularpress.In a sluggishworldeconomy
withhigh unemployment
and interestrates,falling
commoditypricesand the threatof renewedtariff
thata majordefaultcouldtrigger
wars,thepossibility
a worlddepressioncomparableto thatof the 1930s
was newsworthy.
Many bankersviewed thispublito accommodation
withreluccityas an impediment
tantdebtors.Buttheyhad thesolid supportof their
own governments,
and theylooked to theirnewfoundally,theInternational
MonetaryFund(IMF),to
administer
thefiscaland financial
medicineto debtors
to ensurethattheypaid up.
Yet therewas nothingnew in thetechnicaldefault
of a borrowingcountry,
althoughto have a loan declared 'non-performing'
cuts if offat once fromall
creditand compelscash-downpaymentsforimports.
Several LDCs had been in technicaldefaulton their
loans fromofficialcreditorssince the 1950s, some
such as Argentina,Indonesia,Turkeyand Pakistan
morethanonce,and whichhad necessitated
complex
and difficult
(Frankoand Seiber,1979;
'rescheduling'
Seiber,1982). Moreover,some of these borrowers
Trans.Inst.Br.Geogr.N.S. 12: 413-432 (1987) ISSN: 0020-2754

Printedin GreatBritain
414
DONALDW.FRYER
and financiers,
andwar'(Hobson,1938,pp. 46,
had defaultedon loansin thenineteenth
militarism
century,
thecrisesof 94). FromthisLeninarguedthat,'financecapitalism'
again in the 1930s. What differentiated
the 1980s was the enormoussize of debtors'obli- led inevitablyto struggleamongthePowersforthe
gationsto banksin relationto whathas traditionally politicaldivisionof theworldintocoloniesand colconstitutedthe basis of bank lending,i.e. share- ony owners,in whicheven apparentlyindependent
holders'equity,or capital,andcustomers'
deposits.In countriesbecame 'enmeshedin a networkof diplodependence'(Lenin,1934).Nearly
creatingan 'exposure'in whichdefaultby a single maticandfinancial
majorborrowercouldbringdowntheworld'slargest half a centurylater 'dependence'was implicitin
banks,commonsense
suggeststhatmanybankershad theattacksof PresidentNkrumahof Ghana on 'neobehavedwithgrossirresponsibility.
colonialism',in the almostidenticalnekolim
oratory
While Zaire, Peru,Turkeyand a stringof east ofIndonesia'sPresidentSukarno(Sievers,1974),and
became the
theoreticalunderpinnings
European countriescaused the bankers repeated with further
anxietybetween1982 and 1986,thefocusofgreatest 'dependency'theoryof Latin Americanacademics
concernshiftedfromMexico to Brazil,thenback to and officials(Prebisch,1949; Frank,1967; Furtado,
Mexico as fallingoil pricesinvalidatedall forecasts 1970). The Hobson-Leninmodel of financial
imperiof the country'sliquidityposition and reinforced alismstillhas advocates(Forbes,1983;Trainer,1985);
to plunge the however, Johnsonargues that with the possible
general economic mismanagement
a century. exceptionofJapan,themodelbearslittlerelevanceto
for
half
the
crisis
into
country
deepest
Yet despiterumblingsof intentionto repudiateits thedevelopmentofanyempire.His observationthat
ofEuropean
defaultby Mexico orby anyothermajor 'themostconsistent
singlecharacteristic
obligations,
thecolonialperiodwas ignordebtorat mid-1986stillseemed unlikely;in recent investorsthroughout
timesdefaulthas only occurredwithmajorpolitical ance,based on laziness'(Johnson,1983, pp. 153-5)
as in Cuba,Iran findsa strikingmodern parallel in the incredible
changeand ideologicalreorientation,
orIndonesia(Gisselquist,
1981,p. 187).Nevertheless, behaviourof Americanbankersin the 1984 collapse
LDC debt to foreignbankersis beyondredemption, of Penn Square, an obscure Oklahoma bank that
Illinoisand several
as the laws of mathematicsoperate inexorablyto nearlybroughtdown Continental
burdenbeyondeven themost other major banks (Dutcher,1985; Singer,1985).
acceleratetheinterest
is a political
loan or investment
optimisticassessmentof abilityto pay (Rohatyn, Everyinternational
but
bankers
act
of
the
no
clear
that
it
is
1979,
As
99),
pay most
1986).
p.
(Gisselquist,
government
rescue
when
seek
their
to
court
bank
to
a
allow
can
world
fail,
they
governments
major
developed
the real issue is how to apportionthe cost of a fromtheconsequencesoftheirfolly.
betweenborrower,
settlement
lendingbanks,and the
home
the
of
banks'
country(Economist,
taxpayers
1986b).
THE ORIGINS OF INTERNATIONAL BANK
LDC debthasnow acquiredan enormousliterature LENDING
and popularlevels.
at academic,official,
professional
Thispaperfocuseson thepoliticaland economicfac- 'Loans have been the stuffof international
politics
torsthatmotivatedbankersto initiateand develop fornearlyall recordedhistory'(Kelley,1978); the
theFuggersand
theirspatialpatternsoflending,how suchenormous Medicisand theDukes ofBurgundy,
and Bismarck
loans were made, and what they were used for. theHapsburgs,DisraeliandRothschild,
known
better
of
the
some
are
but
and
for
the
Bleichr6der,
driven
by
profit,
quest
primarily
Though
bankersthroughtheirlending practicesalso for- connectionsbetween major political figuresand
century
wardedthepoliticaland economicobjectivesoftheir bankers.In the latterhalfof the nineteenth
Financialpower has always privateloans to foreigngovernments
playeda vital
domesticgovernments.
as 'lending
capability role in the creationof rivalimperialisms
politicalpowerand military
supplemented
the
to
came
countries
coined
who
foreign
envisage
in the struggleforhegemony.Hobson,
gradually
of theircitizensnot as privatefinancial
the term'financialcapitalism',i.e. the bankingand investments
but as one of the instruments
as a conspiracy transactions
through
saw imperialism
brokingcommunity,
national
to
which
ofgovernment
destinywas to be achieved' (Feis,
ofcapitalists'to use themachinery
the bankers
and that 1930). This was 'portfolio'investment;
secureeconomicgainsoutsidethecountry,'
its necessaryconsequence 'was a large and ever largelyacted as agents in sellingbonds of foreign
to privateindividuals.If the
growingdomesticand foreignindebtednessto the state or undertakings

International
banklending
415
riskof defaultwas sometimeshigh,so was the rate GreatDepressionandtherepudiation
ofVersaillesby
of returnto the bondholdersand the fee to the Hitler.In effect,
privateloans raisedin theAmerican
marketfinancedvirtuallyall paymentsof war debt
managingbankers.
The geographicaldistribution
of foreignlending andreparations,
forthroughout
the1920stheFederal
before1914 showed a strongcoincidencewiththe Reserveviewedcheapmoneyand largeforeignloans
oftheworldeconomy.In
geopoliticalinterestsof the Powers. Britishinvest- as desirableforthestability
ment,thelargestand mostwidespread,was heavily additionto loans to Europe,a new fieldfor the
in theUnitedStates,in theDominions Americanbankers,large loans were also made to
concentrated
and dependencies,and in Argentina,where strong Latin America,-many of which were basically
interestin railroadsand exportindustries,
and sub- unsoundor thesubjectofmalfeasance.
In thegeneral
stantialBritishimmigration,
promotedan image of abandonmentof the gold standardin the financial
fallin
Argentinaas the 'SixthDominion'.Frenchlending collapseoftheearly1930sand thecatastrophic
in contrast,was less heavily orientedtowards its commodityprices,virtuallyall LatinAmericandebextensivecolonialpossessions.Easternand Southern torsdefaulted,and were promptlyfollowedby the
Europe,and in particular
ImperialRussia,dominated Europeandebtors.These however,were prompted
French loans, where they supported diplomatic not by inabilityto pay, but throughthe desire to
effortsto containthe risingpoliticaland economic createtheirown autarchictradeblocs withthe colstrengthof the GermanEmpire,throughbuilding lapse of the multilateral,
largelyfreetrade,world
up Russia's rail network and heavy industries economy(Gisselquist,1981,p. 42).
The bankersundoubtedly
1981,p. 42). Germanyinturnpursuedits
sharedresponsibility
for
(Gisselquist,
DrangnachOstenthroughloans focussedmainlyon the onset of the Great Depression,but as with all
the Balkans,and Turkey.United climacterics
ofmodernhistory,
itscausesweremultiAustria-Hungary,
Statesforeignlending,thoughsmallin comparison facetedand deep seated, and will probablynever
withthatof theEuropeanpowers,showed a strong be the subject of consensus (Galbraith,1972;
orientation
towardsthewesternhemisphere,
and to Kindleberger,
1973; Brunner,1981, Garraty,1986).
Mexico in particular.
The US governmentby its tacitapprovalof stock
The end of WorldWar I leftEuropewithtremen- market speculation throughinflationand cheap
dous inflation,
and conflicting
financial money,the Hawley-Smoottariff
indebtedness,
of 1930, France's
claimsas theAlliessoughtto collecton theirloansto deep-seatedfearof a Germanrevanche
whichdrove
each other,to recoupfromdefeatedGermany,
and to it to destroyGermany'scredit-worthiness
in 1931
restorethefixedexchangesofthegold standardthat (Gisselquist,
ofVersailles
1981,pp.67-70), thefailure
had characterized
theexpandingeconomyofthepre- and the League of Nations,all sharedin thedebacle.
ceding century.Ludendorff's
Germanyfoughtthe Butforthegreatestdisasterto befalltheUnitedStates
warthrougha 'statesocialism'derivedfromImperial since the Civil War the bankersincurredmaximum
Russia,and latercopied by Lenin,but theEuropean odium,and theirguilt seemed confirmedin mass
Allieshelpedfinancethewareffort
whichculminated
in thevirtualshut-downof
throughUS loans, failures
whichtransformed
thecountryfroma debtorto the the entirebankingsystemin early 1933. The new
world's largest creditor.OfficialAmericanloans Roosevelt administration
determinedto shiftthe
ceased withthecollapseof Wilsonism,and thenew locusoffinancial
powerfromWallSt.to Washington,
administration
insistedon repaymentof war debts. and to keep the bankers firmlyunder control
Thispolicyhad no chanceofsuccess.To collectfrom throughnew restrictions
and regulatoryagencies.
Germanyas the Allies hoped, would have necessi- The politicaland economicstandingof thebankers
tatedan enormousincreasein Germanexportswhich was destroyedformorethantwo decades.
no Ally was preparedto concede,while Germany
AfterWorldWar II theUnitedStateshad boththe
itselfresistedpaymentof reparations
whose magni- resourcesand the will to createa new multilateral
tuderemainedindeterminate,
itselfa consequenceof free-trade
economicorder,and underits hegemony.
mannerin which the Versailles Europe'srehabilitation
the unsatisfactory
throughthemassiveMarshall
settlementcame to be signed by the German Planset thepatternforthesubsequentuse offoreign
aid programmes
to further
1983,pp. 34-5, 109-10).
delegation(Johnson,
ideologicaland strategic
The questionofdebtsandreparations,
inflamed
by ends,and withcolonialdevolutiontheUnitedStates
an unsound polemic fromKeynes (Keynes, 1919; extendedits interestsin theformer
dependenciesof
Mantoux, 1946), bedevilledworldfinanceuntilthe its Allies. Unfortunately,
the farsightedpolicy of

416
DONALD W. FRYER
providingoutrightgrantsforEuropeanreconstruc- The originsof theEurodollarmarketare obscure,

fornewlyinde- butitsmainfocushasbeenLondonsinceitfirst
tionwas notfollowedinprogrammes
clearly
whereaid was largelyin theform emerged in the 1950s (Einzig and Quinn, 1977;
pendentcountries,
ofloans.The MutualSecurity
Acts,whichchannelled Aronson,1977, p. 50; Delamaide,1984, pp. 40-6).
both Chinaand the USSR were involved
aid to countriesperceivedthreatened
by communist Ironically,
both
error.
since
fearedblockingof theirdollarholdingsin
this
subversion,
compounded
and so choseto shiftthemto
ForseveralyearsafterWorldWar II privatefinan- theUnitedStatesitself,
consistedmainlyof Parisand Londonbanks(Lomaxand Guttman,1981;
cialflowsto developingcountries
andexportcredits Sampson,1981,p. 109).Meanwhilemassiveoverseas
directinvestment
by corporations,
the oil
by US corporations,
particularly
foreigntrade.Orig- investment
grantedby banksforfinancing
creditsof trade companies,and theimmenseAmericanaid and overinallysmallin relationto theofficial
swelledprodigiouslythe
in the 1960s seas militaryexpenditure,
promotingagenciesofdonorcountries,
of
and
dollar
or
medium
term
at
short
credits
holdings
foreigners.
privateexport
To financesuch capitaloutflowsrequireda large
stiffrates of interest,grew rapidly.Exportcredits
went largelyto oil producersand middle income balance of tradesurplus,but in the 1960s, through
in exportmarketsfromEurope
countries,i.e. those with a per capita GNP above growingcompetition
more and Japan, the EEC's agriculturalpolicy, and
$500 per annum;suchcreditsthenconstituted
thana quarterofthetotalexternaldebtofArgentina, increasingexpenditureon the VietnamWar, the
Peru, South Korea, and of several West African largesurplusesof the previousdecade disappeared.
countries(Pearson,1969, p. 119). UnitedStatespar- To preservethe BrettonWoods systemof fixed
ticipationin private export credits was initially exchanges establishedin 1944, the United States
modest.Europeannationsand Japanled in thisnew imposeda seriesof measuresto restrict
importsand
thesecountries'econ- capital outflows,and to raise the cost of foreign
banklending,whichreflected
omicresurgenceand theirstruggleswitheach other borrowing.Ironically,this policy served only to
and the United States for new marketsfor their exacerbate the drain; in their overseas branches
(Gisselquist,1981,p. 130). The Americanbankswereexemptfromsuchregulations,
expandingindustries
there
others.Simultaneously,
on theotherhand,actively and could circumvent
UnitedStatesgovernment
encouragedAmericancorporateinvestmentin the occurreda revolutionin bankingpracticefraught
formercolonial possessions of its Allies, and with immense consequences for the developing
whereverpossible,tailoredits own aid programmes world.In 1967 FirstNationalCityBankofNew York
thetraditional
as was thecase becameCiticorpin orderto transform
insupportoflargeprivateinvestment,
withtheVolta riverschemeand KaiserAluminumin functionsof bankinginto those of a financialinterGhana.
mediary,or 'moneycentrebank' makingloans not
Yet the share of privateinvestmentin capital on the basis of its own deposits and equity,but
inflowsinto newly independentcountriesspeedily on purchasedfunds(Mayer,1984; Lombardi,1985;
declined as so many followed Latin America in pp. 74, 100). Withina decade, every major world
reservingmore activitiesto nationalentities,or to bankhad adoptedtheCitibankmodel.
As the world moved fromthe post-wardollar
corporations
joint venturesin which multinational
(MNCs) couldholdonlya minority
equity.American shortageto dollar oversupply,therefollowedthe
havemuch 'failureoftrilateralism'
andEuropeanmanufacturing
(Gisselquist,1979),i.e.,growcorporations
the UnitedStates,Western
between
dissension
a
home
others'
in
each
invest
territories,
to
ing
preferred
and financialmatters.
trade
over
and
in
those
for
holds
that
Japan
Europe
engaged
increasingly
pattern
at theexpenseofthe
often
in
Success
markets,
extractiveindustriesalso (McConnell,1980; Rees,
export
West
to
had
United
the
States,
steered
has
GermanyandJapan
given
1985; Hamilton,1986); only Japan
of
balance
and
develthe
to
investment
surpluses,
of
its
payments
growing
large
foreign
greaterpart
to reduce
oping world (Fuchs, in press). Better to serve whichtheUnitedStatessoughtanxiously
and
economies
inflate
their
to
its
Allies
banks
American
traditionalcorporate customers,
bypersuading
but
butthey to importmore.Inthisitwas largelyunsuccessful,
hastenedto extendtheiroverseasbranches,
this
further
to
of
or
werealso impelledby growingdomesticcompetition its use, misuse, energypolicy
a seriesof crisesin the world
in thebur- objectiveprecipitated
and above all,by thedesireto participate
theconsequencesof
reinforced
and
economy,
greatly
less
in
market
regulatedEuropean
geoningEurodollar
the bankingrevolution.The price of oil was also
centers.
financial

International
banklending
417
underattackfromtheenormous'shut-in'surplusesof agencies such as the World Bank, or to private

Middle Eastand NorthAfricanfields,an erosionthat sourcesofcredit(Gisselquist,1981,pp. 142-4).
the Organisationof PetroleumExportingCountries
The administrationthus tacitly assured the
(OPEC), createdin 1960, was pledged to resist.By Americanbanks of its protectionin any problems
forofficial arisingfromforeignlending,and as theirdeposits
1970,pressureintheAmericanoil industry
actionto raiseoil priceswas also strong,and higher swelledfromthe ballooningincomesof OPEC, the
fortheNixonadminis- banksneededlittlefurther
oil priceshadmanyattractions
bidding.Moreover,a comtration.
would
increase
thecontribution modityboom in the late 1970s assisteda general
They
greatly
to the balance of paymentsfromthe Americanoil inflation
promptedby the energycrisis,so thatoil
companies'overseasoperations.Oil priceshave been pricesfellin realterms.Exportsof 'big ticket'items
nominated in dollars since the industrybegan; financed
jointlyby official
exportcreditagenciesand
Americanbanks could expect to be the principal privatebanksincreasedsharply.ODA on the other
depositoryforthe swollen incomesof OPEC. Iran handgrewslowly,so thatinflation
keptitsrealvalue
could financeits ambitiousprogrammeto become a almostconstant,and its shareof financialflowsto
majorpowerin theMiddle East and IndianOcean, a LDCs fellfromnearly40 percentin 1970 to scarcely
policy thatthe UnitedStates activelysupportedto 30 per centin 1981 (OECD, 1983, pp. 52-3). In the
fillthe power vacuum createdby PrimeMinister decade after1973 commercial
banksprovidedmore
Wilson'swithdrawalof Britishforcesunderthe 'east thantwo-thirds
of theinflowto LatinAmerica,and
of Suez' policy. Moreover,cheap Middle East oil, ratherless than this figureto LDCs as a whole
largely denied to the United States throughthe (Kuczynski,1983). But if the barikershad regained
imposedby PresidentEisenhower the statuslost in the Great Depression,they had
quota programme
to protecthigh-costdomestic oil producers,had littletimeto enjoyit.Between1980 and 1985 some
greatlyassistedthecompetitive
positionofEuropean 40 LDCs made agreementsfor,or had requested,
and Japaneseexport industries.Higher oil prices rescheduling
oftheirprivatedebt,mostofwhichhad
would hit commercialrivalswhose dependenceon been contractedduringthe 1970s (Lombardi,1985,
importedenergywas higherthanthatof theUnited p. 74).
States; Americanexportscould thus regaina cost
advantage,and promotethe balance of payments
of foreign THE NATURE OF INTERNATIONAL
surplusnecessaryfortheimplementation
policy.
LENDING BY PRIVATE BANKS
Whetheror not theNixon administration
deliberately encouraged OPEC to raise prices, many The world'sbiggestdebtorsto foreignbanksare the
European officialsand academics had no doubts developed countries;in 1983 Britainowed almost
aboutthematter(TakiRifai,1972; Oppenheim,1976; twiceas muchas Mexico to Americanbanks(FFIEC,
Gisselquist1979; O'Dell, 1982). If it did,the policy 1983). But thisis illusoryas lendingamong develalso hastenedthe oil companies'loss of managerial oped countriesis largely an inter-bankmatter.
control in host countries,and failed to promote Essentially
bankshave becomemoneybrokers,
'interButoverthe mediating'theirloans, i.e. coveringthemselvesin
greaterdomesticenergyself-sufficiency.
1970s the UnitedStatesreversedthe declinein its lendinglongbyshortterm'rollover'borrowings,
and
share of OECD area exports,and the gains to ensuringthatloancommitments
alreadymadecanbe
Americanbanks were enormous.These however, funded.It is an inevitableconsequenceoftheconcept
couldnotsave thedollar.In 1971 President
Nixoncut of 'money centre'bankingmade possible by bank
the linkbetweenthedollarand gold, signallingthe deregulationand an enormousvolume of largely
abandonmentof thefixed-exchange
BrettonWoods uncontrollable
Eurocurrency
deposits,and by vastly
increase improvedtelecommunications
and data processing
system.This'Nixonshock',and thefive-fold
in oil prices of 1970-73 seriouslyimpacted on systems,whichwithnew 'offshore'
bankingcentres
OfficialDevelopmentAid (ODA) as donorcountries togetherconstitutea 24 hourworld-widemarketin
sought to minimizethe charge of theiraid pro- whichthe daily turnoverof currencydealingscan
of
grammeson theirbalanceof payments,and in 1972 attain$200 billion(Economist,
1985). Governments
the Nixon administration
urged thataid should be OECD countriesof course,can easily raise private
to the poorestgroup of countries;LDCs loans whenevertheyplease; in 1984 New Zealand,
restricted
thatwerecredit-worthy
shouldapplyto multilateral Sweden and Irelandnegotiatedlarge loans at fine

418
DONALDW FRYER
Eurodollar also turnedincreasinglyto bank loans to finance

marginsover the London three-month
rate, or London InterbankOffer Rate (LIBOR), import-substitution
developmentstrategies,and in
to their the later 1970s such lendinggrew enormouslyas
despiteexternaldebts thatproportionately
GNPs were equivalent to those of developing banks 'recycled'the OPEC surpluses.Most loans
but under
creditors were at firstgeographicallyrestricted,
countries
now ofgreatestconcernto foreign
the Citicorpconcept of 'actuarialrisk' or 'insur1984e).
(Economist,
Banks loans to LDCs, on the other hand, are ance banking',and soon adopted by competitors,
directedtowardscentraland local govern- the range of borrowerswidened progressively.
primarily
ments,and to otherstatebodies,especiallyoil enti- Sovereign countriescould not disappear or go
trueofthelargest,andmainly bankrupt,
ties.Thisis particularly
Citicorpargued,but as theycould default
LatinAmericanborrowers,forwhom in 1983 such or fail to generatethe foreignexchange to make
had to be evaluated,
loans accountedforsome 40-45 per cent of their paymenttheircredit-worthiness
nationaltotals.Mexico is uniquein thatsome 25 per and any individualrisk reduced by lending to a
of borrowersin the actuarialmannerof
cent of foreignbank loans, an unusuallyhigh pro- multiplicity
Thus originated'countryrisk
insurance
borrowers.
to
were
made
companies.
Lending
private
portion,
long but borrowingshortviolates the canons of analysis',in whichnumberscrankedout by social
bankingpractice;hencebankersshiftriskonto their scientistsunacquaintedwith the countriesunder
and review,replacedthe deep personalknowledgeand
sovereignborrowersby shorteningmaturities
cost
their
of
interest
rates
variable
experience of the traditionalbanker, in order
reflecting
charging
of funds.This growingdominanceof theshortterm to establish country loan quotas (Nagy, 1979;
Carvounis,1985,pp. 46-51; Hanerand Ewing,1985;
loan at variablerateshad explosiveconsequences.
Privatebanklendingto LDCs takesthreeprincipal Krayenbuehl,
1985) whichwere thenfilledby little
forms.Despite the debt warningsof the Pearson betterthan travellingsalesmenwho pressed their
Commission(Pearson,1969,p. 120-1), official
export loans on Ministriesof Finance (Sampson, 1981,
Exim p. 291; Delamaide, 1984, pp. 43-4). Given wideas
the
US
such
and
credit
agencies
promoting
Guarantee
Credits
corruptionin
Bank,Britain's
spread and virtuallyinstitutionalized
Department
Export
and
wereseldomrefused,
Francaise
(EGCD) andFrance'sComite'
pourI'Assurance everyLDC, suchofferings
multilateral
of
the
to
lead
have
continued
Exthrieur
du Commerce
agencies
monitoring
(Coface),
protestations
malfeasanceand waste were enorofprivatebanksto financetheexportofjet to the contrary,
syndicates
and mous (Lombardi,1985, pp. 86-7). Finally,forlarge
nuclearandotherpowerplants,refineries
aircraft,
orformajor
witha widerangeofresources,
oilfieldequipment,steelmillsand the like.Only too countries
thereappearedthesyndicated'jumbo'
to local oil producers,
oftenthese'topoftheline'itemsareill-suited
needs or humanand materialresources,and uncom- loan,sometimesofmorethan$1 billion,managedby
bank
or investment
(merchant)
petitivepricesare concealed in attractivefinancial a leadingcommercial
of
a
lenders,
and
subcontracted
such
wares
find
in
LDCs
among multiplicity
packaging.Nationalentities
edificiesrecordedin so-called'tomband oper- Eurocurrency
but theirhigh sophistication
irresistible,
oftenresultin large losses and stones' in the technicalpress (Abbott,1979, p. 77,
ational difficulties
Such is the pricemanyLDCs pay Sampson,1981,p. 115).Firstmadeat a marginabove
under-utilization.
fortheirrejectionof foreignMNCs. The failureof LIBOR, in the late 1970s the Americanprimerate
in suchloans,a change
substituted
trilateralism
greatlyexpanded this recklessexport was increasingly
of a countrynot deemed
the
that
offender
notorious
most
the
prestige
preserved
being
Japan,
promotion,
for a finemarginand usually more
whichhas theadvantageof lowerdomesticinterest creditworthy
forthebanks(Seiber,1982,p. 87). Though
ratesthanitsrivals,a consequenceofa veryhighrate profitable
of savingin whichtax-exemptPost OfficeSavings international
lending is essentiallyfor big banks,
offsetbecauseno homegovernment
risks
are
whose
role.
playa significant
bank fail,syndicationmade particia
can
let
for
to
lent
banks
major
Second,
directly governments
forsmallerbanks,and forthose in
indeSome
or
newly
possible
pation
purposes.
general unspecified
that
countries
the
from
released
possess no 'big league' bankingestabpendentcountriessuchas Jamaica,
such
smallerUS banksinparticular,
the
For
lishments.
and
colonialism
of
constraints
balanced-budget
domfrom
a
was
growing
develfor
escape
profitable
deficit
lending
use
to
financing
Keynesian
wishing
opment,used bank loans forbalance of payments estic competitionfromnew conglomeratefinancial
and 'non-bank'banks.
purposesfromthe beginning(Bernal,1985). LDCs institutions

International
banklending
419
Settlements
(BIS) vary
Third,thebanks'overseasbranchesmadeloans in and theBankof International
to bothpublicandprivatesectors.For widelyin coverageand in definitions
localcurrencies
of thecategorthelargestAmericanbanks,whichby thelater1970s ies offinancial
flows,as eachproduceswhatbestsuits
derivedsome 20 percentor moreof theirtotalearn- its own purposes.Some LDCs stillmakeonly token
to collectand consolidatedata offoreignboringsfromLatinAmerica,themagnitudeofsuchloans efforts
meansthatthetotalindebtednessof rowing,as did the Philippines(Economist,
1984c).
unquestionably
Insofaras Banks themselves are traditionally secretive;
borrowersis stillgreatlyunderestimated.
Head Officeswishorareable to repatriate
theprofits 'Americanbanks have always claimedto be better
suchloans also generatea chargeon judges thantheirgovernments
of subsidiaries,
of what thenational
theborrower'sbalanceofpayments.
interest
mandatesshouldbe keptconcealed'(Sherrill,
forsuchprodigality
Retribution
was swift.Follow- 1983,p. 464). The centralbanksof theindustrialized
Iranian
of
the
revolution
LDCs suffered worldreportbankforeignlendingto theBIS,which
1978-79,
ing
a tripleblow fromgreatlyincreasedoil prices,froma theyown,and since1974,theBIS has publishedproon suchflows.
commodityslumpthatwithinfiveyearsdrovesome gressivelymoredetailedinformation
of theirexportpriceslowerin realtermsthanin the Of the BIS members,
however,only Britainand the
GreatDepression,and froma catastrophic
increasein United States regularlypublishdetailedfiguresof
theirdebtservicechanges.By 1983,virtually
all short theirprivatebanks' externallending.In 1986 the
estimatesofshort-term
term,and nearlyhalfthe medium(three-fiveyear WorldBankpublisheditsfirst
and
term
debt
of
at
LDCs
was
whose
omission
had
in a grossunderresulted
debt,
maturity) long
floating
rates,and as astronomicalAmericanbudgetaryand estimationof the gravityof LDCs' debt situation
balance of trade deficitsdrove the primerate to (Gisselquist,1981, pp. 179, Dennis, 1984, p. 206).
unprecedentedlevels, every percentagepoint in- Morgan Guaranty,a leading Americaninvestment
creaseraisedLDC serviceon mediumand long term bank,also publishesfromtimeto timeits own estidebtalone by some $1-2billion(IBRD, 1983,p. xiv). mates of bank foreign lending. Nevertheless,
The debt problemswhich had rumbledon for a althoughthereis now an enormousand bewildering
decadeas variousborrowers
underwent
thetraumatic amount of statisticalinformation
on international
underthe aegis of the IMF, lending,'itis difficult
to gaina clearand comprehenprocessof rescheduling
usually with accompanying'IMF riots',suddenly sive pictureof total financialflowsto a particular
became a major crisisthroughthe possible default country'(Dennis,1984,p. 319).
of a major borrower,or worse as Latin American
Since1981 privatebankshave cutbacksharplyon
countriesthreatenedin 1984 at a Cartagenaconfer- theirforeignlending,and new commitments
have
ence, by major borrowersin concert.The anxiety beenlargelyinconnectionwithrescheduling
existing
moreover,was essentiallyover the privatedebt,i.e. obligations,i.e. drawingout maturities,
oftenwitha
interestand amortizationpaymentson bank loans. graceperiodfortheresumption
ofrepayment
ofprinThis not only reflectedthe factthatLDCs debt to cipal. Until the mid 1970s such negotiationswere
of bankers'
privatecreditorsgreatlyexceeded thatto govern- usuallyhostedby the financeministries
ments and multilateralinstitutions.The bankers own governments,
such as the so-calledParis and
claimedpriorityin paymentand theirgovernments London'clubs',butincreasingly
thistaskhas fallento
and the IMF supported their claim. Times had the IMF, an organizationthatinitiallythe bankers
changedsincePresidentRoosevelton learningfrom bitterlyopposed. Reschedulingis arrangedthrough
Dr. Schacht in 1933 of Germany'sintentionto an applicant'sacceptanceof severe 'conditionality',
defaulthad remarked'Serve theWall Streetbankers essentiallydeflationary
policiesdesignedto reduce
right!'(Schacht,1955). Privateloans were again an importsand raise exportsin returnfor large IMF
adjunctto nationaleconomicand foreign assistance,upon whichthebanks,albeitreluctantly,
important
policy.
providenew funds(Carvounis,1984,pp. 63-80). But
The totalmagnitudeofforeignlendingby private how long thebankscan,or are prepared,to pay out
bankscan neverbe knownexactly.Shorttermdebt, good moneyafterbad is problematic
in theextreme.
the categorythat grew most quicklyin the later The bankingcommunity,
international
agencies,and
difficult
to assess,and itwas the governments
1970s,is particularly
oftheindustrialized
world,believethat
largestborrowersthatmade thegreatestuse of such LDCs areessentially
froma 'liquidity'
suffering
probinstruments.
Statisticskeptby multilateral
monitor- lem,and thatwhen the developed world's rate of
ing agencies,the World Bankand IMF, the OECD, economicgrowthpicks up to some 4 per cent or

420
DONALDW.FRYER
more,theircash flowproblemwilldisappear(IBRD, Of thelattermost,

all butone,theRepublicofKorea,
1982; Lombardi,1985,pp. 93-4); onlyNorthKorea, were LatinAmericancountries;the fivenextlargest
Mozambique,Sudan,Polandand Zaireareconsidered includedone LatinAmericancountry,and two in
That sucha solutionis unrealistic
Fourof the
is, SoutheastAsia and Africarespectively.
reallybankrupt.
however,held by a wide spectrumof writersfrom ten,Venezuela,Indonesia,Algeriaand Nigeria,were
Marxistacademicsto some bankersand financiers membersof OPEC, and togetherowed almost$50
themselves (Payer, 1974; Lever, 1982a; 1982b; billion,over 14 percentof all developingcountries'
Rohatyn,1982; 1983; 1986; Lombardi,1985, pp. bankindebtness.
The view thattheincreasein banklendingin the
93-4) and ofcourse,by mostLDC governments.
1970s essentiallyrepresentedthe 'recycling'of the
largesurplusesaccruingto OPEC countriesand that
loans
to 'non-OPEC developingcountries'financed
THE DISTRIBUTION OF PRIVATE BANK
theirdeficits
and enabledthemto continueto import
LENDING
highercostoil,sitsoddlywiththesefacts.Bankslent
The World Bank case that the evidence does not mainlyto middle,indeed to 'upper-middle'
income
to countrieswithGNPs per capita of over $2000 and
supporttheconclusionthatbankslentimprudently
as a wholeduringthe1970sand witha wide rangeof resources.Some were scarcely
developingcountries
thatthecountries
wastedtheproceeds,begs theques- 'developing';Argentinaregardsitselfas essentially
tion(IBPD, 1983, pp. vii,xvi). Most poor countries European,and scornsassociationwith'los tropicales',
continueto dependheavilyon ODA fortheirexter- the nationsto the north(Acoca, 1982). The USSR,
nal financing.
In 1980-81, 44 LDCs receivedover90 Poland, Hungaryand Yugoslavia, to which banks
33 have also lent substantialsums,also fall into this
percent,28 from66 to 90 percent,and a further
from33 to 66 percentoftherinflowsfromthissource incomecategory.Two exceptionsarethePhilippines,
to witha percapitaproductof some$700 in 1981,and
(OECD, 1983). Yet bankerscompetedferociously
Indonesia with only a littleover
place theirsmallnationalquotas forpoor states,and very strikingly,
in Gabon,Ghana,Beninand Togo wastewas bizarre $400.
BIS data,whichdistinguish
betweenUS and other
(Lamb,1985,pp. 109-10, 284-5). Butwherebankers
lentveryheavily,wastewas on a scaleto match.As a banks,showedthatfor1982 US banksaccountedfor
large and populous oil producer,Nigeria was a some36 percentofthetotalobligationsofall devel'bankers'pet', with$1 billionjumbo loans in both opingcountriesto privatebanks,and forsome40 per
of which
1978 and 1979 (Economist,
1982, 1986a);by 1980 $1 centof those of LatinAmericancountries,
billionhad disappearedfromtheNationalPetroleum theninelargestUS banksaccountedfor23 percent.
Company, probably into numberedSwiss bank Of totalUS banklendingto all developingcountries,
accounts(Lombardi,1985, p. 112). The two other some 70 percentwas to LatinAmerica(Fig. 1). The
ExaminationCouncil
very populous oil producers of middle rank, Federal FinancialInstitutions
thedominanceof LatinAmericain
Mexico and Indonesia,have an unenviablerecordfor (FFIEC)confirms
in 1983 ofa
grandiosewaste in theiroil entities,whichreceived US banklendingto developingcountries;
loans to all
verylargeprivateloans.And one verypoorcountry, totalofnearly$108 billioninoutstanding
Zaire,witha per capitaproductof less than$300 in non-OPEC developing countries,Latin America,
ranup a excluding the OPEC members Venezuela and
1981,so bedazzledthebankersthatitswiftly
very large debt proportionalto the size of the Ecuadorwhichtogetherowed thebankssome $13-5
nationaleconomy;itswasteinthelater1970s was on billion,accounted for 68 per cent (Fig. 2). The
a trulyspectacular
scale (Aronson,1977,pp. 169-70; principaldirectionof US bank loans to developing
Delamaide,1984, p. 57, 60; Lamb,1985, pp. 43-5; countrieselsewherewas to a selectgroupinEastand
South-EastAsia,and to Israel.
Callaghy,1986).
Privatebanklendinghas beenhighlyconcentrated The distributionof internationallending by
on relativelyfew developingcountries.Of a total European, Japanese and other foreignbanks is
known.But theBIS figuressuggestthat
debtof$348 billionowed by all developedcountries imperfectly
withinthe BIS reportingarea to foreignbanks in the directionof foreignlendingby banks of other
1982, 21 countriesaccountedfor84 per centof the developedcountriesis broadlysimilarto thatof the
inwhich
total,thetenlargerborrowersforsome 70 percent, US banks,althougheachhasareasofinterest
and thefivelargestforno lessthan55 percent(Fig.1). it is relativelystronger.Latin Americahas had a

64.4
2A?0.
'1ii3.7.1
25.2
4.7
2.1
COLUMBIA
1.
ECUAO..35.3
2.3
N.
...1..3
KO
SOUT
ALG
MEXICO
COAST
3.2~
BRAZIL
.
0
.
0.5
6.7
.
4.
0iiiii.T
1.5
A..S
0.9
1.2
I.NIGERIA
ERU12.3
20.5
......
INDO
ERUMALAYSIA
Billionsof dollars
BIS REPORTING
BANKS
Nin
U.S. BANKS
FIGURE 1. Externaldebtowed to Banksby majorLDC Borrowers(mid1982, billionsof Dollars)

All
422
DONALD W FRYER
universalappeal; more than 500 foreigncreditors colonies, was the country'sfirstdecisive foreign
wererepresented
in thebankers'committee
whichin policy statement,and for more than a centuryit
September1984 reached outline agreementwith remaineda majorbarrierto Europeangovernments
Mexico on reschedulingsome $50 billionof loans seekingto compel paymenton obligationsdue to
due by 1990 (Economist,
1984b).The beliefthat bondholdersby defaultingLatin American borfalling
SouthAmericahasvastpotentialrichesis as old as the rowers.Militaryintervention
to compel payment
or to supportAmericancorlegendof El Dorado,and fromthetimeof theSouth on debtsto Americans,
Sea Bubble, it has repeatedlybedazzled foreign porationsagainst host governments,was another
investors, often with disastrous consequences matter.The Grenadainvasionof 1984 and thepresthe
ent conflictin Nicaragua notwithstanding,
1975,p. 38; Delamaide,1984,pp. 96-8).
(Galbraith,
The successofWestEuropeancountries
andJapan excesses of 'Dollar Diplomacy' and direct interinaccumulating
largebalanceofpaymentssurpluses, ventionhave probablypassed forgood, and a deciadvanced the rankingof theirlarger sivebreakintheDoctrinecamewiththeresolution
of
substantially
banks.The world's50 largestbanksaccountforabout theCuban crisisof 1962, in whichtheUnitedStates
of all lendingto LDCs, and withinthis tacitlyaccepteda USSR-orientedCuba. But it was
two-thirds
to preventtheexportofCastroismto the
select group in 1984 were 21 West Europeanand determined
Increasedaid to military
sixteenJapanesebanks,as againstonlysix American mainland.
regimesimpliedan
(Spindler,1984, p. 4; Banker,1984). Because of approval of governmentsthat many Americans
growingcompetitionfromthe large Europeanand detested;privatebank loans, presentedas purely
fromno suchpolitical
ventures,suffered
Japanesebanks in foreignlending,the share of commercial
Americanbanks in overall lendingto developing disadvantage.
in Latin
countrieshas fallensince the late 1970s. NevertheVirtuallyall large extractiveenterprises
less,Americanbanks'exposurein thosecountriesin Americaare now undernationalownership,but US
which the United States has long had a special strategicplanningnecessarilyinvolvessafeguarding
forAmerican
theresourcesof theentirehemisphere
remainshigh.
interest,
to thisaimis
Fundamental
For sovereignstates bank loans have the great use ina majoremergency.
advantageover ODA thattheycan be used forany the continuedavailabilityof petroleum.The close
purpose governmentwishes withoutexternalsur- associationof the fortunesof the oil industrywith
veillance.Moreover,all government
borrowingpro- nationaleconomicand foreignpolicyis ensuredby
to theelection
enormouscontributions
videsbudgetsupportin thatit can replacebudgeted theindustry's
hasalreadydecidedto campaignsof candidatesfornationaloffice,and by
thatgovernment
expenditures
make (Robichek,1980). Loans thus strengthena theactivitiesofitsWashingtonlobbyanditsbanking
The consonance of the bankingand
domesticstandingandfinancial
power, counterpart.
government's
and conveya measureof international
approvaland petroleumindustriesis seldom remarkedalthough
Bankersarguethattheirlendingpoli- Chase, one of the AmericanBig Three banks,is a
respectability.
bank and the familytrustsmay have a
cies are politicallyneutral,and thatany financially Rockefeller
in Exxon,Mobil and Socal (Blair,
interest
well-runcountrycan obtain a loan. Nevertheless, controlling
countriesfallingout ofpoliticalfavourareapt to lose 1976). Not only do the leading banks have stock
statusuntiltheyadopt a political interestslarge enough to give decisive influence
theircredit-worthy
of big overthetopUS energycompanies,buttheyareoften
orientationmoreacceptableto governments
also linkedthroughhavingthe same legal counsels
banklenders(Aronson,1977,p. 174).
1983,pp 492-3).
(Sherrill,
ThattheStateDepartment
American
banklending
approvedtheactivities
The Americanbankersearliestventuresintoforeign of thebankersin LatinAmericais beyondquestion,
bothshorttermeconomic
lendingwere to LatinAmerica.The Americancon- fortheywereforwarding
oftheUnitedStates.
interests
term
and
role
in
western
the
of
its
strategic
long
hemisphere
political
ception
and the numerous long-establishedactivitiesof Despite,orperhapsbecauseof,profoundsuspicionof
American corporations,particularlyin extractive the Americanoil companiesand theirWashington
nationaloil entitiesborrowedheavilyto
withinthe region,make the continued supporters,
industries,
dominanceof LatinAmericain US banklendingto financeexpansion;by 1982 Mexico's Pemexowed
LDCs inevitable(Fig. 2). The Monroe Doctrine, foreignbankssome $24 billion,and raisingdomestic
in some $10
enunciatedshortlyafterthe revoltof the Spanish productioninvolvedBrazil'sPetrobras

PO
LAND
,0.6
0.5
5
m=0.
0.4
YUGOSLA4t0
7.5
4.4
MEXICO
C2LU
0.9 0.5
13.3 14.1
ji60li
04
0.4
0.3 72
1.3 1.2
1.2
1.3
0.2
1.6
"
0.3
1.7
.4.2
5.1
2.8
13
3...
1,06
CHILE
0.8
1.21
22
9
... .9
133
3..
REGIONAL DISTRIBUTIONS
1.82.8
THAIL NO
2.0
74
1.6
KOREAA
8.3 I7.4
__._2.6
4.9
:.::
6.6
8.3
6.4
1.2
1.1 0.6
Z .2!!"
IGERIA
0.9
:::::
2.3
2.8:.:3
0.9
SOUTH
0.2
7.6
.6 0.8-1.5
0.3
ECUADOR
01.3
ISRAEL
.7
0.9
0.4 0.2
f 1.3 jiO.6
0.5
1.1
7 2.2..
2.1
-"0.7
1.4
0.4
2.5O 8.3
0.3
0.46 1.2
0.8
0.4
VENEZUELA
0.4
,9 3.
0.7
ARGENTINA
5.4
13.57.8
20.0
LEGEND
Private
Ovr
Public
1-5 Years
Banks
BORROWER
5 Years
All Others
''
Nine Largest
Year
er10.7
&Under
ans1
SIZE
MATURITY
A
SOver
Non-OPEC
LDCs,
22.3
S29.1
35.9
42.6
11.4
Non-O
31.2
31.2
20.5
Latin America, Caribbean

E
0.4
0.6
2.4 2.7 2.3 2.6

Eastern Europe
1.9
3.6
FIGURE 2. Foreignloans by majorUS Banks(GrossOutstandingclaims,US$ billions,end 1983)

8.5
6.9
424
DONALDW.FRYER
billionof debt between 1973 and 1985 (Hartland- economic liberalismin the inter-warperiod, and
and stateownership
Thunbergand Ebinger,1986, pp. 62, 141). Despite forceddraughtindustrialization
what Washington believed to be an excessive ofnaturalresourcesintensified
inthePer6nregime.In
Mexicansensitivity
innegotiations
overthepricefor consequenceArgentina,
in 1914 one of the world's
itsoil and gas exportsto theUnitedStates,theriseof mostaffluent
stateswithrealwages onlyexceededby
a new petroleumproducerpotentiallyof the first thosein theUnitedStatesand Britain,
had slippedto
on theUS southern
rankby 1985 (Fernandez,1985). Whileshort
borders,was clearlya fiftieth
magnitude,
termborrowingincreasedafterthe military
majorstrategic
gain.
coup of
a
of
in
to
ease
the
1976
balance
of
Despite higherdegree self-sufficiencypetpressing
paymentscrisis
increaedin inherited
fromthePeronadministration
roleum,Brazil'soil importsnevertheless
(Carvounis,
absolutemagnitudeoverthe1970s.Yet onlyabouta 1985,pp. 139-5 1; DiamondandNaszewski,1985),to
fifth
ofbanklendingwas used to meetthehighercost one authority
thedebtproblemofArgentinareflects
of energyimports.By farthe greaterpartwas dis- less the indiscretions
of the foreignbankersthan'a
bursedbyheavilyprotectedstateentitiespursuingan lackoffaithofArgentinaentrepreneurs
in a country
and subsidized-exports
import-substitution
develop- whereproperlyrightsare notgrantedby law butby
mentstrategy,
whichby the early1980s had made the will of a governmentbureaucracy'(Fernandez,
thepublicsectoroftheBrazilianeconomythelargest 1985).
outside the communistworld (Hartland-Thunberg The LatinAmericanindustrial
boom and itsafterand Ebinger,1986, pp. 105-7). Among the most mathofdebthadtwoimportant
consequencesforthe
fromEuropean
costly of these bloated state entitieswere those UnitedStates.Althoughcompetition
engaged in other energy projects to reduce the and Japanesebanksdrovedown theUS shareof prinationaldependenceon petroleumviz., a nuclear vate claimson LatinAmericafromsome60 percent
thatby 1984 had involvedsome in 1975 to 45 per cent in 1983, the UnitedStates
reactorprogramme
an overlyambitious nevertheless
its tradingpos$40 billionsof cost over-runs,
improvedsignificantly
hydro-electricity
plan whose excessive costs and ition vis-a-visits industrialrivals. By 1979, the
long gestationhave so farhad a negativeimpacton UnitedStateswas supplyingover40 percentofLatin
theeconomy,andthesynthesis
ofethanolfromsugar America'simports,two-thirds
of whichwentto the
cane, which was barely competitiveeven at the six most deeply indebted states,Brazil,Mexico,
heightof the oil crisisof the late 1970s (Ebinger, Argentina,Venezuela, Chile, and Peru. Excluding
theBrazilian'economicmiracle' trade with OPEC countries,the share of Latin
1986). In retrospect,
fromthe early 1960s seems merelyanotherin the AmericainUS tradeturnover
grewfroma littleover
country'slong series of speculativecycles; it col- 10 per cent in 1973 to nearly14 per cent in 1981
Markets,1984).
1984a, WorldFinancial
lapsedin thepost-1980worlddepressionas all such (Economist,
had
and
after
two
The
nearly
politicalconsequencewas unforeseen;Latin
collapsed,
previouscycles
decadesofopulence,Braziliansagainbegantalkingof America'smilitarygovernmentswere unable and
theexigenciesofthedebtcrisis
theircountryas part of the 'ThirdWorld' (James, unwillingto confront
withitsmandateddeflation,
1942,Sampson,1981,pp. 146-7, 240-1).
decliningGNPs, mountand severe social distress.By
The other large Latin American borrowers, ing unemployment
havefollowedbroadlysimilar 1985 Brazilhad joined Uruguay,Peru,Ecuador,and
Mexico andArgentina,
refusedto sign the Argentinain restoringelected democraticgovernstrategies;Mexico consistently
and Trade(GATT) to ments,and onlyChileof themajordebtorsremained
GeneralAgreementon Tariffs
protectitsheavilycossetedeconomyuntilforcedto undermilitaryrule.Anotherlong-acclaimedobjecdo so inmid-1986.As withNigeriaand Indonesia,its tive of US foreignpolicy for the hemispherehad
greatlyenhancedborrowingsin the 1970s restedon apparentlybeen realized, but appearances were
was discredited
the assumptionthathigh oil priceshad become a deceptive.In Argentinathemilitary
war and
permanentfeatureof the world economy. While by the disastrous1982 Falklands/Malvinas
the
forthethousandsofdesparecidos,
had forecastpricesof $80-$100 a by responsibility
some authorities
barrelforthelater1980s (Fesheraki,
1981),spotprices missingvictimsof thegenerals'ferociousonslaught
forNorthSea crudeby mid-1986had fallenbelow in the 1970s againsturbanleftistsand alleged supPeru and Brazilalike,the
$10, a fallfarsteeperthanthatof interestrates,and porters.But in Argentina,
unable
theMexicaneconomyand politywas in deep crisis. new civilianadministrations
appearedfragile,
had brokenwithitstraditional and unwillingto initiatebasic structural
changesin
Argentinain contrast,

International
banklending
425
theeconomyforfearofthereturn
ofthegenerals,and States,buteventuallyitgetsintothebankingsystem
to thedeflationary
stronglyresistant
pressuresofthe and is availableforfurther
lending.The proceedsalso
IMF. For Argentina,
whichhad borrowedlargelyto are distributedin a highly inegalitarianmanner;
meet balance of paymentsdeficitsratherthan for nevertheless,'the US huge importsof dope are
infrastructural
thispressurewas particu- people-to-people
assistanceofthemostdirectkindinvestment,
Colombia,Bolivia,andPeru... thousands,
larlyirksome.In resistingthe Fundand thebankers, inJamaica,
itsseparationfromthe ifnot millionsof farmers,
ruralpeople and entrepreArgentinawas againstressing
rest of LatinAmericaand acclaimingits European neurs are gettingincome fromthe drug business'
affinities.
Britain'sIMF creditof 1976 had involved (Stein,1984). Thereis thusa strongpresumption
that
no such 'conditionally(Gisselquist,1981, p. 223); policiesforsuppressing
drugsmugglingwillachieve
Argentinafeltitmeritedno lessfavourabletreatment minimalsuccessuntila comparablefinancialflowis
thanthataccordedto theprivilegedEuropeans.
substituted.
assistanceto the
Meanwhile,US military
Withinthe United States,increasingtrade and ambivalentgovernments
of Mexico, Colombia and
financial
connectionswithLatinAmericahave had a Bolivia in half-hearted
effortsto destroyplantings
remarkable
impacton southFloridawhereburgeon- and processing facilities,has brought renewed
withintheregion.
ing Miami is becoming'the northernmost
city of chargesof'Yankeeimperialism'
LatinAmerica'(Neil,1982, p. 3). Miami'stransform- InthesecondmajorareaofAmericanbanklending,
ationbeganduringthe1950swiththeimmigration
of East and South-EastAsia, US politicaland economic
skilledrefugeesfromCastro'sCuba, but by 1980 its interest
are also oflong-standing,
datingbackbefore
Hispanicpopulationincludedelementsfromall parts the1853 Perryexpeditionto Japan.Sincetheend of
ofLatinAmerica.The cityhas attracted
a substantial, WorldWarII theregion'sislandandpeninsular
states
and perhapsincreasing
oftheflight
forresisting
the
proportion
capital have playeda keyroleinUS strategy
of richLatinAmericans,
'thecowardiceofmoney'as spread of communismin Asia, and in particular,
in
PresidentPerononce calledit,whichhas repeatedly constraining
the large Russianair and naval forces
preventedthe regionfromcapturingthe maximum in the Pacific. Most such states have de jure
benefitsof periods of high prices for its export (South Korea, the Philippines),or de facto(Japan,
products. Unlike the poor immigrantsinto the Taiwan) alliances,or tacitunderstandings
(Thailand,
Southwest,Miami'swealthyand educatedHispanics Indonesia) with the United States for major US
maintaina multiplicity
of economic and political assistancein meetingexternalattack.The strategy
connectionswith theirhomelands.Throughthese necessarilyinvolves a heavy US commitmentto
linksMiami become an attractive
centreforlending economicdevelopment,
and sparkedoffby imposed
to Latin America,and has now become a major landreform
inthedefeatedJapaneseempireandlarge
focus of international
bankingin its own right,in officialaid, the contrastin economic performance
which virtuallyall the world's major banks are withthatof the faltering
communisteconomiesof
the mainlandhas been remarkable;followingthe
represented.
That this developmentis also related to the Japanese'economicmiracle'came the successof the
states (NICS), South Korea,
'laundering'by the banks of an annualinflowinto newly industrializing
southFloridaof some $7-10 billionfromdrugtraffic, Taiwan, and the two city states of Britishorigin,
is beyondquestion(Neil, 1982, p. 21). Floridahas a Hong Kong and Singapore.These fourhave constilong historyof lawlessness(Rothschild,1985); the tutedthelargestdestinationof US corporateinvestfactsof geographymake completesuppressionof ment in the developingworld,and the firsttwo,
drug smuggling impossible, however thorough togetherwiththePhilippinesand Thailand,a major
federalsurveillanceof the air, the coasts and the focus of Americanbank lending.This reachedits
banks.The wholesalevalue ofillegaldrugexportsto apogee in themid 1970s,whenUS banksheld over
theUnitedStatesfromJamaicaand Colombiaaloneis 80 per cent of total claims due to foreignbanks
estimatedrespectively
at morethan$2 billionannu- fromthefourstates.By 1982 thissharehad fallento
1984d); thatfromMexico mustbe 46 per cent, while that due to European banks
ally (Economist,
to some 34 per cent, and to
verymuchmore.Virtuallyall discussionof thedebt increasedthree-fold
burdenignorestheobvious,thattheannualearnings
banks
increased
ten-foldto 23 per cent
Japanese
of LatinAmericafromthe drugtradeare probably (Spindler,1984, p. 6, De Vries,1983); significantly,
largerthanpaymentsof its debt obligations.True, the decline was greatest in Thailand,where an
muchof these earningsremainswithinthe United Americandefencecommitment
is equivocal.

DONALDW.FRYER
The patternofbanklendingbyoriginto theregion farexceededthe27 percentforMexico or the16 per
thusnow broadlyresemblesthatto LatinAmerica,in centforBrazil.Paymentsto foreignbanksbecamein
thatbanksof a largenumberof countrieshave sub- virtualdefaultin October 1983, and lack of agreethePhilippinesapart,a mentwith the banks stillheld up in 1986 an IMF
stantialclaims.Nevertheless,
debtserviceproblemhasnotso fararisen.Loanshave 615 millionSpecialDrawingRights(SDR) stand-by
been used in supportof an alternative
development credit,forwhichsuchagreementwas a pre-requisite
1984f).
usuallytermed'export-led',
althoughboth (Economist,
strategy,
In lendinglargesumsto a countrywhose dismal
South Korea and Taiwan have large domesticmarof thevalue ofTaiwanese economicperformance
kets;onlyaboutone-third
appearsto makeita poorrisk,
is exported (Kuo, 1983). Industrial the bankerswere confidentthat in the last resort
manufactures
developmentreceived littleprotection,but it fol- Washington would always come to the rescue
of theSubicBay
reform
and a because of thesupremeimportance
lowed and did not precedeagricultural
to
be
seen whether
It
remains
Field
bases.
and
Clark
which
in
increase
provided
productivity,
great
whichcameto power
farmers
withtheincometo buynew products.MNC thenewAquinoadministration,
investment
andjointventureswithlocal privatecon- withdramaticsuddennessin early1986, can thwart
in whichcase
cernshelpedto ensurea highdegreeof competitive a communistrevolutionary
triumph,
fromthe start.True,the east Asian NICS debt repudiationwould follow,as withthe Russian,
efficiency
have enjoyed a somewhatprivilegedaccess to the Chinese,Cubanand Iranianrevolutions.
largeUS market.ButthefactremainsthattheNICS
are highlycompetitivein qualityas well as in price;
lenders
with few exceptions,Indian industrialexportsare Thenon-American
ofprivate
WestEuropeanstateshavea longtradition
neither.
The strikingexception to this success is the foreignlending,but Japanhas only become a large
whichin its developmentstrategyas in creditorsince 1960. The areal lendingof European
Philippines,
moreclosely and Japanese banks preserves traces of former
so muchofitssocio-economic
structure,
but thesefossilscoexistwithnew
resemblesLatinAmericathanits Asian neighbours. imperialinterests,
which
theabsenceofa colonialconnecfor
the
with
States
the
United
prob- positions,
grappled
Though
one lost long enoughto be
almostfrom tion,or morecorrectly,
lemsofa defectiveagrarianorganization
has
was
it
the commencementof its administration,
conveniently
forgotten, been advantageous.
In sharpcontrastto pre-WorldWar II practice,
unableat the end of WorldWar II to imposeon its
bank lendinghas been denominated
Allyandformer
possession,itspolicyforlandreform non-American
and not innationalcurrencies.
of largelyin Eurodollars,
intheJapaneseempire.Nor has anyadministration
the PhilippineRepublicmade any real commitment True,someloansarenow madeinDeutschemarkand
to
to the issue; all hoped that technologicalchange yen,but no countryis willingto allow foreigners
as nonewishes
could make such action unnecessary.Failure to acquirelargequantitiesofitscurrency
reasonforthe to riskthecostlyexperienceof Britainin operatinga
solve thelandproblemis theprimary
and major reserve(Strange,1971). Attemptsto create
economic
lacklustre
performance,
Philippine's
its consequenceshave been regionalinsurrections,new reserveunitssuchas theSDR orECU (European
Unit),a unitofaccountbetweenEEC memwidespreadurbanand ruraldiscontentarisingfrom Currency
reducedthe role of the
not significantly
have
and
intense
and
bers,
malnutrition,
underemployment
dissatisfactionwith the largely window-dressing dollar and the financialhegemonyof the United
the States,whichis buttressed
by thelocationofboththe
programmeof land reformwhichcharacterized
in
Bank
IMF
and
World
Marcos' regime(Kerkvliet,
former
1974).
Washington.
As theoldesthandsin thebusiness,Britishbanks
was at
The disunitedoppositionin thePhilippines
one in viewingtheloans madeby foreignbankersas have thewidestgeographicalrangein theirlending,
the and in total obligationsare second to those of the
buttressingthe Marcos regimeand furthering
extensionof its 'cronycapitalism',throughwhich UnitedStates.In 1984 some 45 percentof all loans
same
largechunksoftheeconomypassedto thePresident's outstandingwere to LatinAmerica,about the
Former
loans.
bank
American
of
as
that
close personalfriends.Debt servicein relationto proportion
howeverwas visiblein thecommitexportearningsis theequivalentofthatofthelargest imperialinterest,
thoseto Nigeria
countries,
Latin Americanborrowers,and the proportionof mentsto Commonwealth
shorttermto totaldebtin 1982-some 47 percent-- for whom Britishbanks were the largestlenders,
426

banklending
427
International
its
in
should
abandon
romanBonn's
concern
a
to
of
Poland,
view,
(World
magnitude give major
being
on economic
to freedom,
concentrate
FinancialMarkets,1985). In contrastwiththatof the ticattachment
andraiselivingstandardsto thoseofHungary
otherpopulousoil producersofmiddlerank,Mexico reform
and Indonesia,Nigeria's debt problemis of very or East Germany.It is a policymostPoles emphatirecentorigin,and both debt per capita and debt cally reject (Ash, 1985, pp. 38-9). Serious social
ofexportearningsareverylow discontentin Poland,triggeredby economicshortserviceas proportion
in comparisonwith those of other major debtors comings,compelsBonnto providelargecredits,and
(Nunnenkamp,1986). Nigeria's obligations arise ifnecessary,to pressureitsbanksto supportbeyond
mainlyfromprivateexportcreditsgrantedinconnec- theirown volition,as occurredin both the early
tion withthe grandiosenationaldevelopmentplan 1970s, and in 1979-80, when the Germanbanks
based on thehighoil pricesof the 1970s. In theory, supplied$500 millionto help Poland meeta major
crisis(Spindler,1984,p. 80).
Nigeria should to be able to pay its way without financial
But doing so exacerbates the
major difficulty.
Lending 'to a nation like Poland is to enter
lifeboaton
waterwithouttheconventional
immanent
divisionsamongits verydiversepeoples, uncharted
as the traumaof the suddendescentfromaffluence board' (Carvounis,1984, p. 151). But the bankers
to parsimonyand the bitterlegacy of colossal cor- believedthattheUSSR,whichdespiteitsrepudiation
through
ruptioneven at the highestlevels of government, of Imperialbonds became credit-worthy
ofkeyfiguresin theBuhari promptpaymentof its own bills,would rescueany
poison society.The flight
The 1976 defaultof
administration
and the oil industrycaused serious clientstatein seriousdifficulties.
and
of
with
whether
North
Korea
on
almost
difficulties
$2 billiondue
Britain,
obligations
diplomatic
Nigeriacould surviveat all appearedat mid 1986 a mainlyto Japan,Swedenand Finlandpuncturedthis
matterofsubstantial
doubt(Economist,
1986a).
optimism,but as few big Western banks were
show old and new involved, the danger signal went unheeded. The
Germanbankloans in contrast,
patterns.Freedom from the taint of colonialism USSR didindeedattemptto assistPolandin 1981,but
helped Germanbanks in enlargingbusiness with the claimsof othersatellitesforsimilarhelp and its
some developingcountries,
notablywiththe politi- own mountingfinancialproblemscompelledit to
cally highlysensitiveoil producers,Indonesiaand abandonPolandto itsown devices.Poland'seffective
Iran (Spindler,1984, p. 68). On the otherhand,in default, followed shortly by that of Romania
loans to Turkeyand to east Europeancountries,
the destroyedthe bankers'optimism;they were then
banksmirrored
theirimperialpredecessors.Lending owed some $80 billionby COMECON countries
to thecountriesof the Councilof MutualEconomic (Rohatyn,1983). Poland has sinceunilaterally
deterAssistance (COMECON/CEMA), which release minedwhatitwillpay,ifanything,
and progresswith
of theirnationalaccountsand most debt reschedulinghas been slow. While German
limitedstatistics
ofwhicharenotmembersoftheIMF,is fraught
with banks were the major sufferers
in these defaults,
risk,but such loans forwardBonn's Ostpolitikof some Americanbanksalso burnttheirfingers.Yet,
reconciliation
withstatesoccupiedby Germanydur- theGermansstillperceivetheUSSR itselfas a good
World
War,
and,thoughunderSoviethegemony, risk;Bonn mobilizedlarge creditsfor the Yamal
ing
avidforwesterncurrencies
fortheirnationaldevelop- gas pipelineagainststrongAmericanopposition,and
ment.Whilethismandatesaccommodationwiththe in mid-1986,the Deutsche Bankannounceda $250
USSR, its crux is relationswith Poland, the most million consortiumloan for acceleratingSoviet
1986).
populous of the Soviet satellites,and with the economicgrowth(WallStreetJournal,
and people.
ThatEastGermany,
withsome$12 billionofdebt,
sharpestcleavage betweengovernment
Poland commandsthe route to East Germany,the muchat shortterm,didnotbecomeanotherdefaulter
USSR's mostvaluable'colony',butitsinstability
and in 1982,probablyowes muchto thecovertsupportof
intractable
economicproblems,whicharisefromthe the West Germanbanks,actingwith Bonn's tacit
Poles' fiercepridein theirnationalidentity,
makeit approval(Delamaide,1984,pp. 94-5). EastGermany
not only a drainon the USSR but also a threatto can,ineffect,
applya financial
pressureon Bonnthatis
Bonn'sDeutschlandpolitik.
This set of understandings littleshortof blackmail.It enjoysa surrogatememand observancesbetweenthetwo Germaniesmakes bershipof theEEC as theFederalRepublictreatsits
daily life more comfortablefor both states, and exportsas 'German',and in manyotherways subsipreservesa common Germanidentitydespite the dizesitsneighbourso thatitenjoysthehighestliving
minimalprospectofpoliticalreunification.
standardsin theCOMECON bloc.Bonn'sgainfrom

428
DONALDW.FRYER
thisoutflowmay appearmeagre,but thepolicyhas corporateinvestment

overseas.Thispatternoffinanhas disturbing
overtones.Japanis the
strongpopularsupportwhichitwouldbe dangerous cialpenetration
forotherNATO countriesto underrate(Ash, 1985, principaltradepartnerof everycountryof East and
South-EastAsia exceptHong Kong,insomecases by
p. 34).
The close identification
of nationalforeignand a substantial
margin,and also of Australia.The situeconomicpolicywithprivatebanklendingvisiblein ationof South-EastAsia, whichis deeplyin debt to
West Germany,is even moremarkedin thecase of Japan,appearsin dangerof approachingthatof preofnational war south-eastEuropein relationto theThirdReich,
Japan.Exportpromotionis a cornerstone
economicpolicy,forthoughforeigntradeis only a when massiveGermanbarterdeals in the autarchic
smallproportionof GNP, exportsare vitalto meet world economyof the 1930s, createdan imperium
the cost of importedraw materialsand particularly even before the Wehrmacht
began to march.By
or barter,
energysources,inwhichJapanis moredependenton mandatinggreateruse of countertrade,
outside suppliersthan is any other major power. Indonesia and other South-EastAsian countries
a painfulreminder
of the 1930s,when the
Japan'spanic in 1978 was a majorfactorin the oil resurrect
and dangerofa relapseintotheprotectionism
of thatera
priceincreasesparkedby theIranianrevolution,
in thatyearoil importsabsorbedover26 percentof appear to be increasing.Barter,and its corollary,
smuggling,have long thrivedin the region,are
exportearnings(Siddayao,1982).
of
Post-warreorganizationhas made the banking encouragedbya uniquegeographicinterdigitation
unitsofthegreatmanufacturing
complexesofMitsui, land and sea, and always increasewhen timesare
Mitsubishiand Sumitomoeven more importantin hard.The growinguse ofbarteralso by largedebtors
overallcorporatepolicythanwas the case withthe suchas Braziland Argentina,
by OPEC membersto
banksoftheold zaibatsu.Aggressiveforeignlending defeattheorganization's
quotas,andby manyLDCs,
with the world
forwardedcorporategrowth,and the largestloans testifiesto growingdissatisfaction
wereforensuringor enlargingthesupplyto Japanof monetarysystem,and augurs ill for futuredebt
ofsuppliers,
the service.
witha multiplicity
keyrawmaterials;
countryis not hostage to any one. Typically,large
loans are made by consortiaheaded by the Bankof
PROSPECT
Tokyo,whichthoughno longerpartlystate-owned
as beforeWorldWar II, has suchclose tieswiththe How to resolveLDCs' debtproblemsliesbeyondthe
ofFinance,and TradeandIndustry
Ministries
(MITI), scope of this paper. Academics,officialsand polithat in practice it acts as a governmentagent ticians, bankers and financial specialists, have
of schemes for remedial
(Spindler,1984,p. 111).Loans to reducedependence suggested a multiplicity
on Persian Gulf petroleumhave gone to China, action, but none has so far possessed political
mostaimat tryingto keeploan payments
Mexico and Indonesia,and for the expansion of feasibility;
or
to
natural
Brunei,
(LNG)
going
preventingbanksfromrecordingobvious
gas
production
liquified
Malaysiaand Indonesia,whichJapanintendsto sub- losses, i.e., essentiallyways of preservinglegal
stituteforoil in electricity
generationto the fullest fictions(Delamaide, 1984, pp. 232-51). Many
see thedebtproblem
and LDCs themselves,
extentpossible (FEER, 1982). The bankshave also writers,
financedjoint ventureswithhost governmentsfor as indicativeof major dislocation in the world
the exploitationof coal, iron ore, bauxite and economy,and evidenceof substantialand perhaps
is veryclear (Thrift,
and othernon-ferrous
1986). But
metals,and tiedto growinginstability
aluminium,
the supply of Japanesemachineryand processing thereis substantialdisagreementon the degree of
necessary,and the more fundamental
restructuring
equipment.
former the changes to the world monetaryand economic
Yet muchofJapanesebanklendingmirrors
imperialinterests(Fisher,1950). Of Bankof Tokyo systemposited,the greaterof course,the political
them.For Lombardi,a
in implementing
was difficulties
loansin 1979-80 ofover$500 million,one-third
the
oil
and
ofEast
South-East
to countries
Asia; exporters banker,
problemessentiallyarises froma false
of
also accountedforaroundone-third
1984,
theory
developmentby multilateralagencies,
(Spindler,
pp. 140-5). Japaneseforeignlending,unlikethatof based on patternsof thinkingderived fromthe
(Lombardi,1985).Whateverthetheory,
Americanand Europeanbankswhichlendmainlyto Enlightment
a
each other,is thus largelydirectedto developing practicehas been miserable;LDC debt represents
countries,a situationthatparallelsthatof Japanese flowofresourceslargerthanthatofMarshallaid,but

International
banklending
the returnhas been farfromcomparable.Several

of theworld
writersfocuson a long overduereform
monetarysystem,the need fora restorationof an
equivalentto the BrettonWoods system,and the
creationof new reserve units (Delamaide, 1984,
pp. 213-31; Feito, 1985; D'Arista, 1986). Others
single out the erosion of the barrierserectedafter
the excesses of the Great Depression to separate
commercialbankingfrominvestmentbanking,and
both frombroking(Kaufman,1986). Still others
see thedebtproblem,andmostothersocio-economic
defectsof modem
ills,as arisingfromfundamental
the
view
of
Marxists
butsharedby
always
capitalism,
thosestressing
(Reich,1983)
'paperentrepreneurship'
or 'casinocapitalism'(Strange,1986),i.e.,a growing
forthespeculativemanipulation
ofpieces
preference
of paperover makingqualityproductsor providing
qualityservices.Yet Braudel,in sharpcontrastwith
is emphaticthatthefull
Marx,Leninand Wallerstein,
of
includingspeculationand the
panoply capitalism,
driveto monopoly,was therefromits verybegincenturyFlorence,and is confident
ningsin thirteenth
thatthesystemwillstay(Wallerstein,
1974; Braudel,
1982, 1984).
Newly-settled developed countries such as
New ZealandandCanada,had a netforeign
Australia,
indebtedness
aroundtheturnofthecentury
amounting to more than 100 per cent of GNP, a situation
comparableto thatofmanymajordebtorcountriesat
present.This did not preventeconomicgrowth,and
duringthis centurytheirdebt ratioswere greatly
reduced(Seiber,1982, p. 23). Butapartfromthefact
thatdebt comparisonsover timehave littlevalidity
because of greatlyvaryingdebt definitions,
these
countrieshad greatadvantagesnotenjoyedby present LDCs, not least an expandingworld economy
witha fixedexchangeratesystemof thegold standard,and fixedinterestrateson debt.Historyoffers
littlecomfort;as noted, Latin Americandefaulters
have been so fromtheirbeginnings.
Loans to sovereignstates are politicalacts, as
observed,and thatthewhole mechByroncorrectly
anismofinternational
creditneedsgreaterregulation
and consensus appears mere commonsense.This
seemsparticularly
so in thecase ofprivatelendingto
communist
states.It is arguedthatbankersshouldbe
allowed to turna profitwherevertheycan,and that
lending to Soviet satelliteshelps to lessen their
dependenceon theUSSR andincreaseseconomicand
culturalcontactswiththeWest. In factsuchlending
has involvedthebanksin largelosses whichtheyare
tryingto conceal, and there is littleevidence of
429
FortheUnitedStates,
greatersatelliteindependence.
a minorlenderto EastEurope,thecase forreserving
such lending to governmentis strong (Rohatyn,
1983). In West Germany,whose tradewithEastern
Europeis vital,such privatelendingin practicehas
always been largely directedand monitoredby
government.
theLDC debtproblemis butpartofa much
Finally,
wider problemof debt; in 1986 the United States
became the world'slargestdebtor,with a national
debt exceeding$1-3 trillion.It possessed nevertheless, an unlimitedsupplyof dollars,but it was clear
thatthisdebtmagnitude
was possibleonlyso longas
werepreparedto acceptthem,and to lend
foreigners
to ormakeinvestments
in,thecountry.
1982,theyear
oftheMexicancrisis,was also a yearofrecordbankruptciesin the developed world,and forthe 'cliffhanger'rescueof some of the largestMNCs. Nor
were West Germanyor Japanspared such trauma.
Simplyput,all of thesephenomenasharea common
to cut expendiorigin,an inabilityor unwillingness
tureto matchincome.Citizenshave long mistrusted
theirgovernments'
freedomto createmoney,and as
banksdo the same by 'a processso simplethatthe
mindis repelled'(Galbraith,
1975,p. 18),thevirtually
limitlessfreedomthatbankersenjoyedin therecent
creditcreationon an unprecepast forinternational
dentedscale,shouldgeneratean equallygreatpublic
mistrust.Supremethoughthe dollar stillis in the
world monetarysystem,it is abundantlyclear that
unlikein 1950-65, theUnitedStatesno longerpossesses thematerialresources,
northepoliticalwill,to
supporta world hegemony,and to carrysinglehanded responsibilityfor operatingthe principal
reserveofworldtradeand finance.True,thecountry
is betterequipped forsuch a taskthanwas Britain
in the early 1950s, but world monetaryreform
mandates greaterparticipationby Europe, Japan,
other 'emerging'developed countriesand eventuof
ally LDCs themselves,in creatinga framework
monetaryinstitutions
capable of providingfor an
The
intercourse.
expandingworldtradeand financial
such a restructuring
would
politicalreadjustments
entailarelikelyto be traumatic.
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The Political Geography of International Lending by Private Banks

Author(s): Donald W. Fryer

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The good newsis thatChaseManhattan

The Mexican financialcrisisof August 1982 and de

Trans.Inst.Br.Geogr.N.S. 12: 413-432 (1987) ISSN: 0020-2754

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This content downloaded from 194.128.227.202 on Fri, 9 Jan 2015 05:53:27 AM

This content downloaded from 194.128.227.202 on Fri, 9 Jan 2015 05:53:27 AM

providingoutrightgrantsforEuropeanreconstruc- The originsof theEurodollarmarketare obscure,

This content downloaded from 194.128.227.202 on Fri, 9 Jan 2015 05:53:27 AM

underattackfromtheenormous'shut-in'surplusesof agencies such as the World Bank, or to private

This content downloaded from 194.128.227.202 on Fri, 9 Jan 2015 05:53:27 AM

Eurodollar also turnedincreasinglyto bank loans to finance

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more,theircash flowproblemwilldisappear(IBRD, Of thelattermost,

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Latin America, Caribbean

2.4 2.7 2.3 2.6

FIGURE 2. Foreignloans by majorUS Banks(GrossOutstandingclaims,US$ billions,end 1983)

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thisoutflowmay appearmeagre,but thepolicyhas corporateinvestment

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the returnhas been farfromcomparable.Several

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This content downloaded from 194.128.227.202 on Fri, 9 Jan 2015 05:53:27 AM

NAGY, P. J.(1979) Country

O'DELL, P. R. (1982) Oil and world power, 7th ed.

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US CONGRESS (1983) (to comelater)

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