¹ Brazil, Argentina, South Korea, the Philippines, Chile, Thailand, Taiwan, Colombia, Turkey, Ivory Coast, Bolivia, and India. Until Mexico's recent oil discoveries, it was also grouped with these countries. With over $34 billion in outstanding commercial loans, it is second only to Brazil an LDC borrower.

² Morgan Guaranty Trust. World Financial Markets, 01 1981, p. 4Google Scholar, Table 6.

³ Ibid., Table 5.

⁴ Bank for International Settlements (BIS), “International Banking Developments—Second Quarter 1980”, 19 11 1980Google Scholar, Table 6. Figure as of 30 June 1980.

⁵ This strategy of indebted growth is discussed in detail in Jeff Frieden, “Third World Indebted Industrialization: International Finance and State Capitalism in Mexico, Brazil, Algeria, and South Korea”, International Organization 35,3 (Summer 1981): 407–31.

⁶ Much of this bank lending was not made to finance balance-of-payments deficits specifically, even though it released other funds for that purpose. Typically, the credits were meant to finance corporate investments or the budgetary deficits of parastatal enterprises. Thus, while Eurolending played a crucial role in financing aggregate deficits, it is not always easy to distinguish resource flows from payments financing. For a comprehensive analysis of these issues see Cohen, Benjamin J. and Basagni, Fabio, Banks and the Balance of Payments: Private Lending in the International Adjustment Process (Montclair, N. J.: Allenheld Osmun, 1981)Google Scholar.

⁷ The term Euromarket is commonly, if somewhat inaccurately, used to refer to all offshore credit markets. In this article, I shall use the two terms interchangeably. The distinctive feature of these markets is that they deal in Eurocurrencies, which can be defined as bank deposits denominated in any currency that is not native to the country where the deposit is located. Dollar deposits in the Cayman Islands, for example, are Eurodollars, Deutsche Marks on deposit in Luxembourg are Euro-DMs, and so on for all the major convertible currencies. The market for these offshore currencies is based in London but stretches as far as the Asia-dollar markets in Singapore and Hong Kong, and includes a number of financial centers and tax havens in between.

⁸ Bank credits are not the only source of private international lending, but they are by far the most important source of medium and long-term credits. International bond markets have been much less receptive to underdeveloped states and have remained the preserve of “name” borrowers from the United States and Europe. In recent years, nonoil LDCs have borrowed about $2.6 billion annually in foreign bonds and Eurobonds. They have borrowed ten times that amount in publicized Eurocurrency bank credits (plus a small but growing amount in unpublicized credits). In addition, suppliers' credits, which are frequently furnished by exporters and sometimes subsidized by their governments, are a major source of short-term trade financing.

⁹ One possible exception, so far untested, might be fraud or some other clearly illegal act by lenders. As yet, debtors have not advanced such claims as a way of escaping their debt burdens and that, in itself, is noteworthy.

¹⁰ “Pyongyang Buys More Time”, Far Eastern Economic Review, 7 September 1979, pp. 56, 59.

¹¹ Downer, Steve, “Nicaragua: The Recovery is Only Just Beginning”, Euromoney, December 1980, esp. p. 129Google Scholar; Dizard, John, “Why Bankers Fear the Nicaraguan Solution”, Institutional Investor/ International Edition, November 1980, esp. p. 54Google Scholar.

¹² Lewis, Paul, “Iran's Loan Status Seen Recovering”, New York Times, 21 01 1981, p. 25Google Scholar.

¹³ For an examination of U. S. banks' entrance into the Euromarkets, see Kelly, Janet, Bankers and Borders: The Case of American Banks in Britain (Cambridge, Mass.: Ballinger, 1977)Google Scholar.

¹⁴ Eighty-nine banks are directly represented and five more participate through shareholding in a consortium bank. Parker, Carol, “Foreign Banks in London: New Opportunities for Expansion”, The Banker, 11 1980, p. 97Google Scholar.

¹⁵ Some estimates of the number of Euromarket financial institutions run much higher. Saeed Abtahi, for one, has put the number at around 700. See Abtahi, , “Financial Flows to the Developing Countries: The Case of Eurodollar Credits”, D. B. A. dissertation, Harvard Business School, 1976, p. 86Google Scholar. As of 1980, 401 foreign banks were registered in London according to The Banker, November 1980, p. 87. In addition, Singapore, one of the two centers of the Asia-dollar market, now has more than 100 licensed operators with total assets and liabilities of about $39 billion. Wall Street Journal, 26 March 1980, p. 18Google Scholar.

¹⁶ World Financial Markets, April 1981, p. 13. Net size differs from gross size by excluding cross-deposits among banks.

¹⁷ Mendelsohn, M. S., Money on the Move: The Modern International Capital Market (New York: MCGraw-Hill, 1980), p. 80Google Scholar.

¹⁸ In 1978, for instance, Eurodollar deposit rates commanded a premium of 0.375% to 0.5% over U. S. certificates of deposit. That differential moved slightly higher in 1979 and 1980: see BIS 1979 Annual Report, pp. 127–28, and BIS 1980 Annual Report, p. 109. Deposit rates in the two markets covary, with Euromarket premiums largely a function of U. S. reserve requirements, Federal Deposit insurance costs, and the noninfinite elasticity of funds with respect to small interest-rate differentials. See Robert Aliber, Z., “Monetary Aspects of Offshore Markets”, Columbia Journal of World Business 14 (Fall 1979): 8–16Google Scholar, and Ian H. Giddy, “Why Eurodollars Grow”, ibid., pp. 54–60.

¹⁹ IMF Survey, 3 September 1979, p. 274 (table). The Euromarket has thus continued to grow rapidly despite significant redistributions of current-account surpluses. That growth, however, does not mean that Euromarket size is unaffected by the distribution of surpluses. It would be affected if savers in different countries had different marginal propensities to buy Euromarket deposits. I am indebted to Robert Aliber for this point.

²⁰ BIS, “International Banking Developments—Second Quarter 1980”, Table 7.

²¹ The Banker, August 1979, p. 113; World Financial Markets, November 1979, p. 12. These figures refer to publicized Eurocurrency credit. Very few LDCs participate in the international bond market, and their share is typically less than 10% of that market.

²² BIS 1980 Annual Report, p. 102. The BIS figures include Mexico so they are designated “non-OPEC” in the text rather than nonoil or oil-importing.

²³ World Financial Markets, January 1981, Table 5, p. 4.

²⁴ Ibid.

²⁵ BIS 1980 Annual Report, p. 119.

²⁶ Euromoney, March 1978, p. 45.

²⁷ Quoted in Hauge, Gabriel, Hoffmeyer, Erik, and Roll, Lord of Ipsden (commentator), The International Capital Market and the International Monetary System, 1978 Per Jacobsson lecture (Washington, D.C.: IMF, 1978), p. 11Google Scholar.

²⁸ World Financial Markets, January 1981, Table 5, p. 4.

²⁹ World Financial Markets, December 1980, pp. 11–12.

³⁰ Amortization payments now add over $15 billion annually to nonoil LDCs' gross financing requirements. If one totals 1980 outlays for oil imports, gross interest payments, and amortization for the 12 major nonoil LDCs, the figures reach approximately $73.7 billion, over 56% of exports (calculated from World Financial Markets, January 1981, Table 5, and September 1980, Table 2). The figure for Brazil is a staggering 107% of exports: Wall Street Journal, 10 February 1981, p. 26.

³¹ Address by Larosiere, J. de, managing director of the IMF, in IMF Survey, 18 May 1981, p. 150Google Scholar.

³² Address by J. de Larosiere, IMF Survey, 10 November 1980, p. 346.

³³ Address by J. de Larosiere, IMF Survey, 18 May 1981, p. 150.

³⁴ See, for example, the address by J. de Larosiere, IMF Survey, 10 November 1980, p. 346; also World Financial Markets, December 1980, p. 11.

³⁵ Paul Volker, chairman, U.S. Federal Reserve Board, “The Recycling Problem Revisited”, mimeo, 1 March 1980, Table 4.

³⁶ Business Week, 19 January 1981, p. 90.

³⁷ Ibid.

³⁸ Institutional Investor/International Edition, March 1981, p. 146. These figures allot the full amount of the loan to the lead manager. The top bank, Citicorp International Group, led 71 loans worth over $13 billion. By comparison, the twentieth-largest syndicate manager, Société Générale de Banque, led 22 loans worth over $6 billion.

³⁹ Euromoney, March 1978, p. 25.

⁴⁰ Wall Street Journal, 2 January 1979, p. 16.

⁴¹ Policy differences arose within lending syndicates in Indonesia, Turkey, Peru, Zaïre, and elsewhere. They are discussed by Aronson, Jonathan in “The Politics of Private Bank Lending and Debt Renegotiation”, in Aronson, , ed., Debt and the Less Developed Countries (Boulder, Col.: Westview Press, 1979)Google Scholar.

⁴² Mendelsohn, Money on the Move, p. 90.

⁴³ See “Euro-law Left in Limbo”, The Banker, 03 1981, pp. 84–85Google Scholar.

⁴⁴ U. S., Congress, Senate, Committee on Banking, Housing, and Urban Affairs, Hearings on International Debt, 95th Cong., lstsess., 1977, p. 88.

⁴⁵ Statement by Frederick Heldring, president, Philadelphia National Bank, in U. S., Congress, House, Committee on Banking, Finance, and Urban Affairs, Hearings on U.S. Participation in the Supplementary Financing Facility of the International Monetary Fund, 95th Cong., 1st sess., 1977, p. 142.

⁴⁶ There is a growing literature—and some sharply divergent opinions—on the effects of these stabilization programs. For an IMF staff view, see Reichmann, Thomas M. and Stillson, Richard T., “Experience with Programs of Balance of Payments Adjustment: Stand-By Arrangements in the Higher Tranches, 1963–72”, International Monetary Fund Staff Papers 25 (06 1978): 293–309CrossRefGoogle Scholar. A number of useful contributions can be found in Cline, William R. and Weintraub, Sidney, eds., Economic Stabilization in Developing Countries (Washington, D.C.: Brookings Institution, 1981)Google Scholar. The effectiveness of IMF programs is challenged empirically by Thomas A. Connors in an unpublished International Finance Discussion paper for the Federal Reserve Board.

⁴⁷ Euromoney, March 1978, p. 10; International Monetary Fund, Office of the Secretary, “Multilateral Debt Renegotiations—Experience of Fund Members”, unpublished internal memorandum, 6 August 1971, p. 25.

⁴⁸ Hearings on U. S. Participation in the Supplementary Financing Facility of the International Monetary Fund, p. 72. Richard Cooper, then undersecretary of state, added that the IMF is especially skilled at facilitating domestic stabilization. It is, he says, the catalyst for the politically difficult adjustment process. U. S., Congress, Senate, Committee on Foreign Relations, Hearings on American Foreign Economic Policy: An Overview, 95th Cong., 1st sess., 1977, esp. p. 48. It clear from these and other hearings that both bankers and policy makers understand the IMF's capacity to compel adjustment and to secure public and private debts through its conditional lending.

⁴⁹ Prout, Christopher, “Finance for Development Countries: An Essay”, in Shonfield, Andrew, ed., International Economic Relations of the Western World 1959–1971, vol. 2 (London: Oxford University Press for the Royal Institute of International Affairs, 1976): 389–401Google Scholar.

⁵⁰ While private creditors may provide new credits and occasionally permit principal repayments to be stretched out over a longer period, they almost always demand that interest payments be kept current. The conventionality of these arrangements is best shown by the controversy over a recent deviant case, Nicaragua. As John Dizard writes in Institutional Investor/International Edition, “From the dawn of banking—even through the latest period when occasional reschedulings of government debt have been permitted—one rule has remained sacred:…never, never give up on interest payments, lest you put the store in jeopardy…. Even Zaïre, whose repayment problems are legendary, has kept its interest payments more or less current”. But in Nicaragua's case, the 115 lenders capitalized and deferred more than three-quarters of its past-due interest. Both the banks and Nicaragua's finance officials went to some lengths to insist that the country is a unique case, requiring unique treatment. Even so, there has been considerable discussion about whether Nicaragua's rescheduling has set a precedent for other troubled debtors. See Dizard, “Why Bankers Fear the Nicaraguan Solution”; also “The Nicaraguan Precedent”, Institutional Investor/International Edition, December 1980, pp. 110–11.

⁵¹ For official creditor positions, see the testimony of John Lange, U. S. Treasury, in U. S., Senate, Committee on Banking, Housing, and Urban Affairs, Hearing on U. S. Loans to Zaïre, 96th Cong., 1st sess., 1979, p. 20; Brian Crowe (of the U. S. State Department), “International Public Lending and American Policy”, in Aronson, , ed., Debt and the Less Developed Countries, esp. pp. 33–34Google Scholar; and Cizauskas, Albert C. (of the World Bank), “International Debt Renegotiation: Lessons from the Past”, World Development 7 (February 1979), pp. 202–203CrossRefGoogle Scholar.

⁵² See statement by Richard Cooper in Hearings on International Debt, p. 66.

⁵³ International Bank for Reconstruction and Development (IBRD), “Multilateral Debt Renegotiations: 1956–1968”, unpublished, 11 04 1969, p. 29Google Scholar.

⁵⁴ Lewis, Vivian, “Inside the Paris Club”, Institutional Investor/International Edition, 06 1980, p. 36Google Scholar.

⁵⁵ Aronson, Jonathan, Money and Power: Banks and the World Monetary System (Beverly Hills, Calif.: Sage Publications, 1977), pp. 167–76Google Scholar; IMF Survey, 18 June 1979, p. 187.

⁵⁶ Crowe, “International Public Lending”, Table 4.

⁵⁷ IMF, “Multilateral Debt Renegotiations—Experience”, p. 13Google Scholar.

⁵⁸ Bee, Robert N., “Lessons from Debt Reschedulings in the Past”, Euromoney, 04 1977, pp. 34–35Google Scholar.

⁵⁹ IBRD, “Multilateral Debt Renegotiations: 1956–1968”, p. 39Google Scholar.

⁶⁰ G. A. Costanzo, vicechairman of Citicorp, remarked that “the reaction to this loan was a signal to me that I want no part of deals with that kind of discipline in the future”. Quoted by Belliveau, , “What the Peru Experiment Means”, Institutional Investor/International Edition, 10 1976, p. 34Google Scholar.

⁶¹ Subsequent negotiations with Peru involved the IMF, and lenders have refused to discuss refinancing in Jamaica without direct IMF involvement in a stabilization program.

⁶² Hearings on International Debt; Hearings on U. S. Participation in the Supplementary Financing Facility of the International Monetary Fund; U. S., Congress, Senate, Committee on Banking, Housing, and Urban Affairs, Hearing on IMF Supplementary Financing Facility, 95th Cong., lstsess., 1977.

⁶³ Zolotas, Xenophon, “The Case for an International Loan Insurance Fund”, The Banker, 11 1980, pp. 33–36Google Scholar. Zolotas, a governor of the Bank of Greece, argues that recycling of oil surplus funds should take place primarily through commercial banks and that an international loan insurance fund would strengthen the international banking system.

⁶⁴ Business Week, 30 June 1980, p. 40.

⁶⁵ Cofinancing with private lenders was begun after the oil embargo and was loosely modeled on a World Bank program for European reconstruction. The Bank also cofinances with official aid agencies and export credit institutions. The World Bank's 1980 Annual Report states that “the Executive Directors, during the past year, reviewed the Bank's co-financing experience and gave direction to possible ways to expand co-financing opportunities in the future” (p. 68). The program is growing but is still quite small compared to the volume of commercial lending. From fiscal 1975 to 78, the Bank cofinanced 29 operations involving $900 million in private funds; in fiscal 1979 it cofinanced 16 more with $550 million in private funds (1980 Report, p. 69). The bank's new attitude is summed up in the title of a recent article by Leeds, Roger S. of the International Finance Corporation, “Why We Need More Co-financing”, The Banker, 08 1980, p. 25Google Scholar. See also Johnson, Christopher, “Searching for Foundations in Belgrade”, The Banker, 11 1979, p. 46Google Scholar.

⁶⁶ Einhorn, Jessica, “Cooperation between Public and Private Lenders to the Third World”, The World Economy 2 (05 1979): 236–39Google Scholar.

⁶⁷ [Vries, Rimmer de,] “The International Debt Situation”, World Financial Markets, 06 1977, p. 12Google Scholar.

⁶⁸ The World Bank, for instance, concludes in its World Development Report, 1979 that “there may be advantages to closer coordination between official creditors and commercial banks in debt renegotiation exercises” (p. 33).

⁶⁹ IMF Survey, 15 December 1980, p. 377; IMF Survey, 9 February 1981, p. 33.

⁷⁰ IMF Survey, 4 May 1981, pp. 129, 146; IMF Survey, 6 April 1981, pp. 97–101; plus conversations with Fund officials.

⁷¹ Shapiro, Harvey D., “The IMF's Identity Crisis”, Institutional Investor/International Edition, 09 1980, p. 105Google Scholar; Hobart Rowen, “The Washington Agenda”, ibid., p. 136; Dizard, John, “The Flap over the IMF's Market Debut”, Institutional Investor/International Edition, 01 1981, pp. 51–54Google Scholar; IMF Press Release 81/34, 8 May 1981.

⁷¹ Gilpin, Robert, U. S. Power and the Multinational Corporation (New York: Basic Books, 1975), p. 39CrossRefGoogle Scholar.

⁷³ Monetary authorities were not always passive, however, and those decisions also affected market size. In June 1971, for example, the major central banks agreed not to increase their official reserve holdings in the Euromarkets. This agreement was based on the supposed inflationary effects of such deposits. For a theoretical critique, see Dufey, Gunter and Giddy, Ian H., The International Money Market (Englewood Cliffs, N.J.: Prentice-Hall, 1978), pp. 169–77Google Scholar.

⁷⁴ MCKinnon, Ronald I., Money in International Exchange: The Convertible Currency System (New York: Oxford University Press, 1979), p. 209Google Scholar. McKinnon's view is widely—but not universally—held. In private communication, Robert Aliber has challenged the necessity of final settlement in national monies.

⁷⁵ Einhorn, Jessica P., “International Bank Lending: Expanding the Dialogue”, Columbia Journal of World Business 13 (Fall 1978), especially pp. 126–29Google Scholar; Giddy, Ian and Allen, Deborah, “International Competition in Bank Regulation”, Banca Nazionale delLavoro Quarterly Review, no. 130 (09 1979)Google Scholar; Cohen and Basagni, Banks and the Balance of Payments, chap. 5.

⁷⁶ The 1975 Basle Concordat was developed in the aftermath of two significant bank failures: Bankhaus Herstatt and Franklin National. See Muller, H. J., “The Concordat”, De Nederlandsche Bank, N. V., Quarterly Statistics, 09 1979, pp. 84–91Google Scholar; Frankel, Allen B., “The Lender of Last Resort Facility in the Context of Multinational Banking”, Columbia Journal of World Banking 10 (Winter 1975), esp. pp. 120–22Google Scholar; Spero, Joan E., The Failure of the Franklin National Bank (New York: Columbia University Press, 1980)Google Scholar, chap. 6. For a chilling description of the potential ineffectiveness of international cooperation see Dizard, John, “How the Interbank Market System Could Come Tumbling Down”, Institutional Investor/International Edition, 10 1980, pp. 71–83Google Scholar

⁷⁷ Mayer, Helmut, “Credit and Liquidity Creation in the International Banking Sector”, Bank for International Settlements, Basle (BIS Economic Papers, no. 1, 11 1979), p. 21Google Scholar. Aliber, Robert Z., “The Integration of the Offshore and Domestic Banking System”, Journal Monetary Economics 6 (1980): 509–26CrossRefGoogle Scholar.

⁷⁸ Where security issues are highly salient, one might expect greater state involvement in debt issues. Specifically, one would expect financial support for allies suffering debt problems. only recent example is Turkey, where several NATO states played an especially active role reorganizing debts. Indeed, the OECD (which has a considerable overlap with NATO's membership) replaced the IMF as the organizer of the creditor conference (Banker, August 1979, p.15) The pole of military power is still the pole of states.

⁷⁹ The communication that is required for collective action is undoubtedly facilitated by the sociological context of international banking: the physical proximity of key actors in London and New York, their long-standing working relationships, and their similar patterns of education, recruitment, and training.

⁸⁰ The contractual form of debt is another residual role of state authority.

⁸¹ See Payer, Cheryl's discussion of “The Breakaways: Chile, Ghana, North Korea”, in Payer, , The Debt Trap (New York: Monthly Review Press, 1974)Google Scholar. Two of those cases are also examined by John Odell in “The Politics of Debt Relief: Official Creditors and Brazil, Ghana, and Chile”, in Aronson, ed., Debt and the Less Developed Countries.

⁸² It can be differentiated from extrinsic sanctions, which involve some form of compulsion closely tied to the specific substance of the dispute, as in tactical issue linkage. An extrinsic reward would be a side-payment.

⁸³ A relationship between the degree of institutionalization and the form of collective interests suggested in Arthur Stein, “Global Anarchy, State Interests, and International Regimes”, paper delivered at the 1980 APSA Convention.

⁸⁴ Young, Oran, “International Regimes: Problems of Concept Formation”, World Politics 32 (04 1980), p. 333CrossRefGoogle Scholar.