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International Trade and Finance

Notes interests but also because it will involve extending international trade negotiations outside traditional
lines into subjects previously regarded as domestic concerns.
A similar extension of international trade negotiations into domestic policies is required to reduce
purchasing restrictions of government buyers in transportation and telecommunications and to
improve the international allocation of investment, the production of services, and the protection of
patents and other forms of intellectual property. The current Uruguay Round of trade negotiations
has recognized the importance of these issues. Only time will tell whether the potential gains from a
better international division of labor and the negotiating skills of the parties will together be powerful
enough to overcome the powerful domestic interests that stand in their way.
20.4 Developing Country Debts

Despite the conference’s overarching theme of international cooperation and coordination, a striking
feature of the presentations and discussion about the less-developed countries’ (LDC) debt problem
was the virtual absence of explicit references to intergovernmental coordination. That aspect of the
conference is of course just a reflection of the way the international debt problem has been handled in
practice.
Despite the desire of some commercial bankers, academic economists, and others to get governments
individually and collectively to play a larger part in the resolution of the debt problem, the governments
have been understandably reluctant to assume such a role. When governments have acted, they have
generally acted in a largely independent role. The United States provided several “bridge” loans at
an early stage in the debt crisis until commercial bank and IMF funding could be arranged. The
Japanese government is now proposing to provide longer term credits on a unilateral basis and
through the IMF, the World Bank, and the regional development banks. Individual governments
have modified domestic banking rules to strengthen their domestic banks and to encourage those
banks to continue lending to the debtor countries, with an informal, ad hoc coordination of these
banking “reforms” through the regular meetings of central bankers at the Bank for International
Settlements. The only explicit intergovernmental coordination of policy was through the Paris Club
meetings at which the governments acted in their roles as creditors of the specific borrowing nations.
The IMF was the only official participant that played an explicit major role in dealing with the debts
to private creditors.
Despite the very limited official government coordination in this area, there has been extensive private
coordination among the commercial banks around the world. The coordination committees of
representatives of the major commercial banks have negotiated with the individual debtor
governments on behalf of all the creditor banks. The debt problem has been managed by private
international cooperation rather than by government coordination.
Looking ahead, the key role for official international cooperation in dealing with the debt problem
should be maintaining open markers for the exports of the debtor countries. To service their debts
while maintaining politically acceptable economic growth, the debtor countries must export. An
increase in their exports will require a reorientation of domestic policies by the debtor nations, but it
will only be possible if the creditor nations keep their markets open. Since the open markets of each
creditor nation help all other creditors, and since the creditor nations as a whole have strong financial,
economic, and political interests in the successful evolution of the debt problem, there is a powerful
case for a coordinated agreement to maintain open markets for the products of these countries.
Self-Assessment
1. Choose the correct options:
(i) Those groups of countries which seek mutual economic benefit from reducing interregional
trade and tariff barriers are called:
(a) cartels. (b) strategic alliances.
(c) multinational market regions. (d) confederations.
(e) none of the above.

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