A Long-Term Solution For LDC Debt

Global debt problems are threatening the worldwide financial system, yet the majority of proposed solutions fail to provide long-term relief to the troubled, less developed countries (LDC). Current relief packages offer new money to debtor countries that is used solely to pay interest. Long-term loans to LDCs, as well as policies geared for sustained recovery, are necessary to help the international finance system. Creditors should give LDCs a chance to increase their foreign-exchange earnings through exports by providing additional long-term loans. A proposal to get new funds into LDCs for long-term use asks the parties to the debt to share the responsibility for financially reestablishing LDCs. In this proposal, an agency, sponsored by major industrial nations, would take over part of an LDC's debt from banks. The agency would issue its own bonds to the banks, making this exchange at face value of the debt to avoid losses to banks through loan write-offs. As the key element of the plan, bonds would be issued with maturities adjusted to the LDC's ability to pay. The plan would improve an LDC's chances for financial recovery, service its existing debt, and rebuild confidence in the international financial system.