The Debt Crisis

The windfall surpluses accruing to the oil producing countries of OPEC during the1970's - $310 billion for the period of 1972-1977 alone - created a massive recycling problem. Much of this money went into Northern commercial banks who turned around and loaned it to non-oil producing Third World governments desperate to pay escalating fuel bills and fund their development goals. The debt of the non-oil producing Third World increased five fold between 1973 and 1982, reaching a staggering $612 billion, and the high interest rates of the mid-1980s further exacerbated the problem. Much of this loan money was squandered on ill-considered projects or simply siphoned off by Third World elites into personal accounts in the same Northern banks that had made the original loans. Cash-strapped countries like Peru and Mexico were unable even to pay the interest due on their debts. Northern politicians and bankers began to get nervous that the sheer volume of unpayable loans would undermine the world financial system. They turned to the World Bank and the IMF, who were to restructure Third World economies so they could meet their debt obligations.