How the International Monetary Conference Helped Fuel the 1980s Debt Crisis

Written on May 16th, 2014 in politics Comments Off

Published on Dissident Voice (first on Global Power Project, see below), Part 2/4, by Andrew Gavin Marshall, May 14, 2014.

… What Fueled the Debt Crisis?

The 1980s debt crisis erupted when Mexico announced in 1982 that it could no longer service its debts to Western, and primarily American, banks. This resulted in a crisis that quickly spread across Latin America, Africa and parts of Asia. The oil price rises of the 1970s had led to a surge in revenues for oil-producing nations, which had invested their surplus oil wealth in Western banks that then lent the money to poor, developing nations requiring oil in order to finance their industrialization.

Then, following the 1979 oil shocks, the Federal Reserve in the United States decided to dramatically increase interest rates. The result: interest payments on “third world” debts skyrocketed, ultimately forcing Mexico and other nations to seek bailouts in order to pay their interest to the world’s major banks.

At the 1980 International Monetary Conference meeting, two years before the debt crisis erupted, some of the world’s top bankers – particularly Wilfried Guth, the managing director of Deutsche Bank – warned that a “safety net” may be needed to bail out the major banks that lent money to the developing world. Chase Manhattan Chairman David Rockefeller, who also attended the meeting, agreed that such a “safety net” for the banks was “well worth considering.”

Other leading bankers warned that since the world’s major banks were big lenders to each other, there was “a danger that if one large institution were to fail, a chain reaction could be started that would topple other banks around the world.” (“A ‘Safety Net’ for Banks is Proposed,” New York Times, June 3, 1980).

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