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.