The Economic North–South Divide

The Economic North–South Divide

Six Decades of Unequal Development

Kunibert Raffer and H. W. Singer

The Economic North–South Divide explores the structural roots of the debt crisis and considers the impact of debt management on North–South economic relations, exposing certain double standards that tilt global markets further against the South. Encouraged by recent successful opposition to neoliberalism, the authors finally propose ideas for a world where people seem to matter.

Chapter 10: The Debt Crisis: Historical Roots and ‘Debt Management’ During the 1980s

Kunibert Raffer and H. W. Singer

Subjects: development studies, development economics, economics and finance, development economics


August 1982, when Mexico declared itself unable to honour debt obligations as contractually due, is conventionally seen as the beginning of the debt crisis, although Poland’s default in 1981 was already a major shock. However, dating the beginning of the debt crisis in the 1980s veils the fact that the underlying structural causes of the debt problem had existed long before. The date also disguises the long and dismal record of debt management and the ineffectiveness of the policies enforced by the BWIs in restoring the sustainable economic viability of debtor countries. The debt problem results from structural inequalities and disequilibria in the global economy, putting SCs at a disadvantage: the structural resource gaps to which the PST had drawn attention when showing evidence for secularly falling terms of trade. This problem was covered up by the ‘easy money’ of the 1970s - more precisely, the increasing exposure of commercial banks in the South, starting as early as the end of the 1960s. The end of high international liquidity in the 1980s brought it again to everyone’s attention. The Pearson Report (Pearson et al., 1969, pp.153ff), prepared on request of the president of the World Bank, already identified structural origins of the debt problem. Debt relief was strongly recommended. The report warned of ‘many serious difficulties’ that could result from ‘very large scale lending’, emphasizing that ‘The accumulation of excessive debts is usually the combined result of errors of borrower governments and their foreign creditors. Failures on the part of...

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