INTERNATIONAL DEBT AND CENTRAL BANKING IN THE 1980s

INTERNATIONAL DEBT AND CENTRAL BANKING IN THE 1980s

STUDIES IN BANKING AND INTERNATIONAL FINANCE Published by Macmillan in association with the Centre for Banking and International Finance, The City University, London General Editor: Geoffrey E. Wood Roy A. Batchelor and Geoffrey E. Wood (editors) EXCHANGE RATE POLICY Forrest Capie and Geoffrey E. Wood (editors) FINANCIAL CRISES AND THE WORLD BANKING SYSTEM Brian Griffiths and Geoffrey E. Wood (editors) MONETARY TARGETS MONETARISM IN THE UNITED KINGDOM Donald R. Hodgman and Geoffrey E. Wood (editors) MONETARY AND EXCHANGE RATE POLICY Zannis Res and Sima Motamen (editors) INTERNATIONAL DEBT AND CENTRAL BANKING IN THE 1980s Series Standing Order If you would like to receive future titles in this series as they are published, you can make use of our standing order facility. To place a standing order please contact your bookseller or, in case of difficulty, write to us at the address below with your name and address and the name of the series. Please state with which title you wish to begin your standing order. (If you live outside the UK we may not have the rights for your area, in which case we will forward your order to the publisher concerned.) Standing Order Service, Macmillan Distribution Ltd, Houndmills, Basingstoke, Hampshire, RG21 2XS, England.

International Debt and Central Banking in the 1980s Edited by Zannis Res and Sima Motamen M in MACMILLAN PRESS association with the Palgrave Macmillan

0 Zannis Res and Sima Motamen 1987 Softcover reprint of the hardcover 1st edition 1960 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright Act 1956 (as amended), or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 7 Ridgmount Street, London WClE 7AE. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. First published 1987 Published by THE MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 2XS and London Companies and representatives throughout the world British Library Cataloguing in Publication Data International debt and central banking in the 1980s. -(Studies in banking and international finance) 1. Debts, External 2. Banks and banking, Central I. Res, Zannis 11. Series 336.3'6 HJ8015 ISBN 978-1-349-08331-2 ISBN 978-1-349-08329-9 (ebook) DO1 10.1007/978-1-349-08329-9

Contents Foreword Notes on the Contributors vii viii 1 Introduction Zannis Res and Sirna Motarnen PART I THE 1983 CONFERENCE 2 Notes on the Problem of International Debt Allan H. Meltzer 3 A Central Banker's View about the International Debt Crisis 31 Brian Quinn 4 The Lessons of the Crisis: a Developing Country View 41 Carlos Geraldo Langoni 5 The International Debt Crisis - A Growth-oriented Management Approach 57 Paulo Pereira Lira 6 The International Debt Threat: a Way to Avoid a Crash Minos Zornbanakis PART I1 THE 1984 CONFERENCE 7 Properties of Monetary Systems Allan H. Meltzer Comment on 'Properties of Monetary Systems' 105 Geoffrey E. Wood

vi Contents 8 The Costs and Benefits of International Banking Shelagh A. Heffernan Comment on 'The Costs and Benefits of International Banking' D. Fitzgerald Reply to Comments by D. Fitzgerald Shelagh A. Heffernan 9 International Lenders of Last Resort: Are Changes Required? Stephany Griffith-Jones and Michael Lipton Comment on 'International Lenders of Last Resort: Are Changes Required?' K. Phylaktis 10 The Theory of Last Resort Lending Michael Beenstock Comment on 'The Theory of Last Resort Lending' Lionel D. Price 11 Country Risk: A Model for Predicting Debt Servicing Problems in Developing Countries R. J. Taffler and B. Abassi Index Comment on 'Country Risk: A Model for Predicting Debt Servicing Problems in Developing Countries' Roy Batchelor

Foreword In the late 1970s and early 1980s, the world became increasingly aware of the mounting problems of international debt, and the ability of the debtor countries to repay. This book is concerned with the international debt crisis and its solutions, particularly the role of Central Banks. The collection of papers, presented in two consecutive conferences, includes the views of central bankers, Euromarket leaders and economists spread around the globe from Europe to South America. Conflicts of interest between North and South are clearly identified and various authots propose policies which attempt to resolve such conflicts. There is no unanimity of views, only a genuine endeavour to avoid the collapse of the international financial system and learn from the mistakes of the past. Part I of the book has a sense of urgency focusing on how central bankers can avert a financial crash. Part I1 is more reflective, analytical and with a longer view in questioning the merits of monetary systems and central banking; contrast A. Meltzer's contribution in each part, Langoni's concern about debt repayments and Beenstock's views on last resort lending. Such multiplicity of views presented in this volume will, we hope, contribute to a deeper understanding of the problems of international debt and the corresponding solutions. Phyllis Brand, Debbie Gill and Pat Baker provided valuable secretarial assistance in organising the conference and preparing the manuscript. ZANNIS RES SIMA MOTAMEN

Notes on the Contributors B. Abassi is the Director of Planning and Projects at the National Enterprise for Production of Passenger Cars in Algeria. He was previously the Director of Planning at the Ministry of Heavy Industry. Roy Batchelor is Director of Research, Centre for Banking and International Finance, The City University Business School. Professor Michael Beenstock is EsmCe Fairbairn Professor of Finance and Investment, The City University Business School. Professor D. Fitzgerald is Visiting Professor, The City University Business School. Dr Stephany Griffiths-Jones is Lecturer in the Institute of Development Studies, University of Sussex. Dr Shelagh A. Heffernan is Lecturer in Economics, The City University Business School. Professor Carlos Geraldo Langoni was formerly Governor of the Central Bank of Brazil. Michael Lipton is a Professorial Fellow at the Institute of Development Studies, University of Sussex. Professor Paulo Pereira Lira was formerly Governor of the Central Bank of Brazil. Professor Allan H. Meltzer teaches at Carnegie-Mellon University, Pittsburgh, USA. K. Phylaktis is Director of Undergraduate Studies, Centre for Banking and International Finance, The City University Business School. Lionel D. Price is Adviser, International Division, Bank of England. Brian Quinn is Assistant Director, Bank of England. Zannis Res is Director, Centre for Banking and International Finance, The City University Business School. Dr R. J. Tamer is Dearden Farrow Professor of Accounting and Financial Analysis, The City University Business School. Professor Geoffrey E. Wood teaches at the Centre for Banking and International Finance, The City University Business School. Minos Zombanakis is Chairman, CIGNA International Holdings.