Introduction

The level of world external indebtedness is rising and presently exceeds all previous historical levels. The external public debt of 84 developing nations amounted to approximately $174 billion in 1975 (IMF, 1977a, p. 177). As a result of the rise in raw materials prices, particularly of petroleum, many advanced Western industrial nations are rapidly liquidating external assets or are also going deeply into debt. At the end of 1975, Great Britain led the pack with a debt of about $45 billion, France was next with $20 billion – an amount exceeded by Mexico and Brazil (New York Times, 1976). According to the same source, net foreign currency liabilities of Euromarket banks exceeded $275 billion. Finally, in tune for once with the capitalist world, the communist nations (referring here primarily to the USSR and the rest of Eastern Europe) have also been borrowing from abroad – and from the West at that – at unprecedented rates with debts, at the end of 1976, probably aggregating in excess of $40 billion – and the end not in sight. This is surprising both because of the speed of the recent debt buildup and because until less than a decade ago, the Eastern nations followed policies largely designed to avoid any significant accumulation of external debt.

The issue with which we shall be concerned here is how to approach the question as to whether it is wise from an economic standpoint for the Western nations to continue to expand credits to the communist nations.