THE WORLD BANK'S RESPONSE TO THE DEVELOPING COUNTRY DEBT CRISIS

Abstract

The World Bank has responded to what it has perceived as two debt crises. The first is the highly publicized crisis in the middle‐income, heavily indebted countries–mainly those in Latin America. The second has affected a set of about 20 much poorer African countries. The World Bank's responses to the two crises have been dissimilar as well. In the case of the heavily indebted, middle‐income countries, whose debt is mainly to private creditors, the World Bank first responded with its Special Program of Action, beginning in 1983. Under the October 1985 Baker Plan, the World Bank was to increase its gross disbursements to these countries by 50 percent–a goal it has nearly met. Unfortunately, other creditors have not met Baker Plan goals, and so investment and growth in debtor countries has stagnated. The World Bank cannot continue providing a disproportionate share of financing needs. The World Bank has responded to the problems of the poorest debtor countries through its Special Program of Action for debt‐distressed countries in Africa, and has coordinated its own concessional International Development Agency–soft loan window–lending with aid from other official creditors and donors.

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