The Political Geography of International Lending by Private Banks

Abstract

Bank lending to foreign governments has long been an agent of foreign policy, and for a Less Developed Country (LDC) a private bank loan confers international respectability. After 1970 private bank loans became the largest source of financial inflows into all such countries, except the very poorest. This growth in bank lending was in part a recycling of the large surpluses of oil-exporting developing countries through the sharp increases in oil prices during the decade. More importantly, it arose from the economic and political exigencies of the United States in maintaining leadership of the noncommunist world. American banks have thus dominated foreign lending throughout, but have increasingly been challenged by European, Japanese, and other foreign banks. The geographical distribution of private bank loans closely reflects the economic and geopolitical interests of their domestic governments; American loans have gone mainly to Latin America and to 'newly industrailizing countries' (NICs) in Asia, 'middle-income' countries with high annual growth rates of GNP. Rival banks have broadly pursued a similar strategy, so that such borrowers have by far the largest debt service obligations among developing countries, and some are in serious danger of default. Nevertheless, the loans of non-American banks show both vestiges of older commercial or imperial interests, and new patterns unrelated to the past.

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