The Baker Plan: progress, shortcomings, and future

William Cline

No 250, Policy Research Working Paper Series from The World Bank

Abstract: The Baker Plan essentially made existing strategy on the debt problem more concrete. Like existing policy, it rejected a bankruptcy approach to the problem. It assumed that the principal debtor countries could grow their way out of the debt problem and could expand their exports enough over time to reduce their debt burden to normal levels. It called for structural reform, and it continued the adjustment efforts in the debtor country in return for financial support from foreign official and bank creditors. The plan did shift emphasis, however: from short-term balance of payments stabilization to longer-term development objectives, and thus from the IMF to the World Bank as the lead institution in debt management. The basic international debt strategy remains valid, but intensified policy efforts are necessary. Banks should provide multiyear new money packages, exit bonds should be guaranteed to allow voluntary debt reduction by banks, and net capital flows to the highly indebted countries should be raised 15 billion dollars a year. Successful emergence from the debt crisis, however, will depend primarily on sound economic policies in the debtor countries themselves.

Keywords: Economic Theory&Research; Financial Intermediation; Environmental Economics&Policies; Financial Crisis Management&Restructuring; Banks&Banking Reform (search for similar items in EconPapers)
Date: 1989-08-31
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