How to Avoid Another Global Debt Crisis, The New York Times, April 17, 2023
If one country defaults on its loans, it’s a big problem for its citizens. If a dozen countries default, it’s a big problem for the world…
Today’s crisis has several immediate causes: Lenders, again, ignored prudence, so some countries had been borrowing excessively and had unsustainable debt even before Covid struck. The pandemic forced countries to borrow even more to stay afloat as business activity ground to a halt. Then the war in Ukraine drove up the price of food and fuel. Now, rising interest rates have greatly increased the cost of servicing that debt. An estimated 56 countries are in debt distress or at risk of it — more than twice as many as in 2015…
China, which has lent an estimated $900 billion to developing countries over the past 10 years mainly for infrastructure projects under its Belt and Road Initiative, has been reluctant to grant debt relief unless commercial bondholders and multilateral development banks do the same, though it appeared to have backed away from that demand at the meetings last week… [end quote]
The 53 fragile emerging economies
The contours of a debt crisis are starting to become clear
The Economist, Jul 20th 2022
…
Taken together, then, 53 low- and middle-income countries are already experiencing debt troubles, or are at high risk of doing so. Their economic size is modest—their combined output amounts to 5% of world gdp—but they are home to 1.4bn people, or 18% of the world’s population (see chart 2). And worryingly, there are few options available to ward off crisis…More than a third of the world’s most debt-distressed countries also number among those most indebted to Chinese lenders. …
In the 1980s, emerging-market defaults on loans owed to American banks pushed some financial institutions to the brink of insolvency. Residents of rich economies may take some comfort from the fact that their lenders are less exposed today. …[end quote]
Rising interest rates make paying off debt even more difficult.
This graphic (data from 2015) shows that the U.S. has loaned more money internationally than we have borrowed. But the countries that borrowed money from us are all first world. The U.S. donates, rather than loans, money to recipients of foreign aid.
I doubt that an international debt crisis would have a major direct effect on U.S. stock and bond markets. Billions of people would suffer and some might migrate but the impact on us would be muted.
Wendy
