The Debt Crisis: A Postmortem

In the first part of the paper, I calculate the returns on the developing countries debt obtained by their (private and public) creditors when taking account of the transfers already generated, and of the liquidative value of the debt. I show that they are good. I then evaluate the conflict of interest between private and public creditors and assess the role of the Brady deal as a vehicle for bringing about a "grand settlement" of the debt crisis. I argue that they are not as good. In the second part of the paper, I show that the group of reschedulers did experience lower growth in the 1980s, but I also show that their rate of capital accumulation was not lifted up in the years before the debt crisis. I evaluate the extent to which sovereign risk, rather than low returns, explains the failure of foreign finance to speed up capital accumulation in the large debtor countries.