Introduction

Since 1982, numerous capital and money markets around the world have encountered distressing scenarios to a growing extent and with increasing frequency. The interplay between poor performances of debt-ridden developing countries and rather headstrong creditors, amidst thrilling atmospheres of intermittent economic growth and protectionism in industrial countries, seems to foreshadow a vicious circle. There are widespread fears in international financial arenas that the present cross-country credit system could collapse. Oppressively beset by a colossal volume of debt service to be remitted to creditors abroad, several debtor countries have already found it necessary to adopt austere economic measures in order to spare scarce and valuable foreign exchange. The fates of these countries are further stymied by the fact that exact amounts of debt obligations vary wildly due to the recent and greater volatility in interest and exchange rates and that stringent but necessary economic measures stir up intimidating political tension. These plights are severely painful, and all arise from servicing previously committed debts. Therefore, from the debtors' viewpoint, renouncing debt obligations may not be immediately out of the question.

On the other hand, should a string of large debtor countries decide to collude with each other and repudiate their existing debt obligations, it is quite conceivable that privately-owned multinational financial intermediaries, in order to safeguard themselves, will try their best to limit additional commitments overseas. Such limitation will, in turn, further endanger debtor countries with regard to their debt-servicing capacity or capability in managing and refinancing their portfolios. In other words, the establishment of any debtors' cartel would certainly cloud the outlook of debtor countries in general with respect to their future reliance on foreign capital and potential economic growth. Whether debtors will renege on or abide by previous commitments depends very much upon how debtors value different courses of action and their consequences.

The above-mentioned conflict of interest clearly displays the delicacy involved in the administration of national indebtedness. Should one trace this problem back to the beginning, one will certainly discover that there are a good number of intricate dilemmas underlying the course of external debt management. Otherwise, debt predicaments attacking numerous developing countries would not have been as prevalent and severe as they actually were during the period 1982-87.