By the end of the 1980s, Third World nations owed more than $1.2 trillion to the banks and governments of the industrialized nations. Amassed in the wake of the 1970s oil shocks, many loans were squandered on ill-advised development schemes ranging from dams in Brazil to cattle ranches in Botswana. Interest payments on these foreign debts annually divert tens of billions of dollars in scarce capital resources away from productive development. The debt mountain generates stagnant economies, rampant inflation, food shortages, environmental destruction, and wage-price austerity controls. Both leftist insurgents and military mutinies threaten the stability of newly created democracies from Argentina to the Philippines. Mexican and Yugoslav workers shouting antigovernment slogans have stormed their countries' parliaments, demanding pay hikes. The United Nations Children's Fund warned that 18 million children might die of malnutrition by the end of the century. Faced with the prospect of huge losses and potential collapse of the domestic and international banking systems, the World Bank, International Monetary Fund, and Group of Seven major industrial creditors balk at forgiving or reducing the borrowing nations' debts. Yet they continue to carry bad debts on their books and to roll over new loans that add to the red ink. Postponing some payments is only grudgingly granted under threats of unilateral moratoria. This international game of chicken holds industrial and developing nations mutually hostage.

The intractable debt crisis is just the latest in a centuries-long history of troubled relations among the world's nations.