Adjustment and External Debt in Low-Income Countries

Abstract

The debt crisis of the early 1980s had severe impact in Latin America and several developing countries. Closure of world capital markets led to inflationary financing of fiscal deficits, a slowdown in investment, and low rates of economic growth. Servicing external debt continues to be a key concern for policymakers in low-income countries. The crisis has led to a variety of proposals aimed at ensuring that debt burden does not hamper capital formation and growth world over.