The International Debt Situation

The precarious international debt situation clouds the economic outlook, worrying bank regulators and complicating international commerce. The world’s developing countries, excluding members of the Organization of Petroleum Exporting Countries (OPEC), have debts outstanding totaling approximately $575 billion. Of this amount, U.S. banks hold approximately $100 billion. The economic climate of the past few years has left many developing countries unable to meet the interest and principal payments on their debts according to their original loan agreements. Although no country has repudiated its debt, many have entered into negotiations with their creditors to extend repayment schedules. A default or major disruption in meeting payments on debts might shake confidence in the U.S. banking system, producing a contraction in both domestic and international bank lending. Such developments could reduce international trade and slow the pace of the economic recovery worldwide.