2007 Reports

The 1980s Crisis in Syndicated Bank Lending to Sovereigns and the Sequence of Mechanisms to Fix It

Garay Salamanca, Luis Jorge

Starting from the latter 1970s, international private lending to developing country governments mushroomed and largely took the form of a new type of medium-term loan arranged by syndicates of internationally active commercial banks. This was not the classic form of general-purpose medium to long-term lending to sovereigns, which was as bond issues floated domestically or in the international financial markets. The latter had been slow to recover from the two world wars and the Great Depression, although by the 1990s, foreign and international bond issues once again became major vehicles for foreign lending to developing country governments. The syndicated loan market did not disappear in the 1990s, but turned its attention mainly to major corporate financings, especially within the United States, but also in Europe and emerging economies in Asia and elsewhere. One reason perhaps for the lower level of interest in additional syndicated bank lending to many of the developing country governments was the unhappy experience with this type of lending in much of the 1980s, when many sovereign borrowers could not service their syndicated loans as contracted.