Lack of international coordination of interest rates
Name(s):
Volatility of interest rates
Nature
There is a lack of adequate coordination between the interest policies of different countries. This is complicated by conflicts between internal and external considerations. Thus, when inflationary pressure coexists with a payments surplus in one country and unemployment with a deficit in another, there is a natural reluctance for the former to lower interest rates and for the latter to raise them in order to ensure equilibrating capital movements, and to avoid unilateral restrictions.
Incidence
In the 1980s, the world's biggest debtor nation, the USA, has maintained a policy of high interest rates to attract large foreign capital imports. This denies capital to Europe and to the developing countries. It forces massive annual increases in debt servicing charges for debtor countries. The 1984 Latin American foreign debt of $350,000 million is estimated to increase about $1,700 million for each half-point increase in the USA prime rate of interest.
Aggravates
Strategy(ies)
Type
(F) Fuzzy exceptional problems