Resuming lending to indebted countries
Synonyms: Advocating defensive lending to debtors
Implementation: The Baker Initiative of September 1985 proposed a change of course in dealing with the debt overhang. It emphasized the importance of resumed lending to support growth and adjustment in highly indebted countries. Despite its merits this initiative has fallen short of its objective to date. Commercial lending failed to reach projected levels because of the banks' perception that "defensive" lending may not improve the value of loans already in their portfolio. Large discounts in the secondary market for developing-country debt play a crucial role in this respect: lenders assume that the market will value new loans at much less than book value.
Type Classification: E: Emanations of other strategies