Involuntary lending

New lending by private commercial banks to debtors in developing countries. The level is not determined by the management of the individual banks but more or less imposed through pressure by the IMF, the central banks of the industrialized countries and, to some extent, by the major creditor banks, usually as part of a debt renegotiation package. The lending is involuntary because the banks are not willing to extend such loans but are compelled to do so because of their existing exposure to the debtor country. Such lending may sometimes be applied to rollover existing loans by creditors in return for continued interest payments.

Since the outbreak of the debt crisis in 1982, private banks have been devising a variety of means to avoid extending new loans to indebted developing countries. They have done so by lowering their exposure to these debtors, either through debt swaps, buy-backs or debt write-offs, or by converting debts into "exit" bonds whose values are not included in the estimation of the bank's exposure. By early 1989 three such agreements had broken down.