Dealing With Debt: The 1930s and the 1980s

Barry Eichengreen, Richard Portes

NBER Working Paper No. 2867 (Also Reprint No. r1342)
Issued in February 1989
NBER Program(s):International Trade and Investment, International Finance and Macroeconomics

This paper analyzes the sovereign defaults of the 1930s and their implications for the debt crisis of the 1980s. It reports nine major findings. There is little evidence that financial markets have grown more sophisticated' over time, or that banks have a comparative advantage over the bond market in processing information. (2) Debt default in the 1930s depended on a combination of factors,. including the magnitude of the external shocks, the level of debt, and: the: economic policy response , as well as on a range, of: noneconomic considerations. (3) Countries which interrupted service recovered more quickly from the Great Depression than countries which resisted default. This contrasts with the experience of the 1980s, when no clearcut relationship exists (4) There is little evidence that countries which defaulted in the 19305 suffered inferior capital market access subsequently. (S} The readjustment of defaulted debts was protracted: the analogy with Chapter 11 corporate bankruptcy proceedings is no more applicable to the 1930s than to the 1980s. (6) Although default led in some cases to a substantial reduction of transfers from debtors to creditors, on balance returns on sovereign loans compared favorably with returns on domestic investments. (7) Creditor-country governments did more in the 'thirties than in the 'eighties to accelerate the settlement process. (3) Global schemes analogous to the Baker Plan were widely proposed but never implemented. (9) In contrast, market-based debt reduction in the form G debt buybacks played a useful role in the resolution of the crisis.

download in pdf format
   (2226 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w2867

Published: Dealing with the Debt Crisis, edited by Ishrat Husain and Ishac Diwan, pp. 69-86. Washington, DC: The World Bank, 1989.

Users who downloaded this paper also downloaded* these:
Eichengreen w2555 Resolving Debt Crises: An Historical Perspective
Eichengreen and Portes w1772 Debt and Default in the 1930s: Causes and Consequences
Reinhart and Rogoff w15795 From Financial Crash to Debt Crisis
Lindert and Morton How Sovereign Debt Has Worked
Eichengreen and Portes w2126 The Anatomy of Financial Crises
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us