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Managing the Coming Global Debt Crisis

The economic crisis that has befallen emerging and developing economies is being treated as temporary, with a moratorium on interest payments and a promise of commercial credits remaining valid only through the end of the year. In other words, the policy response is woefully inadequate to these countries' situation.

BERKELEY – The developing world is on the cusp of its worst debt crisis since 1982. Back then, three years had to pass before creditors mounted the concerted response known as the Baker Plan, named after then-US Treasury Secretary James Baker. This time, fortunately, G20 governments have responded more quickly, calling for a moratorium on payments by low-income countries.

Predictably, perhaps, the G20’s declaration resembles the Baker Plan. There’s just one problem: the Baker Plan didn’t work.

The crisis currently engulfing the emerging and developing world is unprecedented. More than $100 billion of financial capital has flowed out of these markets – three times as much as in the first two months of the 2008 global financial crisis.

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