Since mid-1982 the existence of a “debt crisis” has been almost universally acknowledged; many would argue that the crisis had existed unrecognized for much longer, despite alarms sounded regularly over the preceding decade. The definition of the crisis in the Northern industrial countries was remarkably uniform: the onset of widespread difficulties in servicing the mountain of developing country debt threatened the stability of the international financial system. The nightmare in the North was an episode of onrushing financial collapse in the mold of those described so vividly by Charles Kindleberger—a default by a major debtor country (or domino defaults by debtors large and small), followed by the failure of a major bank or banks, a collapse of confidence in the financial system, and ultimately a sharp contraction of economic activity and international trade. The model was that of a panic; the fear, that the financial system, which had appeared so robust in dealing with successive shocks in the 1970s, might prove less so in the harsher circumstances of the 1980s.

On Friday, 13 August 1982, Finance Minster Jesus Silva Herzog of Mexico made a series of visits to the International Monetary Fund, the Federal Reserve, and the U.S. Treasury. His message to each was the same: Mexico could no longer continue to service its debt. Thus began a dramatic weekend of negotiations that marked the end of the preceding decade's buoyant expansion of developing country debt and the start of a still continuing response to the sudden collapse.

The debt crisis riveted attention on political issues at the international level. Groups of states clash, and the North-South divisions are very noticeable. As conflict and cooperation among governments, banks, and multilateral agencies make headlines, three blocs appear to contend: the banks, the debtor governments, and the creditor governments. These are the obvious players in the workouts, and it is important to understand the conventions that bind them.

For Latin American governments, mediating between their national societies and the international economy, the contemporary debt issue poses some excruciating dilemmas. On the one side, these governments are under intense pressure to arrive at satisfactory formulas for settling their debts–satisfactory, that is, to the banks and creditor agencies that control access to international financial markets. Loss of such access would threaten vital capital and trade flows, and for this reason virtually every Latin American government has so far placed a high priority on meeting its external obligations. But governmental elites, if they are to remain in power, must also answer to (or repress) their own populations. And the price to be paid for external help with “liquidity problems” has typically involved politically dangerous stabilization measures (devaluations, wage and credit restrictions, and fiscal deficit reductions)–measures that often arouse the strong opposition of major social forces.

The international debt crisis has forced painful economic adjustments on the developing world. In the short run it has forced governments to seek to correct payments imbalances through stabilization programs, usually undertaken with conditional assistance from the International Monetary Fund (IMF). The crisis has also revealed deeper weaknesses in many Third World economies, weaknesses demanding more basic reforms in the structure of incentives, prices, and investment.

Dependency theory is a set of ideas with a strong potential for influencing policy actions in the Third World. Originally developed during the late 1960s to explain the problems of development in Latin America by scholars working in that region, the theory has attracted a great deal of attention both in the literature and in Third World countries. Though the logical consistency and empirical validity of the theory have been questioned, evidence about the influence of dependency theory on the economic policies of specific countries has been scant. In this article I provide some such evidence. I also evaluate the potential for devising viable economic policies within the theory.

Next to oil, coffee is the most valuable commodity traded in world markets; it is produced in the developing world and consumed within the developed nations. Moreover, the International Coffee Agreement is the major successful international commodity agreement. In this research note we analyze the allocation of quotas to export coffee in 1982 under the terms of the agreement. The way in which entitlements to export are allocated offers insights into significant features of the international political economy.