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World Economic Survey 1986

Current Trends and Policies in the World Economy

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The large imbalances in trade and payments that have in recent years characterized the world economy persisted in 1985 and early 1986. In particular, unprecedented disequilibrium prevailed in the trade and financial relations of major industrial countries, and there was a continued overall net transfer of resources from developing to developed countries, largely related to the international debt crisis. Both of these situations were, in the course of 1985, increasingly perceived as unsustainable, economically as well as politically.

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International finance and balance-of-payments disequilibria

A sea change in international finance is taking place in the mid-1980s. At the institutional level, the nature of international financial intermediation has been radically altered by both structural factors and the progressive deregulation of financial markets, as discussed in the World Economic Survey 1985.1 At the level of national economies, changes have also been dramatic. The world’s largest creditor country until 1982, the United States, will have become the world’s largest net debtor by the end of 1986. Unprecedented balance-of-payments surpluses have emerged in certain developed countries, particularly Japan and the Federal Republic of Germany. Developing countries continue to face serious debt-servicing difficulties, and a substantial inward transfer of resources from abroad has been turned, since 1983, into a reverse transfer of resources. Most developing countries find it increasingly difficult to mobilize international liquidity through traditional channels of private and official finance. Important policy changes have also occurred. Their aims include reducing payments imbalances among major industrial countries and strengthening supply-oriented adjustment programmes in a context of faster economic growth. The initiatives taken point in the right direction. Nevertheless, current trends suggest the need for additional measures in the realm of international finance, in particular with respect to developing country debt and liquidity, as discussed in this chapter.

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