How lending to eastern nations affects the developing world

by Don Henry

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This report examines the consequences of reducing capital flows from the industrialized nations of the West to the Communist states in the East. It has been argued that capital flows to the Eastern Bloc harm the West in several ways: increased economic and military potential of the Warsaw Pact, the possibility of the Eastern Bloc threatening debt default to extort concessions from the West, and increased exports of both goods and influence from the East. The author argues here that capital flows to the Eastern Bloc also harm the developing nations of the world by crowding them out of international capital markets and driving up interest rates on the borrowing that they are able to undertake.

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