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The
solution to one problem created another. Recycling petrodollars
through the banking system slowed economic contraction, but did
not alleviate massive payment imbalances. As a result the debts
of oil-importing countries - especially developing countries - continued
to pile up:
- The
foreign debts of 100 developing countries (excluding oil exporters)
increased 150% between 1973 and 1977.
Could
the economies of the debtors withstand the inflationary pressure
of the sudden, enormous oil-price increase?
Without
the discipline of a fixed standard, could the new floating-rate
system cope with such massive trade and monetary imbalances?
"The
international monetary system is facing its most difficult period
since the 1930s."
H. Johannes Witteveen
Managing Director of the IMF
January 15, 1974
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