Ruding and Balkenende

When in the 1980s the debt crisis emerged, I was astonished by the superficiality of most analyses. Generally it was argued that developing countries had borrowed irresponsibly or that banks had lent irresponsibly (stupid countries and stupid banks) and that, therefore, the only solution was that developing countries cut down their expenditures and increased their capacity to pay their debts. Strangely enough it was much less frequently and prominently argued that banks had to accept a write-down of their loans.

But what was missing most was an in-depth analysis of how the debt crisis had emerged, what its origins had been, and how much it had to do with the way the international monetary and financial system had evolved.

A similar feeling of astonishment invaded me when in 2007 the so-called subprime mortgage crisis emerged. Again, superficial analysis prevailed, which can be summarised as "Stupid loans by stupid banks".

Recently, when thousands of papers went through my fingers as I was moving the Fondad office from The Hague to Amsterdam, I came across a report of a meeting I had attended on 7th of June 1986 about "The International Debt Problem", organised by the Dutch christian-democratic party.

And whose names did I find in the report as participants? Yes, indeed, the current prime minister of the Netherlands (Balkenende), a former minister of finance and now banker (Onno Ruding), several professors and MPs, my friend Bernard Snoy, and others.

There were two guest speakers at the June 1986 meeting, Onno Ruding (then minister of finance) and Bernard Snoy (then chief of the Finance and International Relations Unit of the European Office of the World Bank).

Ruding argued that the debt crisis was a problem of middle-income countries who, luckily, had become to realise that they would have to do the job of finding solutions as the problem had been of their own making. "The solution isn't to be expected from getting more money wherever it might be found, but must be based on sound financial policies and economic adjustments, involving mid-term policies with a structural impact," said Ruding according to the report.

Ruding also saw a role for the World Bank and the IMF, the first in promoting appropriate micro-economic policies and the second in providing advice at the macro-economic level (I'm still quoting the report).

And what about "the industrial creditor countries"? They should lower their interest rates, said Ruding ("in particular a reduction in the U.S. budget deficit would lead to lower interest rates which in turn would lessen the debt-servicing burden for developing countries"), reduce protectionism, achieve more economic growth, and take specific financial measures such as export credit guarantees ("which the Netherlands is willing to do for those developing countries who are willing to effectively make the necessary adjustments in their own policies").

After Ruding's speech there was a lively discussion in which I also participated. One of those who raised a question was the young christian-democrat Jan Pieter Balkenende. He felt the debt problem should not only be treated from a financial, economic point of view, "but through its relevance in the economic, cultural and political fields on the international level."

Ruding replied, "As for the influence of for example cultural matters, one can note that in some countries the statal sector is far too extensive and that privatisation is needed. However, on the international level, the role of governments should not be reduced."

In a next post, I will continue my report of this 1986 meeting by highlighting a few of Bernard Snoy's remarks, who has much more of an eye for the way the international monetary and financial system had evolved. I will then also quote my question to Ruding and his answer.