Richard W. Van Alstyne and
Joseph M. Siracusa
Problems arising from unpaid debts owed by foreign governments to private bankers and, later, to international agencies, troubled American policymakers during the twentieth century. Initial concerns arose regarding the political motives of European governments who sought to employ their military forces to enforce repayment of financial debts incurred by South American and Central American countries. When its World War I allies stopped paying on wartime loans during the 1920s and 1930s, U.S. officials were faced with a series of unpleasant choices. To avoid this problem during World War II, President Franklin D. Roosevelt established the lend-lease program that provided economic and military aid to America's allies yet left no substantial postwar debt.
During the Cold War years, the United States employed foreign aid packages that consisted largely of grants with occasional loans to aid its allies. Initially, the new International Monetary Fund and the World Bank provided developing countries with economic assistance; later, in the 1970s, commercial agents—individual banks and consortiums—extended loans to the same clients. This subsequent surge of credit resulted in greatly increasing Third World debt and, after 1981, increasing concern with possible defaults and debt rescheduling.
See also DOLLAR DIPLOMACY; ECONOMIC POLICY AND THEORY; FOREIGN AID; INTERNATIONAL MONETARY FUND AND WORLD BANK; INTERVENTION AND NONINTERVENTION; OPEN DOOR POLICY; REPARATIONS; WILSONIAN MISSIONARY DIPLOMACY.