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This contrast emphasizes that foreign borrowing in capital flows since 1981. The most striking feais not a painless or riskless alternative to adjust- ture of this growth was the surge in lending by ment. The accumulation of debt makes a country commercial banks. Their share of total new flows more susceptible to international financial fluctua- to developing countries increased from 15 percent tions, as the swing from negative real interest rates in 1970 to 36 percent in 1983. to unprecedentedly high positive rates has rnade On every measure, the debt-servicing abilities of all too plain. The need for rapid adjustment developing countries deteriorated, particularly increased. Borrowers and lenders often fail to take after 1974, as their debt increased (see Figure 1.2). full account of the institutional, social, and political The ratio of debt to GNP more than doubled, from rigidities that restrict a country's capacity to 14 percent in 1970 to almost 34 percent in 1984. The adjust. ratio of debt service to exports rose from 14.7 percent in 1970 to a peak of 20.5 percent in 1982, The historical context declining to 19.7 percent in 1984. Interest payments on debt increased from 0.5 percent of GNP The ten years 1973-82 saw a big increase in the in 1970 to 2.8 percent of GNP in 1984 and foreign finance going to developing countries. As a accounted for more than half of all debt service result, both the gross and net debt of developing payments in that year. These averages conceal countries increased sharply. Between 1970 and wide regional and country differences. 1984 the outstanding medium- and long-term debt Dramatic though the recent growth of foreign of developing countries expanded almost tenfold, borrowing has been, it is not unprecedented. As to $686 billion (see Figure 1.1), despite the decline Chapter 2 makes clear: a The volume of international capital flows has often been larger in relative terms than in the - 1970s. Between 1870 and 1913, Great Britain Figure 1.1 Net capital flows and debt, 1970-84 invested an average of 5 percent of its GNP Net flows to developing countries abroad, rising to almost 10 percent just before Billions of dollars ,Official development World War I. For France and Germany, the figure 40 / assistance was 2 to 3 percent of GNP. As a proportion of the ', Commercialbank recipient country's GNP, capital inflows were also 30 - lending often larger in earlier periods. Inflows to Canada, Bilateral for example, averaged 7.5 percent of its GNP nonconcessional between 1870 and 1910 and accounted for 30 to 50 20 / lending 0 Direct n foreign percent of its domestic investment. During the / investment investment booms in Argentina and Australia, for- 10 _, Multilateral eign capital was roughly half of all gross domestic nondconcessional investment. By contrast, net capital inflows to all 0 Other developing countries averaged 2 to 3 percent of 1970 1974 1978 1982 their GNP between 1960 and 1973, while financing 10 to 12 percent of their gross investment; since Debt outstanding and disbursed then, net capital inflows have been between 3 and Billions of dollars All developing 6 percent of their GNP and have financed 10 to 20 percent of their gross investment. 600 fcountries Source: For net flows: OECD Development Co-operation; for debt: World Bank data. * The structure of financial flows to developing _______________ .countries has changed several times. In the years 400 Middle-income before World War I, private bond markets were the main source of capital. In the 1930s, following the __________ Z/__ oil importers Great Depression and widespread defaults by bor- 200 7 oMiddle-income rowers in both industrial and developing coun- // oil exporters tries, commercial lending to developing countries 0 = Low-income 1970 1974 1978 1982 countries virtually stopped. It was replaced after World War II by an expansion of official flows, mainly on concessional terms; the largest part was bilateral aid, but some was channeled through the new multilateral agencies such as the World Bank and later the 2
Figure 1.2 Trends in selected debt indicators, 1970-84 Percent Debt/exports 300 All developing countries 220 Middle-income oil importers I0 Middle-income oil exporters Low-income Africa Low-income Asia 40 1970 1974 1978 1982 Percent Debt/GNP Percent Debt service/exports 60 30 0 1 1970 1974 1978 1982 1970 1974 1978 1982 Percent Debt service/GNP Percent Interest paymentslGNP 0 0 , 1970 1974 1978 1982 1970 1974 1978 1982 Note: Interest and debt service for 1970-83 are actual (not contractual) service paid during the period. Interest and debt service for 1984 are projections of contractual obligations due based on commitments received through the end of 1983 and take into account reschedulings through the end of 1984. Source: World Bank data. International Development Association. Along environment. The fifty years before World War I with private direct investment and supplier saw several debt repudiations, including the Perucredits, official finance provided the bulk of exter- vian and Turkish crises in the 1870s and the Argennal capital for developing countries until the late tinian and Brazilian crises of the 1880s and 1890s. 1960s, when commercial banks started to play a Defaults, however, were not confined to developprominent role. ing countries: some borrowers in the United * Debt-servicing difficulties have been common States, for example, defaulted on their debts in and usually have been caused by a combination of these years. In the 1930s defaults were widepoor domestic policies and a deteriorating world spread, starting with Germany in 1932. Argentina 3
Page 1 and 2: Public Disclosure Authorized Public
Page 3 and 4: World Development Report 1985 Publi
Page 5 and 6: Foreword This is the eighth World D
Page 7 and 8: Contents Definitions and data notes
Page 9 and 10: A.4 Population and composition of G
Page 11 and 12: Definitions and data notes Capital
Page 13 and 14: culated without making deductions f
Page 15: Part I Overview and Historical Pers
Page 19 and 20: countries depend on three variables
Page 21 and 22: ties includes many countries in Lat
Page 23 and 24: intermediation of the World Bank an
Page 25 and 26: In dealing with all these issues, t
Page 27 and 28: tury. By contrast, net capital infl
Page 29 and 30: tees on terms that seldom preserved
Page 31 and 32: mid-1960s and France a few years la
Page 33 and 34: Table 2.2 (continued) Country group
Page 35 and 36: Table 2.3 Net resource receipts of
Page 37 and 38: anking assets and liabilities. They
Page 39 and 40: Box 2.3 How inflation affects loan
Page 41 and 42: Box 2.4 The changing nature of debt
Page 43 and 44: agreement has been reached with Ecu
Page 45 and 46: Part II Role of Economic Policies 3
Page 47 and 48: Table 3.1 Current account balances
Page 49 and 50: eceipts minus social security outla
Page 51 and 52: expected to be high-a view consiste
Page 53 and 54: story. Difficulties had started ear
Page 55 and 56: Box 3.4 The costs of protecting sug
Page 57 and 58: 4 Foreign borrowing and developing-
Page 59 and 60: World Development Indicators, Table
Page 61 and 62: Box 4.1 The debt cycle hypothesis A
Page 63 and 64: guarantee that enough foreign excha
Page 65 and 66: Figure 4.5 Borrowing and growth in
Page 67 and 68:
Box 4.4 Guidelines for borrowing De
Page 69 and 70:
have been forced to reschedule thei
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happened to different developing co
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Figure 4.6 Change in investment, sa
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Figure 4.7 The composition of credi
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tion started increasing consumer su
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Box 4.6 Capital flight in the South
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and tighter fiscal and monetary pol
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Export Rehabilitation Program to pr
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5 Managing foreign finance The prev
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Box 5.2 Integrated debt management:
Page 89 and 90:
vate borrowing more carefully. In M
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available to the country. Some tech
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The maturity structure of debt earl
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developing countries greatly. For e
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help to develop debt management sys
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Part III Mechanisms for Internation
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Box 6.1 The growth and distribution
Page 103 and 104:
Box 6.2 The deployment of the OPEC
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Box 6.3 The international interbank
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investment grew steadily for much o
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"graduation" of some developing cou
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Figure 7.1 Net receipts of official
Page 113 and 114:
issue is the right balance between
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tive performance of different count
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tion of aid directly supports priva
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happened in the absence of aid. Two
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gram. This involves close collabora
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Box 7.8 Aid coordination Aid coordi
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Figure 8.1 Net position of developi
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Box 8.2 Arab banks and internationa
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default clauses would ensure that a
Page 131 and 132:
perceived creditworthiness of devel
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Debt rescheduling and the banks Ban
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Box 8.7 Increasing the flexibility
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Box 8.9 World Bank cofinancing The
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9 Direct and portfolio investment T
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Box 9.1 Direct foreign investment i
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however, there has been a positive
Page 145 and 146:
By contrast, some of the newly indu
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ecognition of the relevance of this
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Table 9.2 Return on investment in e
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Part IV Perspectives and Policies f
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ently estimated at slightly more th
Page 155 and 156:
mies would continue to grow faster
Page 157 and 158:
Middle-income countries Major expor
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Table 10.6 Net financing flows to d
Page 161 and 162:
cies and performance against the me
Page 163 and 164:
Table A.3 GDP, 1980, and growth rat
Page 165 and 166:
Table A.7 Consumption, savings, and
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Table A.9 Change in export prices a
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Table A.12 Composition of debt outs
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problems in the Latin American coun
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Interbank Market: A Descriptive Stu
Page 175:
Diversification in the Nineteenth C
Page 179 and 180:
Contents Key 168 Introduction 169 M
Page 181 and 182:
Table 21. Labor force 214 Populatio
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Introduction The World Development
Page 185 and 186:
that it is a weighted average; the
Page 187 and 188:
Life expectancy The map classifies
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GNP per capital Life Area Average a
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Average annual growth rate (percent
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GDP' Distribution of gross domestic
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Average annual growth rate (percent
Page 197 and 198:
Distribution of gross domestic prod
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Value added Food aid Fertilizer con
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Distribution of manufacturing value
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Energy consumption Average annual e
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Merchandise trade Average annual gr
Page 207 and 208:
Percentage share of merchandise exp
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Percentage share of merchandise imp
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Destination of merchandise exports
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Destination of manuiactu red export
Page 215 and 216:
Receipts Gross international reserv
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Public and publicly guaranteed medi
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External public debt Interest payme
Page 221 and 222:
Average interest Average Average Co
Page 223 and 224:
OPEC Amount 1975 1976 1977 1978 197
Page 225 and 226:
Average annual growth Hypothetical
Page 227 and 228:
Crude Crude Percentage Percentage o
Page 229 and 230:
Percentage of population of Pretgof
Page 231 and 232:
Urban population Percentage of urba
Page 233 and 234:
Life expectancy at Iniant birth (ye
Page 235 and 236:
Daily calorie supply Population per
Page 237 and 238:
Number Number enrolled in enrolled
Page 239 and 240:
Percentage of total expenditure Hou
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Percentage of total current revenue
Page 243 and 244:
Percentage share of household incom
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appropriateness of the exchange rat
Page 247 and 248:
and electricity, water, and gas. Al
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import unit value index, this indic
Page 251 and 252:
The summary measures in this table
Page 253 and 254:
Data are mainly derived from the Wo
Page 255 and 256:
and other training institutions by
Page 257:
Bibliography of data sources Nation
Page 260:
World Devlelopment Report 1985 focu
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