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ments. The potential for using foreign capital to the market, they had expanded their traded goods expand investment was therefore limited by the sector, and they had diversified exports. Although immediate need to pay for dearer oil. they borrowed heavily in the 1970s, they were able Despite the economic shocks of the past dozen to withstand reasonably well the unprecedented years, some developing countries made enough rise in real interest rates, world recession, and volprogress to qualify for increased access to interna- atile exchange rates in the early 1980s. At the centional financial markets under "normal" circum- ter of the historical experience and the outlook for stances. Those that managed to avoid a debt crisis the future, therefore, are the policies of industrial in the early 1980s had for the most part fulfilled the countries and developing countries. These are key prerequisites for commercial borrowing. They taken up in the next two chapters. had a prolonged period of growth before entering 30
Part II Role of Economic Policies 3 Macroeconomic and trade policy in industrial countries: a developing-country perspective International trade and capital flows form the pri- tend to limit its benefits to the rest of the world. mary economic links between industrial and devel- Worrisome features are the unprecedented level of oping countries. The policies in industrial coun- real interest rates, especially in the United States, tries-fiscal, monetary, and trade-largely shape and the large appreciation of the U.S. dollar. High the international economic environment for devel- real interest rates increase the debt-servicing buroping countries. Most of the influences are well den for borrowing countries. The high real known. The pace of economic growth in industrial exchange value of the dollar has contributed to countries affects the exports of developing coun- depressed primary commodity prices in terms of tries, as does the scale of protectionism; interest purchasing power over goods imported from the rates and exchange rates in industrial countries United States, so net exporters of primary cominfluence the cost of borrowing for many develop- modities that import a great deal from the United ing countries; and so on. States, like Brazil, have profited less from the Less familiar is the extent to which industrial recovery in industrial countries than they normally countries are affected by what happens in the do at this stage of the business cycle (see Box 3.1). developing world. Some 30 percent of all their Nonetheless, the dollar exchange rate may be a exports in 1983 went there. The 48 percent decline factor behind the high U.S. trade deficits which in U.S. exports to the five major Latin American have led to rapid growth in export volume for sevborrowers over 1981-83 was a major factor in the eral developing countries. deterioration of the U.S. trade balance over that This chapter first gives a broad description of period. The past few years have also highlighted macroeconomic developments in the industrial the risks for the banks in industrial countries when economies in the last fifteen years to illustrate the their developing-country borrowers run into debt- changing nature of capital flows between indusservicing difficulties. Like many cliches, the phrase trial and developing countries. It then analyzes "an interdependent world" is founded on solid policy issues, paying particular attention to the facts. influence of macroeconomic policies on world Recent economic developments have again interest and exchange rates and on the volume of borne this out. The strong recovery in the United credit available to developing countries, and to the States has been the main cause of expanding world impact of protectionism on trade and on the debttrade. The volume of world trade fell by 2.5 per- servicing capacity of the major borrowers. cent in 1982, in line with the slowdown in the U.S. economy, but recovered strongly to reach an esti- Macroeconomic constraints and capital flows mated 8.5 percent growth rate in 1984. Developing countries benefited: their exports grew by an esti- The upheavals of 1969-73 produced major current mated 9 percent in 1984, up from 1.7 percent in account imbalances across the world. Higher oil 1982. Although most major borrowers increased prices transferred income from moderate and low their supply of exports by reducing domestic savers (industrial and developing countries) to (at demand and reforming their trade regime, the that time) high-saving oil exporters. The resulting expansion in foreign demand has also played an excess supply of world savings put downward important role. This is shown by the fact that pressure on world output and interest rates. In real prices of developing countries' exports increased terms, interest rates turned negative for several more than those of traded goods in general. years, clearly a situation that led to misallocation of However, the economic recovery in industrial resources and that could not be sustained. countries has been unusual in certain respects that The current account developments during the 31
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 and 16: Part I Overview and Historical Pers
Page 17 and 18: Figure 1.2 Trends in selected debt
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: agreement has been reached with Ecu
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
Page 71 and 72: happened to different developing co
Page 73 and 74: Figure 4.6 Change in investment, sa
Page 75 and 76: Figure 4.7 The composition of credi
Page 77 and 78: tion started increasing consumer su
Page 79 and 80: Box 4.6 Capital flight in the South
Page 81 and 82: and tighter fiscal and monetary pol
Page 83 and 84: Export Rehabilitation Program to pr
Page 85 and 86: 5 Managing foreign finance The prev
Page 87 and 88: Box 5.2 Integrated debt management:
Page 89 and 90: vate borrowing more carefully. In M
Page 91 and 92: available to the country. Some tech
Page 93 and 94: The maturity structure of debt earl
Page 95 and 96:
developing countries greatly. For e
Page 97 and 98:
help to develop debt management sys
Page 99 and 100:
Part III Mechanisms for Internation
Page 101 and 102:
Box 6.1 The growth and distribution
Page 103 and 104:
Box 6.2 The deployment of the OPEC
Page 105 and 106:
Box 6.3 The international interbank
Page 107 and 108:
investment grew steadily for much o
Page 109 and 110:
"graduation" of some developing cou
Page 111 and 112:
Figure 7.1 Net receipts of official
Page 113 and 114:
issue is the right balance between
Page 115 and 116:
tive performance of different count
Page 117 and 118:
tion of aid directly supports priva
Page 119 and 120:
happened in the absence of aid. Two
Page 121 and 122:
gram. This involves close collabora
Page 123 and 124:
Box 7.8 Aid coordination Aid coordi
Page 125 and 126:
Figure 8.1 Net position of developi
Page 127 and 128:
Box 8.2 Arab banks and internationa
Page 129 and 130:
default clauses would ensure that a
Page 131 and 132:
perceived creditworthiness of devel
Page 133 and 134:
Debt rescheduling and the banks Ban
Page 135 and 136:
Box 8.7 Increasing the flexibility
Page 137 and 138:
Box 8.9 World Bank cofinancing The
Page 139 and 140:
9 Direct and portfolio investment T
Page 141 and 142:
Box 9.1 Direct foreign investment i
Page 143 and 144:
however, there has been a positive
Page 145 and 146:
By contrast, some of the newly indu
Page 147 and 148:
ecognition of the relevance of this
Page 149 and 150:
Table 9.2 Return on investment in e
Page 151 and 152:
Part IV Perspectives and Policies f
Page 153 and 154:
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
Page 159 and 160:
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
Page 167 and 168:
Table A.9 Change in export prices a
Page 169 and 170:
Table A.12 Composition of debt outs
Page 171 and 172:
problems in the Latin American coun
Page 173 and 174:
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
Page 183 and 184:
Introduction The World Development
Page 185 and 186:
that it is a weighted average; the
Page 187 and 188:
Life expectancy The map classifies
Page 189 and 190:
GNP per capital Life Area Average a
Page 191 and 192:
Average annual growth rate (percent
Page 193 and 194:
GDP' Distribution of gross domestic
Page 195 and 196:
Average annual growth rate (percent
Page 197 and 198:
Distribution of gross domestic prod
Page 199 and 200:
Value added Food aid Fertilizer con
Page 201 and 202:
Distribution of manufacturing value
Page 203 and 204:
Energy consumption Average annual e
Page 205 and 206:
Merchandise trade Average annual gr
Page 207 and 208:
Percentage share of merchandise exp
Page 209 and 210:
Percentage share of merchandise imp
Page 211 and 212:
Destination of merchandise exports
Page 213 and 214:
Destination of manuiactu red export
Page 215 and 216:
Receipts Gross international reserv
Page 217 and 218:
Public and publicly guaranteed medi
Page 219 and 220:
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
Page 241 and 242:
Percentage of total current revenue
Page 243 and 244:
Percentage share of household incom
Page 245 and 246:
appropriateness of the exchange rat
Page 247 and 248:
and electricity, water, and gas. Al
Page 249 and 250:
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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