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Figure 4.1 The debt ladder (percent) Debt/GNP Debt/exports Debt service/exports 1 1970-72 1980-82 1970-72 1980-82 1970-72 1980-82 Costa Rica (95) a Pakistan (617) * Brazil' (62) * Sudan (437) Turkey (302) Pe 4). 145)aMorcc' pm- 43) 70 Jamaacamaica 3W 40 M-i- *Jamaica * Ivory Coast . Mexico' Zambia t Bolivia Indonesia * Liberia * Pakistan * Jamaica Morocco 60 260 Bolivia .* Brazil Papua * Sudan Argentina . New Guinea * , Argentna' Peru o Chile . * Zaire . Niger' g * Malawi * Peru Pakistan v Egypt * Ivory Coast' Turkey 30 Botlivial * Papua Morocco 220 _ , 50 New Guinea * Nige, Chile t Costa Rica Uruguay * Egypt Papua * Argentina Egypt New Guinea' * Liberia * Chile Chile e Turkey- * Costa Rica' Papua * Tanzania i Mexico Zambia. Indi a Portugal New Guinea Ke yugoaia Indonesia * Kenya M_xi_o Siera Leone Yugostavia Kenya Malawi' Zambia Tunisia * amia Malawi Eunador Argentina . Peru Philippines . * Zambfa- 40 s Snuega Colombiamai EcuadorE Ivr Coast Colombia , e Jamaica' Koea Perug Bolivia Algeria * Sni Lanka Ethiopia 20 TKuZey CostaKxa Per* Bvistan * KyNiger Uruguay Venezuela' Tunisi Pakistan Portugal Kg* India Algeria M Cameroon Kora Ti Tunisia Colombia Malaysia0 140 Tnisa oniiaPapua Philippines' Pakistan Siera Leone Senegal *NewGuinea 30 * KoreaGhana PortugMalaw Gha Ecuador * Indonesia * Thailand * Korea Ghana * Portugal a-Bolivia Turkey Sri Lnka ,Philippmis Cameroon Sierra Leone' * Chile Mexico t Philippines Philippines * Tunisia o Cameroon Thailand Zaire* Indonesia Costa Rica Urga Colomnbia Thiad oe Senegal' K-e CostaReca ;Ghana Ghana Urg M g Y Ay Aiia geia lamaica aKoreas Liberoa LberaTanzania Sudan Guatemala , Kenya Brazi 8 Indonesia Moco ugoslavia Zaire tGana Colombia Ve ezuela 100 iougoslaLaiaa Si Lanka* . Ecuador Algeria * Papua N C-,i-e Sri Lanka udn Tanaia.VeeueaZambia Sdn Argentina IvoryCoast Costa Rica th'OPaP , Uruguay Morocco Philippines * Egypt ~~~~Sudan Yugoslavia 2 Algeria EthioP*a *Thailand *Tanzanu e Indonesia 10 Guatema ta 20 Sr Lanka * Morcco Kenya * Zambia e Thailand Kenya 0 India' Yugosiavia * Ecuador Tanzania Sierra Leone ,Mexicor IvoryCoast *Algeria Ethiopia Ghana Sie i Colombia iKorea * Liberia Sri Lanka Senegal Turkey Uruguay LiberLankiaV u Zaien Porg?al . Nigeria* * y Uruguay t Liberiaii Venezuela Zainegal PortugalMalaysiPakistan' Sierra Leone 4 India I Zaire Guatemala Malawsi M Camneroon I Sudan CanserOOn')Thailand Brazil Malaysia 60 V Venezuela h Liberia' P Uruguay Iv Coast i -ne * Guatemala S eSenegal Cameroon Niger; Thenezel India o Malaysia 10 thiol2iaVenezuela * Nigeria Venezuela . * Nigeria Niger * ~~~~~~~~Guatemala Portugal "Nigeria Portugal ~~~~~~~~~~~~ alaysia %ortugaI *Guatemala 5 Nigeria. 20 0 1970-72 1980-82 1970-72 1980-82 1970-72 1980-82 * Latin America and Caribbean * Sub-Saharan Africa * South Asia * East Asia and Pacific Europe and North Africa Note: Debt is defined as medium- and long-term public and publidy guaranteed plus private nonguaranteed debt outstanding and disbursed. Short-term debt is not included. For the major borrowers, the inclusion of short-term debt would raise the external debt registered during 1980-82 by about 30 percent. The debt service figures used are those for actual (not contractual) debt service paid during the period. Exports cover goods and total services. An asterisk indicates that the country rescheduled its debt between 1975 and 1984. Source: World Bank data. 44
World Development Indicators, Table 17). By con- most of this period. Colombia, which had been a trast, upper-middle-income countries-for exam- large recipient of aid in the 1960s and early 1970s, ple, Algeria, Portugal, and Venezuela-usually are renounced further concessional assistance in 1974. less able to sustain high debt ratios because the It made only limited use of foreign credit during servicing costs of their borrowing are high. the 1970s, though it benefited from rapid growth in The debt service ratio has traditionally been nontraditional export earnings. regarded as a good guide to a country's debt prob- * Access to foreign funds. Clearly not all developlem. But, as the debt ladder in Figure 4.1 shows, ing countries have access to all types of foreign there is no clear link between high debt service capital. This has influenced their borrowing experiratios and countries that have had to reschedule ences and the current size and composition of their their debt. Experience has shown that the more debt. A country's opportunity to borrow commereconomic policies and structures can react flexibly cially tends to grow as its economy progresses: to changing demands, the less are high debt ser- higher per capita income tends to go hand in hand vice ratios a cause for concern. An inflexible econ- with "graduation" away from reliance on concesomy with a modest debt service ratio may be more sional funds and toward expanded access to priprone to crisis than one with a higher ratio but vate sources of finance (see Figure 4.2 and Statistiwith a government that takes rapid corrective cal Appendix, Table A.12). But factors other than action when growth and exports are threatened. income are important determinants of a country's This point can be demonstrated by comparing access to commercial finance. In the commodity the two main groups of reschedulers described in boom of the 1970s, many middle-income coun- Chapters 1 and 2. In general, low-income Africa tries-and even low-income countries such as has had lower debt service ratios than middle- Niger and Sudan-found it possible to borrow income Latin American countries. This might sug- from foreign banks, though their loans were often gest that African countries are in less serious diffi- only marginally related to the economic viability of culties. In fact, the opposite is true. Although the the projects being financed. When these projects policies of both groups were insufficiently flexible ran into difficulty and commodity prices fell, banks in the 1970s and early 1980s, Latin American coun- stopped lending. tries would have found it easier to make the neces- * Macroeconomic imbalances. Foreign borrowing is sary adjustments to external pressures. Their often the unintended consequence of other ecohigher incomes provide greater scope for increas- nomic policies. Large budget deficits, overvalued ing savings; their more developed economies can exchange rates, and measures that discourage respond more quickly to changing prices and mar- domestic savings all bias an economy toward relyket opportunities. The low-income African coun- ing on foreign capital. They have been common in tries, with weak institutional structures and lim- some of the countries near the top of the debt ladited human and natural resources, face much more der-for example, Argentina, Peru, and Turkey. By daunting problems. contrast, Malaysia and several other East Asian Three broad factors have determined the growth countries have consciously avoided big fiscal defiof debt in recent years. All of them are related to cits and distortions of prices and exchange rates; the economic policies of developing countries. they are near the bottom of the debt ladder. Macro- * Borrowing strategy. Some governments have economic imbalances have also been caused by chosen to borrow abroad to increase investment sharp changes in terms of trade. Many countries and promote domestic growth. Brazil and Korea, resorted to foreign borrowing in the 1970s to for example, increased their borrowing in the finance what they expected to be temporarily large 1960s, and both initially had high debt ratios. Both external resource gaps. countries also grew and borrowed rapidly in the 1970s, taking advantage of low or negative real Capital inflows and investment interest rates. But their debt ratios moved in opposite directions, as Korea outstripped Brazil in Foreign capital allows a country to invest more expanding output and exports. Other countries than it could if it used only national savings. In the have chosen to borrow relatively little, preferring early stages of a country's development, when its to rely on domestic savings and other non-debt- capital stock is small, returns to investment are creating inflows (such as workers' remittances). generally higher than in industrial countries. This India in the 1970s was one example. Thailand also is the basic economic justification for developing borrowed little from commercial sources during countries to obtain capital from abroad, and it 45
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 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: 4 Foreign borrowing and developing-
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
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tion of aid directly supports priva
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happened in the absence of aid. Two
Page 121 and 122:
gram. This involves close collabora
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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
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Debt rescheduling and the banks Ban
Page 135 and 136:
Box 8.7 Increasing the flexibility
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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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