World Bank Document

happened to different developing countries in the
recent past.
Borrowing to postpone adjustment
A country that faces a shock (be it internal or exter-
nal) that is considered to be temporary and revers-
tion of exports and import substitutes. This takes
time. Its ultimate purpose is to restore the country's
productive potential and allow it to improve
the current account through higher output and
increased exports. The difference between the second
and third options explains much of what has
49 percent in 1983. Uranium capacity was built in excess 1976-77. Between 1976 and 1978, public investment
of demand, although some large projects were shelved increased from 15 percent of GDP to 25 percent. Much of
after prices collapsed in 1981. The stock of private non- it was financed by foreign borrowing and went to large
guaranteed debt declined after 1981, but the shorter projects with high unit costs and low economic returns.
maturities on this debt significantly worsened the coun- The productivity of public investment declined by
try's debt service burden. Some 70 percent of the exter- approximately 40 percent. In 1977-78, coffee prices fell
nal debt accumulated after 1975 was commercial in ori- by 31 percent and cocoa prices by 10 percent, while
gin. By 1983, total debt had reached the equivalent of 60 import prices rose. Thus the terms of trade fell by 29
percent of GDP and 219 percent of exports, compared percent between 1977 and 1980 and over 40 percent by
with 13 percent and 51 percent in 1973. Niger now has a 1983. The country is now struggling to adjust and has
stabilization program. rescheduled its debt in 1984.
* The Ivory Coast enjoyed a coffee and cocoa boom in
Box figure 4.5A Change in debt and terms of trade in three countries, 1970-83
Index (1975 = 100)
180
Terms of trade index
Nigeria Niger Ivory Coast
180 180
80 _ _ _1-160 160
140 140
140
100 _- 120
60 O - ____ 120 gs~'- ___ ___ _100_'
60~~~~~~~~~~~~~~~~~~~~~~A
30 100 80 e
1970 1975 1980 1970 1975 1980 1970 1975 1980
Percentage of GDP
Total debt and commercial debt
15 60 _ -. _ _-- 80 -
10 - 40
60
5 6 ,20 4
20
0 0 0
1970 1975 1980 1983 1970 1975 1980 1983 1970 1975 1980 1983
- Total\medium- and long-term debt Commercial debt
Note: Commercial debt comprises all medium- and long-term loans from private sources, including nonguaranteed funds.
Source: World Bank data.
57