World Bank Document

Table 5.1 A taxonomy of external borrowing controls
Borrowers Range of controls Country examples
Central government Tight control within overall statutory ceilings. Thailand, Philippines,
Brazil.
Government departments permitted reasonable freedom within Most countries.
loose overall borrowing controls.
Public enterprises and All borrowing must be initiated by and undertaken by the central Indonesia.
local governments government.
Borrowing must be authorized by the central government.
Mexico, Ecuador, Korea,
Portugal, Brazil.
No controls unless government guarantee requested.
Sudan.
Local authorities permitted to borrow freely.
Yugoslavia (pre-1982),
Nigeria (pre-1982).
Commercial banks Selective restrictions on foreigrn borrowing. Brazil, Korea.
Freedom to borrow and lend in any currency and to incur exchange Chile, Ecuador,
risks.
Argentina (pre-1982).
Private (nonbank) Borrowing must be approved; minimum maturity and maximum Turkey, Costa Rica,
borrowers interest rate stipulated. Philippines, Brazil,
Korea.
Borrowing must be approved an-d is often required for capital
Portugal.
goods imports over a certain level.
Borrowing must be registered, but is almost always approved.
Thailand, Mexico,
Ecuador.
No controls or accurate measurement.
Indonesia.
Source: World Bank informal survey.
enterprises. For example, following the PER- cate the management of overall public debt. Fol-
TAMINA crisis in the mid-1970s, the Indonesian lowing recent difficulties, the government of
government prohibited most public enterprises Yugoslavia has coordinated all the foreign debts of
from borrowing abroad; public enterprise debt is the regions.
now generally indistinguishable from central gov- Control over foreign borrowing by the private
ernment debt.
sector varies greatly (see Table 5.2). Until recently,
It is common practice for governments to guar- some developing countries sought to encourage
antee foreign loans made to public enterprises and private companies to borrow abroad. In Argentina
even to the private sector (sometimes for a fee, as and Mexico in 1981 and 1982, governments urged
in Pakistan). The potential advantages of a guaran- large corporations to get foreign loans so as to
tee include better borrowing terms and greater make room in domestic financial markets for
control over the investment programs of public increased public borrowing. Exchange rate guaranenterprises.
But guarantees place an extra financial tees have also been a fairly common means of
burden, potentially a large one, on the central gov- encouraging private borrowing, particularly in
ernment. They also transfer part of the responsibil- Latin America. Asian governments have generally
ity for project appraisal to the government, further not provided formal guarantees, though central
stretching its scarce administrative capacity. And banks have sometimes offered a "swap" facility,
by ensuring a dependence on the government, a which effectively achieves the same goal.
guarantee policy may unintentionally stop public With the debt-servicing difficulties of the past
enterprises from becoming more financially few years, governments have tightened their consophisticated
and more accountable for their trols on foreign borrowing by the private sector. In
actions.
about half of the developing countries, private bor-
In most developing countries, local or regional rowers need permission from the government. A
authorities are not permitted to borrow abroad few governments-including those in Brazil,
independently of the central government. There Korea, and the Philippines-have used their
have been a few exceptions, in federal states such powers actively to control the level and composias
Nigeria and Yugoslavia. But autonomous bor- tion of total debt. Costa Rica and Turkey are two
rowing by local government can seriously compli- countries that have recently begun to control pri-
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