World Bank Document

vate borrowing more carefully. In Mexico, private dealing with foreign lenders. This runs the risks of
foreign debt was neither controlled nor even regis- limiting foreign borrowing opportunities to welltered
until exchange controls were introduced in established local borrowers and discriminating
1982; now private debtors must register their bor- against smaller innovative companies. Other mearowings
and report any changes every six months. sures are designed to influence the maturity struc-
Part of the reason for closer government involve- ture of a country's debt, such as the prohibition of
ment in private borrowing is that, in a crisis, the short-term borrowing. Finally, monetary policy
central government may be obliged to take respon- may be used to vary the attractions of foreign borsibility
for private sector debt, even if it had not rowing. Many governments have at times raised
initially guaranteed it. This has happened in sev- domestic interest rates in order to encourage capieral
cases, notably Mexico and the Philippines. In tal inflows or discourage outflows, and in some
principle, the government has been required to instances interest rates have been lowered in order
ensure the availability of foreign exchange to ser- to discourage inflows.
vice the debts (transfer risk) while the commercial
risk remained the province of the private compa- Managing market access
nies. In practice, however, the distinction between
transfer and commercial risk has been blurred. Not all financial markets are open to all developing
Mexico's rescheduling agreement has produced countries. A country may be able to obtain Eurolegal
disputes between the government and for- dollar loans but not bond finance or loans in noneign
banks on this very issue.
dollar currencies. Some countries may be able to
Some governments have used indirect measures do swap transactions at low cost; for others, they
to control private foreign borrowing. These may be expensive or impossible. It is important
include withholding taxes on interest payments that debt managers think strategically about how
(for example, Indonesia, Malaysia, and Thailand) to increase access to markets at low cost.
and requirements that borrowers should deposit a Managing market access involves two elements.
proportion of their loan with the central bank at First, coordination is required because borrowing
zero or low interest rates (for example, Brazil and can be much more expensive if several borrowers
Chile). Other governments have set limits on the from the same country approach the same market
interest rates on new private debt, trying to protect simultaneously. Some governments require public
private borrowers who may be inexperienced in bodies to queue up, with only one borrower at a
Table 5.2 Instruments affecting private foreign borrowing in selected developing countries
Withhold-
Ceiling on ing tax on Import
Deposit interest interest restriction Exchange
Prior Minimum require- rate or payments based on rate
Country approval maturity ment spread abroad financing guarantee
Argentina O O O C 0 0 Od
Brazil 0 0 0 0 0 *
Chile C v
v
Qb
Costa Rica * 0
0 0 0
Ecuador 0 0 0 0 0 0 0
Indonesia 0 0 0 0 0 0 0
Korea * 0 0 0 0 0 0
Mexico 0 0 0 0 0 0 0
Morocco * 0 0 0 0 0 0
Philippines * * O * 0 0 0
Sudan *0 0 0 0 0 0
Thailandc Q 0 0 0 0 0 0
Turkey 0 * 0 0 0 0 0
Yugoslaviad * 0 0 0 0 * O
Zambia 0 0 0 0 0 0 0
Note: 0 = instruments used at present or in the recent past; O = instruments not used at present or in the recent past.
a. No new guarantees are provided at present.
b. Not in place at present.
c. Contracting of supplier credit requires Bank of Thailand approval.
d. Refers to borrowing by self-managed social sector enterprises.
Source: World Bank data.
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