World Development Report 1985 10895 International Capital and Economic Development World Development Indicators U.-.... U.. F U.. -I I3333 . UF II - U.. U.. IUIUUUU- . I. UU I I1 ui I - I.... --,-,-,-, '5,-, '5,- I I I....:! rri U.... 'UUUU I..... -- I.... I UUU I UUUU - ---- - S .:L- U... - -. I U '--5,-- - " 5 I UiUUUS I 5,-,-, " t-,-,-, 5,-i UUUUU UUUUUI U IIUUUUUUUUUUUUUUUUUUUUUU4U UUUUUUFUUUIUUUUUUUUUUUUU U UUUUUUFUUUUUUUUUUUUUUUUUUUUUU IUUUUUUUJUUUUUUUUUUUUUUUUUUUUUU !UUUUUUUUUUUUUUUUUUUUUUUUUUUUUU World Development Report 1985 Published for The World Bank Oxford University Press Oxford University Press NEW YORK OXFORD LONDON GLASGOW TORONTO MELBOURNE WELUNGTON HONG KONG TOKYO KUALA LUMPUR SINGAPORE JAKARTA DELHI BOMBAY CALCUTFA MADRAS KARACHI NAIROBI DAR ES SALAAM CAPE TOWN © 1985 by the International Bank for Reconstruction and Development/The World Bank l8l8HStreet, N.W, Washington, D.C. 20433 U.S.A. First printing July 1985 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of Oxford University Press. Manufactured in the United States of America. The denominations, the classifications, the boundaries, and the colors used in maps in World Development Report do not imply on the part of The World Bank and its affiliates any judgment on the legal or other status of any territory, or any endorsement or acceptance of any boundary. ISBN 0-19-520481-6 cloth bound ISBN 0-19-520482-4 paperback ISSN 0163-5085 The Library of Congress has cataloged this serial publication as follows: World development report. 1978- (New York) Oxford University Press. v. 27 cm. annual. Published for The World Bank. 1. Underdeveloped areasPeriodicals. 2. Economic development Periodicals I. International Bank for Reconstruction and Development. HC59. 7. W659 330. 9'l 72 '4 78-6 7086 S This book is printed on paper that adheres to the American National Standard for Permanence of Paper for Printed Library Materials, Z39.48-1 984. Foreword This is the eighth World Development Report. It observers thought possible when the recession focuses on the contribution that international capi- was at its trough. tal makes to economic developmenta topical We are now in a period of transitionan essen- issue in view of the international concern with tial and intermediate phase before returning to external debt over the past several years. While sustained growth and normal relationships this Report pays close attention to the events of the between debtors and creditors. A successful transi- recent past, it also places the use of foreign capital tion will require continuing efforts by govern- in a broader and longer-term perspective. ments, international agencies, and commercial Using such a perspective, the Report shows how banks. All participants in the rescheduling exer- countries at different stages of development have cises of the past three years will need continued used external finance productively; how the insti- patience and imagination to smooth out the hump tutional and policy environment affects the vol- of repayments in the next five years, when about ume and composition of financial flows to develop- two-thirds of the debt of developing countries falls ing countries; and how the international due, and to place debt on a sounder longer-term community has dealt with financial crises. footing. The financial links between industrial and devel- Stable and noninflationary growth in industrial oping countries have become as integral to the economies is an essential component of a success- world economy as trade has hitherto been. This ful transition. Policies that produce a softening of growing interdependence is a development of pro- interest rates and an easing of protectionism found significance. Just as governments recognize would facilitate the developing countries' resump- that their trading policies have international conse- tion of growth and the restoration of their cred- quences, so they are starting to see that the same is itworthiness, without which they cannot get the true of their financial policies. Their fiscal and extra capital that they need from abroad to pro- monetary policies, rules on foreign borrowing and mote their development. lending, and attitudes toward foreign investment How much they obtain will depend largely on are not only components of domestic policy, they their success in restoring creditworthiness, which also determine the efficiency with which world in turn hinges on the policies they pursue. A recur- savings are used. ring theme of this Report is that the countries in Nothing has better illustrated this new interde- debt-servicing difficulties are not necessarily those pendence than the experience of the recent past. with the largest debts or those that have suffered Expanded financial flows helped developing coun- the biggest external shocks. A country's ability to tries to sustain high levels of investment and to borrow and service its foreign debt is largely deter- smooth structural adjustments. When difficulties mined by the quality and flexibility of its policies, arose, individual governments, central banks, its ability to appraise and implement sound invest- international agencies, and commercial bankers ment projects, and by good debt management. have contributed to the task of stabilizing the Foreign finance is a complement to, and not a sub- world's financial system. Their approach has been stitute for, domestic efforts. pragmatic, devising remedies according to each The same basic policy prescriptions apply to country's difficulties. Their efforts have been com- every country. However, this Report highlights the plemented by the very painful adjustment mea- particular constraints on countries in sub-Saharan sures implemented by the debtor countries them- Africa. For the foreseeable future, most African selves. More has been achieved than many countries wifi have to continue to rely on conces- 111 sional aid for the bulk of their external finance. Bank, and the judgments in it do not necessarily Their needs are great and increasing every year. reflect the view of our Board of Directors or the Linked to policy reforms, additional aid could have governments they represent. a marked impact on halting the decline in living standards, particularly in the poorest countries. This Report concludes that the developing coun- tries will have a continuing need for external finance. It demonstrates that many of the policies required to attract external finance and promote economic growth are either being implemented or planned already. No governmenteither in an A. W Clausen industrial or a developing countryis being asked President to act against its own long-term interests. If each The World Bank follows the route outlined, all can and will benefit from a more prosperous and stable world. That is the cautiously optimistic conclusion of this Report. Like its predecessors, this year's World Develop- ment Report is a study by the staff of The World May 24, 1985 This Report was prepared by a team led by Francis Colaco and comprising Alexander Fleming, James Hanson, Chandra Hardy, Keith Jay, John Johnson, Andrew Steer, Sweder van Wijnbergen, and K. Tanju Yurukoglu, assisted by Oliver Adler, Nadeem Burney, Sandra Gain, Shahrzad Gohari, Tina Jacobsen, Tani Maher, Hossein Ali Partoazam, Kesavan Pushpangadan, and James Rosen. The Eco- nomic Analysis and Projections Department, under the direction of Jean Baneth, supplied data for the Report. Enzo Grilli and Peter Miovic coordinated the work of the Economic Analysis and Projections Department on projections. Ramesh Chander, assisted by David Cieslikowski, supervised the prepa- ration of the World Development Indicators; Shaida Badiee was responsible for systems design. The authors would also like to thank staff from various parts of the Bank, as well as other contributors and reviewers. Thanks are also due to the production staff, especially Joyce Eisen, who designed the cover, Pensri Kimpitak, and Carol Cole Rosen. Special thanks go to the support staff, headed by Rhoda Blade-Charest and including Banjonglak Duangrat, Jaunianne Fawkes, Pamela Holmes, Carlina Jones, and Patricia Smith. The work was carried out under the general direction of Anne 0. Krueger and Costas Michalopoulos, with Rupert Pennant-Rea as principal editor. iv Contents Definitions and data notes ix Part I Overview and Historical Perspective 1 Overview 1 The historical context 2 Policies of industrial countries 5 Policies of developing countries 6 Financial mechanisms 8 Prospects and options 9 2 A historical perspective 12 The pre-1945 period 12 The post-1945 period 15 Conclusions 26 Part II Role of Economic Policies 3 Macroeconomic and trade policy in industrial countries: a developing-country perspective 31 Macroeconomic constraints and capital flows 31 Macroeconomic policies, interest rates, and exchange rates 33 Protectionism 37 Conclusions 41 4 Foreign borrowing and developing-country policies 43 Country experience over two decades 43 Capital inflows and investment 45 Capital inflows and adjustment 55 Conclusions 69 5 Managing foreign finance 71 Managing the level of capital inflows 71 Managing the composition of capital inflows 76 Managing international reserves 83 The need for information 84 Part III Mechanisms for International Financial Flows 6 The international financial system and the developing countries 85 Functions and use of the system 85 The evolving institutional arrangements 86 Assessing the institutional arrangements 91 7 Official development flows 94 Changing perceptions of development 97 Rationale for official flows 99 Donors' objectives 100 Does aid help development? 101 Improving the effectiveness of aid 105 8 International bank lending and the securities markets 110 The banking relationship 110 Global imbalance and portfolio choice 112 The supply of banking services 113 Problems in the banking relationship 115 Debt rescheduling and the banks 119 V Access to securities markets 120 Assessment 122 9 Direct and portfolio investment 125 The nature and role of direct investment 125 Improving the environment for direct investment 129 Foreign portfolio investment 133 Assessment 134 Part IV Perspectives and Policies for the Future 10 Perspectives and policy agenda 137 The next ten years 137 A period of transition, 1985-90 138 Policies and priorities 143 The role of the World Bank 146 Statistical appendix 148 Bibliographical note 156 World Development Indicators 163 Text tables 1.1 Composition and terms of capital flows to developing countries in selected periods 4 2.1 Current account balance as a percentage of GNP in selected country groups and years, 1960-84 17 2.2 Current account balance and its financing in selected years, 1970-84 18 2.3 Net resource receipts of developing countries from all sources in selected years, 1970-83 21 2.4 Floating interest rate loans as a percentage of public debt in selected years, 1974-83 21 2.5 Shares of key currencies in public long-term debt, 1974-83 22 2.6 Debt indicators for developing countries in selected years, 1970-84 24 3.1 Current account balance of industrial and developing countries, 1970-84 33 3.2 Inflation-adjusted government budget balance as a percentage of national income in selected industrial countries, 1965-84 37 3.3 Share of imports subject to nontariff barriers in industrial-country markets, 1983 40 4.1 Price distortions, rescheduling, and export growth in selected developing countries 54 4.2 Impact of external shocks on the balance of payments in selected developing countries 56 4.3 Credit indicators in selected developing countries, 1972, 1979, and 1982 60 4.4 Capital flight and gross capital inflows in selected countries, 1979-82 64 5.1 A taxonomy of external borrowing controls 74 5.2 Instruments affecting private foreign borrowing in selected developing countries 75 5.3 Indicators of vulnerability to rising interest rates 79 8.1 International bond issues and placements, 1965, 1970, and 1975-84 122 9.1 Direct foreign investment in selected country groups, 1965-83 126 9.2 Return on investment in emerging markets, 1976-83 135 10.1 Average performance of industrial and developing countries, 1960-95 138 10.2 Growth of GDP per capita, 1960-95 138 10.3 Average performance of industrial and developing countries, 1980-90 139 10.4 Change in trade in developing countries, 1980-90 140 10.5 Current account balance and its financing in developing countries, 1984 and 1990 142 10.6 Net financing flows to developing countries, 1980-90 145 Appendix tables A.1 Population growth, 1965-84 and projected to 2000 148 A.2 Population and GNP per capita, 1980, and growth rates, 1965-84 148 A.3 GDP, 1980, and growth rates, 1965-84 149 vi A.4 Population and composition of GDP, selected years, 1965-84 149 A.5 GDP structure of production, selected years, 1965-82 150 A.6 Sector growth rates, 1965-82 150 A.7 Consumption, savings, and investment indicators, selected years, 1965-83 151 A.8 Growth of exports, 1965-84 152 A.9 Change in export prices and in terms of trade, 1965-84 153 A.10 Growth of long-term debt of developing countries, 1970-84 153 A.11 Savings, investment, and the current account balance, 1965-83 154 A.12 Composition of debt outstanding, 1970-83 155 Text figures 1.1 Net capital flows and debt, 1970-84 2 1.2 Trends in selected debt indicators, 1970-84 3 1.3 Multilateral debt reschedulings, 1975-84 4 1.4 Long-term interest rates in the United States, 1965-84 5 2.1 Composition of net flows to developing countries, 1960, 1970, 1980, and 1983 20 2.2 Interest rates on new long-term commitments to public borrowers, 1975-83 21 3.1 Inflation in the United States, Federal Republic of Germany, and France, 1965-84 34 3.2 Difference between long- and short-term interest rates in the United States and Germany, 1965-83 35 3.3 Corporate income taxes as a percentage of economic profits in the United States, 1950-89 35 3.4 Government expenditures as a percentage of national income in Europe, the United States, and Japan, 1965-84 37 3.5 Changes in current account balances between 1981 and 1984 38 3.6 Indexes of real commodity prices, 1965-84 39 4.1 The debt ladder 44 4.2 Income level and access to borrowing from official and private sources 46 4.3 Investment, savings, and the resource gap in selected country groups, 1960-83 49 4.4 Borrowing and investment in selected developing countries, 1965-83 50 4.5 Borrowing and growth in selected developing countries, 1965-83 51 4.6 Change in investment, savings, and terms of trade in selected developing countries, 1965-83 59 4.7 The composition of credit in ten countries, 1972, 1978, and 1982 61 4.8 Growth of debt and government budget deficits in selected developing countries, 1972-82 62 4.9 Public sector deficits and current account deficits in three countries, 1970-83 63 5.1 Short-term debt as equivalent months of imports for developing countries, 1978-83 81 5.2 Short-term debt as equivalent months of imports for selected Latin American countries, 1978-83 81 5.3 Reserves as equivalent months of imports for selected countries and country groups, 1970-83 83 6.1 Annual average private flows to industrial and developing countries, 1978-83 86 6.2 Net flows to developing countries in selected years, 1970-83 86 6.3 Disbursements of medium- and long-term capital from official and private sources to country groups, selected years, 1970-83 88 7.1 Net receipts of official flows, by source, 1970-83 97 7.2 Volume and growth of ODA disbursements by donor, 1983 101 8.1 Net position of developing countries with commercial banks, 1974, 1979, and 1983 111 8.2 International bank lending, 1973-84 112 8.3 Outstanding bank claims on developing countries, 1978-83 115 8.4 Capital assets ratios of banks in major financial markets, 1977-83 117 8.5 Sources and uses of international banking funds by selected country groups, 1979-83 119 9.1 Direct foreign investment as a percentage of external liabilities of seven major borrowers, 1983 126 9.2 Sectoral composition of direct foreign investment in developing countries by four source countries, 1980 129 10.1 The current account, capital flows, and debt of developing countries, High and Low projections for 1990 144 10.2 Net financing flows to developing countries, High and Low projections for 1990 144 vii Boxes 2.1 The Bretton Woods conference and its twin institutions 15 2.2 External liabilities of developing countries 22 2.3 How inflation affects loan repayments 25 2.4 The changing nature of debt renegotiations 27 2.5 Recent proposals for dealing with debt-servicing difficulties 29 3.1 Primary commodity prices, business cycles, and the real exchange rate of the dollar 32 3.2 Interest rate variability, risk shifting, and floating rate debt 34 3.3 Measurement of government deficits 36 3.4 The costs of protecting sugar and beef 41 3.5 Implications for developing countries of changes in interest rates, terms of trade, and growth in industrial countries 42 4.1 The debt cycle hypothesis 47 4.2 Careful borrowing and risk avoidance: the case of India 52 4.3 Foreign borrowing and investment efficiency in the Philippines, Argentina, and Morocco 52 4.4 Guidelines for borrowing 53 4.5 Windfall gains and foreign borrowing 56 4.6 Capital flight in the Southern Cone countries 65 4,7 Stabilization and adjustment 66 4.8 The World Bank's lending for adjustment 66 4.9 Borrowing for adjustment: the case of Korea 68 5.1 Borrowing rules: the case of the Philippines 72 5.2 Integrated debt management: the case of Thailand 73 5.3 Estimating the grant element 78 5.4 Three innovative financial instruments and their use by developing countries 78 5.5 Currency and interest rate swaps 80 5.6 Automated debt management systems 82 6.1 The growth and distribution of World Bank lending 87 6.2 The deployment of the OPEC surplus 89 6.3 The international interbank market 91 6.4 Sovereign risk and its implications for international lending 92 7.1 A brief chronology of official development flows 94 7.2 Export credits 96 7.3 Nongovernmental organizations 96 7,4 OPEC economic assistance 102 7.5 Mixed credits 104 7.6 IMF lending, its role, and its size 106 7,7 IDA 108 7.8 Aid coordination 109 8.1 Developing-country banks 111 8.2 Arab banks and international business 113 8.3 The origins of the Eurocurrency markets 114 8.4 Bank supervision and its impact on lending to developing countries 116 8.5 Financial deregulation in Japan: some implications for developing countries 116 8.6 The rise and fall of syndicated lending 118 8.7 Increasing the flexibility of bank lending 121 8.8 Floating rate notes 122 8.9 World Bank cofinancing 123 9.1 Direct foreign investment in Brazil 127 9.2 Direct foreign investment in India 128 9.3 Japanese direct investment in manufacturing 129 9.4 Turkish seed production 130 9.5 A multilateral investment guarantee agency 132 9.6 The IFC and foreign portfolio investment: the Korean case 134 Definitions and data notes Capital flows extended by an agency of the exporting country's government. Components of capital flows. International move- Grant. A current transfer of capital, goods, or ments of capital may come from either official or services to a foreign country that results in no cur- private sources. Official sources are (a) govern- rent or future obligation to make a like transfer ments and governmental agencies (also called bilat- from the recipient country to the donor. eral lenders) and (b) international organizations Grant element. The extent to which a loan can (called multilateral lenders). Private sources com- be considered a grant is determined by its grant prise (a) commercial suppliers and manufacturers, elementthe difference between the original face which provide export credits for the purchase of value of the loan and the discounted present value their goods, (b) commercial banks, which provide of debt service, as a percentage of the original face export credits or cash loans, (c) other private inves- value. Thus a true grant has a grant element of 100 tors, who invest in foreign enterprises in which percent. A discount rate of 10 percent is conven- they seek a lasting interest (direct investment) or tionally used in the calculation. The grant element purchase stocks or bonds issued by foreign compa- is used to compare the concessionality of assis- nies or governments (portfolio investment), and tance provided under differing terms and condi- (d) charitable organizations, which provide finan- tions. cial aid, goods, and services as grants. Net flows of lending. Loan disbursements less Concessional flows. International lending on amortization of principal. terms more favorable to the borrower than those Nonconcessional flows. Lending on or near obtainable through normal market transactions. In terms prevailing in private financial markets. this text, concessional flows are defined as those Official development assistance. Loans and grants having a grant element of 25 percent or more. made on concessional financial terms from official Direct foreign investment. Investment made to sources, with the objective of promoting economic acquire a lasting interest in an enterprise operating development and welfare. It includes the value of in an economy other than that of the investor, the technical cooperation and assistance. investor's purpose being to have an effective voice Private nonguaran teed debt. Private nonguaran- in the management of the enterprise. teed loans are external obligations of private Equity financing. Investment that confers debtors that are not guaranteed for repayment by a whole or partial ownership in an enterprise and public entity of the debtor country. entitles the investor to share in the profits from its Public and publicly guaranteed debt. Public loans operation. International equity financing flows are external obligations of public debtors, includ- may be included in either foreign direct or portf o- ing national governments, their agencies, and ho investment. autonomous public bodies. Publicly guaranteed Export credits. Finance provided by lenders in a loans are external obligations of private debtors given country for exports of specific goods or ser- that are guaranteed for repayment by a public vices. Conventionally, one distinguishes between entity of the debtor country. private and official export credits. Private export credits consist of (a) supplier credits, which are Trade and finance extended by the exporting company to the foreign buyer and (b) buyer credits, which are extended by Balance of payments. A systematic record of the commercial banks in the exporting country on economic transactions between a nation's resi- behalf of the exporters. Official export credits are dents and nonresidents during a given period, ix usually one calendar or fiscal year. It covers the are usually differentiated as long-term ratesthe flows of real resources (including factor services, current rates payable on financial instruments, such as the services of labor and capital) across the such as bonds, having maturities of more than one boundaries of the domestic economy, changes in yearand short-term ratesthose on such instru- foreign assets and liabilities resulting from eco- ments maturing in one year or less. The real interest nomic transactions, and transfer payments to and rate is the nominal rate adjusted to account for from the rest of the world. Balance of payments changes in the price level. accounts comprise two broad categories: the cur- Intermediation. The process whereby a private rent account, which measures merchandise trade, or official financial agency accepts funds from factor and nonfactor service income, and transfer investors and onlends them to borrowers. receipts and payments, and the capital account, Maturity. For a loan, the date at which the final which measures changes in domestic and foreign repayment of principal is to be made. Short-term capital assets and liabilities. loans are those with original maturity of a year or Current account balance. A representation of the less; medium- and long-term loans are those with transactions that add to or subtract from an econ- original or extended maturity of more than one omy's stock of financial items. It is given as the year. sum of net exports of goods and nonfactor ser- Reserves. A country's international reserves vices, net factor income, and net transfers. Official comprise its holdings of monetary gold and special capital grants are excluded. drawing rights; its reserve position in the Interna- Debt reorganization. Any change in the pay- tional Monetary Fund; its holdings of foreign ment arrangements associated with an existing exchange under the control of monetary authori- stock of debt mutually agreed upon by the bor- ties; its use of IMF credit; and its existing claims on rower and the lender. In debt refinancing, new loans nonresidents that are available to the central are negotiated to meet debt service obligations on authorities. Reserves are also expressed in terms of existing debt. In debt rescheduling, arrangements the number of months of imports of goods and are agreed upon for postponing payments of prin- services they could pay for. cipal or interest or otherwise changing the terms of Resource balance. The difference between repayment or of interest charges. exports of goods and nonfactor services and Debt service. The sum of interest payments and imports of goods and nonfactor services. repayments of principal on external debt. The debt Spread. The difference between a reference rate service ratio is total debt service divided by exports used to price loans and the rate at which funds are of goods and services. lent to final borrowers. A widely used reference External debt. Debt that is owed to nonresi- rate is the London interbank offered rate, or dents. World Bank data, unless otherwise speci- LIBORthe rate at which banks participating in fied, cover external debt that has an original or the London market are prepared to lend funds to extended maturity of one year or more and that is the most creditworthy banks. Another is the U.S. repayable in foreign currency, goods, or services. prime rate. Transactions with the International Monetary Terms of trade. A measure of the relative level of Fund are excluded (with the exception of Trust export prices compared with import prices. Calcu- Fund loans). A distinction in medium- and long- lated as the ratio of a country's index of export unit term debt is made between private nonguaranteed value to the import unit value, this indicator shows debt and public and publicly guaranteed debt. changes over a base year in the level of export Interest rates. The nominal rate on a given loan is prices as a percentage of import prices. the percentage stipulated in the loan contract and Trade balance. The difference between mer- may be expressed as a fixed rate, that is, an interest chandise exports f.o.b. and merchandise imports rate that is constant over the duration of the loan, f.o.b. or as a variable, or floating, rate, an interest rate that is recalculated at fixed intervals (such as every six National accounts months). Variable interest rates consist of a base rate (such as the six-month London interbank Gross domestic product. The total final output of offered rate) plus a margin, or spread. Market, or goods and services produced by an economythat world, rates reflect the terms of borrowing at any is, by residents and nonresidents, regardless of the given time in private capital markets; market rates allocation to domestic and foreign claims. It is cal- x culated without making deductions for deprecia- Turkey, which are included among the middle- tion. income developing economies. This group is com- Gross national product. The total domestic and monly referred to in the text as industrial econo- foreign output claimed by residents. It comprises mies or industrial countries. gross domestic product adjusted by net factor East European nonmarket economies include the income from abroad. Factor income comprises following countries: Albania, Bulgaria, Czechoslo- receipts that residents receive from abroad for fac- vakia, German Democratic Republic, Hungary, tor services (labor, investment, and interest) less Poland, Romania, and USSR. This group is some- similar payments made to nonresidents abroad. It times referred to as nonmarket economies. is calculated without making deductions for depre- Sub-Saharan Africa comprises all thirty-nine ciation. developing African countries south of the Sahara, Investment. The sum of gross domestic fixed excluding South Africa, as given in Toward Sus- investment and the change in stocks (or invento- tained Development in Sub-Saha ran Africa: A Joint Pro- ries). Gross domestic investment covers all outlays gram of Action (World Bank 1984). of the private and public sectors for additions to Middle East and North Africa includes Afghani- the fixed assets of the economy, plus the value of stan, Algeria, Arab Republic of Egypt, Iran, Iraq, change in stocks (or inventories). Israel, Jordan, Kuwait, Lebanon, Libya, Morocco, Savings. Gross domestic savings is defined as Oman, Saudi Arabia, Syrian Arab Republic, Tuni- the difference between GDP and total consump- sia, Turkey, Yemen Arab Republic, People's Demo- tion, and gross national savings are obtained by cratic Republic of Yemen, and United Arab Emir- adding net factor income from abroad and net cur- ates. rent transfers from abroad to gross domestic sav- East Asia comprises all low- and middle- ings. income countries of East and Southeast Asia and the Pacific, east of, and including, Burma, China, Country groupings and Mongolia. South Asia includes Bangladesh, Bhutan, Developing countries are divided into: low- India, Nepal, Pakistan, and Sri Lanka. income economies, with 1983 gross national product Latin America and the Caribbean comprises all (GNP) per person of less than $400; and middle- American and Caribbean countries south of the income economies, with 1983 GNP per person of United States. $400 or more. Middle-income countries are also Major borrowers are countries with disbursed divided into oil exporters and oil importers, identified and outstanding debt estimated at more than $15 below. billion at the end of 1983 and comprise Argentina, Middle-income oil exporters comprise Algeria, Brazil, Chile, Egypt, India, Indonesia, Israel, Angola, Cameroon, People's Republic of the Republic of Korea, Mexico, Turkey, Venezuela, Congo, Ecuador, Arab Republic of Egypt, Gabon, and Yugoslavia. Indonesia, Islamic Republic of Iran, Iraq, Malaysia, Mexico, Nigeria, Peru, Syrian Arab Republic, Trin- Acronyms and initials idad and Tobago, Tunisia, and Venezuela. Middle-income oil importers comprise all other BIS Bank for International Settlements. middle-income developing countries not classified DAC The Development Assistance Committee of as oil exporters. A subset, major exporters of manu- the Organisation for Economic Co-operation and factures, comprises Argentina, Brazil, Greece, Development comprises Australia, Austria, Hong Kong, Israel, Republic of Korea, Philippines, Belgium, Canada, Denmark, Finland, France, Fed- Portugal, Singapore, South Africa, Thailand, and eral Republic of Germany, Italy, Japan, Nether- Yugoslavia. lands, New Zealand, Norway, Sweden, Switzer- High-income oil exporters (not included in devel- land, United Kingdom, United States, and oping countries) comprise Bahrain, Brunei, Commission of the European Communities. Kuwait, Libya, Oman, Qatar, Saudi Arabia, and EC The European Communities comprise United Arab Emirates. Belgium, Denmark, France, Federal Republic of Industrial market economies are the members of Germany, Greece, Ireland, Italy, Luxembourg, the Organisation of Economic Co-operation and Netherlands, and United Kingdom. Development, apart from Greece, Portugal, and FAO Food and Agriculture Organization. xi GATE General Agreement on Tariffs and Trade. Data notes GD! Gross domestic investment. Billion is 1,000 million. GDP Gross domestic product. Tons are metric tons (t), equal to 1,000 kilograms GDS Gross domestic savings. (kg) or 2,204.6 pounds. GNP Gross national product. Growth rates are in real terms unless otherwise GNS Gross national savings. stated. Growth rates for spans of years in tables IBRD International Bank for Reconstruction and cover the period from the beginning of the base Development. year to the end of the last year given. IDA International Development Association. Dollars are current U.S. dollars unless otherwise IFC International Finance Corporation. specified. ILO International Labour Office. The symbol. . in tables indicates data are not avail- IMF International Monetary Fund. able. LIBOR London interbank offered rate. All tables and figures are based on World Bank NGO Nongovernmental organization. data unless otherwise specified. Throughout this ODA Official development assistance. volume, unless otherwise noted, World Bank data OECD The Organisation for Economic Co-opera- on debt cover medium- and long-term public and tion and Development members are Australia, publicly guaranteed plus private nonguaranteed Austria, Belgium, Canada, Denmark, Finland, debt outstanding and disbursed. Data on short- France, Federal Republic of Germany, Greece, Ice- term debt have been estimated by World Bank staff from the published semiannual series of the Bank land, Ireland, Italy, Japan, Luxembourg, Nether- lands, New Zealand, Norway, Portugal, Spain, for International Settlements on the maturity dis- tributions of international lending; adjustments to Sweden, Switzerland, Turkey, United Kingdom, and United States. the BIS data have been made to exclude known amounts that have been rolled over into long-term OPEC The Organization of Petroleum Exporting debt during reschedulings. The World Develop- Countries comprises Algeria, Ecuador, Gabon, ment Indicators at the back of this volume use the Indonesia, Islamic Republic of Iran, Iraq, Kuwait, country groupings given above but include only Libya, Nigeria, Qatar, Saudi Arabia, United Arab countries with a population of 1 million or more. Emirates, and Venezuela. Data from secondary sources are not always SDR Special drawing right. available through 1983. The numbers in this World UN United Nations. Development Report shown for historical data may UNCTAD United Nations Conference on Trade differ from those shown in previous Reports and Development. because of continuous updating as better data UNDP United Nations Development Pro- become available, and because of recompilation of gramme. certain data for a ninety-country sample. The Unesco United Nations Educational, Scientific, recompilation was necessary to permit greater flex- and Cultural Organization. ibility in regrouping countries for the purpose of UNICEF United Nations Children's Fund. making projections. xli Part I Overview and Historical Perspective 1 Overview The economic turbulence of the past few years has This Report offers a broad and long-term per- subsided. The recovery of industrial economies in spective on the role of international capital in eco- 1983-84, policy adjustments by many developing nomic development. It emphasizes that interna- countries, and flexibility by commercial banks in tional flows of capital can promote global economic dealing with debt-servicing difficulties have all efficiency and can allow deficit countries to strike helped to calm the atmosphere of crisis. This does the right balance between reducing their deficits not mean, however, that the world economy has and financing them. The availability of interna- regained its momentum of the 1960s or that devel- tional capital also involves risks, however: first, opment is again making rapid progress. Growth that it may delay the policy reforms required for has slowed in most developing countries that adjustment; and second, that countries may bor- experienced debt-servicing difficulties and in many row too much if they misjudge the way in which of those that did not. Average per capita real external economic conditions are going to evolve. incomes in most of Africa are no higher than they Both benefits and costs can be illustrated by were in 1970; in much of Latin America, they are recent experience. On the benefits side, most back to the levels of the mid-1970s. Dozens of developing countries have made substantial eco- countries have lost a decade or more of develop- nomic progress over the past twenty years. Their ment. GDP growth averaged 6.0 percent a year in 1960- The experience of the past few years has raised 80. The life expectancy of their people rose from an many questions about the role of international average of forty-two years in 1960 to fifty-nine capital in economic development. Only a few years years in 1982, while infant mortality was halved ago, there was general agreement that the more and the primary school enrollment rate rose from advanced developing countries could and should 50 to 94 percent. These advances reflected princi- borrow more commercial capital from abroad. That pally the efforts of developing countries them- consensus has been broken. Some people believe selves. But there is considerable evidence that that the case by case approach to addressing debt capital flows, often accompanied by technical difficulties is creating a sustainable balance of know-how, have played a part. growth and debt servicing that will in time encour- Foreign capital has also helped individual coun- age more lending, including bank lending. Others tries to cushion shockseither internal ones such believe that new approaches are needed if devel- as harvest failures or external ones such as big oping countries are to service their debt and changes in commodity prices or recessions in resume economic growth. As with so many industrial economies. External finance can act as a changes in conventional wisdom, both new and shock absorber, allowing countries to adjust their old arguments are often stylized and exaggerated. spending gradually and reallocate their resources It is important not to lose sight of the fundamen- for a new environment. In the 1970s many devel- tals of international finance. oping countries were able, in the first instance, to Capital has long flowed from richer to poorer pay for more expensive oil by borrowing more. countries. It has done so because it is relatively Those countries that accompanied borrowing with scarcer in economies that are at earlier stages of policy reforms restored rapid growth and avoided development, and the expected rates of return debt-servicing difficulties. Other countries used tend to be correspondingly higher. What is at issue borrowing to avoid the policy actions required for is the nature of capital flows, their terms, and their adjustment. Many of them ran into debt-servicing uses. These questions were relevant in the nine- problems and needed to take even more drastic teenth century and remain so today. and costly adjustments later. 1 This contrast emphasizes that foreign borrowing in capital flows since 1981. The most striking fea- is not a painless or riskiess alternative to adjust- ture of this growth was the surge in lending by ment. The accumulation of debt makes a country commercial banks. Their share of total new flows more susceptible to international financial fluctua- to developing countries increased from 15 percent tions, as the swing from negative real interest rates in 1970 to 36 percent in 1983. to unprecedentedly high positive rates has made On every measure, the debt-servicing abilities of all too plain. The need for rapid adjustment developing countries deteriorated, particularly increased. Borrowers and lenders often fail to take after 1974, as their debt increased (see Figure 1.2). full account of the institutional, social, and political The ratio of debt to GNP more than doubled, from rigidities that restrict a country's capacity to 14 percent in 1970 to almost 34 percent in 1984. The adjust. ratio of debt service to exports rose from 14.7 per- cent in 1970 to a peak of 20.5 percent in 1982, The historical context declining to 19.7 percent in 1984. Interest pay- ments on debt increased from 0.5 percent of GNP The ten years 1973-82 saw a big increase in the in 1970 to 2.8 percent of GNP in 1984 and foreign finance going to developing countries. As a accounted for more than half of all debt service result, both the gross and net debt of developing payments in that year. These averages conceal countries increased sharply. Between 1970 and wide regional and country differences. 1984 the outstanding medium- and long-term debt Dramatic though the recent growth of foreign of developing countries expanded almost tenfold, borrowing has been, it is not unprecedented. As to $686 billion (see Figure 1.1), despite the decline Chapter 2 makes clear: The volume of international capital flows has often been larger in relative terms than in the 1970s. Between 1870 and 1913, Great Britain Figure 1.1 Net capital flows and debt, 1970-84 invested an average of 5 percent of its GNP Net flows to developing countries abroad, rising to almost 10 percent just before Billions of dollars Official development World War I. For France and Germany, the figure 40 / assistance was 2 to 3 percent of GNP. As a proportion of the Commercial bank recipient country's GNP, capital inflows were also 30 - lending often larger in earlier periods. Inflows to Canada, Bilateral for example, averaged 7.5 percent of its GNP I noriconcessional between 1870 and 1910 and accounted for 30 to 50 20 / lending I Direct foreign percent of its domestic investment. During the // investment investment booms in Argentina and Australia, for- 10 // Multilateral eign capital was roughly half of all gross domestic / nonconcessional lending investment. By contrast, net capital inflows to all 0 "Other developing countries averaged 2 to 3 percent of 1970 1974 1978 1982 their GNP between 1960 and 1973, while financing 10 to 12 percent of their gross investment; since Debt outstanding and disbursed then, net capital inflows have been between 3 and Billions of dollars 6 percent of their GNP and have financed 10 to 20 All developing 600 percent of their gross investment. countries The structure of financial flows to developing countries has changed several times. In the years 400 before World War I, private bond markets were the Middle-income main source of capital. In the 1930s, following the oil importers Great Depression and widespread defaults by bor- 200 Middle-income rowers in both industrial and developing coun- oil exporters tries, commercial lending to developing countries Low-income virtually stopped. It was replaced after World War 0 II by an expansion of official flows, mainly on con- 1970 1974 1978 1982 cessional terms; the largest part was bilateral aid, Source: For net flows: OECD Development Co-operation; for debt: but some was channeled through the new multila- World Bank data. teral agencies such as the World Bank and later the 2 Figure 1.2 Trends in selected debt indicators, 1970-84 Percent Debt/exports 220 All developing countries Middle-income oil importers Middle-income oil exporters Low-income Africa Low-income Asia 1970 1974 1978 1982 Percent Debt/GNP Percent Debt service/exports 30 0 1970 1974 1978 1982 4 1970 1974 1978 1982 Percent Debt service/GNP Percent Interest payments/GNP 8 0 0 1970 1974 1978 1982 1970 1974 1978 1982 Note: Interest and debt service for 1970-83 are actual (not contractual) service paid during the period. Interest and debt service for 1984 are projections of contractual obligations due based on commitments received through the end of 1983 and take into account reschedulings through the end of 1984. Source: World Bank data. International Development Association. Along environment. The fifty years before World War I with private direct investment and supplier saw several debt repudiations, including the Peru- credits, official finance provided the bulk of exter- vian and Turkish crises in the 1870s and the Argen- nal capital for developing countries until the late tinian and Brazilian crises of the 1880s and 1890s. 1960s, when commercial banks started to play a Defaults, however, were not confined to develop- prominent role. ing countries: some borrowers in the United Debt-servicing difficulties have been common States, for example, defaulted on their debts in and usually have been caused by a combination of these years. In the 1930s defaults were wide- poor domestic policies and a deteriorating world spread, starting with Germany in 1932. Argentina 3 was the only country in Latin America to service its Table 1.1 Composition and terms of capital debt on the terms contracted during these years. flows to developing countries in selected periods Except in the 1930s, countries were able to resume Component and term 1960-65 1975-80 1980-83 borrowing (albeit on more expensive terms) once Direct foreign investment they had reformed their policies. as a percentage By historical standards, debt-servicing difficul- of net capital flows 19.8 15.5 12.9 ties in the 1960s and 1970s do not seem unduly Floating interest rate loans as a percentage serious. In 1955-70 seven developing countries of public debt 26.5 37.9 (Argentina, Brazil, Chile, Ghana, Indonesia, Peru, Average years maturity and Turkey) were involved in seventeen debt on new public debt reschedulings. There were also some debt resched- commitments 18.0 15.0 14.0 ulings for low-income countries, including India, Source: For investment: OECD Development Co-operation; for terms: World Bank data. but these were designed to provide additional finance when official lenders could not increase new lending. In the 1970s, despite the sharp fall in rescheduling that some major debtors have negoti- their terms of trade in 1973-74, an average of three ated. developing countries a year rescheduled their The similarities with the past should not obscure debts. some differences as well. Developing countries It is only in the 1980s that debt problems have have become more vulnerable to debt-servicing multiplied. The number of reschedulings rose to difficulties for three related reasons. First, loans thirteen in 1981 and to thirty-one (involving have far outstripped equity finance. Second, the twenty-one countries) in 1983 and a similar num- proportion of debt at floating interest rates has ber in 1984 (see Figure 1.3). Countries have risen dramatically, so borrowers are hit directly restructured their repayment schedules, some- when interest rates rise. Third, maturities have times for several years at a time, in the context of shortened considerably, in large part because of agreed upon prugrams of policy reform. Low- the declining share of official flows and debtand income countries, however, particularly in Africa, by even more than Table 1.1 suggests, if account is have yet to benefit from the kind of multiyear taken of the way in which higher inflation and interest rates have front-loaded repayments. Another major and disturbing difference today is that many of the countries with debt-servicing dif- Figure 1.3 Multilateral debt reschedulings, ficulties are in the low-income group. This is partly 1975-84 because their aid receipts have been erratic. The Number of reschedulings dollar value of receipts of net official development 35 assistance (ODA) by all developing countries in 1975 was two and a half times the level in 1970, 30 stagnated between 1975 and 1977, almost doubled and commercial bank between 1977 and 1980, and has declined since 25 UOfficial reschedulings then. In real terms the pattern is similar, but the J Official reschedulings fluctuations are less marked. This pattern is 20 explained by variations in bilateral ODA, particu- larly flows from OPEC countries, since multilateral 15 ODA increased steadily between 1973 and 1980 and has declined only slightly since then. Many 10 low-income and lower-middle-income countries borrowed commercially and accumulated large 5 amounts of debt. In earlier periods, the poorest countries had obtained virtually all their foreign F 84' capital in the form of direct investment, especially for export-earning activities, or official flows on 1975 76 77 78 79 80 81 82 83 concessional terms. a. Data include commercial bank reschedulings agreed to in prin- The historical perspective reveals certain broad ciple but not signed as of the end of 1984. characteristics of debt-servicing problems. The Source: World Bank data. financial links between industrial and developing 4 countries depend on three variables: (a) the poli- Figure 1.4 Long-term interest rates cies of industrial countries; (b) the policies of in the United States, 1965-84 developing countries; and (c) the financial mecha- Percent i,1rat/V nisms through which capital flows to developing 15 countries. No analysis of international finance is complete unless it takes account of all of these vari- ables. In doing so, it reveals a much wider range of country experience and why some countries have borrowed and encountered debt-servicing difficul- ties, while others have not. It also highlights the fact that the economic difficulties of the early 1980s were the product of individual economic decisions that seemed rational when they were made. Real rate Policies of industrial countries 1965 1970 1975 1980 1984 As Chapter 3 makes clear, the fiscal, monetary, and Note: Data are averages of quarterly data. trade policies of industrial countries largely deter- Source: OECD Financial Statistics and National Accounts; Federal mine the external climate for developing countries. Reserve Board statistical releases. The connection is not simply that rapid growth in the industrial world pulls up the growth of devel- oping economies, though it helps to do so. Nor is it just that prolonged recession and increased protec- at historically high levels. The world recovery in tionism in the industrial countries cause difficulties 1983-84 did not lead, however, to the normal cycli- for developing countries. Increasingly, the links cal rise in commodity prices in dollar terms. This are financial, through changes in the availability of was in part due to the U.S. dollar's further appre- finance and movements in interest rates and ciation, as well as to technological and other fac- exchange rates. tors affecting the demand for commodities. Thus This became clear in 1979-80, for example, when net primary commodity exporters (including Bra- U.S. monetary policy switched from targeting zil) benefited less than countries that are net com- interest rates to targeting monetary aggregates. modity importers (such as the Republic of Korea). Interest rates became more volatile. Latin America, In addition, developing countries continue to be with a higher proportion of floating rate debt, was affected by protectionist measures in the industrial more affected by this change than either East Asia economies. or Africa. The result was abrupt increases in debt For the future, the effects that industrial coun- service payments. Developing countries find it dif- tries have on developing countries will depend pri- ficult to make sudden and large changes in debt marily on what happens in two areas of policy: real service payments. The strains felt by many devel- interest rates and protectionism. Interest rate oping countries were increased in the early 1980s developments are explored in detail in Chapter 3. by the recession in the industrial countries, which The analysis there concludes that large budget def- reduced export volumes and weakened commod- icits in industrial countries remain an obstacle to ity prices at a time when real interest rates were lower interest rates. As a proportion of national rising (see Figure 1.4 and Chapter 3, Figure 3.6). It income, combined budget deficits of all levels of is hardly surprising that the combination made it government rose substantially between 1979 and difficult for many countries to service their debts. 1984 in nine of the principal industrial countries The recovery in the industrial countries has except the Federal Republic of Germany and helped to ease some of the liquidity pressures on Japan. In 1984 the combined deficits of these developing countries. World trade grew by about industrial economies, adjusted for inflation, were 8.5 percent in 1984, and world output increased by 2.3 percent of their national income. The U.S. defi- 4.2 percent. In developing countries GNP grew by cit has grown the fastest over the past five years. 4.1 percent, and the volume of their exports Credible measures are needed in these countries to increased by an estimated 8.9 percent, compared reduce public sector reliance on domestic and for- with less than 4 percent a year in 1981 and 1982. eign savings; this could lower interest rates and Real interest rates have softened a little but remain foster growth. The United States has recently 5 announced steps that, when implemented, would with more debt but no corresponding increase in permit significant reduction in its fiscal deficits in their ability to service it. the next few years. Avoiding a recessionary impact In the 1970s it was right for countries to borrow of such a policy change will require careful coordi- when real interest rates were low or negativebut nation with monetary policy in the United States only if they followed appropriate policies and and with monetary and fiscal policies in the other invested in economically justified projects. Cau- large industrial countries. tion in defining borrowing limits was required. It The second issue of vital concern to developing was wrong to assume that low interest rates would countries is protectionism. To service their foreign continue, and it is always expensive to reverse debts, the biggest debtors will need to run large investment decisions. These mistakes are quickly trade surpluses in the next few years. Yet many exposed when world conditions deteriorate, as import restrictionson steel, sugar, and beef, for they did in the early 1980s. examplehave affected primarily major debtors Developing countries suffered in 1979-84 from a including Argentina, Brazil, Korea, and Mexico. combination of more expensive oil, historically Other restrictions, such as the Multifibre Arrange- high real interest rates, prolonged recession in ment, affect a broader range of countries. The industrial economies, and more trade barriers. harder the big debtors find it to service their debt, Despite this, as many as 100 countries have contin- the greater the strains on the world's banking sys- ued to service their foreign debt without interrup- tem. tion. Some have experienced only small shocks When developing countries cannot earn the for- (for example, some countries that are oil exporters) eign exchange to expand their imports, exporters or have benefited from workers' remittances (for in the industrial countries are also damaged. To example, certain Asian and Middle Eastern coun- take one example, this was an important factor in tries). Some had borrowed only a little or mainly explaining why U.S. exports of manufactures to on concessional terms in the 1970s (for example, major debtors fell by 40 percent between 1980-81 China, Colombia, and India). And some who bor- and 1983-84. Such harm is widespread, since rowed undertook economic policy reforms that industrial economies run a surplus on trade in facilitated debt servicing (for example, Indonesia manufactured goods with developing countries. and Korea). And protectionism acts as a brake on the adjust- Countries that ran into debt-servicing difficul- ment and growth that the industrial countries ties, however, were not necessarily those that had themselves so badly need. suffered the biggest shocks. They were countries Over the longer term, protectionist barriers in that had borrowed and failed to adjust or had not the industrial world can have a profound effect on tackled the new problems with sufficient urgency. development strategy. They suggest to govern- Among these were the low-income countries of ments in developing countries that a strategy Africa, in which development is a long-term based on export growth is highly risky, and thus process constrained by weak institutional struc- encourage a return to the inward-looking policies tures, a shortage of skills, and often (as in the past of earlier years. Evidence is abundant that such ten years) natural disasters as well. These coun- policies are bad for growth and employment in the tries have traditionally used concessional capital developing countries and also reduce the scope for from abroad to finance the bulk of their invest- industrial countries to promote improvements in ment. In the 1970s they were faced with higher productivity in their own economies. import bills. Many African countries that had com- modity booms were able to borrow on commercial Policies of developing countries terms when interest rates were low. They used this foreign finance partly for consumption and also for The past dozen years have underlined, as dis- investment in large public projects, many of which cussed in Chapter 4, the crucial role of domestic contributed little to economic growth and to policies in determining the performance of devel- increased exports needed to service the debt. Capi- oping countriesparticularly in the use they make tal inflows enabled some countries to postpone of foreign finance. Foreign finance can promote policy reforms. Debt-servicing difficulties could growth through higher investment and technology have been expected and did occur. The net result transfers. It can allow countries to adjust gradually has been a further setback to their economic devel- to new circumstances in the world economy. But opment. it can also be misused, so that countries end up The second group of countries with debt difficul- 6 ties includes many countries in Latin America and countriesincluding both oil importers and oil some major debtors. The reasons for their financ- exportersdelayed raising their domestic energy ing problems are more complex, but three com- prices, thus increasing pressures on their balance mon features are (a) fiscal and monetary policies of payments; many other countries avoided these that were too expansionary to achieve a sustain- pressures by raising energy prices earlier. Further- able external balance; (b) overvalued exchange more, investment decisions are influenced by the rates that prevented exports from competing on appropriateness of pricing structures, including world markets and encouraged capital flight; and interest rates. Governments need to evaluate care- (c) increased domestic savings efforts but invest- fully their own investment programs and to create ment increases that were even larger. Some coun- a framework of incentives to ensure that private tries, such as Chile and Uruguay, attempted com- investors allocate resources in the most efficient prehensive economic reforms, but parts of their way. Countries such as Brazil, Ecuador, Ivory policy package were defective and the timing of Coast, Nigeria, Peru, and Turkey combined nega- measures taken was inappropriate. Other coun- tive real interest rates with overambitious or ineffi- tries borrowed heavily and undertook some policy cient investment programs. By contrast, Colombia changes (for example, Brazil, Ivory Coast, and the and Malaysia had more appropriate interest rate Philippines), but they underestimated the length levels and investment incentives. and depth of the recession and the large rise in Exchange rates and trade policies also play an interest rates in the early 1980s. Many of these important role. In the 1970s and early 1980s many countries are now in the process of reforming their countriesnotably Argentina, Chile, Mexico, policies, with results that are thus far encouraging. Nigeria, the Philippines, Turkey, and Uruguay The diverse experiences of developing countries allowed their exchange rates to become overvalued emphasize certain basic lessons for policy. One can and their trade policies to become distorted. This be summarized as the need for flexibility. A charac- biased production toward the domestic market, teristic of foreign finance is that it requires both stimulated imports, and provoked capital flight. borrowers and lenders to take account of uncer- Comprehensive trade and price reforms by Turkey, tainty. The best way of doing so is to be able to following difficulties it experienced in the late respond flexibly to changes in the external envi- 1970s, produced good results. ronment. Countries as varied as India, Indonesia, Efforts to raise domestic savings should be Korea, and Turkey have adapted their economic strengthened despite the availability of external policies to changed circumstances. The most criti- capital. The correct role of foreign finance is to sup- cal changes in the short term are the ability to plement domestic savings; it must not substitute reduce fiscal deficits and adjust real exchange rates for savings. The danger of poor savings perfor- and real interest rates. When for political or other mance was well understood by many govern- reasons countries cannot adjust their policies ments. In fact, many developing countries man- quickly, they should be conservative in resorting to aged a creditable performance on savings in the foreign borrowing. 1970s, with two-thirds of a sample of forty-four A second lesson is that the policies required to developing countries increasing their domestic make best use of external finance are essentially savings ratios. They included such diverse econo- the same as those that make best use of domestic mies as Cameroon, India, Korea, Malawi, Malay- resources. A country must earn a return on its sia, and Tunisia. In other cases, including Moroc- investments which is higher than the cost of co, Nigeria, and Portugal, inadequate domestic resources used. In the case of foreign finance, savings efforts contributed to overborrowing. however, a country also has to generate enough Improvements in savings performance require foreign exchange to cover interest payments, plus measures by both public and private sectors. In the remittances of dividends and profits. This depends public sector, tax measures, realistic pricing of pub- on three groups of policies: lic goods and services, and cuts in spending are Key economic prices must be aligned with required to reduce deficits and increase public sav- opportunity costs. These encourage activities in ings. If higher public spending is financed by bor- which the country has a comparative advantage rowing more from abroad rather than by increas- and increase the flexibility of productive struc- ing fiscal revenues, cumulative strains are put on tures. Subsidies, when used, should be carefully budgets (since governments have to pay debt targeted, for example, to the poorest segments of interest) and the balance of payments. Mexico's society. When oil prices rose in 1973-74, many experience in 1981-82, when the budget deficit 7 more than doubled as a proportion of GNP to meet on both the volume of foreign borrowing and its increased public consumption and was financed composition, and in maintaining enough reserves partly by external capital, sowed the seeds for its to give a country time to adjust to domestic or debt crisis in 1982. As for private savings, domestic international pressures without unduly jeopardiz- interest rates that are kept low curtail savings, con- ing its economic growth. If the capacity to borrow tribute to capital flight, lead to credit rationing, and abroad is not stretched to its limits, it will provide a increase the pressures for borrowing abroad. Gov- cushion in times of particular need. ernment policies of adjusting exchange rates by Many countries fail to manage capital flows less than the rate of inflation and of subsidizing effectively because of inadequate data, a lack of foreign borrowing artificially lower the domestic technical expertise about financing options, and an currency cost of borrowing, thereby inducing capi- absence of institutional arrangements to integrate tal inflows. This was the case in Argentina, Chile, debt management with macroeconomic decision- and Uruguay. making. In all these areas, institutional develop- ment is an important priority. Managing foreign borrowing and debt Financial mechanisms Policies determining the level of domestic savings and investment also determine the need for for- Developing countries account for only a small pro- eign borrowing, so the management of capital portion of international flows of capital, so their flows should be an integral part of macroeconomic influence on the international financial system is management. Certain aspects of debt management limited. The system itself changes in response to deserve special attention, and these are discussed three main factors. The first is the external environ- in Chapter 5. ment. For example, changes in regulations, finan- The first issue is whether and how governments cial innovation, and high and volatile inflation in should regulate foreign borrowing and lending by the 1970s led investors to lend on floating rate the private and public enterprise sectors. The rather than fixed rate terms. The second factor is answer depends fundamentally on a govern- the demand for the services of financial markets ment's macroeconomic and incentive policies; in and institutions, which is heavily affected by general, less government intervention is needed imbalances in global payments. For example, the more that prices, interest rates, and exchange OPEC countries in the 1970s and early 1980s ini- rates reflect opportunity costs. Although some tially preferred to keep their surpluses in highly governments have constructed elaborate controls liquid form, so commercial bank deposits and over capital inflows and outflows, experience lending increased. More recently, the large current strongly suggests that these are no substitute for account deficits run by the United States, which sound macroeconomic policies. Nonetheless, have their counterpart in surpluses in Japan and some procedures for regulating capital move- other industrial countries, have led to a much mentsprior approval for borrowing, minimum larger role for international asset markets. The maturity or deposit requirements, or withholding third factor is the preferences of financial institu- taxeshave sometimes proved a helpful comple- tions. For example, in the 1970s commercial banks ment to fiscal, monetary, and trade policies. chose to lend abroad to satisfy their own portfolio The second broad area of concern is the composi- and profitability objectives (see Chapter 8). tion of capital flows and debt. This involves deci- In the short term, developing countries have to sions about (a) the terms of foreign borrowing make the most of the opportunities presented by interest, maturity, and cash flow profiles; (b) the the international financial system. From a longer- currencies in which liabilities are denominated; (c) term point of view the critical policy questions are: the balance between fixed rate and floating rate how can the stability of external capital flows be instruments; (d) ways of sharing risk between enhanced and lending by banks be restored? what lenders and borrowers, including the balance arrangements can be made for future capital flows, between debt and equity; and (e) the level and including enough concessional assistance to meet composition of a country's reserves. It is not possi- the needs of low-income countries? ble to formulate precise rules for external debt The answers lie in five areas: management that will apply to all countries. The Longer maturities. Developing countries can experience of the past few years, however, argues borrow long term, though seldom directly from for prudence by developing countries in deciding the market; they rely almost exclusively on the 8 intermediation of the World Bank and regional scenarios, it must be emphasized, are not predic- development banks. These institutions will remain tions; their outcome depends on the policies the primary sources of longer-maturity capital for adopted in industrial and developing countries. developing countries in the next few years. They Nor do they allow for exogenous shocks to the need to have the capability to provide more financ- world economy. Last year's Report contained sce- ing to developing countries, since the prospects for narios to 1995. The discussion in this year's expansion of private financing are not good. Finan- Report, in Chapter 10, is in the context of last cial innovation to expand the range of maturities year's scenarios, but pays greater attention to the available to developing countries would help them next five years. to manage their debt and reduce refinancing risks. The next five years are a period of transition. Hedging. The nature of the financing instru- During that time, about two-thirds of the debt of ments used in the 1970s meant that developing the developing countries will have to be rolled countries assumed the risks of adverse develop- over or amortized. The constructive and collabora- ments in the world economy. One of the central tive actions taken by debtors, creditors, and inter- functions of a financial systemeffective risk shar- national agencies in recent years need to be contin- ingwas not efficiently served. Instruments for ued. Their objective is to accelerate the return to hedging risks already exist in many financial mar- creditworthiness of countries that are pursuing kets: it would be desirable to make greater use of sound economic policies, but have sizable short- to them in lending to developing countries. medium-term debt-servicing requirements. They Commercial risk sharing. Whereas conventional need in particular to be extended to countries bank loans do not involve sharing of commercial several middle-income exporters of primary com- risks, foreign direct and portfolio investment does modities and many low-income African coun- (see Chapter 9). The introduction of equity-based triesin which debt-servicing difficulties and instruments in lending to developing countries is development problems are intertwined. Consider- another area in which progress could be made. ation needs to be given to the extent to which mul- Secondary markets. As most commercial lending tiyear debt restructurings for official credits and to developing countries in the 1970s was done by other arrangements might be considered on a case banks, it tended to increase risks by concentrating by case basis, as part of the overall financing pack- assets in a single group of creditors. The expansion age supporting stabilization and adjustment, par- of secondary markets for some kinds of liabilities ticularly in low-income sub-Saharan African coun- of developing countries could widen the range of tries committed to strong adjustment efforts. lenders and so increase the stability of lending. Beyond that, much will depend on whether indus- Such a development, although desirable, must be trial and developing countries successfully pursue a phased process. In the long run, secondary mar- policies for structural adjustment. kets could also provide an extra indicator of coun- Over the past few years, many developing coun- try creditworthiness, making it easier for lenders tries have made progress in dealing with their to diversify their risks. financial difficulties. The economic situation, how- Aid volume and effectiveness. Low-income coun- ever, continues to remain fragile in many coun- tries need a considerable quantity of aid, more tries. Growth of GDP in 1980-85 is currently esti- than is available at present. They also need to use mated at slightly more than one-half that of aid efficiently (see Chapter 7). Donors can improve 1973-80. Exports have grown at close to 6 percent a their own efficiency by focusing their aid primarily year, but the pressure of continued high interest on development objectives and by coordinating payments has meant that imports could grow at their efforts within programs agreed upon with the only a little more than 1 percent a year. Substantial recipient. trade surpluses run by many developing countries have been used to meet greatly increased interest Prospects and options payments. The high level of real interest rates is thus one of the critical variables whose course will How much and what kind of foreign finance will influence outcomes in the next five years. Develop- developing countries need in the years ahead? ing countries need to keep the rate of growth of That question can be answered only by analyzing export earnings above the rate of interesteven if the global outlook for growth, trade, interest rates, the current account net of interest payments and so on. Traditionally, World Development Reports remains in balanceif the principal debt ratios are present alternative scenarios for the future. Such to return to more sustainable levels. This will 9 depend not only on their own policies, but also on ditworthiness, continues to be required. the rate of growth of industrial economies and The two simulations outline a continuing bleak whether protectionist measures are rolled back. outlook for many low-income African countries. In Two simulationsa Low and a Highhave been the High simulation, their average per capita prepared for the period 1985-90 and are discussed income stagnates at present reduced levels; in the in detail in Chapter 10. Both simulations assume Low simulation, there is yet another period of fall- that developing countries continue with their ing per capita incomes. Special efforts are there- present course of policies, which in many cases (as fore needed to deal with these prospects. Addi- in some low-income Asian economies) imply sub- tional external assistance is not, by itself, the stantial policy reforms and adjustment efforts. Pol- solution to Africa's problems. It must be based on icy improvements are in three principal areaskey major changes in African programs and policies. economic prices, exchange rates and trade policies, Nonetheless, such reforms are unlikely to be sus- and domestic savings. These contribute to effi- tained without additional external assistance, over ciency in the use of resources and to export com- and above that projected in the High simulation. petitiveness. As for industrial economies, the dif- The challenge for the next five years is to ensure ference between the simulations is that the Low that the world reaches the High case. How it could one assumes a set of policies that fail to address do so will be implicit in many of the chapters in current problems and as a result lead to further this Report and is made explicit in Chapter 10. It is problems, whereas the High one embodies policy quite clear that foreign capital will play a signifi- changes that result in greater progress in adjust- cant part in meeting the challenge of faster growth; ment. The Low simulation makes three basic it is also possible that its legacy from the past ten assumptions: no progress in reducing budgetary years will act to slow growth, unless creditors, deficits and in improving the monetary-fiscal bal- debtors, and the international community con- ance so that real interest rates remain high; a fail- tinue to ease the pressure of debt. ure to tackle labor market rigidities so that unem- In contributing to the resumption of growth and ployment stays high and real labor costs continue the restoration of creditworthiness of the develop- to increase; and a substantial increase in protec- ing countries, the World Bank is addressing invest- tion. By contrast, the High simulation assumes ment and institutional development issues crucial reduced fiscal deficits compared with the Low sim- to sustaining longer-term progress. Against the ulation, thus permitting improvements in the background of growing strength in domestic insti- monetary-fiscal balance and a resultant lowering of tutions in borrowing countries and much greater real interest rates; reductions in labor market rigid- resource scarcity than in the 1960s and 1970s, Bank ities such that unemployment declines and the assistance is helping governments to strike an increase in real labor costs slows down; and an appropriate balance between additional invest- increasing success in adjustment that results in a ments and the maintenance of existing capacities, steady decline in protection. to achieve greater selectivity and efficiency in pub- For developing countries, the implications of lic sector investments, and to develop a framework these assumptions are far reaching. In the High of policy and institutional arrangements conducive simulation their output grows at a healthy 5.5 per- to the growth of activities in the private sector. cent a year (or 3.7 percent a year per capita), and The financial resources provided directly by the there is a major improvement in all the major debt Bank make important contributions to restored indicators. The Low simulation produces a differ- growth and momentum in development, but they ent and more problematic outcome: growth slows can never be more than a rather small proportion to 4.1 percent a year (or 2.3 percent a year per of the total resources required. The Bank is, there- capita). If there is a sizable reduction in economic fore, strengthening its catalytic functions, particu- growth, however, the impact on debt servicing is larly with respect to aid coordination in sub- even more striking. A combination of high real Saharan Africa, cofinancing with commercial interest rates and protection makes debt servicing banks and export credit agencies, and the promo- considerably more difficult. The main debt indica- tion of private investment. In addition to its direct tors deteriorate; for a large number of countries lending, the tasks of complementing andto the debt service ratios reach high levels. The volume of extent possibleexercising a constructive influ- concessional aid declines as a result of slower ence on capital flows from other sources are also growth in industrial economies, and "involun- important factors in shaping the future role of the tary" lending, in the face of deteriorating cre- Bank. 10 In dealing with all these issues, the Report starts countries. Chapter 6 gives an overview of the with a historical perspective on the role of interna- international financial system and its relations with tional finance in economic development (Chapter developing countries. Chapter 7 examines issues 2). It then assesses the policies of industrial econo- in official development finance. Chapter 8 outlines mies from the perspective of developing countries the evolving relationship between the developing (Chapter 3). The importance of developing coun- countries and international capital markets; and tries' policies in deriving benefits from foreign Chapter 9 examines the possibilities for a bigger capital is taken up in Chapter 4; and issues in man- role for direct and portfolio investment in develop- aging capital flows are covered in Chapter 5. The ing countries. The Report ends by looking at pros- Report then discusses the main mechanisms pects for the future and the policies needed to pro- through which foreign capital flows to developing mote faster growth. 11 2 A historical perspective The history of international finance is full of exam- ment did not keep up fully with inflows of interest ples of its productive contribution to economic and dividends. As a proportion of British savings, development. It has also produced occasional capital outflows ranged between 25 and 40 per- financial crises and, more frequently, debt-servic- cent. France and Germany also invested heavily ing difficulties for a variety of countries. This chap- abroad, though not as much as Britain. By the late ter starts by examining the role of international nineteenth century, French and German gross capital since the late nineteenth century. The capital exports were averaging 2 to 3 percent of object is to highlight lessons that help to analyze GNP. the experience of the 1970s and 1980s, rather than The nature of the capital flows varied consider- to provide a detailed history. The chapter then ably in 1870-1914. The largest single group pays closer attention to the postwar period and included the market-oriented investments, largely particularly to the past two decades. undertaken by Britain, in the resource-rich coun- tries of North America, Latin America, and The pre-1945 period Oceania. In 1914, these accounted for 70 percent of Britain's total foreign investments and more than The years before 1945 an be conveniently divided half of all gross foreign assets. A second group, into two parts, 1870-1914 and the interwar period, accounting for a quarter of all foreign investment, each of which had its own distinctive features. involved investments in Russia and other Eastern European countries and in Scandinavia; France From 1870 to 1914 and Germany were the principal investors. A third group covered the primarily politically motivated This period was dominated by the London finan- investments in China, Egypt, India, Turkey, and cial market as a source of capital for other coun- some African colonies. These three groups tries. Europe's industrial revolution produced a received capital at different times, so new regions strong demand for food and raw materials, which were financially linked with the world economy could be satisfied only by investment in many only gradually. other parts of the world. Expansion of railroads For the large debtors in the nineteenth century, and other infrastructure was externally financed, capital inflows had only a small weight in their and foreign investors were repaid later from the economies. For most decades, capital inflows to resulting export earnings. Some of the countries the United States were around 1 percent of its where these investments were madesuch as GNP and never exceeded 6 percent of its domestic Argentina, Australia, Canada, and the United investment. For the smaller debtors, however, Stateswere able to buy imports of manufactures capital inflows as a proportion of GNP were higher from the more industrialized countries in Europe. than they are for many developing countries Then, as now, this growing economic interdepen- today. Capital inflows to Canada averaged 7.5 per- dence was facilitated by international finance. cent of its GNP, accounting for between 30 percent What was unique about the years 1870-1914 was and 50 percent of annual investment from 1870 to the scale of international finance. Over the period 1910. Ratios were similar in Australia and the as a whole, Great Britain invested 5 percent of its Scandinavian countries. The most striking case GNP abroad, reaching a peak of 10 percent just was that of Argentina, where capital inflows annu- before World War I. Its net receipts of investment ally ranged between 12 and 15 percent of GNP and income from abroad were in the range of 5 to 8 financed about 40 percent of its total investment percent of GNP, implying that new foreign invest- during the first two decades of the twentieth cen- 12 tury. By contrast, net capital inflows to all develop- deficits. Countries in this group included Egypt, ing countries averaged 2 to 3 percent of GDP Peru, and Turkey in the 1870s, and Greece in the between 1960 and 1973. Since 1973 they have not 1890s. Capital inflows could not continually exceeded 6 percent of GDP and have financed finance deficits and became increasingly expen- between 12 and 20 percent of gross investment. sive. These countries' export growth slowed con- Differences do not stop with geography and the siderably before they defaulted. In these cases, relative volume of external finance. In the years creditors intervened not only at the moment of 1870-1914: default but sometimes much sooner. In the Turkish Almost all lending came from private sources, crisis, for example, a foreign loan (the first in a in the form of stock and bond issues. series) was issued in London with the encourage- Lending terms were long: maturities of up to ment of the British government. A condition of the ninety-nine years were not uncommon. loan was that commissioners should be sent to Nearly two-thirds of foreign capital went to oversee the expenditure of the proceeds. finance investment in railroads and utilities. Notwithstanding all these difficulties, the record A large proportion of the flows went to then up to 1914 shows that investment abroad was prof- relatively high-income countries; North America, itable for investors in Great Britain and continental Latin America, and Australia received more than Europe. It earned returns that have been calcu- half of the total. The international capital market in lated to be between 1.6 and 3.9 percentage points the nineteenth century did not, and was not higher than returns on domestic investment. designed to, provide poorer countries with access Within that average, although there were a num- to capital. For example, even Indiathough ber of defaults on foreign loans, the most profit- favored in British capital marketsreceived very able investments were in railroads in the United little investment. Capital was drawn to invest- States. Although they were untypically lucrative, ments that yielded higher returns than were avail- they helped to foster a general climate in favor of able in the domestic economy. Thus it operated foreign investment. Another influence working in selectively, to the advantage of high-income bor- the same direction was that loans were used to rowers; although there were some politically moti- purchase British exports, so financial and real vated investments with marginal economic flows went together. When borrowers got into dif- returns, they were not significant in terms of the ficulty, they found that the London capital market volume of flows. was not an unyielding taskmaster. These differences compared with the recent past were also accompanied by some close parallels: The interwar period periodic debt-servicing difficulties and an early version of what is now known as conditionality. Between the two world wars, the pattern of inter- Lenders and borrowers operated against a back- national investment shifted dramatically. The drop of large cyclical swings in international eco- United States emerged not merely as a net creditor nomic activity compounded by rebellions and country, but as the main source of new capital wars. Sometimes borrowers failed to make their flows. In certain respects, it played a role similar to payments. They fell into two broad categories. Britain's earlier one. It financed many long-term First, countries such as Argentina and Brazil, bond issues: of the 1,700 foreign dollar issues where foreign capital was important in integrating offered in the United States in the 1920s, almost their economies into an expanding world econ- half had average maturities of twenty years. Some omy, experienced cyclical problems related to 4 percent had average maturities of forty years, abrupt declines in foreign exchange earnings. For- and 1 percent of more than forty years. At least eign loans were used, along with domestic policy forty-three governments borrowed during the changes, to alleviate liquidity crises until exports 1920s, and none defaulted. During the peak period recovered. In some cases, foreign creditors got of flotations, from 1924 to 1928, the interest rate involved in domestic policy issues. In the Brazilian differential in favor of new foreign issues was crisis of the 1890s, for example, the government between 1.7 and 1.9 percentage points. The United pledged all its customs receipts and agreed to a States also financed a large amount of direct moratorium on new (internal and external) debt investment, mainly in Canada and Latin America. issues. Its direct investment rose by almost $4 billion dur- The second kind of debt crisis was the result of ing the 1920s, two-thirds of it going to Western stagnant domestic revenues and expanding fiscal Hemisphere countries. 13 However, the 1920s were different from earlier Latin American country that maintained full serv- decades in several vital respects. First, the volume icing on its external debts. Effectively, access by of government lending and borrowing was far developing countries to commercial markets greater. Borrowings by governments accounted for ceased until the 1960s. nearly half of the foreign dollar issues in the Although the deterioration in the general eco- United States. No less important, World War I had nomic climate was the proximate cause of defaults left a legacy of official debt. The United States was in the interwar period, it was not the only one. owed almost all the debts made between the Other contributions came from excessive borrow- Allies, totaling more than $16 billion. In addition, ing, particularly between 1925 and 1929; poor risk the Allies had heavy reparation claims against Ger- assessment on the part of lenders; panic; and an many. abrupt cessation of lending just before a default. In The second difference was that foreign capital general, the financial penalties for defaulting were was no longer part of an integrated pattern of pop- rather small in the 1930s. Defaulting governments ulation and trade. By the mid-1920s, commodity had established a precedent, and the number of prices were falling. Some countries borrowed to private defaulters was too large for sanctions to be finance a growing stockpile of unsold commodi- enforced. However, the cost in domestic adjust- ties; one example was Brazil in the 1920s, to ment could be severe. Between 1929 and 1938, the finance coffee stocks. In the mid-1920s, there was maximum peak-to-trough declines in output for an increase of 75 percent in commodity stocks, major Latin American countries ranged from 7 per- financed indirectly by foreign capital. cent for Brazil to 26 percent for Peru. The third difference with the pre-World War I period was the trade policy followed by the major Some historical lessons global creditor. British free trade had served to guarantee debtors a market for their products. The Three broad lessons emerge from the experience of United States was more protectionist and its exter- international finance between 1870 and 1939. nal trade was a relatively small portion of its GDP. Finance seeks out profit: in general, the high- Following the recession of 1920-21, it raised tariffs est returns were from investments that directly or back to where they had been before some liberali- indirectly exploited natural resources. Technologi- zation in 1913. If debtors could not generate export cal innovationsuch as the expansion of railroads surpluses, they needed capital inflows to service in the nineteenth centurywas also a major past debts. The process inevitably produced ever absorber of capital, and international capital in par- increasing debt. ticular. Repayments were more likely when invest- The Great Depression of 1929-32 turned a poten- ments led to increased exports (as was generally tial threat into a disaster. Between 1929 and 1932, the case before 1914) than when the ability to output in industrial countries fell 17 percent and export was constrained by protectionist measures the volume of world trade by more than a quarter. in capital-exporting countries (as was the case in The international monetary system disintegrated. the interwar period). Political risk was minimized There was no lender of last resort to provide by investing in colonies or in countries that were liquidity, a function that the United Kingdom had integrated with capital exporters through trade previously undertaken. And the liberal trading and finance. system of the prewar years virtually disappeared. The volume and composition of finance Most countries raised tariffs and applied quotas changes to reflect shifts in the world economy. and exchange controls. Lack of finance contributed Before World War I, private capital markets were to the decline of international trade, and vice dominant; in the interwar period, public borrow- versa. ing and lending assumed a much larger role. Several industrial countries defaulted on their Financial innovation is also influential: for exam- war debts and reparation. Germany, facing declin- ple, the nineteenth century saw the establishment ing production, exports, and prices, first obtained of mutual funds, which separated ownership from a one-year moratorium in 1931 and then defaulted the management of portfolios and spread risk on all its external debts in 1932. Developing coun- more widely. tries were also failing to service their debt. Bolivia Reschedulings and defaults were the result of defaulted on its dollar obligations in 1931 and was inadequate policy responses by borrowers to soon followed by most other Latin American coun- declining terms of trade. Defaults were typically tries. By the end of 1933 Argentina was the only settled in negotiations with bondholder commit- 14 tees on terms that seldom preserved more than a From 1945 to 1972 small fraction of the original capital value. Negotia- tors explicitly assessed the borrowers' ability to After World War II, the United States continued as undertake policy reforms; this "capacity to repay" the major creditor country, and its dollar became formed the basis for determining how much debt the main reserve currency. In 1947 it announced should be forgiven. In most cases, existing debt the Economic Recovery Program (or Marshall was consolidated and extended with a significant Plan), designed for the reconstruction of the war- reduction in principal and interest due; interest ravaged countries of Europe. Between 1948 and arrears were often waived entirely. External inter- 1951, the program provided over $11 billion to vention, including military force, was common Western Europe, with a further $2.6 billion Box 2.1 The Bretton Woods conference and its twin institutions The International Monetary and Financial Conference of 1930s every major country sought ways to defend itself the United and Associated Nations was convened in against deflationary pressures from abroadsome by Bretton Woods, New Hampshire, on July 1, 1944. By the exchange depreciation, some by introducing flexible time the conference ended on July 22, 1944, based on exchange rates or multiple rates, some by direct controls substantial preparatory work, it had defined the outlines over imports and other international transactions. The of the postwar international economic system. The con- disastrous consequences of such policieseconomic ference also resulted in the creation of the International depression with very high unemploymentare well Monetary Fund (IMF) and the International Bank for known. The participants in the Bretton Woods confer- Reconstruction and Development (IBRD, or the World ence were determined to design an international eco- Bank)the Bretton Woods twins. nomic system where "beggar thy neighbor" policies, The World Bank was to assist in reconstruction and which characterized the international economic commu- development by facilitating the flow and investment of nity when World War II began, did not recur. There was capital for productive purposes. The International Mone- also a widespread fear that the end of World War II tary Fund was to facilitate the expansion and balanced would be followed by a slump, as had the end of World growth of international trade and to contribute thereby War I. to the promotion and maintenance of high levels of Thus the central elements of the system outlined at employment and real income. Also discussed at Bretton Bretton Woods were the establishment of convertibility Woods were plans for an International Trade Organiza- of currencies and of fixed but adjustable exchange rates, tion (ITO). This institution did not materialize, but some and the encouragement of international flows of capital of its proposed functions are performed by the General for productive purpose. The IMF and the World Bank Agreement on Tariffs and Trade (GATT), which was were to assist in the attainment of these objectives. The established in 1947. economic accomplishments of the postwar period are in The discussions at Bretton Woods took place with the part the result of the effectiveness of these institutions. experience of the interwar period as background. In the where lending had been determined by political between 1951 and mid-1953. The aid primarily factors. When countries ran into liquidity difficul- took the form of grants of commodities. The coun- ties, they were able to borrow more if they revised terpart funds were used to finance investment. their policies and while they waited for their This helped Europe to make a dramatic recovery: export earnings to recover. the countries participating in the Economic Recov- ery Program increased their industrial production The post-1945 period by 39 percent between 1948 and 1952. The ending of Marshall aid did not produce a big The Bretton Woods Conference (see Box 2.1) in swing in the U.S. balance of payments. On the July 1944 outlined the postwar international eco- contrary, U.S. foreign investment expanded as a nomic system and led to the creation of the Inter- result of incentives to U.S. banks and corporations national Monetary Fund and the International to invest abroad, plus a big devaluation of Euro- Bank for Reconstruction and Development. This pean currencies against the dollar in 1949 and the discussion will divide the postwar era into two large U.S. military presence in Europe. The United periods: 1945-72 and 1973-84. States also increased its loans and grants to devel- 15 oping countries, and private direct investment adjusted for inflation (that is, real interest rates) increased sharply in Latin America. The overall were usually in the 2 to 3 percent range. U.S. balance of payments moved into deficit in Developing countries benefited from these inter- 1950 and stayed there for many years. During the national conditions. As a group, their output 1950s, this aroused little concern. It was a com- increased by over 5 percent a year. Some develop- monly held view that there was a "dollar short- ing countries grew much faster than others, accen- age" and that such deficits were appropriate for tuating the differences in average incomes. Cur- the leading international creditor. rent account deficits were financed chiefly by Europe's balance of payments improved consid- official flows (loans and grants), by private direct erably in 1958, boosting its foreign reserves. At the investment, and by trade finance. Official aid grew end of that year, most European governments by about 3 percent a year in real terms in 1950-65. declared their currencies convertible (Japan did the Direct foreign investment also increased rapidly, as same only in 1964). Capital markets in Europe and multinational corporations sought new supplies of the United States started to integrate, with private raw materials in developing countries. Export capital flows becoming responsive to movements credits revived as a source of finance for develop- in interest rates. In the late 1950s European banks, ing countriesa mixed blessing, as their relatively notably in London and Switzerland, began to deal short maturities contributed to debt-servicing in dollars. This marked the inception of what came problems for many countries. to be known as Eurocurrency markets (described Several developing countries ran into debt diffi- in Chapter 8, Box 8.3). The decade had begun with culties in the 1950s and 1960s. Between 1956 and official capital flows contributing to economic 1970, there were seventeen debt reschedulings growth and trade expansion; it ended with a grow- involving seven countries (Argentina, Brazil, ing volume of private capital flowing between Chile, Ghana, Indonesia, Peru, and Turkey), each industrial economies. of them more than once. The reasons for their diffi- The postwar years also saw the progressive culties varied. Argentina, Brazil, Chile, Peru, and decolonization of the developing countries. The Turkey shared certain problems: large budget defi- United States and later other industrial countries cits; rapid inflation and delayed adjustments of the began their formal programs of foreign aid. In the exchange rate; deteriorating terms of trade; declin- early 1950s, the World Bank shifted its focus from ing export earnings; the accumulation of short- reconstruction to development, though it contin- term external debt. Ghana and Indonesia also had ued lending to industrial countries, including these problemsthough more acutely, because Japan, during the 1950s and 1960s. In 1956 the they launched large, long-term projects that they International Finance Corporation (IFC) was cre- financed with short-term credits and executed ated to assist the private sector in developing inefficiently. In a number of other cases, including countries through loans and equity investments. India, debt rescheduling was used to provide In 1960 governments formed the International increased capital flows to low-income countries Development Association (IDA) to provide a mul- when concessional flows from industrial econo- tilateral source of concessional finance for low- mies were constrained. income countries. These years also saw the estab- Creditors rescheduled their loans through ad lishment of several regional development banks, hoc multilateral groups, such as the Paris Club. including the Inter-American Development Bank The International Monetary Fund was also (1959), the African Development Bank (1964), and involved in providing extra finance to support pol- the Asian Development Bank (1966). icy reforms. In general, creditors did not incur For most of the 1960s, the world economy capital losses; they extended maturities and enjoyed a period of largely untroubled progress. received interest on schedule. Borrowers under- Industrial economies grew by an average of 5 per- took policy reforms designed to bring their balance cent a year, with little year to year variability in of payments into better equilibrium and to estab- growth rates. World trade grew even faster, at an lish the basis for economic growth. average of 8.4 percent a year, helped by the pro- Although the 1960s saw a rapid expansion of gressive trade liberalization policies pursued under world output and trade, some international mone- the GAY!'. Inflation rates in industrial economies as tary problems started to emerge. The United a group varied between 2 and 4 percent a year, States made efforts to control capital outflows. though individual countries had bouts of more Many countries experienced difficulty in maintain- rapid price increases. Nominal interest rates ing their exchange rates, notably Britain in the 16 mid-1960s and France a few years later. The need account imbalances. The industrial economies for reform of the international monetary system went into deficit in 1974 but reverted to a surplus was formally recognized as early as 1963. in 1975. Oil-importing developing countries had By the end of the 1960s, the rate of growth of run current account deficits that averaged slightly industrial economies had begun to slow and infla- more than 2 percent of their GNP in the 1960s and tionary pressures to build up (see Chapter 3). Con- were at a low of 0.8 percent of their GNP in 1973. tinued deficits in the U.S. balance of payments In 1974 they reached 3.5 percent of GNP and found their counterpart in surpluses in Europe and climbed to 4.0 percent in 1975 (see Table 2.1, Japan. The dollar's exchange rate started to come national accounts data). Current account deficits under pressure. In August 1971 the United States did not return to historical levels until 1976-78, temporarily suspended the convertibility of the when developing countries benefited from recov- dollar into gold. In December 1971 it devalued the ery in industrial economies and their own policy dollar as part of a general realignment of curren- reforms. cies. Further pressures on exchange markets led to The years between 1979 and 1983 saw a second generalized floating of exchange rates in 1973. In series of major external shocks for developing the same year, the first major increase in oil prices countries. Oil prices rose sharply in 1979-80. Real took place. The world had changed. interest rates increased dramatically in 1980-81 (see Figure 1.4), reaching historically high levels. From 1973 to 1984 There was a prolonged recession in industrial countries in 1981-83. There was a recovery in 1984. With the oil price increases, the financial system Industrial countries grew by 4.8 percent in 1984, was faced with a major change in world current and developing countries 4.1 percent. Fastest Table 2.1 Current account balance as a percentage of GNP in selected country groups and years, 1960-84 Data source and country group 1960' 1965' 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 Based on national accounts Low-income countries -1.6 -1.8 -1.1 -1.6 -1.0 -0.9 -1.7 -2.1 -0.9 -0.7 -1.2 -1.4 -2.2 -1.4 -0.9 -1.0 -1.3 Asia -1.4 -1.6 -0.9 -1.0 -0.5 -0.6 -1.1 -1.2 -0.1 0.4 -0.1 -0.6 -1.4 -0.5 0.2 -0.2 -0.6 Africa -3.3 -4.1 -3.4 -7.3 -5.6 -4.4 -7.8 -10.2 -7.3 -7.6 -8.3 -7.7 -9.8 -10.5 -12.0 -10.0 -9.4 Middle-income oil importers -2.9 -2.0 -3.2 -3.6 -1.2 -0.8 -4.8 -5.3 -2.9 -2.3 -2.2 -3.2 -4.1 -5.2 -4.7 -4.4 -2.7 Exportersb -2.7 -2.0 -3.2 -3.5 -0.9 -0.9 -5.7 -5.5 -2.8 -1.6 -1.7 -3.1 -3.6 -4.2 -4.0 -3.1 -1.3 Other -3.5 -2.0 -3.0 -4.0 -2.2 -0.2 -1.8 -4.5 -3.4 -4.5 -3.9 -3.7 -5.9 -8.3 -7.3 -8.6 -7.4 Middle-income oil exporters -1.6 -2.4 -3.0 -3.0 -2.4 -1.1 3.3 -3.4 -2.4 -3.6 -5.1 -0.2 0.8 -3.8 -4.4 -2.1 -0.7 All developing countries -2.2 -2.0 -2.3 -2.7 -1.4 -0.9 -1.9 -3.9 -2.2 -2.2 -2.6 -2.0 -2.3 -3.9 -3.7 -2.8 -1.8 Oil-importing developing countries -2.3 -1.9 -2.2 -2.7 -1.1 -0.8 -3.5 -4.0 -2.2 -1.7 -1.8 -2.6 -3.4 -3.9 -3.4 -3.1 -2.1 High-income oil exporters 9.7 20.9 15.7 26.2 22.5 21.2 51.5 40.2 35.0 26.3 15.5 21.2 31.4 32.2 20.1 -4.7 Industrial countries 1.0 0.9 0.8 1.0 0.9 0.7 -0.2 0.6 0.1 0.1 0.7 .0 -0.5 .0 .0 0.3 -0.4 Based on balance of payments All developing countries -2.6 -3.0 -1.7 -1.3 -2.3 -4.2 -2.8 -2.6 -3.3 -2.9 -3.3 -4.9 -4.8 -2.8 -1.8 Oil-importing developing countries -2.5 -3.0 -1.5 -1.1 -3.9 -4.3 -2.6 -2.1 -2.5 -3.4 -4.6 -5.1 -4.2 -3.1 -2.1 Data for 1960 and 1965 do not include net private transfers. Major exporters of manufactures. Excluding official transfers. Source: World Bank data. 17 Table 2.2 Current account balance and its financing in selected years, 1970-84 (millions of dollars) Country group and item 1970 1973 1980 1981 1982 1983 1984b Low-income Asia Net exports of goods and nonfactor services -1,358 -879 -15,755 -11,498 -6,831 -7,246 -8,688 Net factor income -390 -427 78 -212 -983 -522 -604 Interest payments on medium- and long-term loans 286 375 1,363 1,560 1,515 1,598 1,833 Current account balance -1,551 -972 -9,685 -6,166 -1,363 -1,001 -3,083 Financing Official transfers 370 569 1,952 2,084 1,885 2,011 1,953 Medium- and long-term loans 987 1,145 4,878 3,227 3,957 4,199 6,541 Official 971 1,189 3,410 3,452 3,883 3,542 4,222 Private 16 -44 1,468 -225 74 657 2,319 Net direct investment 29 -16 159 422 488 546 643 Changesinreserves -28 1 1,152 882 -4,127 -4,224 -3,184 Low-income Africa Net exports of goods and nonfactor services -381 -607 -5,385 -5,901 -4,590 -4,359 -3,78 Net factor income -161 -274 -901 -1,098 -1,004 -1,029 -1,291 Interest payments on medium- and long-term loans 80 143 698 643 567 662 1,000 Current account balance -679 -998 -5,837 -6,419 -5,432 -4,900 -4,594 Financing Official transfers 377 649 2,109 1,813 1,515 2,008 1,925 Medium- and long-term loans 277 911 3,349 2,863 2,198 1,910 2,025 Official 247 412 2,366 2,249 1,858 1,922 2,231 Private 30 499 983 614 340 -12 -206 Net direct investment 173 164 236 221 223 211 86 Changes in reserves -38 -381 781 555 945 171 607 Middle-income oil importers Net exports of goods and nonfactor services -7,064 -6,572 -47,071 -50,500 -35,135 -12,234 9,972 Net factor income -2,728 -4,364 -22,246 -31,510 -38,583 -42,035 -49,049 Interest payments on medium- and long-term loans 1,565 3,272 19,337 25,055 29,272 26,872 33,841 Current account balance -7,423 -4,508 -53,823 -65,758 -57,894 -39,712 -24,367 Financing Official transfers 1,085 2,237 5,569 5,829 5,840 5,833 6,273 Medium- and long-term loans 5,337 8,882 33,190 42,027 36,917 24,535 28,272 (continued) growing were the East and South Asian countries, grew by 8.9 percent, and many countries produced in contrast to sub-Saharan Africa where output trade surpluses. Current account deficits as a pro- continued to decline in 1984. For oil-importing portion of GNP have declined continuously since developing countries as a group, current account 1981. In 1984, the current account deficit of all deficits reached a peak of $78 billion in 1981-more developing countries was 1.8 percent of their GDP. than 5 percent of their GNP, compared with $33 But the interest payments of all developing coun- billion and 4.3 percent of GNP in 1975 (see Table tries in 1984 totaled $58 billion, exceeding their 2.1, balance of payments data). The deficits of all combined current account deficits of $36 billion developing countries were $105 billion or 4.9 per- (Table 2.2). cent of their GNP in 1981 (Table 2.2). The finance for these large deficits was obtained The changing nature of capital without particular difficulty until 1982, when Mexi- co's debt-servicing problems caused an abrupt Two major shifts in international capital have slowdown in bank lending. Developing countries occurred in the past two decades: from equity to then had to reduce their current account deficits debt and from official to private finance (see Figure and did so most commonly by cutting imports. In 2.1). The more advanced developing countries 1984, however, exports from developing countries obviously obtained the bulk of commercial capital. 18 Table 2.2 (continued) Country group and item 1970 1973 1980 1981 1982 1983' 1984b Middle-income oil importers (continued) Official 1,667 2,939 10,996 11,258 10,732 11,685 12,959 Private 3,670 5,943 22,194 30,769 26,185 12,850 15,314 Net direct investment 1,225 2,976 6,009 7,981 7,244 5,868 5,732 Changes in reserves -1,160 -7,547 488 126 13,547 7,372 -9,092 Middle-income oil exporters Net exports of goods and nonfactor services -915 1,286 14,628 -10,713 -13,701 7,854 16,666 Net factor income -2,207 -4,313 -16,186 -19,008 -23,982 -22,631 -24,692 Interest payments on medium- and long-term loans 693 1,296 11,454 13,903 16,660 17,463 21,252 Current account balance -2,930 -2,652 1,501 -27,302 -35,683 -11,052 -3,543 Financing Official transfers 595 1,213 2,008 2,483 1,919 1,918 1,809 Medium- and long-term loans 1,643 5,396 16,998 23,559 20,503 18,133 13,323 Official 762 1,433 4,800 4,706 5,314 3,660 6,194 Private 881 3,963 12,198 18,853 15,190 14,473 7,129 Net direct investment 890 1,312 4,192 6,369 5,283 3,717 2,922 Changesinreserves -309 -2,884 15,602 4,730 17,542 3,549 -7,339 All developing countries Net exports of goods and nonfactor services -9,717 -6,772 -53,582 -78,612 -60,256 -15,966 14,168 Net factor income -5,486 -9,378 -39,255 -51,828 -64,553 -66,238 -75,640 Interest payments on medium- and long-term loans 2,624 5,086 32,851 41,161 48,014 46,596 57,925 Current account balance -12,583 -9,130 -67,844 -105,645 -100,373 -56,665 -35,588 Financing Official transfers 2,427 4,668 11,638 12,208 11,159 11,768 11,960 Medium- and long-term loans 8,243 16,333 58,414 71,675 63,575 48,778 50,162 Official 3,646 5,972 21,572 21,665 21,786 20,810 25,606 Private 4,596 10,361 36,842 50,011 41,788 27,969 24,556 Net direct investment 2,317 4,426 10,595 14,992 13,237 10,342 9,383 Changes in reserves -1,534 -10,811 -13,180 6,292 27,907 6,868 -19,008 Note: Data are based on a sample of ninety developing countries. Data for the current account balance exclude official transfers. Estimated. Projected. Source: World Bank data. However, even in low-income countries the share falling share of bilateral aid was partly offset by of private flows (including trade finance) more multilateral flows, particularly for low- increased. In low-income Africa, it did so in the income countries. In the 1980s retrenchment of mid-1970s; in low-income Asia, only after 1979. expenditure programs by developing countries Official supplies of foreign capital, concessional resulted in a decline in multilateral aid disburse- and nonconcessional, provided 50 percent of all ments. the developing countries' inflows in 1970; for the The weight of debt-creating foreign capital low-income countries, their share was 78 percent. gained particular prominence during the 1970s. By 1983 these figures had fallen to 46 percent and For all developing countries receipts of medium- 45 percent, respectively (see Table 2.3). Even in and long-term loans averaged 4.4 percent of GNP nominal terms, official development assistance has over the decade, rising steadily from 3.1 percent in fallen since 1980; by contrast it rose sharply after 1970 to 5.7 percent in 1979. These funds financed the first rise in oil prices, by almost 80 percent (or between 10 and 21 percent of gross domestic 21 percent a year) between 1973 and 1976. Bilateral investment in that period. There were, however, ODA declined in the 1970s as a proportion of total great variations among country groups. Debt-cre- inflows for every group of developing countries- ating flows averaged just over 1 percent of GNP and fastest of all for the low-income countries. The and 4 percent of gross domestic investment in low- 19 ing countries, as recorded in the World Bank's Figure 2.1 Composition of net flows Debtor Reporting System (DRS), increased from to developing countries, 1960, 1970, 1980, and 1983 $68 billion to $686 billion, an average increase of 16.7 percent a year. The 1984 figure includes an estimated $25 billion of short-term liabilities con- 1960 LIE solidated into long-term debt through reschedul- ings. Including countries not covered by the DRS, as well as short-term debt and borrowings from the International Monetary Fund, the total external 1970 f Ill liabilities of all developing countries reached almost $900 billion in 1984 (see Box 2.2). Debt service payments increased from $9.3 bil- 980 lion in 1970 to $100 billion in 1984. Interest pay- ments, which were about one-third of total debt service in 1970, had increased to over one-half in 1983 1984. The rise reflects both the increased amount of ] debt and also the higher level of interest rates. The terms that developing countries obtained on 0 10 20 30 40 50 60 70 80 90 100 medium- and long-term finance changed signifi- Percent cantly during the 1970s. The average maturity of their total public debt shortened from 20.4 years in U Official development assistance 1970 to 14.2 years in 1982, because loans from pri- Official nonconcessional lending vate sources (the fastest growing component) car- J Export credits ried shorter maturitiesan average of 8.2 years in Direct foreign investment 1983. The reduction in average grace periods was Commercial bank lending less dramatic, from 5.5 years in the 1970s to 3.9 0 Portfolio investment and other years in 1983. In 1983 the average maturity and Source: OECD Development Co-operation. grace periods for new lending were the shortest ever recorded for developing countries. Among the important changes in the structure of developing countries' debt was the increasing use income Asia. In low-income Africamuch more of floating rate loans and of debt denominated in dependent on external capitalthe ratios were 5 dollars. and 30 percent, respectively. Among the middle- The share of floating rate debt in total out- income countries, the major exporters of manufac- standing disbursed public debt rose from 16 per- tures financed less than 20 percent of investment cent in 1974 to 43 percent in 1983. The increase was with such funds. For other middle-income oil concentrated among the middle-income countries, importers the share was 25 percent, rising to more particularly in Latin America, which borrowed than 35 percent in the early 1980s. heavily from private sources. For low-income The increased lending by commercial banks was countries, the share of variable rate debt did not the main reason for the dramatic increase in exter- increase much (see Table 2.4). Interest rates on nal financing. Accordingly, although private direct new long-term loans to public borrowers, which investment continued to increase in nominal had averaged 7.0 percent in 1974-76, increased to terms, its share in total external finance declined an average of 10.5 percent in 1980-82 before falling from 20 percent in 1970 to less than 9 percent in to just under 10 percent in 1983 (see Figure 2.2). 1983. The increase in commercial bank lending was The share of long-term public and publicly accompanied by a large increase in export credits, guaranteed debt denominated in dollars rose from which maintained their share of total foreign 65 percent in 1974 to 76 percent in 1983 (see Table financing between 1970 and 1980. In the early 2.5). Again, there were regional differences: in 1980s, however, export credits declined sharply. 1983 the ratio was almost 90 percent for Latin The growth of borrowing during the past ten to America, 68 percent for East Asia, and only 54 per- fifteen years has produced a corresponding rise in cent for sub-Saharan Africa. For many countries, external debt. Between 1970 and 1984, the out- the rise in the dollar has increased the cost, in standing medium- and long-term debt of develop- terms of domestic goods, of servicing the debt. The 20 Table 2.3 Net resource receipts of developing countries from all sources in selected years, 1970-83 (billions of dollars) Type of receipt 1970 1975 1980 1981 1982 1983 Official development assistance 8.1 20.1 37.5 37.3 34.7 33.6 Bilateral 7.0 16.2 29.7 29.4 27.2 26.1 Multilateral 1.1 3.9 7.8 7.9 7.5 7.5 Grants by private voluntary agencies 0.9 1.3 2.3 2.0 2.3 2.2 Nonconcessional flows 10.9 34.3 59.4 70.5 60.4 63.9 Official or officially supported flows 3.9 10.5 24.5 22.2 22.0 19.6 Private export credits 2.1 4.4 11.1 11.3 7.1 5.5 Official export credits 0.6 1.2 2.5 2.0 2.7 2.1 Multilateral flows 0.7 2.5 4.9 5.7 6.6 7.0 Other official and private flows 0.2 0.8 2.2 2.0 2.6 3.0 Other donors 0.3 1.6 3.8 1.2 3.0 2.0 Private flows 7.0 23.8 34.9 48.3 38.4 44.3 Direct investment 3.7 11.4 10.5 17.2 11.9 7.8 Bank lending' 3.0 12.0 23.0 30.0 26.0 36.0 Bond lending 0.3 0.4 1.4 1.1 0.5 0.5 Total 19.9 55.7 99.2 109.8 97.4 99.7 Memo items Short-term bank lending 26.0 22.0 15.0 -2.0 IMP purchases (net) 0.3 3.2 2.6 6.2 6.4 12.4 a. Excluding bond lending and export credits extended by banks, which are included in private export credits. Source: OECD 1984. Table 2.4 Floating interest rate loans as a percentage of public debt in selected years, 1974-83 Country group 1974 1976 1978 1979 1980 1981 1982 1983 Low-income Asia 0.0 0.0 0.4 0.6 1.8 2.9 3.7 3.9 Low-income Africa 8.5 8.1 6.7 6.8 7.0 9.4 9.1 7.6 Middle-income countries Oil importers 18.5 26.6 30.3 35.2 36.5 40.2 41.4 43.7 Oil exporters 23.9 30.4 34.9 40.1 41.7 45.2 48.3 54.6 All developing countries 16.2 23.0 27.3 31.8 33.2 36.7 38.7 42.7 Memo item Major borrowers 18.4 26.8 32.5 39.0 40.5 45.0 46.7 51.2 Note: Data are for public debt outstanding and disbursed. Source: World Bank data. desirability of developing countries' diversifying the currency composition of their borrowings and Figure 2.2 Interest rates on new long-term commitments to public borrowers, 1975-83 debt is discussed in Chapter 5. Percent 14 Trade and debt indicators Private sources As a group, developing countries expanded their 12 exports considerably in the 1970s, from about 13 10 percent of their GDP in 1970 to over 23 percent in 1983. In low-income Africa, however, the share of exports in GDP fell steeply. Then the world reces- sion of 1981-82 reduced commodity prices and Total 6 slowed the growth in the volume of developing countries' exports. The volume of oil exports fell, 4 Official sources as did the oil price, hitting the middle-income oil 1975 1977 1979 1981 1983 exporters. The economic recovery since 1983 has raised the growth of exports, but the terms of trade Note: Data are the weighted average interest rates on new loans at the time of commitment, For loans on variable interest rates, of developing countries have deteriorated since interest actually paid will vary with changes in market rates. 1980 (details of trade are in the Statistical Appen- Source: World Bank data. dix, Tables A.8 and A.9). 21 Box 2.2 External liabilities of developing countries Both the quantity and quality of information on interna- System. Data from the annual aid questionnaire prepared tional finance have improved considerably in recent by the seventeen countries that are members of the years. The main sources of information are: Development Assistance Committee (DAC) show annual The World Bank's Debtor Reporting System (DRS). disbursements and repayments of official grants and Comprehensive data are collected on debt with a matu- loans to each developing country. The Creditor Report- rity of more than one year, plus annual figures on com- ing System provides individual reports on all official mitments, disbursements, amortization, and interest long-term loans, plus summary information on export payments. Publication: World Debt Tables (published credits. The OECD estimates financial flows from OPEC annually). and centrally planned economies, building on DRS data. Developing-country governments report public and It then prepares comprehensive estimates of developing- publicly guaranteed debt on a loan by loan basis. Figures country debt. Publications: Development Co-operation and on private nonguaranteed debt are incomplete, so they External Debt of Developing Countries (both published are supplemented by staff estimates. By convention the annually). DRS excludes the use of IMF credit, which is treated as a The OECD figures on long-term intergovernmental "monetary movement" rather than a medium-term loans are a valuable cross-check on DRS data. However, loan. For some low-income countries, however, obliga- its figures on officially guaranteed export credits contain, tions to the IMF are a large part of their nonconcessional in some instances, future interest due, and it excludes external debt. export credits that are not guaranteed in the creditor IMF balance of payments statistics. Comprehensive bal- country. A more general drawback is that the OECD's ance of payments data are compiled according to the primary statistics are not global in their coverage, standards of the IMF Balance of Payments Manual and although DAC countries are the chief source of financial reported periodically to the IMF. They include interna- flows to developing countries. tionally comparable data on private and public sector BIS banking statistics. The Bank for International Set- grants and all capital flows, including direct investment, tlements compiles figures on lending by banks in fifteen long-term borrowing, short-term borrowing, and reserve countries. A quarterly series classifies banks on a resi- movements. Publication: International Financial Statistics, dency basis, and a semiannual series on a nationality Supplement on Balance of Payments (formerly called Balance basis (that is, "United States loans" are those made by of Payments Yearbook; published annually). mainland U.S. banks plus their offshore branches). The Both the DRS and the IMF data are limited by the six-monthly series classifies loans by maturity and thus ability of developing countries to marshal primary statis- provides the main estimates of developing countries' tics. However, both data sources have become more short-term debt. Unfortunately, the figures are compiled comprehensive in recent years, partly as a result of according to the time remaining to maturity, so they are intensive technical assistance to member countries by not comparable with DRS and OECD data, which docu- both the IMF and the World Bank. ment loans by their original maturity. Publications: Inter- Information on debtors can usefully be supplemented national Banking Developments (published quarterly); by figures on creditors and bank lending. The main Maturity Distribution of International Banking Lending (pub- sources are: lished semiannually). OECD annual aid questionnaire and Creditor Reporting IMF banking statistics. These collate international Table 2.5 Shares of key currencies in public long-term debt, 1974-83 (percent) Currency 1974 1975 1976 1977 1978 1979 7980 1981 1982 1983 U.S. dollars' 65.1 69.0 70.3 67.8 64.8 66.8 68.1 71.8 73.4 76.3 Deutsche mark 8.8 7.3 7.6 8.2 9.2 8.6 7.3 6.3 6.0 4.8 Japanese yen 3.8 3.8 4.1 5.4 7.2 5.9 6.9 6.2 6.0 6.0 French francs 4.3 4.3 4.1 4.4 4.8 4.9 4.6 3.8 3.6 2.9 Pounds sterling 5.6 4.3 3.3 3.1 2.7 2.5 2.3 1.9 1.6 1.5 Swiss francs 0.8 0.7 0.8 1.1 1.6 1.5 1.3 1.4 1.3 1.0 Canadian dollars 1.5 1.5 1.5 1.3 1.1 1.1 1.1 1.1 1.0 0.9 Others 10.1 8.9 8.4 8.6 8.7 8.8 8.4 7.6 7.2 6.5 Total 100 100 100 100 100 100 100 100 100 100 Note: Data are based on the currency of denomination, not the currency of repayment. a. The share of U.S. dollars includes "multiple currency" lending, predominantly in dollars, at variable interest rates, and accounting for an 8-10 percent share of external debt during 1974-83. The share of U.S. dollars is therefore an upper bound, but the trend is unaltered, with the dollar's share rising by eleven percentage points in a decade. Source: World Bank data. 22 banking assets and liabilities. They are comparable to developing-country debt to commercial banks. So far, those of the BIS, but ultimately come from a wider group the project has eliminated the duplication of figures on of banking centers. The figures were first published in officially guaranteed export credits extended by banks, 1984, as the first stage of a project to integrate all data on which had appeared in both sets of data. Publication: the external debt of developing countries. Publication: OECD, Development Co-operation (1984 Review). International Financial Statistics (published monthly). When all these data sources are brought together, a Joint OECD/BIS external debt project. A project reasonable estimate of external liabilities of developing designed to integrate data on (a) officially guaranteed countries emerges (Box table 2.2A). trade-related bank credits collected by the OECD and (b) Box table 2.2A External liabilities of developing countries, 1980-84 (billions of dollars, unless otherwise noted) Country group 1980 1981 1982 1983' 1984h DRS reporting countries' 540 629 699 761' 810' Medium- and long-term debtd 412 470 525 598' 655' From official sources 160 174 191 209 225 From private sources 252 296 334 388' 430' Short-term debts 119 145 155 134e 122' Use of IMF credith 9 14 19 29 33 Other developing countries' 70 73 76 82 85 Medium- and long-term debtd 59 58 57 60 62 From official sources 17 18 19 20 20 From private sources 42 40 38 40 42 Short-term debts 11 15 16 20 20 Use of IMF credit" 0 0 3 2 3 Total 610 702 775 843 895 Memo item Growth of total liabilities (percent) 15.1 10.4 8.8 6.2 Preliminary. Estimated. Includes data for 104 developing countries for which standard and complete reporting is made through the World Banks Debtor Reporting System (DRS). Debt of original maturity of more than one year. Reflects the rescheduling of $22 billion of short-term debt to banks into long-term debt during 1983. Reflects the rescheduling of $25 billion of short-term debt to banks into long-term debt during 1984. Debt of original maturity of no more than one year. Data are estimated from information on bank claims on developing countries as reported by the Bank for International Settlements and are amended to take account of information on short-term debt reported by individual developing countries. Excludes loans from the IMF Trust Fund; they are included in medium- and long-term debt. Includes data for developing countries that do not report through the DRS and for those that either have reported incomplete data through the DRS, or report in a form that does not permit publication in the standard tables. Excludes debt of the high-income oil-exporting countries and includes estimates for developing countries that are not World Bank members but are included in the global analysis underlying the World Development Report. The composition of the developing countries' oration in the main debt indicators (see Table 2.6). exports has also changed considerably over the For all developing countries, the ratio of debt ser- past two decades. The share of manufactures rose vice to exports for all developing countries rose from about 15 percent of the total in the early 1960s from 15 percent in 1970 to 21 percent in 1982, then to nearly 50 percent in the early 1980s, while the declined slightly to 20 percent in 1984; the ratio of relative importance of all primary products debt to GNP increased from 14 percent in 1970 to declined. Although this greater diversity of 34 percent in 1984 (Box 2.3). The ratio of debt to exports has reduced the vulnerability of develop- exports also increased, from 109 percent (1970) to ing countries to world recession, the increased 135 percent (1984); and the ratio of interest pay- share of manufactures has made them more vul- ments to GNP more than quintupled, from 0.5 per- nerable to protection in the industrial countries cent in 1970 to 2.8 percent in 1984. whose main focus is manufactured goods. There were, however, major differences among Despite this robust export performance, the developing countries. With the exception of low- rapid growth of borrowing combined with big income Asia, the debt to GNP ratio increased sig- increases in interest rates contributed to the deteri- nificantly for all groups. The rise was sharpest for 23 Table 2.6 Debt indicators for developing countries in selected years, 1970-84 (ratios in percent; amounts in billions of dollars) Country group and item 1970 1974 1976 1978 1980 1981 1982 1983 1984 Low-income Asia Ratio of debt to GNP 7.0 7.2 8.2 7.8 7.8 8.1 8.8 9.0 9.7 Ratio of debt to exports 183.6 128.4 131.6 123.1 96.7 89.5 95.1 98.9 100.0 Debt service ratio 12.4 7.8 7.7 7.2 8.0 9.3 10.9 8.3 8.4 Ratio of interest service to CNP 0.2 0.1 0.2 0.2 0.3 0.3 0.3 0.3 0.3 Total debt outstanding and disbursed 12 18 22 29 38 40 43 46 53 Private debt as percentage of total 6.9 5.4 4.1 5.6 17.3 14.7 13.6 13.9 16.7 Low-income Africa Ratio of debt to GNP 17.5 23.8 27.7 26.9 39.8 43.4 47.7 52.0 54.5 Ratio of debt to exports 75.2 99.5 135.3 162.3 175.8 216.5 260.6 279.5 278.1 Debt service ratio 6.1 8.6 8.5 9.6 12.5 13.8 15.7 16.5 19.9 Ratio of interest service to GNP 0.5 0.7 0.6 0.7 1.3 1.2 1.1 1.4 2.1 Total debt outstanding and disbursed 3 7 10 15 21 23 25 25 27 Private debt as percentage of total 33.5 39.3 36.6 38.9 29.8 29.3 26.9 22.4 18.4 Major exporters of manufactures Ratio of debt to GNP 16.2 18.0 20.1 22.1 22.8 24.7 27.9 3.4.4 37.6 Ratio of debt to exports 91.5 76.0 90.9 92.4 77.3 81.7 97.1 105.2 109.1 Debt service ratio 15.1 13.7 14.2 17.7 16.1 17.1 19.3 16.2 16.0 Ratio of interest service to GNP 0.7 1.1 1.1 1.4 2.0 2.5 2.9 2.9 3.6 Total debt outstanding and disbursed 24 57 82 124 167 191 216 242 267 Private debt as percentage of total 73.2 75.5 75.9 76.7 77.0 77.8 78.6 78.5 76.9 Other middle-income oil importers Ratio of debt to GNP 21.4 20.3 21.1 24.9 29.7 33.4 40.2 47.5 53.0 Ratio of debt to exports 111.0 88.7 98.3 122.7 120.7 136.4 155.4 175.5 183.9 Debt service ratio 13.6 11.4 14.8 20.9 17.2 20.8 22.7 23.1 24.9 Ratio of interest service to GNP 0.8 0.9 1.0 1.3 1.9 2.4 3.1 3.3 3.9 Total debt outstanding and disbursed 12 21 27 43 68 79 89 98 108 Private debt as percentage of total 42.9 42.1 43.8 47.8 51.0 51.6 51.5 49.6 49.3 Middle-income oil exporters Ratio of debt to GNP 18.4 18.0 22.4 30.1 24.7 24.9 32.0 39.9 43.8 Ratio of debt to exports 115.3 67.2 102.1 136.0 87.4 98.5 123.7 157.8 164.2 Debt service ratio 18.1 11.0 14.5 22.9 17.8 19.8 25.0 26.1 28.1 Ratio of interest service to GNP 0.7 0.9 1.1 1.6 2.1 2.2 3.1 3.3 4.0 Total debt outstanding and disbursed 18 38 63 103 136 155 174 208 232 Private debt as percentage of total 57.2 63.3 66.5 67.7 69.4 71.2 71.8 75.3 75.1 All developing countries Ratio of debt to GNP 14.1 15.4 18.1 21.0 20.9 22.4 26.3 31.3 33.8 Ratio of debt to exports 108.9 80.0 100.2 113.1 89.8 96.8 115.0 130.8 135.4 Debt service ratio 14.7 11.8 13.6 18.4 16.0 17.6 20.5 19.0 19.7 Ratio of interest service to GNP 0.5 0.8 0.8 1.1 1.6 1.9 2.3 2.3 2.8 Total debt outstanding and disbursed 68 141 204 313 430 488 546 620 686 Private debt as percentage of total 50.9 56.5 59.0 61.5 62.9 64.1 646 65.8 65.0 Note: Interest and debt service for 1970-83 are actual (not contractual) service paid during the period. Interest and debt service for 1984 are projections of contractual obligations due based on commitments received through the end of 1983 and take into account reschedulings through the end of 1984. Source: World Bank data. low-income Africa, from 18 percent in 1970 to 55 have avoided debt difficulties so far in the 1980s, percent in 1984. Although the absolute size of Afri- the deterioration in debt indicators was reflected in ca's debt is small-$27 billion in 1984-in relation a spate of debt reschedulings. The number of for- to income and exports it is the highest among mal reschedulings for World Bank members rose developing countries. from an average of five a year in 1975-80 to thir- teen in 1981 and thirty-one (involving twenty-one Reschedulings countries) in 1983. At least that number of debt negotiations took place in 1984, but formal agree- Although about a hundred developing countries ment was reached on only twenty-one, involving 24 Box 2.3 How inflation affects loan repayments The last few years have seen substantial fluctuations in produce larger real debt repayments in the near future inflation and interest rates, Inflation and interest rates and lower real debt repayments near the end of the loan influence the debt indicators usually relied on to evaluate repayment schedule. This forward tilt in the real amorti- the creditworthiness of borrowers. First, the nominal zation schedule ("front-loading") is more pronounced value of debt must be deflated by some price indicator to the longer the original maturity of the loan. obtain a realistic assessment of its real value. Second, to Box table 2.3A shows how the different components of the extent that inflation either outstrips or lags behind total debt service have moved over time. A variety of the rise in nominal interest rates, a real transfer of price indexes could be used in these calculations. Here resources will occur-to the debtor in the former case the developing countries' export prices (merchandise, and to the creditor in the latter. Finally, the real debt fob., excluding fuel) are used. This implies measuring burden will not be altered by inflation if nominal interest the value of the debt service in terms of the domestic rates exactly keep pace with inflation. In that case, never- goods that need to be exported to service the debt. The theless, the loan will be amortized at a faster real rate debt service ratio shows very little variation from year to than the original terms might indicate. year, but total amortization payments fluctuate widely as When inflation goes up and nominal interest rates rise a result of the inflationary component of interest pay- in line, interest payments include a component to com- ments. The share of debt service in export earnings pensate the lender for the erosion in the real value of declined during the period 1971-73, but the inflation- loans. Although this does not change the real value of all adjusted amortization payments reached their highest repayments, it does speed up the real amortization: the level in 1973, Similarly, the debt service ratio increased inflation component of nominal interest rates is added to during the period 1980-82, but in fact the share of infla- the regularly scheduled nominal amortization payments. tion-adjusted amortization payments showed a sharp Thus, for a given loan maturity, higher inflation rates decline. Box table 2.3A Inflationary effects on debt service (percent) Debt Inflation_adjusted amortization/exports Inflation-adjusted service/exports interest Inflation- payments/exports Scheduled induced = Total Year amortization amortization amortization 1970 14.7 10.6 3.0 13.6 1.2 1971 15.6 11.2 -4.2 7.0 8.6 1972 15.2 10.9 5.9 16.8 -1.6 1973 14.1 9.9 32.4 42.3 -28.1 1974 11.8 7.9 19.1 27.0 -15.1 1975 13.9 9.0 -8.6 0.4 13.5 1976 13.6 8.9 8.2 17.2 -3.5 1977 14.8 9.7 10.0 19.7 -5.0 1978 18.4 12.3 6.0 18.3 0.1 1979 18.4 11.7 13.5 25.2 -6.8 1980 16.0 9.2 12.5 21.7 -5.6 1981 17.6 9.4 -6.8 2.6 15.0 1982 20.5 10.4 -7.4 3.0 17.5 1983 19.0 9.1 0.5 9.6 9.3 1984 19.7 8.2 -0.4 7.8 11.9 Nste: The decomposition of the debt service ratio into inflation adjusted interest payments and inflation adjusted amortization is based on the identities DS = IN + AM IN = (i - p)D + pD where DS is debt service; IN is interest payments; AM is amortization; i is the nominal interest rate c alculated as the ratio of interest payments in the current period (IN) to debt outstanding and disbursed in the previous period (0); p is the annualinflation rate based on the merchandise (FOB.) deflator excluding fuel. Thus, DS = (i - p)D + pD + AM where (i - p)D equals inflation adjusted interest payments, and pD + AM equals inflation adjusted amortization. The various components may not add up to debt ratio due to rounding. Source: World Bank data. 25 sixteen countries and just over $11 billion by the shortcomings. In 1983-84 alone, twenty-five coun- end of the year. Although more than $115 billion tries (including Cuba and Poland) have resche- was under negotiation in 1984, three countries duledmainly their guaranteed and insured Argentina, Mexico, and Venezuelaaccounted for export credits, which were originally provided by $93 billion, four-fifths of the total. private lenders. These reschedulings have put Creditors have rescheduled debt on a case by great strains on the resources and solvency of case basis, mostly through the adaptation of well- export credit and insurance agencies in creditor established channels (see Box 2.4). The terms of countries. In addition, a number of African coun- reschedulings were generally easier in 1984 than in tries have rescheduled. Their difficulties often arise 1982 and 1983. Maturities and grace periods were from structural weakness compounded by a short- generally longer; spreads over the London inter- term lack of liquidity. For them, as well as for the bank offered rate (LIBOR) on rescheduled debt middle-income countries that depend heavily on ranged from one and seven-eighths to two and exports of primary commodities, rescheduling has one-half percentage points in 1982 and 1983, but not produced the benefits that some Latin Ameri- fell to one and one-eighths to two percentage can countries have obtained. Only in the case of points in 1984. Rescheduling fees are also known Sudan did a country's creditors and donors con- to have declined. sider its long-term financing needs, in a meeting The approach to reschedulings has varied, organized by the World Bank and the IMF. In a mainly in response to the concerns of the commer- later meeting, the Paris Club members provided cial banks. They have wanted assurances of the debt relief over an extended period. But this was soundness of countries' policies. Multilateral insti- not successful because the size of rescheduling tutionsand particularly the IMFhave been was not sufficient and the country was not able to involved in designing packages that included pol- pursue the required policies. icy reforms, debt restructurings, and new money. Central banks have made important contributions, Conclusions either indirectly through the Bank for International Settlements (BIS) or directly, as in the case of the During periods of global economic stability, such Federal Reserve Board. Latin American debtors as the 1950s and 1960s, international finance has have been the main beneficiaries of this approach. contributed significantly to economic growth. In A path-breaking multiyear rescheduling of $49 bil- periods of volatile change, such as the past fifteen lion of Mexico's debt to commercial banks was years, it has played a dual role. On the one hand, it agreed to in principle in 1984; this was followed by helped countries adjust to external shocks, as hap- a multiyear rescheduling of almost $21 billion of pened during the 1974-75 recession. On the other Venezuela's debt. At the end of 1984 discussions hand, it was an additional channel for the trans- were in progress on a multiyear rescheduling of mission of external shocks, as in the 1981-83 reces- about $50 billion of Brazil's debt. These and other sion. negotiated agreements have relieved the debt con- Within the total flows of capital to developing straints on growth of some major borrowers. countries, shifts from equity to debt financing and Nonetheless, some observers have suggested that from official to private sources were perhaps to be debt difficulties need to be treated more radically expected. As developing economies grow and (see Box 2.5). their structures change, their relations with the Aside from a few major borrowers, reschedul- world economy increasingly resemble those of the ings have been on a year by year basis. In varying industrial countries. As infrastructure projects degrees they have involved official flows (includ- require a smaller share of investment, as industry ing guaranteed export credits) from bilateral expands, as exports shift from primary to manu- sources, as well as commercial flows. Official debt factured products, as the domestic financial sys- has been rescheduled under the aegis of the Paris tem matures, so developing countries increase Club, often with parallel exercises for commercial their ability to exploit opportunities in interna- debt. This approach has ensured broadly equal tional financial markets. treatment of creditors. It is also one that has been However, the flow of private external capital to best suited to dealing with liquidity problems and developing countries did not increase slowly, in restoring normal debt servicing in the expectation line with their economic progress. It expanded that a debtor's exports will recover. suddenly in the 1970s and was accompanied by However, year by year rescheduling has certain unprecedented imbalances in international pay- 26 Box 2.4 The changing nature of debt renegotiations There are two main institutional arrangements for debt that are willing to take steps to address their problems. relief: the Paris Club for debts to or guaranteed by gov- The Paris Club has worked best, however, for coun- ernments; and ad hoc consortia of commercial banks tries where temporary liquidity difficulties were due (sometimes called the London Club) for uninsured debts principally to a bunching of debt service payments. The to financial institutions. Paris Club has been less successful in resolving the diffi- culties of countries, such as those in sub-Saharan Africa, The Paris Club where debt service difficulties are related to structural The Paris Club was born in 1956 when a group of creditor economic problems. When prospects for restoring nor- countries met in Paris to renegotiate Argentine debt mal debt service are dim for many years, successive owed to export credit guarantee institutions, which had annual reschedulings of payments for a decade often has reimbursed private creditors following delays in Argenti- served only to postpone the problem. The flexibility that na's debt service to them. Although the club has no writ- the Paris Club has demonstrated provides the basis for ten rules, it has evolved a standard approach based on expecting that it will adapt its practices to address these experience and precedent, one objective being equitable problems as well. treatment of all creditors. The scope of the club's debt relief covers service on all Commercial bank debt bilateral official loans, including concessional credits and By contrast to the Paris Club, arrangements for renegoti- officially guaranteed export credits. Consolidation peri- ating debt owed to commercial banks have developed ods are normally for one year, but successive agreements only since the late 1970s (see Box figure 2.4A). Since are common: debt relief has been extended more or less much of this debt consists of syndicated loans, as well as continuously during the past decade to Liberia, Senegal, uninsured trade or project finance, and the number of Sudan, Togo, and Zaire. Previously rescheduled debt creditor banks may be in the hundreds, the banks are has been consolidated when circumstances required. represented by an "advisory" committee that negotiates Debt relief is normally restricted to current maturities. with the government of the debtor country. An agree- The proportion typically rescheduled varies from 80 to ment, when reached, must be approved by each creditor 100 percent. This consolidated portion is repaid over bank. The process has become increasingly streamlined eight to ten years, with a grace period of four to five in the 1970s, with small advisory committees now the years. For countries with severe balance of payments rule and with coordinated actions to seek rapid agree- problems, the nonconsolidated portion may be repaid ment from all participating banks. over the grace period; in such cases, debt relief ap- Commercial banks reschedule mainly current maturi- proaches 100 percent of eligible maturities. Arrears are ties of long-term debts, and occasionally arrears of prin- occasionally rescheduled, but they are normally repaid at cipal as well. They do not reschedule interest; any a faster rate. arrears of interest must be settled before rescheduling The Paris Club arrangements help restore normal trade agreements become effective. Some agreements have and project finance to debtor countries. When the debtor consolidated short-term debts. In many recent resche- countries experience severe international liquidity diff i- dulings, fresh long-term loans and trade credit facilities culties resulting in a breakdown in relationships with have been extended as part of a debt relief package, in their creditors, a Paris Club agreement sets the frame- effect offsetting interest payments. The negotiations work for rescheduling arrears to official creditors and have been flexible; some have arranged year to year clears the way for direct or guaranteed new credits. It is deferments of debt while comprehensive longer-term followed by bilateral agreements with each of the partici- agreements were still being discussed. Repayment of pants in the Paris Club meeting within the agreed frame- consolidated debt typically ranges from six to nine years, work. After bilateral agreements are concluded (some- including two to four years of grace. Interest charges times a lengthy process), each agency concerned restores vary from a margin of one and seven-eighths to two and export credit cover to the rescheduling countries. one-half points over LIBOR. Debt rescheduling is nor- Indeed, debtor countries can approach the Paris Club mally accompanied by a commission charge of 11/4 to 11/2 even before encountering liquidity problems that would percent. lead to the cessation of trade finance; ideally, they Year to year rescheduling has effectively overcome should do so. The Paris Club requires that debtor coun- immediate debt-servicing difficulties, but it leaves uncer- tries take prompt and effective measures to address their tainty over the debtor's future position, which can pre- underlying economic problems; an IMF-supported vent its returning to normal market financing. In Mexi- adjustment program that will give a country access to the co's case, the commercial banks signed an agreement in upper credit tranches is, typically, a prerequisite to a March 1985 to consolidate public sector debt falling due Paris Club agreement. The Paris Club, while still consid- in 1985-90 and to accept repayment over fourteen years, ering debt relief mainly in the context of short-term with lower spreads for the early years of the repayment liquidity problems, has shown flexibility in its response period and no restructuring fees. Recently a multiyear to the debt-servicing problems of developing countries (continued) 27 Box figure 2.4A Multilateral debt renegotiations, 1975-84 (millions of dollars) Country 1975 1976 1977 1978 1979 7980 1981 1982 1983 1984 Argentina 970 $23,241 Bolivia $444 $536 Brazil $4,532 $5,350 $3,478 Central African Rep. $55 $13 Chile $216 $3,400 Costa Rica $97 $1,240 Dominican Rep. 497 Ecuador 20O $4,475 $1,835 590 Gabon 105a Guyana 29 $14 $24 Honduras 148 India 157 $169 .110 Ivory Coast $153 $306 Jamaica $126 $103 $106 $148 Liberia 63O $25 $27 18 $17 71 Madagascar $142 $103 $l95 $120 Malawi $24 830 Key: $ Paris Club renegotiation $59 Mexico Commercial bank renegotiation 1550b $48,725' R Aid consortia renegotiation U Agreed in principle $23 625 Morocco $1,225 $530 Mozambique $200 Nicaragua $582 $188 $102 Niger i33 $22 28 Nigeria $1,920 Pakistan 263 Peru $478 450 $1,000 $821 $380 $1,415 Philippines $4,904 7 685 Romania $234 47 195i $1,598 567 Senegal $77 $84 4764 $97 Sierra Leone $27 $41 $25 $88 Sudan $373 $638 $174 8502 $245 Togo $170 !92 47114 55 68 $74 Turkey $2,640 $3,100 U 1,223 $873 $2,600 Uganda $56 $22 Uruguay $815 Venezuela 20,750 Yugoslavia $988 $500b $1,586 $1,246 Zaire 211 ':236 $1,147 $402 574 471,317 Zambia 47285 $150 $75 Total 373 1,350 373 1,806 6,179 3,723 5,757 2,382 51,089 116,220 Note: Data in italics are estimates, a. Denotes an agreement of a special task force. b. Agreement of a creditor group meeting, not a Pans Club. c. Includes debt of $23,625 million previously rescheduled in 1983. d. Proposed. Source: World Bank data. 28 agreement has been reached with Ecuador. A similar Year to year reschedulings, whether of official or com- agreement in principle was reached with Venezuela in mercial bank debt, are expensive in the use they make of late 1984, and an agreement with Brazil is in the the time of senior officials in both developing countries advanced stages of negotiation. These multiyear agree- and creditor institutions. They also tend to focus atten- ments have been implemented for countries that have tion on financial problems to the detriment of policy made substantial progress in adjusting their balance of reforms. Multiyear arrangements, on a case by case payments and have credible commitments to future pol- basis, in support of policy reforms are a preferred icy directions. approach. Box 2.5 Recent proposals for dealing with debt-servicing difficulties Numerous solutions have been offered for the debt cri- process of relending interest by capitalizing interest pay- sis. The proposals reflect a range of views about the na- ments. A few proposals advocate new instruments ture of debt-servicing difficulties and appropriate such as replacing fixed claims on a country with shares in responses to them. They include ad hoc financing the country's foreign exchange earnings, or with equity arrangements; case by case debt reschedulings; interest in state-run enterprises. capitalization schemes; formal insurance; stabilization Continuing uncertainty. Any scheme that attempts to funds; innovative instruments, including equity shares settle the debt problem at a stroke must either reduce the in public enterprises in borrowing countries as swaps expected burdens on countries so much that a second with outstanding debt; and comprehensive restruc- rescue will not be needed or make some allowance for turings, including write-downs or external claims. The future contingencies, such as world recession or higher objective of these solutions is to permit the resumption interest rates. It must also offer inducements for banks to of growth and restoration of creditworthiness of devel- keep lending in the future. oping countries and the restoration of "spontaneous" Several proposals contain measures to deal with uncer- lending by commercial banks. It is not the purpose here tainty, ranging from stabilization funds for fluctuations to discuss the individual proposals. The proposed solu- in oil prices and interest rates to establishing a formal tions can best be evaluated by considering four elements insurance scheme to avoid another crisis. It is less clear that go to the heart of the relationship between debtors how these proposals ensure future lending by banks; and creditors. which route is taken has important implications for the The distinction between the collective interests of creditors distribution of the burdens and for future access to inter- and their individual interests. If the creditors of debtor national capital markets. countries cannot be paid full debt service, it is in their Maintaining the solvency of the banking system. Major collective interest to defer paymentperhaps even to banks hold claims on developing countries equal to sev- forgive part of the paymentrather than provoke a mor- eral times their capital. Any scheme that implies a large atorium or repudiation by debtors. Individual creditors, write-down of debt must therefore provide for the con- however, have an incentive to hold out for repayment, in tinued operation of these banks. Most proposals attempt effect by being bought out by other parties. Any debt to minimize write-downs, so that banks remain solvent. reform scheme must provide an answer to this "free Others include the use of official capital to buy part of rider" problem. Some of the proposals advocate a once- developing-country debt. and-for-all restructuring of developing countries' debt The current approach, which combines restructuring into long-term low-interest loans. Most proposals argue of debt service payments with adjustment policies by that debts should be taken over by a new international debtor countries, has an answer for each of these four agency and raise questions about the availability of addi- issues. Abstracting from important details, it deals with tional official capital for this purpose. the free rider problem through ad hoc pressure and sua- Limits to debt service. Debtor countries have now sion on banks; it relies on conventional reschedulings to shown their ability to run big trade surpluses to service reduce the interest burden by relending; it copes with their debt. For some countries, at their present levels of uncertainty by keeping the banks involved, and there- development, it may be difficult to keep running trade fore it preserves the ability to demand additional loans surpluses large enough to pay all interest, particularly if from existing creditors; and it copes with the solvency interest rates rise. So a feasible debt reform plan must problem by avoiding write-downs. So far this approach not only reschedule all principal, in some cases it may has worked better than many had expected. However, also have to reduce the current interest burden. wider use of multiyear debt restructurings on a case by In order to reschedule principal, most proposals sug- case basis as a part of an overall financial package sup- gest that bank loans should be converted into some other porting stabilization and adjustment, particularly in sub- long-term asset, particularly long-term bonds. To reduce Saharan Africa, will help to alleviate debt-servicing diffi- the burden of interest payments, some proposals argue culties. for relending interest; others suggest an automatic 29 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 vol- progress to qualify for increased access to interna- atile exchange rates in the early 1980s. At the cen- tional 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, triesfiscal, monetary, and tradelargely shape and the large appreciation of the U.S. dollar. High the international economic environment for devel- real interest rates increase the debt-servicing bur- oping 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 com- influence 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 sev- borrowers 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 indus- servicing 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 debt- trade. 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 1%9-73 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 Box 3.1 Primary commodity prices, business cycles, and the real exchange rate of the dollar Commodity prices have always been strongly influenced tries such as Brazil: Brazil is a net primary commodity by the economic cycle in industrial countries. Some exporter, but a large share of its imports come from the econometric evidence suggests that a one percentage United States. For countries like Brazil many things went point rise in the OECD unemployment rate leads to a 15 wrong simultaneously in 1981-82. Interest rates rose percent fall in real commodity prices. However, this rela- while the recession depressed commodity prices; the tionship seems to have changed in the present cyclical dollar appreciation also depressed primary commodity upswing. In real terms, commodity prices fell 44 percent prices further and raised the cost of imports. Net pri- between 1979 and 1982real in this case meaning the mary commodity importers such as Korea at least got the nominal prices deflated by the U.S. GDP deflatorbut, benefit of cheaper commodity imports. Box figure 3.1A after rising in 1983, prices have fallen steadily since mid- demonstrates this by plotting the real interest rate in 1984, despite the economic recovery. terms of export pricesLIBOR minus the rise in dollar Part of the explanation for the sharp fall in the period export pricesfor Korea and Brazil. 1980-82 and for the unusual decline since mid-1984 lies in the large real appreciation of the dollar since 1980. A Box figure 3.1A Real LIBOR for Brazil and rise in the real value of the dollar with respect to other the Republic of Korea, 1965-84 industrial countries makes American goods more expen- Percent sive in terms of goods from those countries. For given commodity prices, demand for primary commodities in 20 the United States will rise since their cost in terms of U.S. goods has fallen. This will divert some commodity 10 exports from the other industrial countries to the United States and also bring forth some extra supply. The net effect will be a fall in commodity prices in terms of U.S. goods and a rise in terms of goods from other industrial countries. If the United States has a larger share in world trade than its commodity imports have in total OECD -10 commodity imports, commodity prices will fall in terms of traded goods in general after an appreciation of the -20 dollar. Empirical analysis shows that a 10 percent real 1965 1970 1975 1980 1984 appreciation of the dollar brings real commodity prices in terms of U.S. goods down by 6 percent. Source: TMF International Financial Statistics. This relationship has obvious implications for coun- mid-1970s, although easy to explain with hind- had deficits, industrial countries as a whole aver- sight, were unexpected at the time. First, the aged surpluses of $12 billion a year during 1975-78. OPEC surpluses were "recycled" with surprising In contrast, oil-importing developing countries ease, largely because of the growth of the Eurodol- went into substantial deficit in 1974 and 1975. Defi- lar market (see Chapter 6); the second surprise was cits remained high in 1976-78, compared with the the pattern of current account deficits that level in 1973, although they declined somewhat as emerged. a proportion of GNP in those countries. Industrial countriesthe main oil importers OPEC surpluses were thus recycled largely to were expected to run deficits to offset the OPEC the developing countries, not to industrial coun- surpluses, with developing countries playing a tries. This was made possible by a major change in minor role in recycling. Most observers judged the structure of financial flows between industrial that the financial mechanisms needed for recycling and developing countries, as commercial banks surpluses to developing countries simply did not became much more prominent than they had exist. Table 3.1 shows how things in fact devel- been. Although official loans and grants from oped. The seven largest industrial countries industrial countries increased considerably in quickly reverted to pre-1973 patterns in their exter- 1974-75, the biggest change was the growth of nal accounts. They had a $2.8 billion deficit in 1974, commercial bank lending to developing countries. then swung back into surpluses averaging $20 bil- This established international capital markets as a lion a year in 1975-78 compared with $9.7 billion in major channel for transmitting the effects of mac- 1973. Although some smaller industrial countries roeconomic policies in industrial countries to 32 Table 3.1 Current account balances of industrial and developing countries, 1970-84 (billions of dollars) Count ry group 1970-72 1973 1974 1975_78a 1979 1980 1981 1982 1983 1984 Industrial countries 7.0 10.3 -14.6 12.1 -5.6 -38.8 3.1 1.2 2.2 -34.2 United States 0.4 9.1 7.6 1.2 2.6 6.6 10.7 -3.8 -35.5 -93.4 Other six large industrial countries 9.3 0.6 -10.4 19.0 4.6 -18.7 8.8 17.7 39.0 53.2 Middle Eastern oil exporters 2.0 6.5 55.9 33.8 61.9 99.6 56.3 3.3 -11.1 -6.0 Developing countriesL -12.8 -9.1 -21.0 -39.5 -51.7 -68.0 -105.1 -99.2 -56.7 -35.6 Note: World total does not equal zero because of measurement errors and incomplete coverage. Annual average. Based on a sample of ninety developing countries. Source: IMF and World Bank data. developing countries. ing to pay higher interest rates on their external Industrial countries reduced their savings and debt at the same time as demand was falling in investment rates in the 1970s. As Chapter 4 makes their main export markets. clear, however, savings ratios rose in most devel- oping countries-the exceptions being in sub- Macroeconomic policies, interest rates, Saharan Africa. Therefore, much of the extra and exchange rates finance obtained by developing countries was used to increase investment. This allowed them to Until the summer of 1982, policies in the industrial maintain or even raise their GDP growth rates. countries produced predictable results. Temporar- Without these expansionary policies in developing ily high real interest rates were the unavoidable countries and the resulting increase in their import by-products of monetary disinflation policies. demand, the recession in industrial countries Monetary restraint was most pronounced in the would have been even deeper. However, with United States. This contributed to both the appre- their debt much increased and a higher proportion ciation of the dollar and the fact that the downturn of it carrying floating interest rates, developing in the United States was more severe than in the countries were more exposed to the fiscal and other major industrial countries despite tighter fis- monetary policies of the industrial world. The sig- cal policy in most European countries and Japan. nificance of this exposure became clear in the early Moreover, the expansionary fiscal policy that 1980s. started taking shape in the United States in 1981 The beginning of 1980 saw industrial countries in plainly laid the basis for economic recovery by rais- a deepening recession. In many of them budget ing both after-tax personal incomes and after-tax deficits were already so large that a fiscal stimulus returns on corporate investment. to escape recession was thought to be infeasible. In Since mid-1982 developments in industrial econ- the same period, governments in industrial coun- omies followed a less predictable path. In the tries turned to monetary restraint to tackle infla- United States changes in banking regulations tion. The change in monetary policy was sharpest caused large, erratic movements in the demand for in the United States. In 1979 the Federal Reserve money which were accommodated by the Federal Board switched from targeting interest rates to tar- Reserve. At the same time, its earlier restraint geting the monetary aggregates. This change in started to pay off: inflation came down in 1982 and operating procedures, coupled with tighter has since remained at around 4 to 5 percent (see restraint, resulted in both higher and more volatile Figure 3.1). But nominal interest rates did not fall interest rates, with major implications for coun- in line with inflation; in real terms (measured by tries with substantial parts of their debt at floating nominal rates minus actual inflation), they there- rates or in need of refinancing. The increased use fore continued to rise (see Figure 1.4). Moreover, of floating interest loans effectively shifted interest long-term interest rates rose more than short-term rate risk to borrowing countries (see Box 3.2). rates (see Figure 3.2). This upward tilt in the term The second major increase in oil prices in 1979- structure is an issue of considerable importance to 80 failed to stop the increase in real interest rates: developing countries: since long-term rates reflect OPEC surpluses were short lived, and monetary expectations about the future path of short-term restraint in the major industrial countries was rates, high long-term rates imply that developing much tighter. Developing countries were thus hay- country debtors should anticipate that their debt 33 Box 3.2 Interest rate variability, risk shifting, and floating rate debt For developing-country borrowers, it may appear that a to escape risk entirely, one must pay a premium. switch from fixed rate to floating rate loans passed all the Moreover, a country should be concerned not only risk on to them. That is not necessarily so. The switch about variability of interest payments on foreign debt, does not have any consequence for real interest rates if but also about variability of national income, of which changes in real interest rates are brought about by interest payments are only one (negative) component. changes in inflation. However, if real interest rates fluc- Sometimes these offset each other. Take the example of tuate because nominal rates do, the lender takes all the an exporter of primary commodities with a large foreign risk under fixed rates while the borrower does so under debt. floating rates. When aggregate demand shocks are the main source of Neither fixed nor floating rate loans provide complete global instability, interest rates will move up and down protection from fluctuations in real interest rates. This with primary commodity prices. In those circumstances, protection can be obtained from loans whose interest variable real rate debt may be attractive for a commodity rate is indexed to inflation. Such instruments have exporter: when low primary commodity prices reduce largely failed to materialize in international capital mar- export earnings, real rates are also likely to be low, kets or in the domestic markets of most major industrial thereby reducing the country's debt service burden and countries (an exception is the United Kingdom, where helping to shield national income from the fluctuations part of government debt is index linked). And even with in export revenues. indexed loans, a borrower will be more exposed to inter- This example demonstrates that reducing the variabil- est risk if the loan carries a short maturity since it will ity of one component of national income (in this case real have to be refinanced frequently at potentially higher interest payments on foreign debt) may in fact increase rates. variability of national income itself if the shocks to differ- In assessing their financing options, borrowers also ent components are correlated among each other. need to consider an obvious, though occasionally over- Whether indexed debt is attractive for a borrower will looked, point: their loan will be more expensive when- therefore depend on the source of shocks to the world ever the lender bears some or all of the interest rate risk. economy and on the structure of trade of the country. The analogy is with, say, house or automobile insurance: service obligation will remain high for some time explain developments through 1982. As is to be to come. expected in periods of tight money, inflation and At least four factors have been proposed as output fell, the stock market declined, and real explanations of the higher real interest rates in the interest rates went up. Monetary policy was United States. tighter in the United States than abroad, contribu- Monetary restraint. Tight money helps to ting to the real appreciation of the dollar. However, such effects are temporary and should therefore Figure 3.1 Inflation in the United States, raise short-term interest rates initially before fad- Federal Republic of Germany, and France, ing away. Accordingly, after a tightening of mone- 1965-84 tary policy short-term rates should rise more than long-term rates. In fact, short-term rates rose less Percent than long-term rates. Therefore, other factors must 15 also be part of the explanation of why real interest rates stayed high after 1982. France Expectations of high future inflation. If future 10 inflation is expected to be much higher than the AW current rate, long-term interest rates are high in Germany I / t nominal terms but not in real terms. Such an argu- I t ,// %__' % ment is not consistent with the high real exchange J t __._S _ value of the dollar; high expected future inflation 'V\ S - \___,._.. should lead, other things being equal, to a dollar United States depreciation, not the appreciation that in fact took 0 place. Thus, expectations alone cannot explain the 1965 1970 1975 1980 1984 rise in U.S. interest rates. Source: OECD National Accounts; GDP deflators. A tax-induced investment boom. In 1981 the United States changed its tax system in ways that 34 receipts minus social security outlays) actually fell Figure 3.2 Difference between long- and from 23.7 percent of national income in 1965 to 23 short-term interest rates in the United States and Germany, 1965-83 percent in 1984. But government expenditure on goods and services (including interest payments Percent but not social security outlays) actually rose from 4 23.3 percent of national income in 1965, and 23.9 percent in 1979, to 27.4 percent in 1984. United States Budget deficits have grown in the major indus- trial economies (see Table 3.2, which gives infla- w VAV1tWI 7 v. tion-adjusted deficits of all levels of government). -1 wI w1 Only Germany and Japan managed to reduce their inflation-adjusted deficits between 1979 and 1984. The biggest change was in the United States, from 'V an inflation-adjusted surplus of 3.6 percent of 2 Germany national income in 1979 to a deficit of 2.7 percent in -3 1984. Further large deficits are projected unless 1965 1970 1975 1980 1983 current policies are changed. Source: OECD financial statistics, yearbooks, and monthly sup- To judge whether the growth of budget deficits plements, 1965-83; IMF International Financial Statistics; and Fed- contributed to the rise in real interest rates, the eral Reserve Board statistical releases. analysis cannot stop with figures showing deficits as a proportion of national income. Since world favored capital investment. The changes resulted savings equal world investments, an increase in in (a) the strong stock market recovery in the government deficits can be matched in either of United States in 1983-84, and (b) the sharp rise in two ways: a decline in investment or an increase in investmentmore than usual at an early stage of domestic and foreign savings. One popular theory the business cyclehigh real interest rates not- argues that reductions in tax revenues will be off- withstanding. As Figure 3.3 shows, the average set one for one by private savings, with no need rate of profit taxation has indeed fallen consider- for adjustment in investment, the current account ably. However, the 7 percent decline in the effec- of the balance of payments, or world interest rates. tive rate of profit tax can, on current estimates of This hypothesis is not borne out by experience. the marginal productivity of capital, explain less Private savings in the United States has been on a than a percentage point increase in long-run inter- steady decline since the mid-1960s with an upturn est rates. Moreover, the effects of such a tax change only since 1982 as the economy came out of the on the return to capital might be expected to recession. A budget deficit of 2.7 percent of decline over time, because additional investment national income is more than half the net private in response to the increased after-tax return should, over time, bring down the rate of return on capital. This would point to a flattening of the Figure 3.3 Corporate income taxes as a yield curvethat is, long rates rising less than percentage of economic profits in short rates; the flattening did not take place. Fur- the United States, 1950-89 thermore, investment has not been particularly Percent high by historical standards: 14.7 percent of U.S. 60 GNP in 1983 compared with a 15.5 percent average for 1970-79. Therefore, tax changes are also likely to account for only part of the increases in real interest rates. Budget deficits. Controversy about the role of deficits starts with their definition (discussed in Box 3.3). But there is no dispute on the strong pressures to increase deficits; in every industrial country, public expenditure has been rising stead- 0 ily (see Figure 3.4), while taxes and social security 1950 1960 1970 1980 1989 contributions have risen much less. In the United Source: Congressional Budget Office 1984. States, net government receipts (total government 35 Box 3.3 Measurement of government deficits Problems with the measurement of government deficits involve both accounting conventions and issues of eco- Box figure 3.3A Public sector surplus in the United nomic analysis. Kingdom as a percentage of national income, 1970-84 Accounting issues. Most countries have several layers Percent of governmentnational, state, and local. The relative 9 importance of the national government varies by country and reflects differences in the scope of its activities. All their accounts should be included in computing the size of the public sector debt, since all have to be financed. Definitional problems also arise over the treatment of inflation. If, for example, prices are rising at 10 percent a year, a debt of $100 will, after a year, have a real value of only $90. Inflation acts as a hidden capital levy on out- standing debt. Knowing this, lenders demand compen- sation in the form of higher interest rates. So some of a government's debt interest represents repayment of principal rather than the real cost of borrowing. How- -6 ever, standard measures of government deficits count 1970 1975 1980 1984 total interest payments on public sector debt as part of Unadjusted public expenditure. They therefore overestimate the real cost of servicing government debt. The inflation- Inflation adjusted adjusted deficit (referred to in this chapter) treats only Inflation and cyclically adjusted the real interest costs of public debt as being part of public expenditure. Source: OECD National Accounts; national sources. Box figure 3.3A shows both concepts for the United Kingdom. The difference between uncorrected deficits and the inflation-adjusted balance narrows considerably ing on unemployment benefits increases. Some analyses in the 1980s, reflecting falling inflation. It is striking to of budgetary policy exclude these cyclical influences in see that the United Kingdom throughout most of the order to establish the underlying fiscal stance. The figure 1970s and early 1980s actually ran a budget surplus. shows that the gap between the United Kingdom's infla- Analytical issues. Any analysis of the effects of budget tion-adjusted deficit with and without cyclical adjust- deficits needs to establish what it is that has produced ment widened dramatically after 1979-80, when unem- the deficit. A cut in, say, employers' contributions to ployment rose. social security (basically a payroll tax) has different Cyclically adjusted deficit measures attempt to remove effects on the economy from an increase in defense the part of the deficit related to changes in the economy spending, even though they may produce identical other than changes in fiscal policy. However, deficits increases in deficits. No single measure will capture all caused by other factors still need to be financed by offset- relevant aspects of the complex spending and tax pat- ing changes in either private or foreign savings or invest- terns that make up fiscal policy. ment. Where therefore the concern is with the effect of A second issue concerns the cyclical adjustment of def- changes in public sector deficits on the balance between icits. A government's budget is affected by the state of savings and investment, and through that on interest the economic cycle: rising unemployment will produce a rates, rather than with the fiscal policy stance in itself, rising deficit, because tax revenues decline while spend- cyclically adjusted measures are less useful. (corporate and household) savings rate, adjusted rest of the world on a considerable scale. In 1984 for inflation (see Box 3.3). And the change in the the U.S. current account deficit was more than inflation-adjusted fiscal deficit-6 .3 percentage twice that of all developing countries. points of national income between 1979 and 1984 These trends can be expected to put upward has not nearly been matched by the two percent- pressure on world interest rates, to restore balance age point increase in the private savings rate since between global savings and investment. Higher 1979. Also, the tax changes in 1981 have broadly interest rates drew foreign savings to the United offset the negative effects of high real interest rates States. The large deterioration in the external posi- on the user cost of capital, so investment has not tion of the United States and, to a lesser extent the fallen significantly since 1979. As a result, the Middle Eastern oil exporters, was matched by dra- United States has been absorbing savings from the matic reductions in current account deficits of oil- 36 expected to be high-a view consistent with high Figure 3.4 Government expenditures as a percentage of national income in Europe, long-term interest rates at the moment. the United States, and Japan, 1965-84 To bring real interest rates down for more than a short period, a credible change in fiscal policy in Percent the United States therefore seems desirable. The 60 high dollar exchange rate has stimulated exports to the United States and has therefore increased pro- 50 ducton in other countries. Avoiding any reces- Europe sionary impact of such a policy change will require 40 United States careful coordination with monetary policy in the United States and also with monetary and fiscal 30 policies in other industrial countries. However, Japan failing such a policy change, high real interest rates 20 and a continued high exchange value of the dollar would eventually tend to reduce growth in indus- 10 trial countries and continue to divert world savings 1965 1970 1975 1980 1984 away from developing countries. Moreover, sus- Source: OECD National Accounts; national sources. tamed trade imbalances and exchange rate mis- alignments will lead to increased protectionist pressure in industrial countries. In those circum- stances, developing countries would find it importing developing countries and industrial increasingly difficult to increase export earnings countries other than the United States (see Figure and service their debts. 3.5). Between 1979 and 1984, the U.S. inflation- Protectionism adjusted budget deficit (see Box 3.3) deteriorated by $162 billion, a shift that was far greater than, for Increased protectionism in industrial countries example, the $70 billion current account deteriora- against developing countries' exports reduces the tion of oil-exporting countries over the same export earnings that developing countries would period. To put this in perspective, total gross world otherwise obtain. That is detrimental to their savings in 1979 is estimated at $2,060 billion. The capacity to import and to service their debt. It $162 billion increase therefore represents 8 percent therefore is a threat to efficient economic growth of world savings in 1979. Budget shifts of this size and to a satisfactory solution of the debt problems can explain a significant part of the increase in real many developing countries face. interest rates. Fiscal deficits can also explain the In aggregate, exports from oil-importing devel- upward tilt in the term structure of interest rates. oping countries have in fact grown faster than Since the U.S. budget deficit is expected to remain world trade in general since 1974 (in volume high, future short-term interest rates are also terms). With less protectionism they would have Table 3.2 Inflation-adjusted government budget balance as a percentage of national income in selected industrial countries, 1965-84 Nine large industrial countries United United Including Excluding Year Kingdom Germany Italy France Japan States United States United States 1965-73 3.8 1.0 -3.6 1.8 1.8 1.6 1.5 1.4 1974-78 2.7 -2.4 0.3 0.5 2.4 1.0 0.1 -0.6 1979 2.1 -1.9 -0.7 0.8 -4.4 3.6 0.7 -1.3 1980 3.4 -2.1 4.5 2.2 -3.6 2.0 0.7 -0.2 1981 2.2 -2.5 2.0 0.5 -3.3 2.4 0.6 -0.8 1982 1.5 -1.9 -0.3 -0.4 -2.8 -2.0 -1.6 -1.3 1983 -1.1 -1.7 -0.4 -1.5 -3.4 -3.0 -2.7 -2.4 1984 -0.3 -0.4 -4.7 -1.9 -1.7 -2.7 -2.3 -1.9 Note: Negative sign indicates deficit. Source: OECD National Accounts; national sources. 37 Brazil, and to a lesser extent Mexico, three of the Figure 3.5 Changes in current account largest developing-country debtors. Restrictions balances between 1981 and 1984 on imported sugar in Europe, Japan, and the (billions of dollars) United States hit Latin America and the Philip- 170 pines, another country with debt problems. Increase in statistical [ Restrictions on beef imports in Japan and the EC discrepancy 150 damage Argentina's terms of trade. The list is long Middle Eastern / Oil exporters, 120 oil exporters and getting longer. In the next few years, without a significant outside the increase in capital inflows, the major debtors will Middle East need to run substantial trade surpluses. That will Industrial countries, / 90 require an increase in their domestic savings. except the These increased savings, however, also need to be United States 60 translated into increased export earnings: in tech- United States nical terms, the ex ante trade surplus needs to be Oil-importing 30 brought in line with the ex ante excess of domestic developing countries production over expenditure. If industrial coun- tries increase barriers to exports from developing Increased deficit or countries, that will require a much larger real Increased surplus or decreased deficit decreased surplus depreciation of the exchange rateor much higher levels of unemployment. Lower levels of trade Source: IMF and World Bank data. therefore imply higher social costs for the adjust- ment programs of developing countries. This in turn seriously threatens the continued implemen- done that to a larger degree. Furthermore, their tation of such programs and, more generally, the export prices have grown less (by nearly a percent- creditworthiness of these countries and, by strain- age point a year) than the unit value of trade in ing the ability of major debtors to repay their general since 1974. debts, the stability of the global financial system. The harm done to industrial countries by their protectionist measures is well documented. The The roots of protectionism losses they inflict on developing countries can also be substantial. Increased protectionism in indus- Increased protectionist pressure during the past trial countries would reduce the volume of exports fifteen years is closely related to the change in the from developing countries and adversely affect the nature of the disturbances to the international latter's terms of trade. By way of illustration, an economy that took place over the same period. increase in protectionism big enough to produce a One example is the change in cyclical behavior of 10 percent deterioration in the terms of trade of inflation. The 1970-73-75 economic cycle (trough- Latin America would cost the region as much as peak-trough) is the only major business cycle in the real interest cost of their entire debt.' U.S. history in which inflation during the contrac- At the moment, the most severe trade interven- tion exceeded inflation during the upswing, by tions in industrial countries aimed at developing some 8.4 percentage points. Until then, inflation countries are almost all directed primarily against was dominated by demand fluctuations: an major debtor countries (the Multifibre Arrange- increase in aggregate demand brought forth higher ment being an exception). Restrictions on steel output, but also (in time) higher prices. But supply imports in Japan, the United States, and the EC shocks, such as an increase in raw material prices, affect each others' exports, but also those of Korea, lead to low output and high inflation simultane- 1. The calculation is as follows: in 1983, the ratio of external debt ously. Demand management can cure one or the (including short-term debt) to GDP was 54.8 percent in Latin Amer- other, but not both at the same time. More rapid ica. Assuming that 3.5 percent is the expected real interest rate in the structural adjustment was necessary to restore long run (see Chapter 10), such a debt to GDP ratio leads to real interest payments equal to 1.9 percent of GDP a year. Exports were growth, yet that was seldom forthcoming. As a 19 percent of CDI', so a permanent 10 percent terms of trade deterio- result, economic growth slowed down. ration would also yield a permanent annual loss of 1.9 percent of CDI'. An increase in protectionism in industrial countries that would Many commentators and governments have permanently worsen Latin America's terms of trade by 10 percent attributed this slowdown to the large increase in would thus deprive the region of income equivalent (in discounted value terms) to its entire external debt. oil prices in 1973-74. But that is not the whole 38 story. Difficulties had started earlier. In the United workers away from other parts of the economy. States large fiscal deficits in the late 1960s triggered Therefore, when imports are restricted, every job an economic boom and an acceleration in inflation. gained in import-competing industries means a job In European countries real wages began rising lost in export industries. Protectionism might save faster than labor productivity. Labor markets jobs in, say, steel, but, by keeping wages higher became increasingly rigid. Profits came under than they would be otherwise, it will not save jobs pressure, and investment became more sluggish. in general. Capital that would have gone to high The boom in commodity prices began in 1972, technology industries or into agriculture will stimulated by near simultaneous expansion in the instead be directed to protected sectors. This industrial countries (see Figure 3.6). Its final phase implies that protection accorded to import-compet- was the jump in oil prices in 1973-74. Since real ing industries is protection taken away from export wages did not adjust sufficiently, profitability industries. An import control therefore has effects declined steeply. Investment therefore slowed similar to an export tax: it will bring down imports down just when higher oil prices were making and exports, not just imports alone. For the same much of the existing capital stock obsolete. As part reason, trade intervention will not improve a coun- of a process of structural adjustment, countries try's trade balance, since exports will go down in required more, not less, investment. Increasing line with imports. Developing countries, denied obsolescence of the capital stock meant that supply the access to markets in, say, the United States side weaknesses were projected into the future as access they need to earn the dollars that can then the structure of the capital stock got increasingly be used to buy U.S. goodswill cut back on such out of line with new factor prices. imports. The link between aggregate supply shocks, ris- In Europe, of course, full employment is still far ing unemployment, and increasing capital obsoles- out of reach. However, this does not mean that cence helps to explain the revival of protectionist increased protectionism there will save jobs. Real sentiment. When economies were growing rap- wages are rigid in relation to the prices of all con- idly, they could accommodate increased exports sumer goods. Protectionism, by making foreign from developing countries. Necessary changes in goods more expensive, will lower the real wage in the allocation of the capital stock could be made on terms of foreign goods. To maintain the real wage the margin out of gross investment; low unem- in terms of all goods consumed, it will therefore be ployment meant limited resistance from labor necessary for wages to go up in terms of domestic unions to structural change; and so on. But with goods. This may actually lead to a fall in employ- the need to effect long-term restructuring at a time ment. Moreover, to the extent that such employ- when growth was slowing and inflation accelerat- ment losses are temporary until wages adjust, pro- ing, rising imports were seen as an additional com- plication. They became a convenient excuse for policy failures, especially when accommodating Figure 3.6 Indexes of real commodity prices, 1965-84 them would require further structural adjustment (steel is a good example). Index (1980 = 100) Moreover, there is abundant evidence to show 160 that import restrictions do not save jobs, do not improve the trade balance, and add upward pres- 130 sure on the real exchange rate. This highlights the perversity of protectionism. Not only do its roots Commodities except oil 90 lie in a failure to adjust, but its adoption simply compounds that failure. Japan and the United States offer good illustra- 50 tions of what might happen if protection increases. Both countries are currently projected to approach their natural rate of unemployment in 1985. There 10 are, of course, serious difficulties in defining the 1965 1970 1975 1980 1984 natural rate of unemployment. In this context, it is Note: Data are nominal prices deflated by the IMF world export defined as the rate of unemployment below which unit value index. wage-price pressure cannot be contained because Source: World Bank data. additional jobs cannot be created without bidding 39 tectionism will cause a temporary decline in were affected by NTBs; for manufactured exports, income. This could lead to a deterioration in the the ratio was 18 percent. The persistent protection- current account balance, as consumers will cut ism of the main industrial countries has produced expenditure less than one for one with a tempo- surpluses that are often dumped on world mar- rary fall in income. kets. This inhibits domestic production in develop- ing countries, even though it would often be more The new protectionism efficient than production in the industrial coun- tries. The tariffs and NTBs used to protect sugar Tariff reductions undertaken since World War II growers in industrial countries inflict income were continued in the Tokyo Round negotiations, losses on developing-country sugar exporters which lowered tariffs to levels not seen before in equal to nearly 10 percent of all the aid from indus- this century. But while the reductions have been trial countries to all developing countries. The loss extended to the developing countries under the of export revenues is estimated to be almost 30 Most Favored Nation clause, tariffs have been low- percent of the total aid bill (see Box 3.4). ered less than the average on products of interest Steel. The volume of steel imported into the to developing countries. Moreover, the fact that United States fell 3.3 percent a year in 1971-73 tariffs rise as raw materials go through progressive when quotas were imposed. It then grew at an stages of processing means that the trading system annual rate of 8.3 percent in the mid-1970s after discourages processing industries in the develop- quotas were removed. But when the trigger price ing countries. mechanism was introduced in 1977 it slowed down A more serious danger to developing countries' to 2.6 percent a year. exports is the growing use of nontariff barriers Footwear. Korean exports of footwear to the (NIBs). On one measurethe proportion of United Kingdom increased by 57.5 percent a year imports subject to restrictionthe extent of NTBs in real terms in 1973-79 but fell 19.1 percent a year more than doubled in the United States between in 1979 and 1980 after nontariff barriers were 1980 and 1983 and increased by 38 percent in the imposed. EC. A much larger share of industrial-country NTBs do much more damage to the competitive imports from developing countries is subject to structure of a market than tariffs. Once the quotas NTBs than imports from other industrial countries have been fulfilled, marginal foreign competitors (see Table 3.3). Such ratios do not reflect tightening are excluded from the marketthereby increasing of existing NIBs and may therefore underestimate the monopoly power of domestic firms. Tariffs do their increased use. One example is the progres- not remove marginal foreign competitors but sim- sive tightening of the Multifibre Arrangement each ply give them a cost disadvantage. From the time it is renegotiated. exporter's point of view, voluntary export Commodity by commodity, NTBs do consider- restraints (VERs) are preferable to quotas adminis- able harm: tered by importers; with VERs, exporters can at Agriculture. Although much attention is paid least sell their products at market prices prevailing to the trade barriers erected against the manufac- in the importing country rather than at the lower tured exports of developing countries, in fact they world price. However, the long-term damage of are less prevalent than those against agricultural VERs is likely to be higher than that caused by exports. In 1983, 29 percent of developing coun- quotas administered by importers: they lock in the tries' agricultural exports to industrial countries existing set of suppliers and keep out any lower- cost competitors that may emerge. Taking the Table 3.3 Share of imports subject to nontariff Multifibre Arrangement on textiles as an example barriers in industrial-country markets, 1983 of a VER, Korea or Hong Kong may not lose too Percentage of imports from: muchbut newcomers like China or Sri Lanka cer- Industrial All developing Major tainly do. Market countries countries borrowers Even more damaging than the direct costs of EC 10.2 21.8 24.9 trade restrictions could be the signal they send to Japan 9.3 10.5 9.6 developing countries about the merits of export- United States 7.7 12.9 14.5 oriented policies. Further proliferation of NTBs All industrial countries 10.5 19.8 21.9 could very well revive (and justify) the export pes- Note: Data are based on 1981 weighted averages for all world trade in all products except fuels. simism that prevailed in many developing coun- Source: World Bank data. tries in the 1930s and 1940s. Yet the empirical evi- 40 Box 3.4 The costs of protecting sugar and beef Sugar and beef are the two agricultural commodities Box table 3.4B Estimated effects of trade barriers on most affected by trade barriers in the industrial coun- beef and veal exporters tries. They account for about half of all the export earn- (millions of 1980 dollars) ings lost by developing countries as a result of interven- Annual tion in agricultural trade. Box tables 3.4A and 3.4B show average, one study's estimates of the costs involved. Effect and exporter 1979-81 Welfare costs are defined as the amount of money that Welfare costs exporters would need to receive to be as well off with Latin America 506.4 protectionism against them in industrial countries as Africa (sub-Saharan) 7.6 they would be without such measures. These costs are Other developing Countries 21.7 derived from a model of the world market in sugar (raw Total 535.7 and refined) and a model of the world beef market. The research covered seventeen industrial countries and Loss in export revenues fifty-eight developing countries. It distinguished Latin America 4,692.6 between different forms of trade controls and included Africa (sub-Saharan) 99.0 the special arrangements on preferential access that the Other developing countries 303.5 Total 5,095.1 EC has with various groups of developing countries. Source: Zietz and Valdez (background paper). For developing-country exporters of sugar, the foreign exchange losses from these barriers amounted in 1983 to almost $7.4 billion (at 1980 prices and exchange rates). For comparison, the aid programs of all industrial coun- tries in 1983 totaled $22.5 billion (again at 1980 prices and Box table 3.4A Estimated effects of trade barriers on exchange rates). sugar exporters Losses of welfare and of export revenues are heavily (millions of 1980 dollars) concentrated in Latin America (especially Argentina, Annual Brazil, Dominican Republic, and Mexico) and in the Phil- average, Effect and exporter 1979-81 ippines and India. All are among the biggest debtors in 1983 the world. Sub-Saharan Africa, although also a net loser, Welfare costs is not affected as much as Latin Americapartly because Latin America 670.4 1,111.0 it has no big sugar producers and also because many Africa 76.7 130.9 Other developing countries 507.3 African countries have preferential access to EC markets. 886.2 Total 1,254.4 2,128.1 Trade barriers on beef and veal exporters also pro- duced substantial welfare losses and export revenue Loss of export revenues shortfalls for developing countries (Box table 3.4B). Latin America 2,224.2 3,391.0 Moreover, these losses are almost completely borne by Africa 269.2 421.9 Latin American beef producers, mostly Argentina and, Other developing countries 2,614.9 3,578.1 to a lesser extent, Brazil. Again the main developing- Total 5,108.3 7,391.0 country losers from industrial-country protectionism are Source: Zietz and Valdez (background paper). countries that currently have external debt problems. dence of the benefits of trade for growth is exist, but increased financial links of developing overwhelming. At a time when more and more countries with world capital markets have added governments in the developing world are accept- important channels through which macroeco- ing this link, increased protectionism in industrial nomic developments in industrial countries are countries is a major threat to economic growth. transmitted to developing countries. The significance of this has become clear in the Conclusions past few years. Macroeconomic and trade policies in industrial countries directly affect the cost of The rapid growth in capital flows has cemented the debt servicing, the volume of capital flows, and the links between industrial and developing countries ability of developing countries to earn foreign that developed through the growth of trade over exchange. High real interest rates have dramati- the past forty years. Protectionism and the level of cally increased the debt service burden of develop- economic activity rightly concern developing ing countries, the appreciation of the dollar has countries, since they affect those countries' depressed commodity prices, and so on. Structural exports and terms of trade. Those concerns still adjustment, sound fiscal policies, and continued 41 Box 3.5 Implications for developing countries of changes in interest rates, terms of trade, and growth in industrial countries The external accounts of developing countries are influ- them $2.2 billion in 1984. As trade expands, so the bene- enced by developments in the industrial countries. Box fits increase to $4.8 billion in 1990. table 3.5A tries to quantify just what that influence is. It Growth. Faster growth in industrial countries will considers only "first-round" effects, ignoring any policy increase the volume of exports from developing coun- response by developing countries ("second-round" tries and improve their terms of trade. Terms of trade effects are examined in Chapter 10). This is a good mea- effects on economic welfare will dominate, unless sure of welfare costs because, if developing countries increases in volume are produced with resources that were to receive these amounts, they would in fact be able would otherwise be idle. This has not been the case to pursue previous policies and would therefore be as recently since increased exports have largely been at the well off as they would be in the absence of such adverse expense of domestic expenditure. The focus therefore is developments in the industrial countries. on terms of trade effects, which depend on world Interest rates. Higher interest rates lead immediately demand and supply and also heavily on what happens to higher interest costs on variable interest rate debt (37 to the exchange rate of the dollar. If it appreciates, then percent of the total debt, including undisbursed debt, of developing countries might gain little or no improve- developing countries at the beginning of 1984). Further- ment in their terms of trade, since prices of their primary more, as more and more fixed rate debt is repaid and commodity exports would be depressed (see Box 3.1) needs to be refinanced, interest payments on it will while prices of their dollar-denominated imports would increase. So will payments on new debt. Thus the extra rise. The second set of estimates assumes a dollar appre- cost to developing countries is initially only $2.3 billion ciation large enough to prevent any real increase in com- but it increases to $8 billion in 1990. modity prices, which is what has happened during the The terms of trade. An improvement of one percent- 1983-85 recovery. Without the real increase in commod- age point in the developing countries' terms of trade ity prices, the current account gain in 1990 is reduced with respect to industrial countries would have yielded from $7.7 billion to only $2.9 billion. Box table 3.5A Effects of macroeconomic changes on the current account balance of all developing countries (billions of dollars) Type of change 1984 1990 One percentage point increase in interest rates Existing variable rate debt -2.3 -2.3 Existing fixed rate debt refinanced at new higher rate 0.0 -1.6 New debt 0.0 -4.1 Total -2.3 -8.0 One percentage point improvement in terms of trade 2.2 4.8 One percentage point improvement in industrial countries' GNP growth A. Without dollar appreciation Through terms of trade effect of increased commodity prices 2.2 4.8 Direct terms of trade effect 1.3 2.9 Total 3.5 7.7 B. With dollar appreciat ion Through terms of trade effect of increased commodity prices 0.0 0.0 Direct terms of trade effect 1.3 2.9 Total 1.3 2.9 Source: van Wijnbergen (background paper). and coordinated monetary restraint in industrial tries follow rational policies. Servicing of the countries to bring down real interest rates and resulting foreign debt would be impeded seriously more properly align exchange rates are of utmost if increased protection in industrial countries were importance if adjustment policies in developing to deny developing countries access to industrial countries are to lead to renewed growth and countries' markets. This is turn would jeopardize restored creditworthiness (see Box 3.5). the effective functioning of the financial system. There are, moreover, new reasons for concern The industrial countries' policies that have been about the protectionist trends emerging in indus- singled out as beneficial for developing countries trial countries. The costs of such policies to indus- would also foster stable and noninflationary trial countries' consumers and developing coun- growth in industrial countries and would create a tries' exporters are well documented. The recent more liberal trading environment. They would debt service problems have added a new dimen- therefore benefit industrial and developing coun- sion to these concerns. Capital flows allow a more tries alike. efficient use of world savings if borrowing coun- 42 4 Foreign borrowing and developing-country policies Foreign borrowing has two potential benefits for a brief description of the variety of country experi- developing country. It can promote growth, and it ences with foreign capital over the past twenty can help an economy to adjust to internal and years, based on a sample of forty-four developing external shocks. However, recent experience has countries. (For a listing of these countries, see Sta- graphically illustrated that borrowing also has tistical Appendix, Table A.11.) potential disadvantages. It can be wasted on ineffi- This is followed by a discussion of the two main cient investment. It can allow a government to uses of external finance. First, it may be used sys- delay essential economic reforms. And the accu- tematically to raise investment and growth to a mulation of debt can make an economy more vul- higher level than could be financed by domestic nerable to financial pressures from the world econ- savings. Second, it may be used to finance balance omy. of payments disequiibria, caused either by inade- How can a developing country obtain the bene- quate domestic policies or by external or internal fits of capital inflows while taking reasonable pre- shocks. The discussion explores the questions of cautions to avoid debt-servicing difficulties? This when borrowing for balance of payments purposes chapter draws on the experience of the past two is appropriate and how governments can borrow decades to identify the criteria for success in using to facilitate adjustment rather than to postpone it. international capital. It deals primarily with debt- creating capital; equity investment is discussed in Country experience over two decades Chapters 5 and 9. This chapter's main theme is that the economic policies of developing countries The diversity of developing countries' experience are the fundamental determinant of the level of with foreign capital is illustrated in Figure 4.1. capital inflows, the efficiency with which they are Countries' rankings differ according to the indica- used, and a country's capacity to service its debts. tors chosen. For example, countries with similar This is not to say that policy failings have been debt to GNP ratios may have very different debt to the only cause of recent debt-servicing problems. export or debt service ratios. These differences are Nor is it to imply that sound macroeconomic poli- explained by the degree of openness of an econ- cies and less borrowing would have avoided those omy and the structure of its debt. In 1980-82, for difficulties. Chapter 3 has shown that the combina- instance, countries that were relatively "closed" tion in the early 1980s of world recession and rising much of Latin America, but also others such as real interest rates was unusual and severe; it is not Yugoslavia and Pakistanhad relatively low debt clear that developing countries should seek to pro- to GNP ratios but high debt to export ratios. Those tect themselves fully against all risks including with a large export basesome East Asian coun- those that have little chance of materializing with tries (Korea, Malaysia, and Thailand), oil and gas any frequency. But flexibility in policymaking and exporters (such as Algeria, Indonesia, and Vene- economic structures can cushion the impact of zuela) and Africa's main commodity exporters external shocks, however severe. (Ivory Coast)tended to have relatively low debt There is, of course, no single set of policies that to export ratios. is right for every country. The extent to which a However, high ratios of debt to GNP or debt to country should borrow from abroad depends on exports do not necessarily imply high debt service the external environment that it faces in world ratios. Low-income countries such as India, Sri trade and capital markets, its natural and human Lanka, Sudan, and Tanzania, as well as countries resources, and its economic and political struc- such as Egypt, tend to receive much of their capital tures. In view of this, the chapter begins with a inflows in low-interest, long-maturity loans (see 43 Figure 4.1 The debt ladder (percent) Debt/GNP Debt/exports Debt service/exports 1970-72 1980-82 1970-72 1980-82 1970-72 1980-82 Pakistan (617) Brazil' (62) Costa Rica (95) Sudan (437) Ctiile* (53) Zaire (78) / India (368) Tanzania (324) Turkey (302) Peru (44) Argentina (50) x [ieru* (45( ' Ecuador' (48), 70 ...Mexicc, (41) Morocco' (43( 300 40 : Jamaica is Jamaica Ivory Coast C Mexico' Zambia S Bolivia Indonesia Liberia Pakistan o Jamaica Morocco Bolivia o Brazil 60 260 Papua , Argentina' New Guinea' Bolivia, Sudan Argentina Chile, Zaire Niger' Peru a Ivory Coast' Egypt o Peru Pakistan . Egypt , Malawi Turkey Bolivia' 30 Morocco is Papua 220 Matawi New Guinea Chile 50 o Costa Rica Uruguay Egypt Algeria Papua , Argentina Egypt New Guineas Chile Chile -: Turkey' Costa Rica' Liberia Brazil - Brazil Papua a Tanzania B Mexico Zambia * India Portugal Yugoslavia' New Guinea Kenya * Malawi' Kenya Egypt Mexico . Sierra Leone Yugoslavia Indonesia - 180 Zambia., Tunisia Argentina Peru Philippines Zambia' Malawi Ecuador 40 Senegal amaica Ecuador o Colombia S Ivory Coast Jamaica' Colombia: Korea Algeria Sri Lanka Ethiopia 20 Turkey l.osta lUca Peru - Bolivia Kenya C Uruguay' o Pakistan Niger Tunisia Portugal India Korea , Tunisia Colombia Camenron Tunisia Tunisia Philippines' Malaysia a 140 Papua New Guinea * Sierra Leone Senegal S Pakistan 'Thailand Malawi . Ecuador Indonesia 30 Portugal 0 Ghana Ghana Bolivia Korea Sri Lanka . Philippines Cameroon Sierra Leone' Turkey Zaire' !Indonesia o Chile Philippines Philippines Tunisia Camer000 Mexico Thailand Costa Rica Uruguay, is Colombia Korea a Tanzania Ghana Algeria Jamaica ! Liberia i Korea Sudan Guatemala Kenya Brazil Indonesia Morocco Yugoslavia Ghana Yugoslavia Ecuador Zaire Tanzania Colombia 0 Venezuela 100 Sri Lanka Algeria ° .iiinea Sri Lanka . c Zambia Sudan' Argentina Ivory Coast CoSta Rica Uruguay Morocco Ethiopia Philippines Tanzania 10 Algeria Ethiopia Thailand Indonesia Guatemala 20 Kenya Kenya . India' Sri Lanka S Morocco Zambia Tanzania Yugoslavia Ecuador Algeria Ethiopia Ghana Ivory Coast Korea Senegal / Colombia is Venezuela Liberia Sri Lanka - Nigeria' Uruguay Liberia Portugat Pakistan' Sierra Leone. India Zai Guatemala a Malawi Malaysia Cameroon Sudan Cameroon')T01 , Liberia' Venezuela Ghana Brazil Malaysia 60 Ivory Coast Niger - Nigeria Uruguay Malaysia Senegal Sierra Leone Senegal Cameroon Guatemala Thailand Malaysia C Niger, Venezuela India. 10 Ethiopia Venezuela , a Nigeria Niger Nigeria Guatemala ;Nigena Portugal Portugal Malaysia Guatemala Nigeria 5 20 0 1970-72 1980-82 1970-72 1980-82 1970-72 1980-82 o 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 publicly 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 countriesfor exam- large recipient of aid in the 1960s and early 1970s, ple, Algeria, Portugal, and Venezuelausually 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 develop- lem. 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 experi- ratios 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 commer- economic 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 conces- omy with a modest debt service ratio may be more sional funds and toward expanded access to pri- prone to crisis than one with a higher ratio but vate sources of finance (see Figure 4.2 and Statisti- with 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 triesand even low-income countries such as has had lower debt service ratios than middle- Niger and Sudanfound 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 eco- higher 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 rely- ket 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 lad- ited human and natural resources, face much more derfor 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 defi- of 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 oppo- site 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 Figure 4.2 Income level and access to borrowing from official and private sources Access to official finance Access to private finance Debt from official sources as a percentage of GDP Debt from private sources as a percentage of GDP 50 60 Egypt 50 Costa Rica 40 Ivory Coast. Liberia 40 Zambia 30 )amalca Chile .S Papua Ne7 Guinea I'rgentina 30 NiVr Venezuela' 20 Bolivia Morocco Mexico Costa Rica 20 a Korea 10 Yugoslavia India .I Korea Uruguay 10 ..S Colombia Uruguay Malaysia Ethiopia Venezuela' \ 0 Nigeria \ 0 India Guatemala 0 $1,000 $2,000 $3,000 0 $1,000 $2,000 $3,000 GNP per capita GNP per capita ' Latin America and Caribbean Sub-Saharan Africa . South Asia East Asia and Pacific Europe and North Africa Note: Debt ratios and GNP per capita are averages for 1980-82. Debt from official sources here includes bilateral concessional loans and multilateral loans; it excludes official export credits. Debt from private creditors comprises supplier credits and loans from financial markets, including private banks and bonds. The negative relationship between official debt and GNP per capita is significant at the 99 percent confidence level, with R2 = .43. The positive relationship between private debt and GNP per capita is significant at the 95 percent confidence level, with R2 = .11. Data are for a sample of forty-four countries. a. For Venezuela, GNP per capita is $4,042. Source: World Bank data. underlies the so-called debt cycle (see Box 4.1). In These countries were net lenders to the rest of the 1960-83, domestic savings financed about 90 per- world for brief periods following two rounds of oil cent of the investment in developing countries; in price increases, but were otherwise substantial industrial countries, savings actually exceeded borrowers. Declines in oil-based incomes during domestic investment requirements by about 3 1981-82 depressed domestic savings and reduced percent. inflows of foreign savings, forcing even larger cor- However, patterns of saving and investment of rections in investment. groups of countries began to change perceptibly In contrast, the low-income countries of South after 1973, as shown in Figure 4.3. Asia were able to increase domestic savings from The traditional surplus of savings generated the late 1960s to finance higher levels of invest- by the industrial countries was reduced, with two ment, reducing in relative terms their use of for- brief periods of deficit in 1974 and 1979. eign capital. (Statistical Appendix, Table A.11, This coincided with the increased reliance of gives details for forty-four developing countries.) oil-importing developing countries on foreign Figure 4.4 suggests that, until recently, countries capital inflows, first to finance greater investment that borrowed tended to raise their investment and later to replace declining domestic savings. rates. The positive relationship between borrow- Latin American countries demonstrate this pattern ing and investment is statistically significant in the best. 1965-72 and 1973-78 periods, but not in 1979-83. In Africa, the long-term decline in domestic The link between borrowing and growth is more savings was more significant. complex. As Figure 4.5 shows, the relationship Middle-income oil exporters began raising between changes in the debt to GDP ratio and eco- investment in the early 1960s; the domestic sav- nomic growth was positive but not significant in ings effort began improving from the late 1960s. the 1965-72 and 1973-78 periods. In the latter 46 Box 4.1 The debt cycle hypothesis As development proceeds, changes in domestic income, 1975, but most oil-importing countries remained in the rates of saving, capital stock accumulation, and rates of first stage until very recently. A few, such as China, return on investment can be expected to alter the rate remained net creditors throughout all or most of this and direction of international capital flows. This has led period. to the formulation of the debt cycle hypothesis: countries The debt cycle model does not predict reliably how will move through stylized balance of payments and long a country may remain in any given stage of the debt debt stages, as shown in Box figure 4.1A. Each stage is cycle. The hypothetical example in Box table 4.IA depicts characterized as follows: a developing country passing from the first to the second Stage 1: Young debtor stage of the cycle, where it remains for a prolonged period. The trade account and net interest payments Trade deficit. continue in deficit throughout. The rate of return on Net outflow of interest payments. investment (as approximated by the inverse of the incre- Net capital inflow. mental capital output ratio) is higher than in surplus Rising debt. countries, warranting a mutually beneficial transfer of Stage II: Mature debtor savings to the developing country. In the first decade, the real growth rate of exports is lower than the real Decreasing trade deficit, beginning of a surplus. interest rate, leading to rapidly growing current account Net outflow of interest payments. deficits and debt; the latter rises from zero in the first Decreasing net capital inflow. year to $100 million after ten years. When the debt ser- Debt rising at diminishing rate. vice and debt to GDP ratios reach what are regarded as Stage III: Debt reducer their maximally sustainable levels of 30 percent and 40 percent, respectively, a surge in exports is required to Rising trade surplus. finance interest payments and amortization. In the fir- Diminishing net outflow of interest payments. Net capital outflow. Falling net foreign debt. Box figure 4.IA Balance of payments flows and debt Stage IV: Young creditor stock during the debt cycle Decreasing trade surplus, then deficit. The balance of payments Net outflow of interest payments, then inflow. I II Ill IV V Outflow of capital at decreasing rate. Net accumulation of foreign assets. Stage V: Mature creditor Surplus Trade deficit. Net inflow of interest payments. Diminishing net capital flows. Slow-growing or constant net foreign asset position. Deficit In the aggregate, of course, the world cannot be in either a net debt or net asset position. Therefore, as more countries move toward the mature creditor stage, the relative size of their asset position should tend to dimin- ish. The fact that industrial countries' collective net asset The debt cycle position is small relative to their GNP, although gross capital flows are very large, corresponds well with the Net debt debt cycle hypothesis. So does the pattern of structural balance of payment changes in the United Kingdom and the United States over the past 150 years. Until very recently the balance of payments of these two countries Net assets followed the five stages quite closely. For developing countries, the evidence is mixed. In the colonial period, many countries, particularly primary Net capital flows (A = B + C) product exporters, ran current account surpluses, Trade account (B) becoming, in effect, capital exporters. A small group of - Net interest payments (C) advanced developing countries moved from the young Debt stock debtor to the mature debtor stage between 1950 and 47 Box 4.1 (continued) teenth year, growth rates of exports and GDP, as well as trade deficits. In the 1980s, many of these same countries the debt ratios, settle down to their long-run sustainable have been moved to the third, or early creditor, stage, levels. Export growth has risen to 6 percent, which is reducing net debt by running huge trade surpluses. This sufficient to sustain continued current account deficits development is, of course, the mirror image of what has and steadily growing debt, occurred in some industrial countries. For example, in Sudden shifts in major economic variables, as have terms of the debt cycle hypothesis, the United States occurred with particular force in the past decade, often recently reentered the early debtor stage of the debt lead to major departures from the predicted path. Dur- cycle, incurring debt at an accelerating rate while increas- ing the latter half of the 1970s, many developing coun- ing its trade deficits. The reasons for these shifts are tries thought to be mature debtors reverted to the early complex and are explored in the Report. debtor stage, importing capital and running mounting Box table 4.1A Sustainable growth of debt: a hypothetical case (average annual percent, unless otherwise noted) lstto 6th to lithto l6thto 2lstto Variable 5th years 10th years 15th years 20th years 30th years Interest rate 3.75 3.75 3.75 3.75 3.75 Growth of exports 3.0 3.0 14.1 6.0 6.0 Growth of GDP 6.2 7.4 6.4 6.0 6.0 Current account deficit!GDP 2.1 6.4 3.9 2.4 2.4 Debt service! exports 2.1 17.5 32.0 31.0 31.0 Debt/GDP 4.6 24.0 42.0 42.0 42.0 Debt at end of period (millions of dollars) 16.5 103.0 210.0 280.0 530.0 Note:Calculations are based on a simulation model that makes the following assumptions: incremental capital output ratio = 3.5; consumption = 80 percent of CDP Import elasticity = 1 0 Maturity of debt = 12 years Crowth rates and interest rates are expressed in real terms period, some countries that borrowed heavily ing, investment, and growth highlights the imper- grew slowly or not at all. In some instances-such ative of using all capital efficiently. Public sector as Peru and Zambia-slow growth was associated investments require careful appraisal, taking rea- with stagnant investment ratios; foreign capital sonable precautions for downside risks. Private was being used to cover balance of payments defi- sector projects need a framework of incentives- cits caused by unsustainable macroeconomic poli- rewards and penalties-which encourage efficient cies and falling commodity prices. In other coun- investment. Failure in these two areas has been a tries-mainly in Africa-substantial capital inflows primary cause of slow growth in some countries in helped to raise investment rates, but the invest- the past decade (see Box 4.3). ments themselves were often inefficient. Nonethe- Where foreign capital is involved, countries can less, countries such as India (see Box 4.2), Indone- run into a "transformation problem"-that is, the sia, and Korea achieved moderate or even very projects fail to generate (or save) enough foreign high growth rates without raising their borrowing exchange to service the foreign debt. This can hap- rates. Finally, in 1979-83, the relationship between pen for several reasons. Project gestation periods changes in debt to GDP and growth of GDP was may be mismatched with the maturity profile of negative. In an environment of rising real interest the loans-an issue of portfolio management that rates and contracting world economic output, will be discussed in the next chapter. Alternatively, increased borrowing no longer translated into certain projects may never be able to generate or higher growth. Again, however, the experience is save sufficient foreign exchange over any time not uniform for all countries. Malaysia, for exam- period. That would not matter in an economy ple, borrowed heavily, but also achieved impres- undistorted by overvalued exchange rates, high sive growth. protection, and consumption and investment sub- The range of country experiences with borrow- sidies. Whether investments produced traded 48 goods (exportables or import substitutes) or goods guarantee that enough foreign exchange will be that could not be internationally traded, such as generated. In Jamaica, Peru, and Turkey, vulnera- education, electricity, or piped water, would be bility to debt-servicing difficulties was especially irrelevant: so long as rates of return were higher high in the 1970s because policy distortions led to than the cost of the borrowed funds, output and export growth slower than in most other middle- savings would be raised, leaving an extra export- income countries. Obviously, the best solution to able surplus large enough to repay the debt. this problem is to remove the distortions. Turkey However, where policy-induced price distortions reversed its policies in the early 1980s and export occur, as in many developing countries, there is no growth accelerated dramatically. Where it is not Figure 4.3 Investment, savings, and the current account balance in selected country groups, 1960-83 Industrial countries Oil-importing developing countries Percentage of GNP Percentage of GNP 30 30 20 20 10 10 0 0 10 10 Middle-income oil exporters Latin America and the Caribbean' Percentage of GNP Percentage of GNP 30 30 Gross domestic investment 20 \ 20 Gross national savings 10 10 Difference between GNS and GDI 0 \A 0 Current account deficit 10 10 Africaa South Asia Percentage of GNP Percentage of GNP 30 30 20 20 10 10 0 0 10 10 1960 1965 1970 1975 1980 1983 1960 1965 1970 1975 1980 1983 Note: Data for developing countries are based on a sample of forty-four countries. a. Excluding oil exporters. Source: World Bank data. 49 Figure 4.4 Borrowing and investment in selected developing countries, 1965-83 From 1965 to 1972 From 1973 to 1978 Percentage change in investmentlGDP Percentage change in investment/GDP 16 16 Egypt Malawi S Nigeria Niger Morocco Indonesia S Zaire S Pakistan India S , Peru 0 0 Zambia Ghana Ethiopia Jamaica Papua New Guinea 16 10 0 10 20 30 Percentage change in debt/GDP' From 1979 to 1983 16 , Latin America and Caribbean , Sub-Saharan Africa 0 Sri Lanka South Asia East Asia and Pacific Papua New Guinea Europe and North Africa 8 Malaysia Note: The change in borrowing rates is represented by the per- centage point change in the ratio of total medium- and long-term 0 debt outstanding and disbursed to GDP between the average of the two beginning and end years of each period. The change in investment rates is the percentage point change in simple annual averages of GDI/GDP as follows: for 1965-72, the change between 1960-65 and 1966-72 averages; for 1973-78, the change (I Pakistan. S ,. * between 1966-72 and 1973-78 averages; and for 1979-83, the change between 1973-78 and 1979-83 (or 1979-82) averages. 8 Venezuela * Brazil The relationship between borrowing and investment rates is Algeria significant at the 99 percent confidence level for 1965-72 and . Bolivia Zaire 1973-78, with R2 values of .18 and .23, respectively. The relation- Zambia ship is not significant for the 1979-83 period. 16 a. Data are for 1968-72. 20 0 20 40 Source: World Bank data. Percentage change in debt/GDP feasible to remove distortions for political or other are run for development purposes, the growth of reasons, countries would be wise to reduce their output and exports must in the long run exceed reliance on foreign finance. Even where policy dis- the interest rate on debt to ensure that debt levels tortions are not significant, certain countries in the do not become unsustainable (see Box 4.4). earliest stages of development may experience transformation problems because their capacity to Appraising public investment increase their output of tradable goods may be severely limited. As discussed in Chapter 7, coun- Efficiency in the public sector is crucial, because tries in that position will generally require conces- public sector investment accounts for a high pro- sional assistance. portion of total domestic investment in developing While the sustainable level of debt will differ countries. In many countries in the mid to late from country to country, borrowing can be suc- 1970s, the rapid growth of public investment was cessful only if the rate of return on all investment the precursor to later debt-servicing difficulties. exceeds the cost of borrowed funds. Furthermore, In appraising public investments, many govern- sufficient foreign exchange needs to be generated ments have not drawn a distinction between finan- to service existing debt. If current account deficits cial and economic returns. Investments by public 50 Figure 4.5 Borrowing and growth in selected developing countries, 1965-83 From 1965 to 1972 From 1973 to 1978 Average annual growth of GDP (percent) Average annual growth of GDP (percent) 10 12 Korea Nigeria Egypt Brazil Korea. 8 Kenya Brazil MexicO Indonesia Indonesia. S/ a S Morocco 6 SI S Colombia ndia S a S Pakistan a a Philippines Peru Papua a 4 a Portugal S New Guinea Zambia Egypt aPeru S S Uruguay a 5 Zambia Ghana 2 5 Senegal Jamaica . Zaire Sudan 0 Niger, 10 0 10 20 30 Percentage change in debt/GDP' 12 From 1979 to 1983 Latin America and Caribbean Sub-Saharan Africa Egypt South Asia East Asia and Pacific Pakistan Malaysia Europe and North Africa 6 . Cameroon S Note: The change in borrowing rates is represented by the per- centage point change in the ratio of total medium- and long-term Algeria S debt outstanding and disbursed to GDP between the average of St orocco the two beginning and end years of each period. Growth rates a are in real terms, based on trend line calculations. The relation- Papua New ship between borrowing rates and growth is positive for the Guinea 1965-72 and 1973-78 periods but is significant at the 95 percent Ivory Coast confidence le'el only for Latin American borrowers in the latter period. The relationship is negative and significant at the 99 per- Chile a Liberia,,, cent confidence level for all countries shown in the 1979-83 Bolivia period, with R2 = .24. Argentina a Nigeria a. Data are for 1968-72. 20 0 20 40 Source: World Bank data. Percentage change in debt/GDP enterprises that appear to be profitable in financial severe in Africa. A recent World Bank report, terms may be so because the industries are pro- Toward Sustained Development in Sub-Saha ran Africa, tected by tariffs and regulations or because they in discussing the large inflows of commercial bor- are subsidized by the government through low- rowings in the 1970s, concludes: interest loans or cash transfers. In economic terms, however, the project may be unprofitable and may While part of these borrowings was used to main- contribute little or nothing to the economy's tain consumption when commodity prices fell growth. The discrepancy between financial and (such as in Zambia), most of them went to finance economic evaluation can be overcome by making large public investments, many of which contrib- more use of techniques such as shadow pricing uted little to economic growth or to generating the in project appraisal and, more importantly, by pol- foreign exchange to service the debt. These icy reformsliberalizing imports, decontrolling projects covered a wide spectrum of sectors and prices, reducing subsidiesdesigned to narrow countries. Examples include projects such as large the gap between financial and economic returns. conference centers, administrative buildings, uni- The problem of inadequate appraisal is common versity centers, hotels, and highways, as well as in most developing countries, but is particularly projects in the industrial sector, such as oil and 51 Box 4.2 Careful borrowing and risk avoidance: the case of India Throughout the 1960s and 1970s, India controlled surplus, a comparatively low debt to GDP ratio (around inflows of foreign capital. Whenever balance of pay- 15 percent), and large foreign reserves ($8.3 billion in ments pressures became severe, the government 1978, equivalent to almost eleven months of imports). reduced importsin the short term through contrac- Stabilization and adjustment had been emphasized to tionary fiscal and monetary policies, investment licens- the extent that the economy's growth had been held ing, and direct controls; over the long term through back. selective import substitution. What foreign borrowing In the early 1980s, to raise efficiency and speed up did take place was mainly on concessional terms. growth, India gradually liberalized import controls, The first round of oil price increases in 1973-74 wors- increased incentives for investment, and borrowed more ened India's already vulnerable external accounts and from abroad. Although most borrowing continued to be exacerbated inflation. Although the economy was concessional, foreign loans from commercial sources already in recession, the government decided against increased modestly, from 3 percent of external public borrowing abroad to absorb this new shock. Instead, debt in 1979 to roughly 8 percent in 1983. Domestic sav- domestic savings were boosted from 14 percent of GDP ings also rose further and averaged 23 percent of GDP in 1965-72 to 19 percent in 1973-78 by raising taxes and during 1976-83well above earlier rates. interest rates, reducing public spending, and tightening Despite another increase in oil prices and a severe monetary policy. Domestic energy prices were also drought, India's growth rate has picked up. In 1979-84, raised quickly to the new international levels. The reces- it averaged 5.1 percent a year, compared with 3.6 percent sion deepened, narrowing the trade deficit significantly. a year in 1950-79. Although the debt service ratio is In addition, workers' remittances increased from $200 expected to rise somewhat in the next few years, dimin- million in 1974 to almost $1 billion in 1977, as many ished dependence on imported food and energy, com- Indians worked in the Middle East construction boom. bined with good prospects for raising export growth, By 1978, India's external adjustment was complete. provide India with greater flexibility than before in man- Indeed, the country had become a net lender to the rest aging its external debt and the balance of payments. of the world, with a small trade and current account Box 4.3 Foreign borrowing and investment efficiency in the Philippines, Argentina, and Morocco The damage done by inefficient investment is well illus- around 22 percent of GDP. Nearly two-thirds of this trated by three otherwise dissimilar countries. investment was in the private sector. However, much of The Philippines. In the 1960s and 1970s, the Philip- it was inefficientthe result of volatile and often incon- pines had an investment-led, high-growth strategy, sistent policies, import-substituting industrialization, based on import substitution. Its economy grew rapidly, and high and variable inflation. The economy-wide but its investment was less productive than that of many ICOR rose from 4.4 in 1963-72 to around 11 during 1973- neighboring developing countries. Much of it went into 81. This ratio was by far the highest among big Latin industries protected by high and uneven import barriers. American economies. Of the $35 billion borrowed from The currency was overvalued, interest rates were held abroad between 1976 and 1982, little, if any, was used to down by controls, and credit was often allocated on finance net additional investment. This was a critical fac- political rather than commercial criteria. tor in explaining the dimensions of Argentina's current In the early 1970s public enterprises increased their debt difficulties. investment considerably. Lacking internal finance, many Morocco. Heavy foreign borrowing during the 1970s became dependent on government support and foreign helped sustain investment of 25 percent of GDP in credit. The government's mechanisms for evaluating Morocco, nearly double the rate of the 1960s. Increasing and supervising projects remained weak. Investments domestic protectionismcoupled with inflationary mac- were concentrated in infrastructure projects with long roeconomic policies, subsidies, and price controlsdis- gestation periods. Consequently, the large rise in foreign torted investment incentives. The economy's ICOR rose borrowing did not produce a matching increase in debt- from 2.6 in 1965-72 to 6.7 in 1979-82. The public sector, servicing capacity. The incremental capital output ratio which undertook the bulk of new investment, achieved (ICORthe measure of investment per unit of additional low, sometimes negative, rates of return on projects in output) more than doubled during 1978-82. The govern- irrigation, transport, and education. Public investment ment is now seeking to strengthen its investment pro- for each new job created was about thirty times higher gramming and evaluation and is reforming some key than the national average, while the production costs of incentives for efficient investment. some state products, such as refined sugar, were as Argentina. Until recently, Argentina had one of the much as 2.6 times the world price. highest investment ratios in Latin America, averaging 52 Box 4.4 Guidelines for borrowing Debt accumulates when loans are used to finance an path. Example 3 shows an intermediate case. While the excess of imports over exports as well as interest pay- debt ratios grow continuously, their rate of growth ments on existing debt. Countries running a resource diminishes, and the ratios move toward a stable plateau. gap need to be concerned with the behavior and relation- Such a country may, therefore, be able to maintain both ship of a number of critical debt-related variables, includ- liquidity and solvency. Apart from these guidelines that ing the growth rate of debt, the growth rate of exports relate to macroeconomic variables, a borrower will, of and income, the size of the resource gap relative to course, want to ensure adherence to a simple rule of income or debt, and the interest rate at which borrowing prudent borrowing: the cost of an additional loan should takes place. Specifically they will want to ensure that not exceed the rate of return on the additional invest- neither the interest rate nor the growth of debt persis- ment. tently exceeds the growth of exports or income. If these guidelines are not observed, debt and debt 1. The guidelines can be derived mathematically as follows: ratios may well grow at explosive rates) Example 1 in aD = T + ID Box figure 4.4A shows a hypothetical country that I = TID adheres to the guidelines. Both exports and GDP grow =D=I+I fast enough for the current account deficit eventually to declineand, with it, debt and debt ratios. Example 2 where D is debt outstanding; T is the current account balance on goods and nonfactor services; I is the resource gap as a proportion of shows a country that violates both guidelines. The debt; and i is the interest rate on debt. Overdots indicate growth rates. growth of debt exceeds the growth of exports and Hence, income, and the interest rate exceeds the growth rate of (D/Y) = D - Y = I + (I - Y) both GDP and exports. Capital inflows accelerate; debt (DIX) = D - X = f + (i - X) and debt ratios grow on an explosive, unsustainable where Yjs GDP, and Xis exports. Box figure 4.4A Hypothetical borrowing experiences Example I Example 2 Example 3 Trade deficit Interest payments Debt 53 sugar refineries, steel mills, and textile and cement Table 4.1 Price distortions, rescheduling, and factories. They occurred in low-income countries export growth in selected developing countries as well as in middle-income countries and most oil Debt rescheduling, Export growth, 1970-80' exporters. Clearly investment in social, economic, Country 1975-84 Country rate Group average and political infrastructure is necessary, as is Malawi yes 4.8 industrial investment and investment in service Thailand no 8.1 sectors (in hotels, for example). However, experi- Cameroon no 3.1 ence demonstrates that too much investment has Korea no 23.0 gone into projects that have failed to generate sig- Malaysia no 8.3 7.1 nificant increases in output. Genuine mistakes and Philippines yes 6.4 Tunisia no 7.3 misfortunes cannot explain the excessive number Kenya no 0.9 of "white elephants." Too many projects have Yugoslavia yes 3.8 been selected either on the basis of political pres- Colombia no 5.6 tige or on the basis of inadequate regard for their Ethiopia no -1.8 likely economic and financial rate of return. (World Indonesia no 9.3 India yes 8.4 Bank 1984, p. 24.) Sri Lanka no -1.8 Brazil yes 7.9 5.2 In contrast, most East Asian countries have Mexico yes 7.9 invested public money fairly efficiently over the Ivory Coast yes 5.0 last decade. The state enterprise sector has Egypt no 6.9 Turkey yes 4.3 remained relatively small and, in many instances, Senegal yes 6.3 is largely confined to energy-related activities. Pakistan yes -0.9 Large investments in domestic energy produc- Jamaica yes -2.5 tion-geothermal, coal, and hydropower plants in Uruguay yes 9.6 the Philippines; nuclear power plants in Korea; Bolivia yes 3.0 and natural gas, lignite, and hydropower plants in Peru yes -0.4 Argentina yes 7.1 1.9 Thailand-were generally combined with energy Chile yes 11.6 prices that encouraged conservation. However, Tanzania no -4.8 mistakes have been made. In some instances, Bangladesh no 2.7 political rather than economic criteria have been Nigeria yes 3.3 employed in selecting investments; expectations Ghana no -8.0 No e: Analysis of price distortions is based on foreign exchange pric- about future price developments have sometimes ing, factor pricing, and product pricing and is averaged over the been wrong. The development of a steel industry decade of the 1970s. Hence, rankings of some countries, based on their policy performance over a more recent period, might vary con- in Indonesia in the mid-1970s and extensive gov- siderably from the order presented above. ernment-sponsored investment in heavy industry a. Average annual trend rate of growth of real exports of goods and nonf actor services in constant U.S. dollars. in Korea in the late 1970s are cases in which greater Source: For price distortions: World Bank World Development Report care and prudence could have been used in mak- 1983, p. 62; for export growth: World Bank data; for rescheduling: World Bank World Debt Tables, 1984-85 ed., table 2, p. xvi. ing economic appraisals. Incentives for efficient investment exports, further reducing the foreign exchange earnings needed to service debts. Government policies profoundly influence the type and volume of private investment in develop- ROLE OF PRICES. Earlier World Development ing countries. Many governments, wanting to pro- Reports have noted the relationship between price mote domestic manufacturing industries, protect distortions and economic growth. The 1983 Report them with import barriers and subsidize their costs contained price distortion indices for thirty-one through repressed interest rates and overvalued countries, using measures of distortion of foreign exchange rates. These policies are sometimes sup- exchange pricing, factor pricing, and product pric- plemented by price controls and subsidies that are ing. It showed that, in the 1970s, countries with designed to help the poor but that mainly benefit higher government-induced distortions grew more those who could afford to pay for more. The prin- slowly. Table 4.1, using the same ranking, shows cipal effect of such measures is to boost consump- that big distortions also lead to slower growth of tion, encouraging local producers to concentrate exports and a greater likeithood of debt-servicing on the home market. They therefore neglect difficulties. Most countries with serious distortions 54 have been forced to reschedule their debts. Those rose even more. Interest obligations on foreign that have not, such as Bangladesh, Ghana, and debt increased by as much as 5 percent of GDP for Tanzania, have borrowed very little on commercial some of the major borrowers (the percentage terms. By contrast, most countries with low distor- depended on the proportion of concessional ver- tions have avoided debt rescheduling. Malawi is a sus nonconcessional debt and the proportion of notable exception. Its debt-servicing difficulties long-term, fixed interest rate debt versus short- stemmed not from pricing distortions, but largely term or floating rate debt). At the same time, the from borrowing to postpone fiscal adjustment, as terms of trade for commodity exporters continued well as excessive reliance on commercial credits. to decline, raising the effective real interest rate still higher. Export volumes also fell as a result of ROLE OF TRADE AND EXCHANGE RATE POLICIES. recession, and protectionism increased in both the While most developing countries weathered the industrial countries and the developing world. shocks of the mid-1970s surprisingly well, those The effect of these shocks was enormous, partic- that did notsuch as Argentina, Peru, and Tur- ularly for the biggest commercial borrowers. Bra- keyhad generally favored inefficient import sub- zil's net interest payments in 1981 were 60 percent stitution and capital-intensive industrial growth. larger than they would have been if real rates had They had let their exchange rates become overval- remained constant, and in 1982, 80 percent larger. ued, had high barriers against imported finished These increases were equivalent to 15 percent and products, and had low tariffs on capital goods. 25 percent of actual exports in those years. At the These policies stimulated highly capital-intensive same time, Brazil's terms of trade fell 25 percent production, leading to declining efficiency of below what might have prudently been expected investment. In all three countries, incremental in 1980. Moreover, Brazil's exports to its important capital output ratios rose sharply in the 1970s. markets in other developing countries suffered The difficulties encountered by many Latin when they reduced their imports, and Brazil had American countries in the early 1980s contrast with to cut the amount of export credit it could offer. In the success of East Asian countries. Although out- general, the combination of high interest rates and ward-oriented policies did increase the Asian recession in 1981 and 1982 damaged the capacity of countries' exposure to external shocks, it also developing countries to sustain growth and avoid enabled them to capture the greater gains from debt-servicing difficulties much more than either international trade, so they grew faster. One study of the two oil price shocks in the mid and late 1970s found that the annual growth rate for outward- (see Table 4.2). oriented developing countries averaged 6.2 per- However, the countries with debt-servicing diffi- cent in 1976-79, compared with 2.4 percent for culties were not necessarily those that suffered the inward-oriented countries. In the years of reces- biggest shocks. Hardest hit were those that had sion, 1979-82, the respective annual figures were failed to adjust their economies to earlier difficul- 1.0 percent and 0.2 percent. ties or that had failed to tackle the new problems The experience of the East Asian countries sug- with sufficient urgency. Oil-importing developing gests that the surest way to discourage the financ- countries that had to reschedule their debt gener- ing of low-productivity investments with foreign ally did not experience more severe shocks than capital is to maintain competitive exchange rates countries that avoided rescheduling. And some oil and avoid excessive import substitution. Such pol- exporters, beneficiaries from higher oil prices, icies allow investors to gauge the true economic found themselves in as much difficulty as the oil- costs and benefits of alternative investments, par- importing countries. For example, Korea experi- ticularly when foreign borrowing is involved. enced large negative shocks in all periods shown in Table 4.2, while Nigeria had a cumulative bene- Capital inflows and adjustment fit. But, unlike Nigeria, Korea did not have serious debt-servicing difficulties, and its GDP grew by an Previous editions of the World Development Report average of 8 percent a year in real terms in 1973-83. have described how developing countries re- It is possible, therefore, to exaggerate the role sponded to the dramatic changes in the interna- played by external disturbances in causing debt tional economic environment in the 1970s. The difficulties. In most instances, countries that ran world economy ran into difficulty once again in into trouble had failed to adjust because of mis- 1981-82. Nominal interest rates rose; real rates taken expectations in three important areas: (measured against inflation in industrial countries) Many oil importers that had weathered the 55 first rise in oil prices relatively comfortably, thanks for imports. This is often essential for countries to buoyant commodity prices and plentiful foreign with low foreign exchange reserves. Second, it can finance, assumed that the second oil shock could keep up its growth rate, simply paying for its be handled in the same way. They did not pay imports by borrowing abroad or running down its enough attention to serious policy reforms. reserves. Or third, it can adopt policies that Many countries underestimated the depth and restructure the economy toward greater produc- Table 4.2 Impact of external shocks on the balance of payments in selected developing Box 4.5 Windfall gains and foreign borrowing countries (average annual percentage of GNP) During the 1970s, many countries obtained big windfall Country 1974-75 1979-80 1981-82 gains from rising commodity prices. Many of them have since run into debt difficulties. The contrast has partly Reschedu lers' been due to the fall in commodity prices since the late Argentina -0.6 -1.9 -6.4 1970s, but it also reflects the way that windfall gains Brazil -3.7 -2.8 -8.6 were used. Chile -4.7 -1.2 -13.3 Typically, countries were at first unable to spend their India -2.6 -1.6 -4.2 0.5 -5.6 -18.9 windfalls, so they built up their foreign reserves. After a Ivory Coast Jamaica -9.6 -13.3 -29.4 year or two, their governments increased public spend- Mexico -1.0 -0.2 1.0 ing and then began borrowing abroad against future Peru -4.5 -1.5 -5.6 export earnings. Before their spending programs were Nigeria 16.7 5.8 3.8 completed, commodity prices fell. Thinking that the fall Morocco 0.2 -4.0 -9.7 was temporary, governments borrowed even more to Philippines -6.2 -2.4 -10.1 replace lost export and fiscal revenues. Within a few Yugoslavia -6.7 -2.0 -10.0 years, they had burdened themselves with crippling debts that required immediate and painful adjustment. Non reschedulers This pattern can be illustrated by several examples (see Colombia -1.4 -3.6 -8.3 Box figure 4.5A). Kenya -8.1 -8.7 -19.0 Nigeria benefited from the quadrupling of oil prices Egypt -8.7 -0.8 -1.2 in 1973-74. By 1976, it had expanded public investment Tunisia -2.1 2.7 1.9 almost threefold in real terms, and its external current Korea -9.5 -8.1 -21.7 account was back in deficit. Cost overruns on investment Indonesia 12.0 5.6 5.4 projects and burgeoning import demands coincided with Tanzania -9.3 -6.0 -14.3 falling oil revenues in 1977-78. The government slashed Thailand -3.7 -2.3 -10.1 public spending, restricted credit, and tightened controls Note: External shocks are defined as the impact on the balance of on imports. These deflationary measures led to a sharp payments of: (a) changes in the terms of trade; (b) a decline in the growth rate of world demand for a country's exports; and (c) fall in investment and output during 1978. Nigeria increases ii interest rates. Data for 1974-75 show the change from almost defaulted on its foreign trade credits, but its 1971-73; data for 1979-80 and 1981-82 show the change from finances were restored when oil prices doubled in 1979. 1976-78. a. Countries that had rescheduled as of the end of 1984. The government then delayed adjustment until the end Source: Balassa 1981; Balassa and McCarthy 1984. of 1983, by which time the country had lost nearly all its reserves, experienced three years of declining GDP, and accumulated $6 billion of arrears on foreign trade credits. length of the 1980-83 recession. They borrowed Niger, a low-income country, borrowed heavily in heavily, hoping to ride out the recession and leave the late 1970s to invest in uranium production and infra- their economies well placed to take advantage of structure. At the time, international specialists were pre- dicting that export prices for uranium would appreciate the expected recovery in 1982. at least as fast as prices of oil and natural gas. Through Exporters of certain commodities-oil, ura- 1980, most of the increase in public investment was still nium, coffee, cocoa-which had benefited from being financed by domestic revenues, and the public huge windfall gains in the 1970s, assumed that the investment program was reasonably efficient. However, subsequent price declines were temporary and nonguaranteed debt owed by private banks and uranium borrowed to complete ambitious investment pro- mining companies had expanded from virtually nothing grams designed when foreign exchange was abun- in 1975 to one and a half times the size of public debt in 1979. These unregistered debts were to play a key role in dant (see Box 4.5). Niger's debt crisis. When a country's current account deteriorates, When world uranium markets softened in 1980, the as it did for many countries in 1981-82, it can react government borrowed more from abroad to maintain in three possible ways. First, it can slow down the investment. This raised the public debt to GDP ratio to rate of economic growth, and in turn the demand 56 tion of exports and import substitutes. This takes happened to different developing countries in the time. Its ultimate purpose is to restore the coun- recent past. try's productive potential and allow it to improve the current account through higher output and Borrowing to postpone adjustment increased exports. The difference between the sec- A country that faces a shock (be it internal or exter- ond and third options explains much of what has nal) that is considered to be temporary and revers- 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 Terms of trade index Nigeria Niger Ivory Coast Index (1975 = 100) 18(1 180 180 160 160 140 140 140 100 120 120 60 100 30 100 80 1970 1975 1980 1970 1975 1980 1970 1975 1980 Total debt and commercial debt Percentage of GDP 80 15 60 60 10 40 40 5 20 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 ible is justified in borrowing abroad for balance of lowed to languish; additional foreign borrowing payments purposes. In these circumstances, it was the main source of extra credit. In the twenty- does not need to implement policies to restructure four countries in Table 4.3, foreign finance ac- its economy. In practice, however, it is often diffi- counted for between 18 and 81 percent of total cult to distinguish beforehand between temporary credit in 1972, with an average of 47 percent. By and permanent shocks. Because of the obvious 1979, the share of foreign credit had risen by five political and social costs of adjustment, policymak- percentage points or more in fourteen of the ers may be inclined to err on the side of optimism. twenty-four countries, and the average share was If they do, the price is a more painful adjustment 54 percent. By 1982, the share of foreign credits later. Borrowing for balance of payments purposes had increased even more, to an average of 56 per- is an inherently risky policy. cent. Among the major commercial borrowers, The nature of the eventual adjustment will only Korea reduced its reliance on foreign credits. depend on the uses to which borrowed money is In eight of the ten major borrowers, foreign credits put. If it is used to raise investment, it provides the as a percentage of total credit have increased by potential for extra output with which to meet five percentage points or more since 1979. future debt service. If borrowing is used to main- A large part of the cross-country differences can tain or increase consumption, however, the econ- be explained by the public sector's reliance on for- omy's productive potential has not increased eign borrowing. Breaking down the figures on while debt service obligations have. credit into sources and uses reveals five main pat- What were the major symptoms of delayed terns (examples are shown in Figure 4.7): adjustment in the 1970s and early 1980s? This sec- A few countries, such as Indonesia, reduced tion examines three connected issues: domestic their reliance on foreign credits after 1972 and saving, public sector deficits, and capital flight. restrained public borrowing, leaving a larger share to the private sector. FOREIGN CAPITAL AND DOMESTIC SAVINGS. The Countries such as Korea and Thailand main- correct role of foreign capital is to supplement tained all types of credit in roughly the same pro- domestic savings; it is essential that it does not portions during most of the period; this involved a substitute for them. In many countries over the large expansion of domestic financial resources to past fifteen years, however, foreign borrowing has keep pace with the increased ratio of foreign debt been an attractive alternative to increasing savings. to GDP. (However, some of these countries have As Figure 4.6 shows, three-quarters of a sample of recently increased their foreign short-term borrow- forty-four developing countries raised the ratio of ings more rapidly than other forms of credit.) investment to GDP between 1965-72 and 1973-78, Countries such as Argentina, Portugal, and while two-thirds raised savings rates. But only Turkey increased their dependence on foreign bor- about one-quarter of the sample raised savings rowing at different times between 1972 and 1978. rates more, or lowered them less, than investment By allowing private sector credit to fall as a per- rates. In view of the lowat times negativereal centage of GDP, they induced private borrowers to cost of foreign borrowing during the 1970s, this seek foreign loans. was understandable. But the strategy became a Most developing-country governments in- significant, though indirect, cause of the debt diffi- creased their reliance on public and publicly guar- culties in the 1980s, forcing an even sharper reduc- anteed foreign borrowings between 1972 and 1982, tion in investment. while decreasing the public sector's reliance on A government can raise domestic savings in two domestic financial markets. Brazil was one exam- main ways. The first is by promoting private sav- pie of this approach, which permitted an expan- ings, especially through improvements in the sion of public borrowing without an equivalent functioning of domestic financial markets. The sec- crowding-out of the private sector. ond is by raising public savings through taxation, Some governments, mainly the oil exporters, cost recovery, and reductions in government actually used their foreign borrowings to build up expenditure. deposits in the domestic banking system in excess The decreased reliance on domestic savings dur- of their local borrowing. As a result, public bor- ing the 1970s coincided in many countries with rowing from domestic markets was effectively neg- slower growth of their financial markets. While ative, as in the case of Venezuela. This made possi- credit grew faster than GDP in many developing ble a rapid expansion of credit to the private sector countries, domestic financial markets were al- (in India, for example). But it also allowed these 58 Figure 4.6 Change in investment, savings, and terms of trade in selected countries, 1965-83 Change between 1965-72 and 1973-78 period averages GDSIGDP decreased or constant GDS/GDP increased GDIIGDP *Sri Lanka (0,0) 'Zambia (-1,-li) Colombia (0,3) decreased *Chile (-1, -2) Ghana (-2,0) *papua New Guinea (-10,16) or constant 'Pakistan (-1,- 3) Ethiopia (-4, -3) *Siena Leone (-1, --5) Jamaica (-9, -12) GDIIGDP Peru (1, -3) Brazil (3,0) GDIIGDP increased *Costa Rica (4,2) Morocco (11,1) increased Portugal (2, 5) *Turkey (4,0) more than GDS/GDP *Kenya (4,1) 'Niger (12,6) *Tanzania (2, -6) *Sudan (5,-i) *Senegal (5,2) Egypt (12,3) *Uruguay (2,-I) 'Zaire (5, -10) *Guatemala (6,4) Algeria (19,13) *Yugoslavia (2,-I) *Liberia (8,- 8) Venezuela (7,4) GDIIGPP increased *Thailand (1,3) 'Educador (7,10) less than GDS/GDP *lndia (3,6) Indonesia (8,15) *Korea (5,11) Nigeria (8,13) Malaysia (5,7) GDI/GDP and Mexico (2,1) Ivory Coast (5,5) GDS/GDP increased *Argentina (4,5) Cameroon (6,6) appmximately Bolivia (4,5) 'Philippines (7,6) equally Tunisia (4 4) Malawi (10 11) Change between 1973-78 and 1979-81 period averages GDS/GDP increased GDIIGDP *EthiOpia (0, -4) *Liberia (-2, -7) *Brazil (-6, -5) Ecuador (0,2) Algeria (- 7,2) decreased *Argentina (-1,- 5) *MaIawi (-2, -4) Ghana (-6, -6) Peru (-1,7) Zaire (- 11,3) or constant *Guatemala (-1, -3) *Morocco (-2, -4) Venezuela 'Nigeria (-1, -3) 'Senegal (-2, -11) (-7, -6) * Sudan (-1, -6) *Jamaica (-3,-I) *Zambia *Turkey (-1,-i) Bolivia (-6, -8) (-11,- 14) GDI/GDP *Colombia (1,-I) Ivory Coast *Chile (5,0) GDI/GDP *India (3,1) Egypt (4,2) increased *pJçj5 (1, --2) (3, -3) *papua New 'Korea (3,1) increased more Malaysia (5,2) *Siena Leone (1 3) *Keflya (3, -3) Guinea (6, -4) than GE'S! *philippines (3,1) *Portugal (5,3) *Tanzania (1, -1) 'Uruguay (3,0) Sri Lanka (13,0) GDP Cameroon (4,2) *Thailand (2,0) GDI!GDP Indonesia (2,5) *Yugoslavia increased less *Niger (3,7) (4,6) than GDS/ GDP GDI!GDP and 'Costa Rica (3,3) Mexico (5,5) GDS!GDP Tunisia (3,3) increased equally Change between 1979-81 and 1982-83 period averages GDS!GDP decreased or constant GDS/GDP increased GDI!GDP *Ghana (0,- 4) *Peru (-2, -6) *Kenya (- 5,0) 'india (0,2) Malawi (-5,2) decreased *Pakistan (0,0) 'Philippines (-3, -3) *Korea (-5,0) *senegal (- 1,4) Uruguay (-5,1) or constant *Portug (0,-i) *Zambia (-3, -7) *Thailand (-5, -3) *CosIa Rica (-5,5) *Mexjco (-8,2) *Sri Lanka (0,0) *Guatemala (-4 .3) *BOlivia(_7, -7) * Sudan (0, -6) *Sierra Leone (4 2) *Chile ( 11, -5) Algeria (-2, -2) *Ecuador (-5, -2) GDIIGDP *Ethiopia (1, -2) *Jamaica (3, -5) increased Tunisia (1 .3) *Malaysia (4, -5) Indonesia (2, -7) 'Papua New Guinea (7, -5) Note: Figures in parentheses are absolute changes in percentage points between the two periods given: the first figure is the change in GD! GDP, and the second is the change in GDS1GDP, measured in current dollars. An asterisk indicates that the country experienced a decline in its terms of trade index. Source: World Bank data. 59 Table 4.3 Credit indicators in selected developing countries, 1972, 1979, and 1982 (percent) Total credit/GDP' Foreign/total credit' Country 1972 1979 1982 1972 1979 1982 Argentina* 33.0 40.6 53.0" 32.6 41.7 51.71 Bangladesh 43.8c 42.4 61.2 65.0' 60.5 68.7 Brazil* 349 43.7 38.5 43.5 66.9 76.9 Chile* 32.9 58.6 71.3" 43.8 69.6 73.0" Colombia 36.4" 28.4 40.6 56.41 67.6 64.8 Ecuador 54.7 57.9 63.1 65.5 72.7 68.3 India 442 49.9 57.8 36.7 22.7 22.4 Indonesia* 51.6 39.1 40.3 81.2 71.8 64.7 Ivory Coast 42.5 68.1 131.1 51.7 60.0 81.5 Kenya 20.3 54.6 84.4 53.8 66.4 Korea, Rep. f* 86.7 59.6 83.8 65.6 50.9 59.4 Mexico* 61.8e 53.6 93.7 51.8 70.0 Morocco 58.2 78.2 112.1 50.9 51.9 70.8 Nigeria 25.7 26.5 445b 39.9 22.5 22.7" Pakistan 105.7 79.5 77.2 58.0 48.7 50.5 Peru 69.7 66.3 71.0 71.4 89.4 83.8 Philippines 50.6 56.7 79.7 64.3 72.3 77.9 Portugal 104.1' 115.7 145.2 21.2' 38.3 56.9 Sri Lanka 42.2 57.1 80.2 48.6 66.1 63.1 Thailand 40.4 55.9 73.7 32.2 38.9 41.1 Turkey 42.1 40.8 62.7 41.4 47.5 66.9 Venezuela* 27.8 67.0 81.3 39.9 69.7 60.3 Yugoslavia' 99.6e 99.5 86.3" 18.4e 20.5 36.4" Zaire 44.8 91.5 106.3" 61.3 83.3 92.4" Note: Asterisks indicate countries among the ten largest developing-country commercial borrowers from international financial markets, mea- sured in U.S. dollars, as of the end of 1982. Total credit consists of net domestic credit plus credit from foreign sources. Domestic credit can be subdivided into net claims on the public sector (the central governments) and the private sector held by the monetary authorities and resident commercial banks. Net domestic credit is defined as domestic credit less the foreign liabilities of the monetary authorities and resident commercial banks. These foreign liabilities, which include long-term foreign borrowing by the public and private sectors as well as short-term liabilities of the domestic banking system, were converted to local currency at end-of-year exchange rates and defined as credit from foreign sources. Data for 1981. Data for 1978. Data for 1973. Data for 1977. Data for 1976. Source: IMF International Financial Statistics; Morgan Guaranty Bank data; and World Bank data. governments substantially to increase the amount abroad. Meanwhile, domestic companies and of credit that they subsidized and directed. And it financial institutions often enjoyed subsidized often increased the reliance on short-term foreign access to central bank lending or subsidized guar- finance by both the public and private sectors. antees for their foreign borrowings. Recently, some of these countries have had bal- The failure to develop and deepen domestic ance of payments difficulties and have been forced financial markets in the 1970s had serious conse- to slow the growth of private sector credit. quences when world interest rates rose in the early To some extent, the rising share of foreign bor- 1980s and capital inflows slumped. Many govern- rowing simply reflected its relative cheapness dur- ments were unable to reduce their budget deficits ing the 1970s. But in many cases it was also the quickly, but found domestic credit markets too result of policies that repressed domestic financial small to absorb much additional debt. These gov- markets. Some countries, such as Ecuador, Nige- ernments had to resort to inflationary finance; to ria, Peru, and Turkey, kept local deposit rates gen- the extent that they did borrow from domestic erally negative in real terms. Domestic financial lenders, they crowded out the private sector. intermediaries often had little incentive to use domestic savings for lending because spreads on PUBLIC SECTOR DEFICITS AND OVERBORROWING. local currency loans were controlled, while those Experience has shown that countries following on foreign capital were not. As a result, potential prudent fiscal policies rarely experience prolonged depositors in many countries sent their money difficulties with their external payments. Virtually 60 Figure 4.7 The composition of credit in ten countries, 1972, 1978, and 1982 Percent Indonesia Percent Argentina 100 I 1 I 100 50 50 0 0 Percent ortugal Percent Turkey 100 50 Percent Korea 0 Percent Thailand r'i 100 100 50 50 - 0 0 Percent Brazil Percent Mexico 100 -.-, 100 50 50 0 0 Percent Venezuela Percent India 100 - 100 50 50 0 0 1972 1978 1982 1972 1978 1982 LI Private and short-term public foreign credit El Private domestic credit LI Public medium- and long-term foreign credit Public domestic credit Note: See notes to Table 4.3. Source: IMF International Financial Statistics: World l3ank data. 61 inefficient allocation of resources. Figure 4.8 Growth of debt and government Furthermore, rapid increases in public spending budget deficits in selected developing countries, 1972-82 are seldom implemented efficiently. In Turkey, for example, the number of public investment projects Percentage point change in debt/GDP rose from 3,000 in 1976 to nearly 9,000 in 1980. In 6 Peru, the government took over most of the coun- a Costa Rica' try's large industrial and agricultural enterprises, Morocco invested heavily in import-substituting industries, Sudan a Niger 4 and constructed an oil pipeline that was bigger Peni than the capacity of Peru's oil fields. In the Ivory a Bolivia a Coast, the share of public investment in GDP 2 a Argentina Sri Lanka increased from 15 percent in 1976 to 25 percent in 0 1978. Much of the agricultural investment was in a Mexico a Chileb a Ethiopia sugar complexes that had unit operating costs two Yugoslavia Korea to three times world market prices. The bulk of educational investment was in higher educational India Colombia facilities, unsuited to the country's needs. The pro- ductivity of public investment in the mid-1970s -2 Pakistan Indonesia declined by about 40 percent. The experience of Argentina, Mexico, and 0.5 0 0.5 1.0 1.4 Morocco illustrates the connection between fiscal Percentage point change in deficit/GDP deficits and inflows of foreign finance (see Figure Latin America and Caribbean Sub-Saharan Africa 4.9). Note that the external debt figures cited below South Asia , East Asia and Pacific include short- and long-term obligations. Europe and North Africa Argentina. Public spending rose from 30 per- Note: Percentage point changes in debt/GDP and deficit/GDP are cent of GDP in 1969 to 49 percent in 1983, while the annual averages based on trend line calculations. Deficit data are budget deficit of the public sector rose from 1 per- not available for all countries for each year in the period shown. The positive relationship between growth of deficits and debt is cent of GDP to 16 percent. It had started to grow in significant at the 99 percent confidence level, with R2 = .51 for a the early 1970s, largely because of lagging prices in sample of twenty-five countries. state enterprises, the ending of certain temporary Percentage point change in debt/GDP for Costa Rica equals 7.0. taxes, an amnesty for tax evasion, and the corro- Percentage point change in deficit/GDP for Chile equals 1.3. sive effects of mounting inflation on real tax collec- Source: IMF Government Finance Statistics 1984; World Bank data. tions. In 1973, a new government sought to redis- tribute income and raise basic living standards by massive increases in public sector transfers, subsi- every major payments crisis in the 1970s and 1980s dies, and real wages. Meanwhile, measures to was preceded by large and growing budget defi- raise taxes were transitory and inadequate. In cits. In some instances, external shocks were the three years, the deficit rose from 5 percent of GDP proximate factor in generating both the payments to 15 percent, and the economy reached the verge and fiscal crises. But in other cases, deficits arose of hyperinflation and collapse. After declining in from a deliberate policy to stimulate the economy the mid-1970s, deficits began to rise once again out of recession or because the government lost after 1977, peaking at 16 percent of GDP in 1983. control of its budgetary process. As Figure 4.8 State enterprises, public banks, and the govern- shows, there is a significant positive relationship ment borrowed heavily from abroad. Public exter- between growing government deficits and the nal debt increased by over 30 percent a year accumulation of foreign debt. between 1975 and 1983more than twice the aver- Deficits are caused by any or all of the following: age rate in any period in Argentina's postwar his- (a) excessive public sector investment; (b) growing tory. Between 1969 and 1983, public external debt government consumption, often in the form of (excluding the nonguaranteed debt consolidated subsidies to public enterprises to cover operating with public debt in 1983) rose seventeenfold to deficits resulting from lagged adjustments in about $30 billion, or from 7 percent of GDP to 45 prices; and (c) a reluctance to raise taxes as spend- percent. ing increases. Large public deficits are not only Mexico. Its government began the 1970s with unsustainable, they also frequently produce an modest budgetary deficits. Then a new administra- 62 tion started increasing consumer subsidies, trans- fers to state enterprises, and public investment. Figure 4.9 Public sector deficits and current Public spending grew from 17.6 percent of GDP in account deficits in three countries, 1970-83 1968-70 to nearly 26 percent in 1974-76. The fiscal Percentage of GDP deficit of the public sector rose steadily from 3 per- 20 cent of GDP to 10 percent. Its growth, alongside Argentina the limited domestic capital markets, was behind 15 the surge in public foreign borrowing: debt nearly quintupled in six years, to $20 billion in 1976. This triggered a crisis of confidence in 1976, prompting the new government to cut the budget deficit sharply and devalue the peso. The balance of pay- Current account ments stabilized. 0 deficit As Mexico increased its oil production enor- mously during the late 1970s, foreign lenders 5 revised their lending limits. The government aban- Percentage of GDP doned its austerity program. Public spending 20 explodedfrom 30 percent of GDP in 1978 to 35 percent in 1980 and 48 percent in 1982. Even the rapid growth in oil revenues failed to keep pace. The budget deficit rose to 8 percent of GDP in 1980, 15 percent in 1981, and 18 percent in 1982. Foreign borrowing went up in step. Between 1970 and 1982, public and publicly guaranteed debt rose 1400 percent to $59 billion, equivalent to 32 percent of GDP. Morocco. Starting with small fiscal deficits and little external debt in the early 1970s, Morocco raised government investment from 5 percent of Percentage of GDP 20 GDP in 1973 to 20 percent in 1977, to finance large investments in agriculture, energy, transport, edu- Morocco 15 cation, and heavy industry. Defense outlays also IA Jw rose sharply. The country ran into severe balance of payments difficulties in 1978, and the govern- ment responded with some budget austerity. However, social unrest in 1979 persuaded it to abandon its public sector wage guidelines and approve higher consumer subsidies on imported food and oil. Government deficits grew, reaching 14 percent of GDP in 1982. The public sector's for- eign debt rose from $1 billion in 1973 to over $12 1970 1975 1980 1983 billion in 1983. That was equivalent to 90 percent of Note: For Argentina and Mexico, data on budget deficits cover GDP and 400 percent of exportsamong the high- the entire public sector; for Morocco, data cover central and local est debt ratios in the world. At that point, Morocco government deficits. Negative values indicate surplus. exhausted its foreign reserves and could no longer Source: World Bank data. obtain new credits. With the help of a recent rescheduling agreement and an IMF loan, Morocco has substantially reduced its budget deficits. higher or safer than at home. It is usually associ- ated with several factors: an overvalued exchange CAPITAL FLIGHT AND EXCHANGE RATES. Large- rate, which makes foreign assets seem cheap but scale capital flight was a significant factor in the also causes fears of devaluation; high and variable balance of payments pressures on several coun- inflation, which creates uncertainty and reduces tries in the early 1980s. It occurs when the real interest rates; repressive financial policies, expected returns from holding money abroad are which maintain real interest rates at negative levels 63 during periods of rapid inflation; and high domes- the recent tendency in debt reschedulings to tic protection, which makes foreign debt harder to include even nonguaranteed debt as part of gov- service. ernment obligations. The public sector shoulders An overvalued exchange rateand the anticipa- the transfer risk associated with servicing foreign tion of a sharp correctionis the most common debt contracted by the private sector, even though and important cause. At some point, a real devalu- the assets acquired with this debt are usually held ation appears inevitable; this encourages specula- outside the country, where they provide scant ben- tive capital outflows, further increasing pressure efit to the local economy. Measures encouraging on the exchange rate. Often foreign exchange con- foreign borrowing usually make a country's even- trols are tightened to try to stanch the flow, usually tual debt problem even worse: once the large capi- to little effect. Leads and lags in commercial pay- tal inflows have increased the overvaluation of the ments reverse the normal inward flow of trade and exchange rate, an even greater adjustment is other credits, as foreign exporters press for imme- needed to service the extra debt. diate payment while domestic importers extend Capital flight cannot be measured directly, but can be roughly estimated as a residual. As the esti- mates in Table 4.4 show, it was massive in Argen- Table 4.4 Capital flight and gross capital inflows tina, Mexico, and Venezuela. Effectively, much of in selected countries, 1979-82 the money being borrowed from abroad was fun- Capital flight neled straight out again, thereby not earning Gross as a percentage returns that could be used to service debt. In such Capital flight capital inflows of gross Country (billions of dollars)' (billions of dollars)t' capital inflows cases, foreign borrowing was a recipe for disaster. In absolute terms, no country has suffered more Venezuela 22.0 16.1 136.6 Argentina 19.2 29.5 65.1 from capital flight than Mexico. Mexico tradition- Mexico 26.5 55.4 47.8 ally maintained a fixed exchange rate until a deval- Uruguay 0.6 2.2 27.3 uation in 1976. In the late 1970s, the rapid growth Portugal 1.8 8.6 20.9 in public spending and deficits fueled mounting Brazil 3.5 43.9 8.0 inflation. Once it became clear the government Turkey 0.4 7.9 5.1 Korea 0.9 18.7 4.8 would not reverse its expansionary policies Data are estimates. Capital flight is defined as the sum of gross quickly, the exchange rate came under strong pres- capital inflows and the current account deficit, less increases in offi- sure. The surge of official borrowing in 1980-81 cial foreign reserves. For some countries (notably Argentina and helped to support the rate for a time, but it was Venezuela), the estimate may overstate capital flight to the extent that unreported imports and normal portfolio investment abroad are running into waves of capital flight. In August included. 1982, Mexico was forced to suspend debt service Defined as the sum of changes in gross foreign debt (public and private) and net foreign direct investment. payments, reschedule its debt, and devalue heav- Source: World Bank data. ily. By somewhat different routes, several other Latin American countries encountered similar exchange rate difficulties (see Box 4.6). credit on foreign goods. By underinvoicing exports Capital flight has not been confined to Latin and overinvoicing imports, residents export capital America. In the Philippines, the government illegally. increased foreign borrowing sharply in 1981, antic- The attractions of foreign borrowing are ipating that exports would soon recover and inter- increased whenever governments guarantee for- est rates fall. The expected upturn in the world eign borrowing or undertake to make good capital economy did not occur. Political uncertainty and losses resulting from devaluation (as they usually lagging economic policy adjustment triggered did for public enterprises). In some cases, such as capital flight. The government eventually had to Mexico and Chile in 1980 and 1981, private compa- devalue and reschedule. In Nigeria, official reluc- nies were also encouraged to borrow abroad. Bor- tance to devalue the exchange rate during 1981-83, rowers gambled (correctly, it turned out) that the when inflation was running at 20 percent a year, government would continue to provide relatively discouraged foreign direct investment, induced cheap foreign exchange for debt service, even after substantial capital flight, and encouraged firms to a devaluation. In other cases, such as Argentina build up large inventories of imports. Having and Uruguay, governments offered cheap forward exhausted its official reserves and borrowing lim- cover for exchange risk. its, Nigeria built up its arrears on trade credit to $6 All these difficulties have been compounded by bfflion by the end of 1983. 64 Box 4.6 Capital flight in the Southern Cone countries In the mid-1970s, the Southern Cone countries of Latin of widespread expectations that foreign borrowing AmericaArgentina, Chile, and Uruguayintroduced would remain cheap and its supply would be plentiful. major reforms aimed at breaking out of chronically slow As exchange rates became more overvalued, doubts growth, fast inflation, and frequent balance of payments grew about the sustainability of the exchange rate policy. crises. By 1978, all had turned around their external In Argentina and Uruguay, these doubts were reinforced accounts and slowed inflation. Chile and Uruguay had by mounting fiscal deficits; in Chile by the rapid increase also speeded up their growth. in real wages during a period of shrinking profit mar- Despite these achievements, inflation in all three coun- gins. In all three countries, many companies incurred tries was still well above its historical average. So in losses, while lax lending practices led to the collapse of 1978-79, the three governments decided to launch a poi- several large banks. Governments sought to allay fears icy experiment of fixing the exchange rate, with a prede- of devaluation by offering exchange rate guarantees, but termined path of decreasing small devaluations. They these only enhanced the windfalls to be gained from hoped that this strategy, coupled with lower import pro- currency speculation. Imports grew at unprecedented tection and open financial markets, would quickly cut rates, while export earnings lagged far behind. inflation, improve industrial efficiency, and lower inter- The three countries were able to maintain their est rates. exchange rates only by increasing their foreign borrow- In fact, inflation declined more slowly than antici- ing. When capital inflows slowed in 1981-82 because of pated, so real exchange rates appreciated substantially. tighter money in the industrial countries and increasing Uncertainty about policy intentions continued, keeping doubts about the three countries' policies, large outflows domestic interest rates high. Attracted by the high yields of capital soon forced large devaluations. The principal available on dollar-denominated assets, large amounts of legacy of the exchange rate experiment was heavy for- capital flowed into the three countries. These inflows eign debt. were not regarded initially as a cause for concern because Borrowing to facilitate adjustment of spare parts, and improve the competitiveness of exports, but imports will usually rise before While many governments have borrowed abroad exports do. Through borrowing, a government can to postpone adjustment at home, some have done avoid having to deflate the economy to offset these so to adjust more effectively. Governments have effects. It can therefore hope to secure broad sup- used foreign capital to help implement policy port for its reforms, which might otherwise be lost reforms and to buy particular imports to restruc- if the whole economy had to go through a reces- ture the economy. sion. The speed of progress toward reform has varied POLICY REFORM. By the end of the 1970s, many greatly. Some countries have embarked on policy developing countries needed to change their poli- reforms only to abandon them prematurely; others cies in two broad areas. First, they had to curb have carried them through. The cases of Kenya their domestic spending and increase their foreign and Turkeythe first two countries to obtain a exchange earnings to service their growing foreign structural adjustment loan (SAL) from the World debt. Second, they needed to improve incentives Bank (see Box 4.8)illustrate the variety of experi- for efficiency and expansion to strengthen their ence. long-term growth prospects. Of course, both Kenya introduced a comprehensive program of reforms are complementary. Measures to encour- reforms in 1975. But the huge increase in coffee age long-term growth usually founder without bal- prices in 1976 and 1977 produced a boom, making ance of payments stability; yet stability brings only the program seem less urgent; only a few of the short-term benefits unless economic efficiency is planned measures were carried out. In 1980, fol- also being improved (see Box 4.7). lowing the second oil shock, the government again Foreign capital has a valuable part to play in giv- adopted a reform program, supported by an IMF ing reforms time to take effect. Some of the mea- standby loan and an SAL. The measures included sures needed to boost long-term growth may ini- a more market-oriented pricing policy, reduced tially cause a country's current account to protection for domestic industries, more active use deteriorate. For example, trade liberalization is of exchange rate policy, more demanding goals for essential to encourage efficiency, increase supplies state enterprises, improved debt management, 65 Box 4.7 Stabilization and adjustment Policies for short-run stabilization and for longer-term with mounting concern over creditworthiness in Eastern adjustment are often complementary. But short-term Europe in generalprompted foreign lenders to cut off concerns are sometimes so urgent that policymakers give most lines of credit in late 1981. The government moved no thought to longer-term restructuring. In the case of promptly to reschedule convertible currency debt and Argentina, for example, the response to the 1982 crisis impose stringent import and investment controls. These was a 40 percent reduction in the volume of imports measures produced a dramatic improvement in the con- which quickly turned trade deficits into sizable sur- vertible current account, and the government is well on pluses. But with the annual inflation rate continuing to its way to its goal of halving external debt by 1986. But exceed 600 percent and the fiscal deficit still in excess of the severity of its austerity program has also delayed 10 percent of GDP, internal stabilization was barely technological innovation in key export sectors, harming started. Faster and more stable economic growth will the economy's long-term potential. require among other things several structural reforms, A third group of countries has successfully combined including significant improvement in public sector its response to balance of payments pressure with poli- investment and other spending controls, rationalization cies for longer-term adjustment and growth. Indonesia, of the tax structure, reform of the financial system, and a major exporter of oil and natural gas, delayed adjusting reduction of trade restrictions. domestic oil prices, leading to greatly expanded oil subsi- In other countries, structural reforms have been inter- dies between 1979 and 1981. It also embarked on a major rupted or delayed by short-term disturbances. Between new investment program. This had to be abandoned 1979 and 1981, Romania adopted measures designed to when the international recession, lower oil prices, and (a) increase the responsibility of the state enterprises for large-scale capital flight put pressure on the external bal- controlling costs and planning production and invest- ance. In early 1983, the government slashed subsidies, ment; (b) improve production incentives; and (c) restrain canceled or postponed nearly fifty import-intensive excess demand. The government eased price controls on investment projects, devalued the rupiah, and put it on a energy and other products and unified the exchange managed float. In less than two years, the current rate. However, Romania's large external debtcoupled account deficit was halved and the overall balance of Box 4.8 The World Bank's lending for adjustment To support economic restructuring, the World Bank has been agreed upon in support of policy reforms in sixteen introduced several new lending mechanisms. The most countries (see Box table 4.8A). Although the speed of important have been structural adjustment lending, progress has varied considerably, SALs are now making introduced in 1980, and the Special Action Program, significant contributions to economic recovery in most of introduced in early 1983. these countries. How many SALs a country receives Structural adjustment loans (SALs) are intended to depends both on its need and on the progress it makes in help countries with deep-rooted balance of payments meeting policy objectives. Thus Turkey, for example, has difficulties to reform their policies. Unlike traditional already received five, whereas several countries have World Bank loans, SALs do not fund specific projects. had only one. They provide foreign exchange to help meet the transi- Structural adjustment lending is only appropriate for tional costs of restructuring and policy reform. SALs can countries that give high priority to comprehensive and also act as a catalyst for other inflows of foreign capital. sustained reform of policies and institutions and that Since economic restructuring normally takes several have a reasonable chance of implementing their pro- years, SALs are designed to span five or more years, grams. In other countries, the World Bank promotes involving up to five separate loans. adjustment by concentrating its lending on particular The first SAL program was initiated in March 1980. By sectors of the economy. Policy-oriented sector lending June 1984, twenty-nine loans totaling $4.5 billion had has also increased in volume and importance in recent Box table 4.8A Structural adjustment lending by the World Bank, fiscal 1980-84 Item 1980 1981 1982 1983 1984 Number of SALs 3 7 6 7 6 Amount of SALs (millions of dollars) 305.0 717.0 1070.7 1,284.7 1,081.9 SALs as a percentage of total World Bank lending 2.7 5.8 6.2 8.9 7.0 Cumulative number of countries covered 3 8 13 15 16 Source: World Sank data. 66 and tighter fiscal and monetary policy. In terms of stabilization, the results have been good; the bud- get and current account deficits have been reduced payments position transformed from a deficit of $3.2 bil- substantially. But progress toward longer-term lion to a surplus of $2 billion. Indonesia's government efficiency has been slow. In particular, the govern- followed this improvement by liberalizing interest rates ment has failed to carry through most of its trade and abolishing credit ceilings. In 1983-84, the economy recovered, growing by about 5 percent yearly. reforms, postponing the vitally needed expansion In the late 1970s, Hungary resumed implementation of of exports. a program of economic liberalization initiated a decade Turkey, too, avoided adjustment in the 1970s. It earlier. Market-based production incentives were financed its current account deficits by borrowing enhanced, subsidies reduced, and the autonomy of heavily and continued to protect domestic indus- enterprises expanded. When the international economic try behind high import barriers. This promoted a environment deteriorated in 1979-82, Hungary did not high-cost, inefficient industrial structure; the incre- halt liberalization, but did reverse the deterioration in the balance of payments through stabilization measures mental capital output ratio for manufacturing had such as devaluations, reductions in investment, and tripled in a decade. In an effort to maintain sharp increases in domestic energy prices. The stabiliza- growth, the government pursued expansionary tion program led to a temporary slowing of economic monetary and fiscal policies. Nevertheless, GNP growth from 5 percent in the 1970s to 2 percent in 1980- growth fell from about 6 percent a year in 1967-72 83, but prospects for restoring moderate, sustainable and 1973-76 to 2 percent a year in 1976-80. By the growth are now good. Meanwhile, Hungary has contin- late 1970s, annual inflation had risen to 100 percent ued to extend the reach of its market-based, outward- oriented development strategy, which played a key role and debt service obligations (including short-term in steering the country clear of debt rescheduling diffi- debt) were three times the value of exports. culties in recent years. Between 1978 and 1980, Turkey rescheduled over $9 billion, or nearly 80 percent, of its external debts. In January 1980 the government announced a shift toward an outward-oriented development strategy, with greater reliance on market forces. The early stages of the program involved a large years, particularly in the form of sector adjustment devaluation of the exchange rate and the adoption loans. of a crawling peg; tight monetary restraint; dereg- The Special Action Program comprises financial mea- sures and policy advice to help countries implement ulation of interest rates; a phased reduction in con- adjustment measures needed to restore growth and cre- sumption subsidies; rationalization of the public ditworthiness. The principal elements of the program investment program; and higher prices for state are (a) expanded lending for high-priority operations in enterprises. Within two years, the benefits were support of policy changes, (b) measures to accelerate dis- quite apparent. GNP grew by roughly 4 percent a bursements under existing and new high-priority year in 1980-83; inflation was cut by two-thirds; projects, and (c) advice to governments on reordering merchandise exports doubled despite a world investment priorities and improving external debt man- agement. recession; the current account deficit declined from Through December 1984, forty-four countries bene- over 5 percent of GDP to 3 percent; and the coun- fited from the program. Fourteen new loans were made try's creditworthiness was restored. under this program, including two SALs and twelve sec- With the easing of the immediate crisis, the Turk- tor adjustment loans. Ongoing projects were modified to ish government has been able to develop its increase cost sharing, establish revolving funds, restruc- reforms. It is gradually decreasing import quotas ture design and implementation, add financing for work- and reducing tariffs, reforming the management ing capital and recurrent costs, and make use of supple- mentary loans. By releasing the immediate financial and financing of state enterprises, tightening its constraint, these operations have permitted the contin- management of external debt and domestic bank- ued implementation of 267 projects, representing an ing, strengthening the tax system, and raising approximate value of about $13 billion, Overall, the energy and agricultural prices closer to interna- Special Action Program will raise World Bank disburse- tional levels. Although much has been achieved, ments in fiscal 1984-86 by about $4.4 billion over what more recently the adjustment process has weak- they would otherwise have been. The program has now ened, as evidenced by the way that inflation and been formally terminated, but the instruments intro- the budget deficit started to rise again during 1983- duced during its implementation will continue to be used, as needed, as part of the Bank's overall operations. 84. However, Turkey's overall performance since 1980 has been one of the most impressive turn- 67 arounds among developing countries for many 1973-74, the Korean government decided not to years. slow economic growth. Instead, it devalued the currency and borrowed heavily to expand export BORROWING AND RESTRUCTURING. Structural capacity (see Box 4.9). adjustment is seldom ensured merely by "getting In recent years, the World Bank has increased its prices right," essential though that is. Unless a lending in support of trade liberalization and country is able to expand imports, its farmers and export expansion, though its role is largely cata- businessmen may lack the basic ingredientsfuel, lytic. For example, Brazil has borrowed to finance fertilizer, components, machineryneeded to the liberalization of its import duty drawback sys- expand exports and revive economic growth. They tem, which will reduce the costs of producing for will not be able to take advantage of the right export. Mexico and Egypt have borrowed to prices. In these circumstances, foreign borrowing increase the reserves available through their export makes an essential contribution, as Korea has development banks and other intermediaries to demonstrated. Faced with the oil price increase in finance export-oriented industries. Ghana has an Box 4.9 Borrowing for adjustment: the case of Korea Until 1960, Korea emphasized import-substituting in terms of trade and interest rate losses equivalent to 8 industrialization. It then switched to promoting exports. percent of GDP. But the world outlook was less accom- Since 1960, GDP growth has averaged more than 9 per- modating than in the mid-1970s. External finance was no cent a year, per capita incomes have more than tripled, longer available on the easy terms of previous years. and the number of people with incomes below the pov- Exports were unlikely to grow as fast as they had in the erty line has fallen from 40 percent of the population to mid-1970s because of rising international protectionism 15 percent. Domestic saving has risen steadily since the and the deepening world recession. Nor were Korea's mid-1960s to about 27 percent of GDP in 1984. Invest- internal conditions as favorable. The problems of infla- ment's share grew even faster, to 29 percent of GDP. tion, exchange rate overvaluation, and investment misal- To achieve this rapid increase in investment, policyma- location were compounded in 1979 by a disastrous har- kers encouraged foreign borrowing. The country's exter- vest and by political turmoil following the assassination nal commercial debt (including short-term debt) grew of the country's president. from $22 million in 1960 (1 percent of GDP) to over $33 The government therefore opted for a different adjust- billion in 1983 (44 percent of GDP). Korean and foreign ment path. As in 1974-75, it increased its foreign borrow- studies have estimated that inflows of foreign capital ing (by 25 percent a year during 1978-81) and devalued added about four percentage points to Korea's annual the exchange rate. But, unlike the 1974-75 experience, growth rate during the 1960s, and nearly two percentage investment and growth were sharply curtailed by tight- points a year in 1972-82. These inflows, mainly in the ening credit to nonexport sectors, reducing real wages, form of commercial credits, were channeled almost cutting public investment, and rapidly increasing entirely into productive investments. For the most part, domestic energy prices. capital was used efficiently. The incremental capital out- The medicine was strong. The economy stagnated in put ratiowhich measures the extra investment needed 1979-80. After rapid export growth resumed in 1981, to produce an extra unit of outputaveraged about 3, credit policies were relaxed, but fiscal and wage restraint one of the lowest in the developing world. was continued. Korea's GDP grew by 6 percent in 1981- Korea was among the developing countries hardest hit 82, and then, with the help of economic recovery in the by external shocks. When oil prices rose in 1973-74, the United States and Japan, by 9 percent in 1983-84. Infla- deterioration in its terms of trade generated a loss equiv- tion declined from nearly 40 percent in 1980 to 3 percent alent to about 10 percent of GDP. To cushion the shock, in 1983; real export growth accelerated to over 10 per- the country borrowed from abroad; it also devalued its cent; the current account deficit was cut by two-thirds; currency by 22 percent. This devaluation, together with and growth in external debt slowed from $5 billion to $2 long-established policies of export promotion, helped set billion yearly. The debt service ratio (including amortiza- the stage for a spectacular increase in manufactured tion of short-term debt) now stands at a modest 20 per- exports. Korean firms were also successful at winning cent of export earnings, and access to foreign financial overseas construction contracts totaling more than $15 markets is normal. However, to reduce the growth of billion by 1978. However, the investment boom did lead debt still further, the government is attempting to raise to overexpansion of heavy industry, high inflation, and a domestic savings by 4 percent of GDP over the next sev- rising real exchange rate during the late 1970s, blunting eral years through financial reform and greater promo- the export drive. tion of exports. The shocks of 1979-80 were similarly costly, resulting 68 Export Rehabilitation Program to provide intensi- were diminished in many cases, however, by a fied technical assistance and management training deterioration in the quality of economic policies in primary export industries. and investment management. In many countries, economic restructuring has During 1979-82, there was a boost in the involved heavy investment in energy production. demand for balance of payments and fiscally These projects often require substantial foreign related finance. In many developing countries out- finance. However, much can be achieved by rais- side of Asia, borrowing was used primarily to ing domestic prices to international levels. This has postpone, rather than buy time for, structural the dual effect of encouraging conservation and adjustment. Hence, its contribution to growth was making domestic energy production more attrac- small, if any. tive. Furthermore, the energy producers benefit Since 1982, net capital flows have slowed con- from higher prices, so they can often afford to siderably. Available financing has in many cases invest in plant and equipment without having to been linked with debt-servicing and balance of borrow. However, foreign exchange savings payments difficulties. It is more closely tied to pro- accrue gradually, although some countries have grams of structural adjustment, and its contribu- made substantial progress in recent years. Thai- tion to establishing a basis for recovery in growth land has successfully begun to substitute domestic has been, by and large, positive, especially among gas for imported oil. Brazil also reduced its oil the largest borrowing countries. Most new com- import dependence from 83 percent in 1977 to 50 mercial finance is available only for trade and percent in 1984 through enhanced conservation project-related purposes and only to a small num- efforts, stepped up domestic oil production, accel- ber of developing countries that have maintained erated hydropower development, and a fuel alco- high standards of creditworthiness. hol program. Conclusions Uses of foreign borrowing Participating in the world economy provides sig- Some broad generalizations about the uses of for- nificant benefits. It also entails some risks. The eign borrowing can be inferred from the diverse more a developing country is linked with the rest country experiences. Four periods can be distin- of the world, the greater its potential benefitsbut guished: also, if policies are inappropriate, the more vulner- From the mid-1960s to the early 1970s, financ- able it is to external shocks. Some people concen- ing was predominantly from official sources for trate on the risks, arguing that the recent experi- specific investments. Economic growth was accel- ence of massive shocks and slower worldwide erated, and the capacity to service rising debt was growth proves that developing countries should maintained or improved. Borrowing for balance of avoid outward-oriented policies and also reduce payments purposes was limited because develop- their reliance on foreign capital. ing countries had limited access to commercial The first part of the argument is excessively bank lending. short-term, and even then misplaced. It is true that Between 1973 and 1978, a high proportion of inward-oriented developing countries suffered a borrowed resources continued to flow into invest- smaller absolute fall in their growth rate during the ment. Many economies grew rapidly. However, in early 1980s. But they still grew less rapidly than order to adjust to higher energy prices and to outward-oriented economies; and, over a longer maintain the momentum of growth, developing period, much less rapidly. As for the second part, countries shifted the composition of their invest- it is wrong to specify the precise amount of foreign ment in favor of large-scale energy production and borrowing a country should do. This chapter has projects in heavy industry and infrastructure. Low shown that many factors influence that decision. international real interest rates and domestic poli- Much depends on a country's ability to adjust cies led in many cases to investment with low rapidly in the face of external shocks. The greater returns, particularly in Africa and Latin America. its ability, the more it can afford to borrow. The key The availability of cheap foreign funds also led to issues are the government's efficiency and its the rechanneling of some borrowing into the political strength to resist interest groups that financing of balance of payments and fiscal defi- oppose policy changes. Governments should cits, although project-related finance remained assess how far they would be willing and able to predominant. The potential gains from borrowing implement austerity measures, or to move the 69 economy in a new direction, should conditions cies, such as a devaluation, have a larger base on change suddenly. Declining savings rates, chronic which to operate. Similarly, a well-trained, mobile budget deficits, or overvalued exchange rates are workforce, an efficient financial system, and effec- clear warning signs that borrowed funds are being tive marketing channels all greatly improve an used to postpone rather than facilitate adjustment. economy's ability to respond quickly to changing An economy's capacity to adjust is also affected circumstances. by its structure. For example, a high dependence These lessons have been learned and relearned on the foreign exchange earned from a few key during the past few difficult years. Many develop- commodity exports reduces flexibility in adapting ing countries are now reforming their policies. to a sudden decline of prices. In contrast, an econ- Those that began early and have persevered are omy producing a high proportion of diversified already beginning to enjoy the benefits of faster and internationally tradable goods and services, and more durable economic growth. In others, while also vulnerable to terms of trade shocks, can however, reform is too slow. The price of failing to more easily avoid debt-servicing difficulties. This is adjust to the harsh realities of the 1980s is high: for because expenditure-switching adjustment poli- some, slow growth; for others, increasing poverty. 70 5 Managing foreign finance The previous chapter showed that sound eco- what is the appropriate composition of capital nomic policies can raise the expected return from inflows and debt? international borrowing. Furthermore, with adapt- able policymaking and flexible economic struc- Managing the level of capital inflows tures, countries can also reduce the risks involved in foreign borrowing. This chapter switches the In a world where all decisions were made by mar- focus from the policies that determine the level ket forces alone, governments would not be and effectiveness of capital inflows to the manage- involved in deciding how much their countries ment of the inflows themselves. By the manage- should borrow from abroad. In reality, they are ment of capital flows we refer to the technical and involvedfor two main reasons. First, in most institutional aspects of organizing the external lia- countries the public sector itself is the largest bor- bilities and assets of the nation; its purpose is to rower. Second, the set of prices facing private com- pick the best possible combination of risk and panies may be distorted by government policies, return consistent with the supply conditions in so the private sector may be encouraged to borrow capital surplus countries. too much or too little. While private companies can Effective management of foreign capital is not a be expected to try to ensure that their investments substitute for sound macroeconomic management; will generate enough domestic currency to repay a it is an essential part of it. Lending and borrowing loan, the availability of enough foreign exchange is decisions cannot be made independently of macro- the responsibility of the monetary authorities. economic policies. Debt managers need a clear understanding of expected macroeconomic devel- How much borrowing? opments, while policymakers must have a good grasp of expected new borrowing requirements Each individual loan must be justified on its own and debt service payments. Although these princi- merits. But experience suggests that it is also nec- ples seem obvious, many countries suffer from a essary to pay attention to the aggregate level of lack of communication between debt managers inflows and debt. The sustainable rate of borrow- (usually in the Ministry of Finance), reserves man- ing depends on the rate of growth of a nation's agers (usually in the central bank), and macroeco- income and more particularly its exports. As long nomic planners (often in the Ministry of Planning). as income is growing faster than the rate of interest Governments have often treated the level of capi- over the long run, the country is solvent. To mini- tal inflows as a residual and have framed their fis- mize the likelthood of liquidity problems, it is nec- cal and monetary policies independently of their essary for the rate of growth of exports to exceed effect on the level and structure of debt. A recent the rate of interestthat will ensure that the pro- study of twenty countries by the IMF found that portion of export revenues required to service the only one-fifth of developing countries were explic- debt will not continually rise (see Box 4.4). itly managing their debt systematically. Several A number of rules of thumb have been sug- countries are now arranging to bring debt manage- gested for managing the overall level of indebted- ment into the mainstream of economic decision- nesssuch as the need to limit the total debt ser- making. vice ratio to 20 percentbut caution must be This chapter discusses two sets of issues. First, exercised. No simple rule is adequate in all circum- to what extent should governments seek to regu- stances. A country's ability to sustain any particu- late inflows of foreign capital, beyond ensuring lar debt ratio depends on a number of factors that their economic policies are sound? Second, including the outlook for the country's exports, 71 expectations about future terms of trade and inter- Philippines has one of the most systematic est rates, and the flexibility of the country to adjust approaches, relying primarily on a statutory ceil- rapidly if necessary. For example, a country with a ing of 20 percent for the public debt service ratio proven ability to take necessary measures when (see Box 5.1). Although its controls were useful difficulties arise may be able to sustain a debt ser- during much of the 1970s, they did not prevent a vice ratio of 30 percent, while a less flexible coun- debt service moratorium in 1983. This was partly try may encounter difficulties with a ratio of less because the rules were not comprehensive and than 20 percent. partly because, faced with a steep fall in the terms A few developing countries have statutory rules of trade, the government adopted fiscal and mone- on how much borrowing can be done by the public tary policies that were inconsistent with a sustain- sector and by the country as a whole; Korea is one able current account balance. such example. About a third of all developing However, some countries have found that bor- countriesthough the number is fallinghave no rowing limits can be a useful complement to mac- clear borrowing guidelines; in effect, they judge roeconomic decisionmaking. Thailand, for exam- each investment on its own economic, commercial, ple, has an official debt committee charged with and political merits and on the availability of for- ensuring that guidelines are met (see Box 5.2). eign funds. Most countries follow strategies Guidelines require that amortization and interest between these two extremesusually overall payments on government and government-guar- guidelines are announced either in the form of the anteed debt should not exceed 9 percent of export absolute value of new commitments in any year or earnings over a five-year rolling period. When this in terms of some debt or debt service ratio. Often, guideline was exceeded in 1983 and again in 1984, target levels of public debt are approved by the the debt committee was requested to plan future government or by parliament at the beginning of borrowing so as to reduce the public debt service the year, but on many occasions these targets are ratio to below 9 percent by 1987, the beginning of not observed. Usually nonguaranteed debt is not the next Five Year Plan period. This ceiling is sup- included in the guidelines. plemented by a rule limiting new commitments of Formal borrowing rules do not guarantee that government and government-guaranteed debt to debt-servicing difficulties will be avoided. The 20 percent of budget appropriations. Box 5.1 Borrowing rules: the case of the Philippines The government of the Philippines aims to limit foreign debt. The ICC, which was established in 1978, is respon- borrowing by stipulating that debt service payments in a sible for approving projects and setting priorities within given year may not exceed 20 percent of the foreign the context of the national development plans. exchange receipts (including capital inflows) of the pre- This institutional framework for debt management ceding year. This rule is part of a framework for debt worked well throughout most of the 1970s, but the past management that has operated since the balance of pay- five years have illustrated three weaknesses: (a) inade- ments crisis of 1969-70. quate monitoring of short-term debt and banking debt; Enforcing the 20 percent limit requires comprehensive (b) a failure to integrate debt management fully with figures on debt. The central bank's Management of economic management; and (c) too much attention on External Debt and Investment Accounts Department the current year at the expense of future years. In addi- (MEDIAD) has a monthly reporting system that requires tion, the definition of the 20 percent limit was changed all borrowers to report in detail on their debts. MEDIAD several times so as to maintain debt service payments also sets guidelines on the uses and terms of foreign within legal limits. It can even be argued that the statu- borrowing. Its other responsibilities include informing tory ratio gave a false sense of security and so failed to the central bank about demands for foreign loans by the warn of the crisis in time for preventive actions to be public and private sectors and ensuring that borrowers taken. queue up for medium- and long-term loans. Aware of these drawbacks, the government has over Two other features of the Philippines' debt manage- the past two years sought to complement the statutory ment system are the Consolidated Foreign Borrowing debt service ratio with other controls. For example, Program (CFBP) and the Investment Coordination Com- short-term debt is being monitored more closely, and an mittee (ICC). The CFBP borrows large sums from abroad approval system for short-term borrowing has been and then onlends the money to banking institutions to established. finance development projects or to refinance existing 72 Box 5.2 Integrated debt management: the case of Thailand The Thai government has traditionally taken a prudent especially if staff training is stepped up. approach to international borrowing. Thailand's debt The committee's responsibilities include vetting all re- service ratio has been one of the lowest among middle- quests for loans (including military loans) from govern- income countries. Its guidelines on public external bor- ment agencies and public enterprises, within the context rowing have been administered by an External Debt of the country's debt service capacity. It is also consider- Committee chaired by the minister of finance. ing possible guidelines for foreign borrowing: (a) oper- In 1984, in part prompted by debt-servicing difficulties ating deficits may not be financed by foreign borrowing; in the Philippines, the Thai government decided to (b) any subsidies to public enterprises must be made upgTade the role of the External Debt Committee and to explicit in the central government budget; and (c) pricing bring debt management into the mainstream of macroec- policies of public enterprises should be analyzed for their onomic policymaking. In particular, it decided that pub- effect on the financial viability of the enterprises and lic external debt should no longer be considered inde- their ability to service foreign debts. However, a final pendently of private borrowing and public domestic determination on guidelines has not yet been made. borrowing. Reflecting this change, the committee's The committee is also responsible for monitoring and name was changed to the Committee for National Debt reporting disbursement performance under foreign- Policy. It is chaired by the minister of finance and con- financed projects, for managing the composition of sists of senior representatives from the Bank of Thailand, external debt, and for reporting to the Economic Cabinet the National Economic and Social Development Board, every four months. It suggests limits on public borrow- and the Bureau of the Budget. Its secretariat is based in ing for the year ahead and points out any inconsistency the Ministry of Finance. It will benefit from an improved between government budgetary policy and these limits. data management system currently being installed there, In general, a formal ceiling on borrowing is use- payments position and to the extent that govern- ful. It encourages discipline and helps to focus offi- ments set pricesincluding interest rates and cial attention on central macroeconomic questions. exchange ratesto reflect opportunity costs, the Official borrowing rules can be particularly helpful need to actively control the level of capital flows is if they cover military expenditures and projects diminished. However it may still be desirable to that, for political reasons, are not always easy to control the structure or composition of borrowing. control. But formal rules also carry dangers. They The extent to which the central government con- can create a sense of security that may not be justi- trols foreign borrowing as a whole varies greatly fied. They rarely cover all types of borrowing: for from country to country (see Table 5.1). Even its example, short-term debt is usually uncontrolled procedures for approving and monitoring its own and may rise dangerously, as happened in Mexico borrowing differ. Generally, the Ministry of in early 1982. Sometimes the overall debt structure Finance is the official borrower on behalf of the can be biased by partial controls. In Thailand, for government. However, if the loan is to support the example, the public sector's foreign borrowing has exchange rate or to build up reserves, the central been subject to clear ceilings but its domestic bor- bank may well be the borrower. In a few cases, rowing has not. As a result, the public sector may other government departments have indepen- borrow heavily from the domestic market, crowd dently borrowed from abroad, usually short term. out the private sector, and so force it to borrow In most developing countries, public enterprises abroadoften at higher interest rates and shorter are allowed to borrow on their own account. Usu- maturities than the government could have ally they must register their loans with the central obtained. government; in a growing number of countries, they now need its prior approval. Sudan recently How much control? introduced this requirement, and Costa Rica, Tur- key, and Zambia have strengthened the screening The level of control over capital inflows has, on process. Mexico introduced a foreign borrowing average, increased in the 1980s. Increased control law in 1977, requiring all borrowing by public has been required mainly because of the inade- bodies to be authorized in writingthough some quacy of economic policies. To the extent that gov- (notably PEMEX) have occasionally borrowed ernments adhere to fiscal and monetary policies without explicit permission. In a few countries, the that are consistent with a sustainable balance of central government borrows on behalf of public 73 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 foreign 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 and 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 guaran- enterprises. 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 con- sophisticated 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 governmentsincluding those in Brazil, independently of the central government. There Korea, and the Philippineshave used their have been a few exceptions, in federal states such powers actively to control the level and composi- as 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- 74 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 well- tered until exchange controls were introduced in established local borrowers and discriminating 1982; now private debtors must register their bor- against smaller innovative companies. Other mea- rowings 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 bor- sibility 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 capi- eral 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 Euro- legal disputes between the government and for- dollar loans but not bond finance or loans in non- eign 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 Brazil o 0 . 0 . 0 . 0 0 . S .' S Chile Costa Rica Ecuador o . 0 0 0 0 0 0 0 0 0 . 0 0 0 Indonesia o 0 0 0 0 0 Korea 0 0 0 0 S 0 Mexico o 0 0 0 0 0 0 0 0 0 Morocco Philippines Sudan . 0 0 0 0 0 0 0 . 0 0 0 0 Thailandc o 0 0 0 0 0 Turkey S 0 0 0 0 Yugoslavia' Zambia 0 0 0 0 0 0 0 0 . 0 S 0 Note: = instruments used at present or in the recent past; 0 = instruments not used at present or in the recent past. No new guarantees are provided at present. Not in place at present. Contracting of supplier credit requires Bank of Thailand approval. Refers to borrowing by self-managed social sector enterprises. Source: World Bank data. 75 time being allowed to approach the market. The economic policies. Less control is needed the more Korean government includes Korean commercial that prices, interest, and exchange rates are banks (the main private borrowers) in this system, aligned with world market levels; if they are not, a so as to avoid competing for loans. And Portugal is country runs the risks of large capital inflows or one example of a country in which the central bank outflows, probably regardless of controls. can refuse to authorize borrowing if the spread Where governments have actively encouraged over the London interbank offered rate (LIBOR) or private borrowing, the encouragement has almost the U.S. prime rate is above a specified level. always been in the context of policies (such as an Second, countries must establish a good name overvalued exchange rate or an excessive govern- for themselves. Reputation depends partly on eco- ment deficit) that are unsustainable over the long nomic performance and a willingness to change run. The resulting borrowings have delayed policies. Indonesia, for example, can borrow at needed policy reforms and have contributed to the lower cost than most countries at similar income magnitude of future debt-servicing difficulties. levels because, in times of difficulty during the Where the costs and risks of foreign borrow- past decade, its government has consistently ing to the nation as a whole exceed those to the shown a willingness to cut spending, raise reve- private borrowerswhere a government may have nues, or devalue the currency. to take over private debts, for examplethere is a It is also important for lenders to get to know good case for a modest tax on private foreign bor- borrowers. International capital markets are seg- rowing. mented, so a welcome in one does not guarantee a welcome elsewhere. In the late 1970s, Mexico Managing the composition of capital inflows could borrow in the syndicated loan market at spreads as low as Sweden's, but it failed to borrow Debt servicing in future years is largely deter- from the dollar bond market, because it was not mined by the composition of external borrowing. familiar there. Bond investorsusually individuals The total volume of borrowing that can be under- and nonbank financial institutionsmay have per- taken from one year to the next is not independent ceptions of a country's creditworthiness quite dif- of the source and terms on which it is undertaken. ferent from those of commercial bankers. Coun- Among the issues on which decisions need to be tries can gradually gain access to markets by made are (a) the appropriate balance between debt borrowing on a small scale when money is not and equity capital flows, (b) the relative roles of urgently needed. official and commercial sources of funds, (c) the Although this discussion relates primarily to bor- proportion of debt at floating rates and fixed rates, rowing from commercial markets, it is also neces- (d) the appropriate maturity structure of the debt, sary for policymakers to make strategic decisions and (e) the appropriate currency composition of concerning borrowing from official sources. Coun- borrowing. Of course, these are not totally self- tries can often borrow more nonconcessional offi- contained issues, nor may a borrowing country cial money if they want to. But building up a pipe- have adequate options. If the desired composition line of good projects takes time. Bilateral and of capital inflows is not possible, it may be neces- multilateral agencies usually operate within the sary to cut back on the level. framework of rolling three- or five-year lending The appropriate structure of foreign liabilities programs. It is generally not possible to increase differs among countries and varies over time. It lending quickly. Debt managers must therefore depends on external conditions (such as the out- focus on foreign exchange needs over the medium look and uncertainty concerning interest rates, term, as well as for the current year. exchange rates, and access to international mar- kets) and internal conditions (such as the growth Lessons from recent experience of domestic savings and exports and the capacity to adjust rapidly in a time of crisis). The more flexi- The following conclusions emerge from the experi- ble are policies and the more diversified is an econ- ence of the past few years: omy's structure, the more risk the country is able Close control of government borrowing and to bear. careful coordination and monitoring of all borrow- Debt managers have two primary tasks. First, ing by public enterprises are essential. they must continually assess the extent to which Whether it is desirable or necessary to control the structure of existing net liabilities is optimal private borrowing depends on a government's within the constraints of the financial instruments 76 available to the country. Some techniques sug- idly over the last decade. In the aggregate, the sup- gested below for modifying the structure of exist- ply of official funds to developing countriesboth ing debtsuch as interest rate and currency concessional and nonconcessionalincreased only swapsare not available to all developing coun- slowly, while there was an explosive increase in tries, but otherssuch as adjusting the currency commercial financing. But there may be more flexi- composition of the nation's official reserves in light bility for individual countries than is often of the composition of its debtare available to all. assumed. Obviously a country will generally maxi- Second, careful management of the composition of mize its use of any highly concessional funds new capital inflows is necessary. before resorting to commercial markets, but for less concessional official flows and for "mixed" The balance between debt and equity creditswhere concessional and nonconcessional loans are linkeda careful strategy is required, Equity financedirect foreign investment and based upon the following considerations. portfolio investmentdeclined in importance dur- First, the true costs and benefits of official lend- ing the 1970s, largely because of the ready avail- ing vary according to the supplier and the terms on ability of bank loans carrying low or negative real which it is offered. Official finance is usually interest rates. Nonetheless, equity funds have two accompanied by technical assistance, usually of advantages over debt. First, the foreign investor longer maturity than commercial loans, and often bears both the commercial and the exchange rate at fixed interest rates. But even grants can be risk. This lowers the overall risk to the recipient expensive if the donor wants them to finance low- country, so it can sustain larger capital inflows and priority projects. And official lenders may also a higher level of investment. Second, direct for- misdirect a country's investment pattern if their eign investment is generally accompanied by man- loans come through export credit agencies that are agement and technology, which often benefits the biased toward certain types of capital goods. recipient country and raises the rate of return on Second, there may be a tradeoff between the vol- the project. But equity finance may cost the recipi- ume of ODA and its grant element. Some donors ent more. Although measuring the rate of return may be willing to give more ODA than others, but on foreign investment is extremely difficult, most on less concessional terms. Japan, for example, studies show that, over long periods of time, the provides a volume of ODA that is about average average return required by direct foreign investors for OECD countries, but the proportion it gives as is several percentage points higher than the inter- grants and the grant element of its loans are below est rate on commercial debt. the OECD average. The opposite is true of coun- Direct foreign investment is generally not a sub- tries such as Australia, New Zealand, and Norway. stitute but a complement for borrowed money. It Methods of estimating the grant element of a loan usually is part of a package in which there is some or of a mixture of grants and loans are described in equity financing, some commercial bank credit, Box 5.3. and some export credit. But in some cases coun- tries have a choice between debt and equity. A Managing interest rate risk particular investment can be made by a domestic company that borrows from foreign banks, or by a As fixed interest rates on medium- and long-term foreign company bringing in finance, or as a joint loans are generally available only from official venture. Although political considerations may bilateral sources, borrowers may have no option suggest that ownership should be retained in but to obtain floating rate debt. Even multilateral domestic hands, on economic grounds there is a institutions such as the World Bank have found it strong case for increasing the share of foreign necessary to lend at rates that vary over the life of equity in total capital inflows, particularly in the the loan (although the variability is generally much present climate of high real interest rates. The lower than on most commercial loans). This makes scope for enlarging the role of equity finance is it essential to explore future debt service payments discussed in detail in Chapter 9. on various assumptions about interest rates. The ratio of future interest payments to projected The balance between official and commercial sources export earningsthe interest to export ratiois a particularly useful indicator of vulnerability, since The proportion of developing-country debt interest payments generally cannot be resche- financed from commercial sources has risen rap- duled. Table 5.3 gives some indication of the vul- 77 Box 5.3 Estimating the grant element The grant element in a loan is defined as the difference In theory, the discount rate should be carefully chosen between the original face value of the loan and the dis- to reflect the cost of capital. In practice, a 10 percent rate counted present value of debt service, as a percentage of is usually assumed for all currencies and time periods the original face value. As Box table 5.3A shows, the the convention used in the grant element tables pub- grant element is greater the lower the interest rate on the lished by the OECD. However, using any single inflexi- loan and the longer its maturity or grace period. ble rate has obvious drawbacks, as it does not take account of changes in market interest rates or of big dif- ferences in rates for different currencies. Box table 5.3A Grant element of selected loan terms A better alternative is to set the discount rate equal to the rate of interest at which commercial finance with the Loan terms same maturity could be borrowed in international mar- Interest rate Maturity Grace period Grant element' kets at the time and in the particular currency of the loan 10 percent discount rate in question. In many instances, of course, commercial 0 30 5 77 percent funds would not be available for such long maturities, so 6 20 0 23 percent a premium should be added to the discount rate to make 6 10 0 15 percent allowance for this. The effect of a discount rate that var- 6 10 5 21 percent ies according to currency and over time is to lower the 15 percent discount rate grant element for official loans from countries in which 6 10 5 40 percent interest rates are low and to raise it for loans from coun- a. Assumes immediate disbursement of loan and equal annual repay- tries in which rates are high and during periods of high ments. international rates in general. Box 5.4 Three innovative financial instruments and their use by developing countries Three financial instruments that are increasingly used in Graduated payment loans. Debt service payments are domestic financial markets (notably the mortgage mar- initially low and gradually build up. In the early years of ket) have not yet been used by developing countries, but a loan, amortization may even be negative. This instru- may have certain merits for them. ment could be particularly suitable for project finance, Flexible maturity loans. Instead of variable interest where earnings and debt-servicing capacity rise as the rates, loans carry a variable maturity. Debt service pay- project matures. By matching the stream of debt service ments are held constant in absolute terms (or, perhaps, obligations with the expected foreign exchange earnings in relation to a borrower's income). When interest rates of a project, debt managers would avoid tying up foreign rise, the amortization part of debt service declines and reserves for debt servicing. the loan's maturity increases accordingly. With a large Shared equity loans. Lenders would accept below- rise in interest rates, negative amortization will occur; market interest rates in return for a share in the equity of lenders will effectively be providing new money to bor- projects. For the borrower, the risk involved in a project rowers. Flexible maturity loans offer advantages to both is shared with the lender. However, since a project's borrowers and lenders. Borrowers are certain of their earnings depend on what price is charged for its output, debt-servicing obligations. Lenders are able to manage a loan agreement would have to contain some pricing their assets with less worry about debt rescheduling and formula. This would give lenders some influence over possible write-offs. For developing countries, this would the management of the project (though it would also be doubly attractive if debt service payments could be raise their administrative costs). Lenders might also tied to export receipts, as it would reduce the uncertainty want to stipulate some compensation procedure or over volatile commodity prices. insurance against political risks. nerabiity of borrowing countries to rising interest Debt managers may sometimes be able to raise the rates. For those developing countries that have proportion of debt at fixed terms. For example, offi- recently rescheduled their debts, the proportion of cial export credits can often substitute for commercial debt at floating rates (34 percent at the end of 1983) borrowing (see Chapter 7). New financial instru- was nearly twice that of nonrescheduling coun- ments, such as flexible maturity and shared equity tries. Similarly, the interest to exports ratio of loans, are becoming available to developing coun- reschedulers was more than twice that of nonre- tries (see Box 5.4). And some middle-income coun- schedulers and rose much faster between 1980 and tries are already using interest rate swaps to ex- 1982. change floating rate for fixed rate loans (see Box 5.5). 78 The maturity structure of debt early 1983, short-term debt of developing countries had increased to an estimated $130 billion, roughly Recent debt-servicing difficulties have often been one-quarter of all developing-country debt. caused or exacerbated by a shortening of the matu- For many countries, the shortening of maturities rity structure of foreign debt. The average maturity was not a deliberate policy that then led to difficul- of total medium- and long-term debt of the major ties. Often they faced a choice between borrowing borrowing countries fell from 17.9 years in 1972 to short term or not borrowing at all, since commer- 12.7 years in 1981. The average maturity was even cial creditors were no longer willing to lend longer lower for the largest borrowers: Brazil, 9.7 years in term. Heavy short-term debts were therefore at 1981; and Mexico, only 8.7 years. In part this least as much a symptom as a cause of difficulties. occurred because commercial bank debt rose much But in many instances they should have signaled faster than ODA and other official financing. The the need to change economic policies before those sharp increase in short-term debt, especially after changes were forced upon policymakers by credi- 1979, has further shortened the debt structure. By tors during rescheduling negotiations. Table 5.3 Indicators of vulnerability to rising interest rates (percent) Country and indicator 1973 1975 1977 1979 1980 1981 1982 1983 Argentina* Interest/exports 12.3 13.7 8.2 9.6 12.9 17.2 25.0 23.3* Debt at floating rates 6.8 17.5 39.4 48.0 57.1 59.4 70.0 75.0 Brazil* Interest/exports 10.6 20.6 14.9 26.4 27.1 29.4 39.8 31.5* Debt at floating rates 34.8 51.8 54.3 59.6 61.2 67.3 69.6 76.5 Costa Rica* Interest/exports 5.6 6.1 5.3 10.5 14.0 11.2 97 450* Debt at floating rates 19.3 29.2 32.0 46.6 46.5 52.1 51.9 57.0 Indonesia Interest/exports 3.6 4.6 5.6 6.8 5.3 5.7 7.4 8.2 Debt at floating rates 4.5 19.4 18.7 14.5 16.8 17.8 20.0 22.7 Kenya Interest/exports 4.0 4.5 3.8 7.2 8.3 9.2 11.6 10.9 Debt at floating rates 3.8 2.9 5.1 8.3 11.4 13.0 11.0 9.1 Korea Interest/exports 5.9 5.3 3.8 4.7 6.0 6.4 7.2 6.2 Debt at floating rates 8.7 21.0 23.0 27.8 29.0 37.5 40.9 42.1 Mexico* Interest/exports 10.4 16.9 18.7 20.5 18.3 19.6 26.7 30.1* Debt at floating rates 40.0 51.2 53.3 69.7 71.1 74.8 76.0 82.4 Phiippines* Interest/exports 3.6 3.6 5.0 7.5 6.9 9.1 10.5 10.3 Debt at floating rates 8.0 21.0 21.9 24.9 29.5 30.8 36.2 36.0 Turkey* Interest/exports 4.5 5.8 8.0 8.3* 17.2* 13.9* 12.0 15.0 Debt at floating rates 0.5 0.8 7.8 29.2 22.7 22.1 23.3 25.0 Developing countries' Interest/exports 4.3 5.0 5.0 6.7 6.9 8.2 10.1 9.8 Debt at floating rates 6.4 9.4 11.8 15.5 17.3 19.0 20.2 21.6 Reschedulers" Interest/exports 7.0 7.4 7.0 9.9 10.5 12.4 16.5 17.0c Debt at floating rates 11.9 17.2 23.1 29.9 31.2 33.2 34.9 38.3 LIBOR (3 months) 9.2 11.0 5.6 8.7 14.4 16.5 13.1 9.6 Note: Asterisk denotes rescheduler and time of rescheduling. (The Philippines rescheduled in 1984.) The interest to exports ratio reflects interest actually paid on medium- and long-term debt. Exports include goods and services. Debt at floating rates refers to public medium- and long-term debt. Arithmetic average for ninety developing countries. Because of the averaging method used, data differ from those in other chapters. Average for twenty-seven countries rescheduling between 1975 and 1984, as indicated in Figure 4.1. For details, see Box 2.4. Estimate. Source: World Bank data. 79 Box 5.5 Currency and interest rate swaps Most foreign finance going to developing countries has beneficial arrangement for doing so. Depending on their been denominated in dollars and lent at floating interest negotiations, B will receive between 100 and 200 basis rates. Since both features have their drawbacks, coun- points a year from A, but A will still obtain the dollars it tries may be able to swap them for a more desirable wants more cheaply than if it had borrowed on its own. combination. The same principle applies when parties swap fixed for A currency swap might work in the following way. floating rate debt. Swaps allow for flexibility and diversity in a country's Dollar loan Swiss franc loan financial management. They use existing market institu- Borrower A 13 percent 6 percent tions, are anonymous, and can be carried out quickly. Borrower B 11 percent 5 percent Spread between A and B 200 basis points 100 basis points They involve less exposure than a direct loan because, in the case of default, liabilities revert to their original own- Suppose that borrower B is more creditworthy than bor- ers. rower A, so B can borrow more cheaply in both dollars Swap markets are already quite large (an estimated $60 and Swiss francs. Nonetheless, B has a comparative billion in 1983) in industrial countries, but only a few advantage in the dollar market. Suppose also that, to middle-income developing countries have used them so balance its portfolio, A would prefer its debt to be far. This is partly due to a lack of awareness of the mar- denominated in dollars, and B would prefer its debt in kets' advantages. Another factor, however, is the percep- Swiss francs. In that case, B should borrow dollars and A tion of potential swap partners that the risks are greater should borrow Swiss francs; they can then agree to ser- if they join up with developing countries. A strong third- vice each other's obligation, and work out a mutually party "insurance" agency may therefore be needed. Loan maturities should, to the extent possible, fully borrowed short term to prevent reserves from be matched with the payoff period of investments falling (for example, Korea in 1980), and on rare that are financed. Many countries have run into occasions some countries have successfully bor- problems by borrowing too short. For example, in rowed short-term funds to buy time to bargain for the late 1950s and early 1960s debt-servicing diffi- lower rates on medium- and long-term loans (for culties of Argentina, Brazil, Chile, Ghana, and example, Brazil in 1980). But generally, heavy Indonesia were largely due to the mismatch of short-term borrowing for other than trade-related five- to seven-year supplier credits with invest- purposes has proved costly. ment programs having a much longer gestation. What therefore is an appropriate level of short- Two further lessons can be derived from recent term debt? Although there are no hard and fast experience. First, "bunching" of debt service obli- rules, some general guidelines are useful, based on gations must be avoided. This was one cause of the level of a country's noncapital goods imports recent problems in Argentina, for example, where and needs for pre-export finance. (Capital goods the introduction of the exchange rate guarantee imports, accounting for about 25-35 percent of system in 1981 encouraged the extension of exist- total imports, are generally financed by longer- ing loans by eighteen months, and where the elim- term funds.) Since trade finance is generally for ination of deposit requirements encouraged large- 90-120 days, this implies that short-term debt gen- scale short-term borrowing in 1980-81; all of these erally should not exceed three months of imports, obligations fell due at about the same time in 1982. and in most normal situations should probably be Second, it is dangerous to assume that short-term less. (An exception must be made for countries borrowing will be continually rolled over. Many that act as international money centers, where countriesincluding Ecuador, the Philippines, short-term banking liabilities may be higher.) Fig- Portugal, and Romaniahave found that the with- ures 5.1 and 5.2 bear out this simple rule of thumb. drawal of roll-over privileges because of poor eco- To reduce their short-term borrowing, some nomic performance has contributed to debt-servic- developing countries now impose a minimum ing difficulties. maturity or a deposit requirement on foreign bor- The use of short-term borrowing for general bal- rowing by private enterprises. Some countries ance of payments support can jeopardize a coun- including Brazil, Korea, and the Philippinescon- try's access to these funds for valid trade-related trol access to trade credit by specifying acceptable purposes. Occasionally countries have success- terms and the items for which credits are permit- 80 developing countries greatly. For example, some Figure 5.1 Short-term debt as equivalent months of imports for developing loans made by the World Bank between 1978 and countries, 1978-83 1982 will have effective interest rates of less than 1 percent a year when expressed in dollars, if Months of imports exchange rates remain unchanged between now and the loans' maturity. But hindsight always pro- duces successful strategies. More important is whether there are lessons that will assist portfolio managers in the future. Countries rescheduling in 1982-84 In simple terms, borrowers have two objectives: (a) to minimize the variability of their debt service obligations and (b) to minimize the cost of borrow- ing. These objectives correspond to two compo- nents of a borrowing decision, the hedging and the speculative. 1978 1980 1982 The hedging component reflects the choice of a borrower concerned solely with minimizing risk. Source: World Bank data. Under this strategy, currencies are chosen that will help to insulate the economy from currency volatil- ity and changes in terms of trade. The object is to ted. Other countriesfor example, Costa Rica and choose currencies whose real values rise and fall Turkeycontrol all short-term borrowing. In with the borrower's real income. Chile, the proportion of loan proceeds that has to The speculative component reflects the bor- be deposited with the central bank is higher for rower's expectations of changes in exchange rates shorter maturities. and interest rates. For any particular loan the bor- rower should choose the currency that will mini- Managing exchange risk mize the expected cost of borrowing, adjusted for the expected exchange rate changes. To the extent Some countries have informal rules on the cur- that (a) interest parity holds (that is, the premium rency composition of their debt. For example, Por- tugal in 1978-80 insisted on dollar-denominated loans, despite much lower interest rates on other currencies, on the grounds that over time the dol- Figure 5.2 Short-term debt as equivalent lar was likely to depreciate. Some industrial coun- months of imports for selected Latin American countries, 1978-83 tries have adopted more explicit guidelines. Some, such as Sweden, have diversified their debt portfo- Months of imports lios by increasing the number of currencies in 14 which they borrow. Others have sought to mini- mize exchange. risk by borrowing in currencies with which their own currencies are linked; Ire- land, for example, has incurred almost half of its debt in deutsche marksthe dominant currency in the European Monetary System, to which Ireland belongs. In recent years over three-quarters of foreign borrowing of developing countries has been denominated in dollars (see Table 2.5). This was partly due to the ready availability of dollar loans 2 in comparison with other currencies. But in many 1978 1980 1982 instances dollar-denominated loans were actively Argentina Brazil chosen by debt managers. In retrospect, this has Ecuador Mexico often harmed borrowing countries, because of the - Venezuela large appreciation of the dollar. Loans denomi- Source: World Bank data. nated in nondollar currencies have benefited some 81 Box 5.6 Automated debt management systems Some twenty-eight developing countries are now using analyzing alternative debt strategies. Mozambique uses computerized systems for debt analysis and manage- this system, and Indonesia is installing it. ment. Some, such as Brazil, have created their own with- A more modest system has recently been developed by out outside assistance. Others have hired international UNCTAD. It is designed for countries that have well- firms to design a system for their particular needs or organized and centralized control of their external debt. have bought ready-made designs. The system classifies each loan; monitors foreign Peru has recently installed one of the most sophisti- exchange liabilities on a daily basis; evaluates fixed and cated systems in the developing world, It was created by variable rate loans; and generates standard reports. The a private firm under a technical assistance loan provided system is designed to run on a microcomputer, and by the World Bank in conjunction with an analysis and UNCTAD provides the software free. The UNCTAD planned reorganization of the bodies that manage Peru's package is now being installed in Bolivia, Liberia, Mada- debt. It cost over $1 million (including hardware), and a gascar, and Togo. Another system that will be free to Peruvian technical team has been trained to maintain it. developing countries is being developed by the Com- The new system can track future requirements for for- monwealth Secretariat. eign exchange and manage daily requirements; produce Whichever system is used, all basic data on debt must letters authorizing debt payments; incorporate all kinds be reported promptly to the debt office. Specifically, this of debtpublic and private, short- or medium- or long- means centralization of loan agreements, prompt report- term, external and internal; and handle fixed and varia- ing of disbursements by implementing agencies, and ble rate loans. The system is not yet being used effi- prompt reporting of debt service payments by banks. As ciently because of difficulties in making the legal and for the systems themselves, sometimes they are too administrative changes needed to ensure the required sophisticated. By attempting to include both accounting flow of information among agencies. Another system, and analytical functions, it may do neither efficiently. costing about the same as Peru's, evolved from an advi- Focusing separately on these two areas may be more sory group's experience in helping countries in debt appropriate, especially because data in many countries rescheduling negotiations; thus the system is good at are still unreliable. or discount between forward and spot exchange With hindsight, it would have been superior to the rates reflects only nominal interest rate differen- dollar-borrowing strategy of most borrowers in tials) and (b) the forward rate is an unbiased pre- recent years, which was based on the belief that dictor of the future rate, there will be no specula- the dollar would fall. However, it is not necessarily tive decision to make. "Perfect market" conditions consistent with the hedging and speculative strate- will ensure that expected borrowing costs in all gies, and in some instances would lead to inappro- currencies are identical. priate borrowing. There may be no alternative but Both these principles present practical difficul- to make pragmatic judgments about changes in ties. Predicting movements in exchange rates and trade, interest rates, and exchange rates. interest rates is notoriously difficult. In addition, some of the relationships requiredsuch as the Technical assistance positive correlation between the borrower's real income and another currency's exchange rate Managing a country's foreign debt and borrowing may not be very stable, and the past may be a poor requires two particular kinds of technical exper- guide to the future. tise. First is the capacity to assess the costs and In the light of these difficulties, one favored benefits of external borrowing and reserve-man- strategy is to base the currency composition of a agement strategies on various assumptions about country's debt on the pattern of its trade. This interest rates, export growth, and so on. Second is would mean that countries borrow in the curren- familiarity with the international financial markets cies they earn from exporting and hold their and the ability to use them to the best advantage. reserves in the currencies in which their imports Governments in many developing countries are are denominated. If the currency of an export mar- using technical assistance in both these areas. The ket appreciates, the borrower's terms of trade are World Bank and the IMF, as part of their support likely to improve, thus partially offsetting the for member countries, provide analysis of macro- higher costs of servicing debt in that currency. economic policies and their implications for exter- This strategy is attractively simple and practical. nal portfolio management. They and others also 82 help to develop debt management systems (see Box 5.6). As for the practical details of borrowing Figure 5.3 Reserves as equivalent months of imports for selected countries and country from commercial markets, most developing coun- groups, 1970-83 tries now retain financial advisors to assist them. The advisors are concerned with what financial Months of imports instruments to use and for how much, when to 8 approach the markets, and so on. On such issues, I' it may not be cost effective for some developing I -. countries to build up in-house expertise. But on 6 I debt management systems and macroeconomic I I analysis, a main function of technical assistance .4 .4 I must be to strengthen each country's capacity to .4 I I, .4 I undertake these tasks for itself. 2 Managing international reserves 1970 1974 1978 1982 International reserves form an integral part of a - Oil-importing developing countries nation's overall portfolio of foreign assets and lia- - Industrial countries bilities. At least two questions face the portfolio - - Middle- and high-income manager: what is an appropriate level of reserves? oil-exporting countries Months of imports and when should a government borrow in order to support or increase the level of reserves? Neither question has a clear-cut answer. In general, how- ever, a country should maintain higher reserves the more variable are its export earnings, the higher its debt exposure, the less flexible its eco- nomic policies and structures, and the less likely it is to have access to a steady flow of external capi- tal. It is therefore sensible for most developing countries to have higher reserve coverage levels than do industrial countries. The experience of the 0 past few years argues for prudence by developing 1970 1974 1978 1982 countries in maintaining enough reserves to allow a country to adjust to domestic or international - Low-income Africa pressures without unduly jeopardizing its eco- - India Venezuela nomic growth. A reserve level equivalent to three Oil-importing developing countries months of imports is sometimes suggested as a Note: Total reserves include gold valued at yearend London desirable norn for developing countries, but this prices. Data for 1983 are estimates. Imports include goods and services. should not be regarded as a hard and fast rule. Looking back over the last decade, four points Source: World Bank data. are worthy of note. These are illustrated in Figure 5.3. First, in developing countries as a whole, reserves as a proportion of imports have risen and management strategies. For example, some coun- fallen with the commodity price booms of 1973-74 tries, such as India (1975-80) and China, have and 1978-79. Second, reserve levels in low-income deliberately maintained high reserves, while oth- African countries have fallen to particularly low ers have sailed closer to the wind, allowing levelsfrom 2.7 months of imports in 1970-73 to reserves to remain at low levels for long periods. 1.5 months in 1980-82. Third, reserve levels in oil- Low reserves can sometimes be augmented by exporting countries rose sharply (from 3.4 months borrowed funds or lines of credit. There are obvi- of imports in 1970 to over 8.1 months in 1974) and ously costs to such a strategy since at the margin thereafter fell back almost as dramatically, as costs of borrowing exceed earnings on reserves, development programs rapidly absorbed the for- usually by one or two percentage points, and eign exchange holdings. Finally, considerable vari- unused lines of credit involve commitment fees. ation has been evident among countries in reserve Furthermore, borrowing also increases future debt 83 service payments and is subject to the roll-over Denmark and Ireland. Many governments are now problems discussed earlier. With these caveats, trying to correct these weaknesses, tightening up borrowing for reserve accumulation can some- monitoring procedures and using more staff. times be desirable in limited amounts. First, bor- Recording short-term debt presents even greater rowing is usually easier and cheaper when funds difficulties. Only a minority of developing coun- are not needed urgently. Second, the level of tries have accurate data, even though the rapid reserves is itself an important indicator to financial growth of short-term debt has often been central to markets that a country is financially sound; thus it recent debt-servicing difficulties. Only about a could lead to lower borrowing costs. Finally, by quarter of developing countries maintain system- borrowing when funds are not urgently needed, atic information on trade credits, although the data the government may be able to tap new sources of are usually available from commercial banking financefor example, the bond market. accounts. Information must not only be accurate, it must The need for information also be timely. Delays in data gathering and proc- essing have caused serious difficulties for mana- In many developing countries, economic man- gers. In Mexico, for example, the law requires that agers suffer from a dearth of information on exter- borrowing need not be reported until forty-five nal finance. Debt-servicing difficulties are often days after the end of the quarter. In 1981-82 this seriously exacerbated by the absence of informa- delay allowed $15 billion to be borrowed in one tion. In the 1950s and 1960s, crises in Ghana and quarter, essentially to finance capital flight, despite Indonesia were brought on by an almost complete an annual authorization of only- $4.5 billion. In lack of facts on the size of debt and debt service some countries, the stock of foreign assets and lia- obligations. More recently, Romania, Sudan, and bilities may be accurately measured at one time, Zaire are examples of countries that have run into perhaps by outside consultants, but the data are costly and disruptive debt problems due partly to not updated. This static picture may then become data inadequacies the basis for borrowing and lending decisions, Most developing countries have good informa- even though it becomes steadily less relevant. tion on public long-term debt, although several A growing number of developing countries are (including Costa Rica, Turkey, and Yugoslavia) introducing computerized systems for debt man- have recently found that their data on public enter- agement; some of these systems are described in prise and local government debt were inadequate, Box 5.6. Similarly, many countries are now making and many still fail to include military debt in use of centralized data sourcesincluding data reported statistics. As for private long-term debt, from the BIS, the IMF, the OECD, and the World data are poor in more than half of the developing Bank's Debtor Reporting Systemto supplement countries and a few industrial countries, such as their own sources and to check for consistency. 84 Part III Mechanisms for International Financial Flows 6 The international financial system and the developing countries The international financial system has evolved in tant impact on economic activity in developing response to the changing requirements of borrow- countries. ers and lenders, most of them in the industrial The term international financial system normally countries. It has also responded to changes in the covers the institutional arrangements for ensuring objectives, constraints, and behavior of the finan- that the world's surplus funds flow to countries or cial institutions operating in the system. It is there- entities in deficit, the rules governing the interna- fore a dynamic system constantly adapting to the tional exchange rate regime, and the mechanisms global economic and financial environment. The for creating and distributing liquidity. In Part III of speed of adaptation has been faster in some parts the Report, the focus is on the institutional of the systemparticularly among banks in recent arrangementsthe institutions, instruments, and yearsthan it has in others. marketsfor channeling finance specifically to This chapter, which serves as an introduction to developing countries. These arrangements involve Part III, examines the international financial sys- a wide range of participating entitiesinterna- tem from the perspective of developing countries. tional financial institutions, governments, com- It describes how the system has evolved and the mercial banks, and industrial companiesthat factors that have driven its evolution. Against this provide or channel funds to developing countries. background, it suggests some criteria for assessing Sometimes the funds flow directly to developing whether the arrangements have provided suffi- countries, but other times they flow through vari- cient opportunities for developing countries to ous intermediaries and markets. Roughly 40 per- manage their external borrowing and debt success- cent of net flows to developing countries went fully. through intermediaries and markets in 1970, but this figure had risen to more than 60 percent by Functions and use of the system 1983. The institutional arrangements relevant for In many ways the international financial system developing countries can be divided into two performs on a global basis what a national financial parts. The official sector contains direct channels system does domestically. It provides a payments for capital flowfor example, bilateral aidand a mechanism and offers facilities for borrowing and number of intermediaries, such as the World Bank disposing of surplus funds. It creates different and the other multilateral development banks. The types of financial assets and liabilities, which aim private sector, too, has direct mechanismsdirect to satisfy the portfolio preferences of lenders, foreign investment, for instanceas well as inter- investors, and borrowers. To the extent that it is mediaries, such as commercial banks and markets not hindered by national policies, such as controls for international bonds and other securities. on capital movements, it helps to allocate funds to Because intermediaries of all kinds have become their most efficient use around the world. It also increasingly important in channeling finance to determines the ease with which capital can be developing countries, the range of maturities, cur- moved between countries, which has a signfficant rencies, and financial instruments offered to devel- influence on the choices open to governments in oping countries has grown. The economies of scale adjusting to shocks. The efficiency with which the achieved by financial intermediariesin terms of international financial system performs its various information, transaction costs, research, credit functions can influence the volume of savings and assessment, and portfolio diversificationyield investment generated in the world economy. The efficiencies that reduce costs and risks for savers functioning of the system therefore has an impor- and borrowers. Ultimately, improvements in 85 domestic business and in financing international Figure 6.1 Annual average private flows to trade for their domestic clients. The overseas oper- industrial and developing countries, 1978-83 ations of commercial banks in the industrial coun- LI Developing countries tries were limited by exchange and other controls. Industrial countries The second phase covered the period from the late 1960s to 1982. It was characterized by consider- able volatility in exchange rates and interest rates Net new and by much larger current account imbalances. In international this environment, the structure of the institutional bank lending arrangements changed, and several new mecha- nisms were introduced. Institutions operating in Gross international the international banking and bond markets bond issues proved very innovative. International banking developed rapidly, shifting from trade financing to Direct foreign more direct balance of payments financing. investment Encouraged by the reduction or abolition of con- trols on international flows of capital, banks partic- ipating in international lending grew in number 0 20 40 60 80 100 120 and broadened the range of their countries of ori- Billions of dollars gin. As a share of net flows to developing coun- Source: For bank lending: Watson, Keller, and Mathieson 1984; tries, direct foreign investment fell from 19 to 12 for bond issues: OECD Financial Market Trends 1984; for invest- percent between 1970 and 1982. The international ment: IMF Balance of Payments Statistics 1984. bond marketsespecially the Eurobond market grew quickly, although developing countries tapped them to a limited extent. Official flows kept financial efficiency can mean increased flows to pace with the growth in private flows during this developing countries at lower costs. Most global capital flows are associated with eco- nomic and financial relationships between indus- Figure 6.2 Net flows to developing countries trial countries. Developing countries have greatly in selected years, 1970-83 expanded their use of external capital over the last Billions of dollars decade, but industrial countries still account for 120 the bulk of the main types of private flows (see Figure 6.1). Between 1978 and 1983, the share of 100 developing countries in net new international bank lending was 36 percent; in gross international 80 bond issuance, 7 percent; and in direct foreign investment, 27 percent. Most official flows, of 60 course, go to developing countries. 40 The evolving institutional arrangements The evolution of the institutional arrangements for channeling finance to developing countries has 0 mirrored changes in the world economy. In the 1970 1975 1980 1981 1982 1983 postwar period, they have passed through three broad phases. The first phase lasted from the end Eli Bond markets of World War II to the late 1960s, when official Commercial bank lending flows, direct foreign investment, and trade finance LIII Direct foreign investment were the main forms of external capital for devel- oping countries. The financing of current account LII Official nonconcessional flows deficits was done largely through governmental Official development assistance and grants arrangements and international organizations. Source: OECD 1984. Financial intermediaries were mainly involved in 86 Box 6.1 The growth and distribution of World Bank lending The World Bank has increased its lending to developing For similar reasons social sector lending was also raised. countries substantially, especially since 1970. By the end The sharp increase in oil prices in the 1970s led to a of the World Bank's 1984 financial year cumulative IBRD growth in projects aimed at increasing oil and gas capac- lending totaled $94.2 billion and IDA credits reached ity. Since 1980 the financing requirements of the major $33.6 billion. structural adjustments being made in developing coun- There have been some distinct changes in the sectoral tries have been met in part by the introduction of struc- distribution of World Bank lending over time (see Box tural adjustment lending (see Box 4.8 in Chapter 4). figure 6.1A). During the 1950s and 1960s the main thrust The regional composition of lending has changed more of World Bank lending was for the development of basic slowly than the sectoral composition. In the 1980s, how- infrastructure; lending for power and transportation was ever, taking the IBRD and IDA together, there has been a predominant. There was a reorientation of lending dur- shift toward greater lending to Asiamainly related to ing the 1970s toward agricultural projects in recognition the development financing needs of a new member, of the potential high rates of return associated with such China. The acute developmental problems of sub- projects. Furthermore, given that a large proportion of Saharan Africa have also led to an increase in lending to the poor were engaged in agriculture, this shift in that region. emphasis also directly increased their standard of living. Box figure 6.1A World Bank average annual lending, 1950-84 Lending by region Lending by sector Billions of dollars 1950-59 1960-69 6 Asia 4 2 Latin America Africa 1970-79 1980-8-1 Europe, Middle 0 East, and North Africa 1950-59 1960-69 1970-79 1980-84 El Agriculture and rural development LIJ Energy Program lending and structural adjustment Industry El Transportation and telecommunications El Social and other sectors Source: World Bank data. phase. Within the official sector concessional offi- oping countries. cial flows (or official development assistance, As illustrated in Figure 6.2, these developments ODA) expanded quickly, but the fastest growth led to a major increase in the flow of capital to was in the activity of the World Bank (see Box 6.1) developing countries. Of particular significance and other multilateral institutions. These institu- was the shift from equity financing (mainly direct tions became increasingly active as borrowers in foreign investment) to debt-creating flows. That the bond markets and lent the proceeds to devel- development increased the vulnerability of devel- 87 oping countries to changes in the international Figure 6.3 Gross disbursements of medium- financial environment. and long-term loans from official and private sources to country groups, selected years, The third phase began in 1982, when commercial 1970-83 banks started to reassess their exposure to devel- oping countries, and budgetary pressures in sev- Total disbursements eral industrial countries worked against aid. A fall in OPEC's current account surplus also led to a reduction in its aid. As Figure 6.2 shows, ODA has 1 fallen in nominal terms since 1981. Other official I' flows, notably from some of the multilateral insti- tutions, have leveled off. Direct foreign investment registered a nominal decline. A significant portion 1!0$ 1975 of commercial bank lending reflected concerted loans raised as part of debt rescheduling agree- ments. A more cautious attitude toward private lending to developing countries evolved against a background of further significant structural changes in the banking and bond markets. And 1980 the pace of innovation quickened markedly in this third phase. 1983 The scale and growth of the flows of medium- and long-term capital, both official and private, to Official disbursements the various categories of developing countries can be gleaned from Figure 6.3. Disbursements of offi- Low-income Asia U cial credit to developing countries in 1970 totaled Low-income Africa $5.2 billion, but by 1983 had grown to $31.9 billion. Other middle- Disbursements of private credit grew more Uincome oil quickly, from $9.7 billion in 1970 to $73.8 billion in importers 1980, before falling in the wake of the debt difficul- Major exporters of D manufactures ties to $60.2 billion in 1983. As a result, the share of private credit in total credit increased from 65 per- Middle-income oil cent in 1970 to 72 percent in 1980, declining to 65 1983 exporters percent again in 1983. The low-income countries have been highly Private disbursements dependent on official financing. In 1983 some 74 percent of disbursements to low-income Asia and 84 percent of disbursements to low-income Africa were from official sources. It is only in years of high liquidity in private markets that the low- income countries have been able to raise any appreciable amounts of private finance. The mid- dle-income countries, especially the major exporters of manufactures and the middle-income oil exporters, have borrowed primarily from pri- vate sources since 1970. These two categories of countries received up to 80 percent of their medium- and long-term finance from private 1983 sources. Throughout its postwar evolution, the interna- tional financial system has been responding to Note: The size of the pie charts shown for each year is propor- pressures for change in ways that have affected the tional to the amount of disbursements in that year. institutional arrangements for capital flows to Source: World Bank data. developing countries. Changes in the financial cli- mate have often acted as a spur to innovation. In 88 Box 6.2 The deployment of the OPEC surplus The big increases in oil prices in 1973-74 and 1979-80 changes in the type of instrument or market in which produced substantial current account surpluses for all funds have been placed (see Box table 6.2A). After the OPEC members, "low absorbers" and "high absorbers" first oil price rise about 50 percent of placements took the alike.1 Between 1973 and 1982 the net foreign assets of form of bank deposits, mainly in the Eurocurrency mar- low-absorbing countries increased from $12 billion to $32 kets. After the second oil price rise, this figure was 61 billion, while high absorbers swung from net liabilities of percent. In each instance OPEC members thereafter $5 billion to net assets of $23 billion. Placements by gradually deployed their surplus in higher yielding, less OPEC have fluctuated significantly. From a total of $57 liquid assets. Their initial preference for highly liquid billion in 1974 they fell to $20 billion in 1978 before rising assets reflected both a lag in recognition of the potential to a peak of $100 billion in 1980. With the subsequent fall size of the surplus and a possible inability to gather infor- in oil prices, placements have been substantially lower. mation quickly on suitable long-term investments. Roughly 40 percent of the cumulative OPEC surplus Apart from bank deposits, OPEC members favored went to the United States and the United Kingdom, placements in Treasury securities, other bonds, and countries with deep and efficient financial markets. Con- stocks in the United States. Outside the United States siderable sums were also placed in France, Germany, and the Eurocurrency markets OPEC members pur- Japan, and Switzerland. There have been significant chased equity and property and provided increased pri- vate credits and ODA to developing countries (see Box 1. Low-absorbing OPEC members comprise Kuwait, Libya, Qatar, Saudi Arabia, and United Arab Emirates. These countries possess a 7.4 in Chapter 7). Loans were also made to international relatively low propensity to turn revenues into domestic expenditures. organizations. Box table 6.2A OPEC international placements, 1974-83 (billions of dollars) Type of placement 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 Placements in the United States Bank deposits 4.2 0.6 1.9 0.4 0.8 5.1 -1.3 -2.0 4.6 0,9 Other 7.3 7.3 9.2 6.9 -0.4 1.9 18.4 19.8 8.1 -10.4 Eurocurrency bank deposits 22.0 8.7 11.2 16.4 6.6 33.4 43.0 3.9 -16.5 -11.9 Other bank deposits 2.4 0.6 -0.9 1.2 0 2.0 2.6 0.5 -0.4 0 Other placements' 20.3 26.0 21.0 20.9 18.6 19.7 37.5 40.7 18.2 11.6 Total 56.2 43.2 42.4 45.8 25.6 62.1 100.2 62.9 14.0 -9.8 Bank deposits as a percentage of total 50.9 22.9 28.8 39.3 28.9 65.2 44.2 3.8 a. Other placements include those in OECD countries, international organizations, and developing countries. The last include net flows of conces- sional assistance, syndicated Eurocurrency credits, bond issues, and direct investment. Source: For U.S. placements and other bank deposits: Bank of England Quarterly Bulletin March 1985; for Eurocurrency placements: U.S. Department of the Treasury, Office of International Banking and Portfolio Investments, and Bank of England Quarterly Bulletin March 1985; for other placements: Sherbiny (background paper). the past ten years, for example, the most obvious erences of investors and depositors in different pressure for innovation came from changes in parts of the world. One example was the OPEC financial regulations and from the high and volatile members in the mid-1970s and early 1980s that inflation experienced over that period. The latter wanted to keep their surpluses initially in highly contributed to big fluctuations in interest rates and liquid form (see Box 6.2), primarily in bank exchange rates. Lenders and depositors sought to deposits. Another important factor in the 1970s cover themselves against interest rate movements, was that leading banks were choosing to lend with the result that lending increasingly switched abroad to satisfy their own portfolio and profitabil- from fixed rate to floating rate terms. The rapid ity objectives. The result was a greater willingness development of technology that reduced the costs of commercial banks to finance the growing cur- of getting information and dealing internationally rent account deficits of developing countries. More also contributed to the process. recently, the large current account deficits run by The financial system has also been influenced by the United States have had their counterpart in the the size and distribution of current account surpluses of Japan and some other industrial coun- imbalances; it has responded to the portfolio pref- tries. In this instance the surplus countries have 89 had a preference for U.S. government securities financial system, which may have implications for and paper issued in the international bond and the future pattern of external financing for devel- note markets. oping countries: These pressures for change operate within a reg- A gradual increase in world wealth has led to a ulatory framework for domestic and international greater demand for financial assets and a diversifi- financing. Exchange controls, for example, were cation of asset holding across markets and curren- used extensively before the 1970s. Their abolition cies worldwide. One measure of this trend is the in many industrial countries during the 1970s sig- share of external claims of banks in their total nificantly increased the ability of banks to lend claims, which has increased from 8.5 percent in abroad. Moreover, monetary controls, though 1973 to 18.4 percent in 1983. Deregulation in aimed primarily at containing money supply domestic banking markets and the changing port- growth or influencing interest rates, can have folio objectives of the banks may slow this process major international side effects: such controls in or reverse it in the future. It is possible, however, the United States and some other industrial coun- that other forms of wealth holding may be interna- tries were one reason for the growth of the off- tionalized; increased institutional purchase of for- shore Eurocurrency markets (see Box 8.3 in Chap- eign stocks and bonds might eventually lead to ter 8). Similarly, access to the foreign bond markets enhanced flows to developing countries. has been subject to controls: the markets operate There has been movement toward lending at formal or informal entry requirements and queuing floating rates both in the banking markets and in systems. The role of taxation in influencing the bond markets. In the latter the floating rate note pattern of capital flows can also be illustrated with (35 percent of total bond issues in 1984) has reference to the bond markets. Some govern- recently found favor, especially with banks seeking ments, for instance, have imposed interest equali- greater marketability in their portfolios. In the zation taxes, blunting demand for foreign issues of banking markets floating rates seem here to stay bonds, or have removed withholding taxes in even if inflation and interest rate volatility subside. order to encourage capital inflows for the purchase In the bond markets the issuance of fixed rate of bonds. In general, however, the 1970s were an bonds will remain subject to periodic fluctuations era of financial liberalization, and this had a deci- depending on inflation and interest rate expecta- sive impact on the pace at which financial institu- tions. About 43 percent of developing countries' tions internationalized their business. long-term external debt was in floating rate form in Prudential controls on commercial banks have 1983, compared with 16 percent in 1974. probably had some effect on international lending A trend has emerged toward greater use of (see Box 8.4 in Chapter 8), although the effect is bonds and other types of securities in international difficult to measure. Most industrial countries have lending; a so-called process of securitization may recently urged banks to be more prudent in deal- be under way. Given the debt service difficulties of ing with the added risks faced in international many developing countries and the high cre- lending. Banking supervisors have encouraged ditworthiness required in these markets, there is a banks to raise their capital ratios and strengthen question as to the extent to which these countries their balance sheets. They have also sought to can benefit from the trend. ensure that the banks have adequate means of Major advances in information technology assessing country risk. The increasingly global nat- and the widening of the range of business trans- ure of banking has led the supervisors to cooperate acted by individual financial institutions have led to strengthen the international banking system. to an integration of financial markets. The various Finally, political factors have combined with eco- national banking markets have been drawn nomic pressures to limit certain types of capital together by the workings of the international inter- flows. The limited constituency for aid, combined bank market (see Box 6.3) because banks are able with budget stringencies in several industrial to switch funds quickly between markets. Close countries, has reduced the amount or slowed the links also exist between conditions in the banking growth of their aid in recent years. And some markets and those in the bond markets. The developing countries have restricted inflows of advent of currency and interest rate swaps (see equity investment to prevent their domestic Box 5.5 in Chapter 5) has helped integrate financial resources from passing into foreign control or markets, as has the growth of hybrid instruments ownership. that blend features of the banking and bond mar- Several broad trends can be discerned in the kets. The trend toward integration is important for 90 Box 6.3 The international interbank market National banking markets are closely linked through the Some banks attract more deposits than they immedi- workings of the international interbank market. In the ately want to use, while others are unable to exploit lend- mid-1970s only a few hundred banks participated in the ing opportunities because of a shortage of funds. The interbank market. By the early 1980s, their number had interbank market acts as a clearinghouse, increasing the grown to well over a thousand banks from more than efficiency of banking services. fifty countries. The size of the interbank market, that is, It permits banks to manage the exchange and inter- total cross-border interbank claims, amounted to some est rate risk that arises from their customer business, $1,950 billion in mid-1984. The only entry criterion for a because they can match precisely their assets and liabili- bank is that it must be creditworthy in the eyes of other ties. participating banks; banks of different creditworthiness Both of these functions serve to increase the stability of command different credit limits and terms on their busi- the international banking system. In recent years, the ness. market itself has been tested by debt difficulties and The interbank market is informal, is conducted by tele- bank failures. This has forced banks to reevaluate the phone or telex, and trades mainly in dollars. It is not credit quality of their interbank transactions, and those independent of other markets. Interbank interest rates from Latin America and Eastern Europe have had to pay move closely in line with those in domestic money mar- stiffer terms for their interbank borrowing. Inasmuch as kets, with funds flowingwhere exchange controls per- banks are becoming more discriminating, the interna- mitbetween them. This is because most banks are tional interbank market is becoming a higher quality active in domestic as well as international markets. market and hence a more stable one. The interbank market performs two main functions: developing countries' debt management in that countries have a potentially wider range of bor- shifts in sentiment in one market rebound increas- rowing opportunities because of their greater cred- ingly on fund availability in another. itworthiness. But the existence of sovereign risk, There has recently been a stagnation of official as Box 6.4 explains, limits this range, particularly flows and direct foreign investment at a time when in comparison with sovereign borrowers from banks want to lend less to developing countries. industrial countries. Commercial banks, because This is a matter of particular concern. Greater of their widely ranging business relationships with cooperation between official and private lenders developing countries, have a comparative advan- has been one response to the problem. Banks have tage in sovereign lending. Governments have in increasingly lent in conjunction with IMF adjust- some instances a degree of political leverage in the ment programs. The World Bank has also sought provision of official finance, and so have a similar to increase the financing available to developing advantage. Direct investors are at a distinct disad- countries through the expansion of its cofinancing vantage in coping with sovereign risk. This is one program. The official sector is in some instances reason why national schemes for investment playing the role of catalyst for the private sector; insurance and, more recently, a private insurance an example is the IFC through its encouragement market have sprung up. Bond investors are also dis- of equity investment. There are also several initia- advantaged, and so bond finance has not been a sig- tives, including a proposal for a multilateral invest- nificant form of capital for developing countries. ment guarantee agency (see Box 9.5 in Chapter 9), As Chapter 5 made clear, for a developing coun- to increase direct foreign investment through the try to obtain external finance carrying a suitable provision of more extensive investment insurance. combination of cost and risk, it may need a mixed portfolio of liabilities. The broader the mix of liabil- Assessing the institutional arrangements ities, the less exposed are developing countries to interruptions in the supply or increases in the cost Developing countries have to match their external of any one element. The desired mix may contain financing needs to the type of capital that is avail- the following. able. For example, most low-income countries Equity and debt to reduce commercial risks have only limited access to commercial finance. and ensure that interest or dividends correlate They are almost totally dependent on concessional with the borrower's ability to service the external flows from official sources and on official or offi- capital. cially guaranteed trade credits. The middle-income Different currency denominations of loans to 91 Box 6.4 Sovereign risk and its implications for international lending When a government borrows from abroad or guarantees the present value of not meeting them. In short, the a loan, the legal status of the contract is unlike that countries that are most likely to service their debts are between two private companies. It is much harder to those that would suffer most if they did not do so. enforce, since a sovereign borrower may reject a claim To a borrower, the cost of possible sanctions depends against it within its own territory. The problems arising on the importance of its future trade and finance with the from this limited enforceability are complicated by the lender (and its sponsoring government). Countries that fact that governments have considerable discretion over are heavily involved in international trade depend on a policy choices that affect their own ability to fulfill a con- continual flow of finance, the use of transport facilities, tract. Many of these policiesshifts in monetary policy, smooth customs clearance, and so on. They are therefore limits on exchange remittances, changes in competition very open to sequestration orders and to a cutoff of trade policy, changes in taxescould not be deemed a breach credits. Their past success has been made possible by the of contract, even though their effect might be to negate network of trade and finance. They are unlikely to the substance of the loan. choose to jeopardize the chances of future success by The ability of governments to influence economic out- excluding themselves from that network. comes, coupled with a lender's limited scope for impos- The major international banks have a comparative ing legal sanctions, means that contracts between devel- advantage in dealing with sovereign risk because they oping countries and the private market have little are closely involved in a number of facets of a developing economic value unless both parties feel it is in their long- country's international business. This helps explain the term interest to honor their obligations. This means that growth in importance of banking intermediation during the (present discounted) economic value to a borrower of the 1970s. meeting its obligations must be equal to or greater than reduce exchange rate risks for the borrower. for these countries, however, is that the level of Fixed and floating rate finance to mitigate the official finance, and especially ODA, is in large borrower's interest rate risk. part a matter of donor budget priorities often unre- Long-maturity borrowing (for projects) and lated to the development policies of either donor short-term borrowing (to finance trade) to smooth or recipients. out debt service payments and reduce the borrow- With these caveats in mind, institutional er's refinancing risks. arrangements that provide for efficient liability Concessional and nonconcessional lending to management and contribute to steady growth in ease the debt-servicing burden, especially for low- developing countries would have three qualities. income countries. Flexibility. This refers to the capacity to A key question for developing countries is respond to changes in the economic and financial whether the financing opportunities available to environment and, specifically, the changing fund- them can produce the appropriate liability portfo- ing requirements of developing countries. Finan- lio. Any answer must distinguish between (a) pol- cial innovation is not an arbitrary process. It has icy deficiencies in lending and borrowing coun- been particularly marked among private financial tries, to which the institutional arrangements institutions where competitive pressures have respond; and (b) the problems inherent in the been intense. Multilateral development institu- functioning and evolution of the institutional tions have also adapted to the changing needs of arrangements themselves. The financial system developing countries, particularly in the 1970s and cannot be blamed for high and volatile interest early 1980s. rates, for instance; they stem from policies fol- Stability. This refers to the ability to maintain a lowed in the major industrial countries. Similarly, steady flow of finance to developing countries, sluggishness in direct investment cannot be within limits determined by creditworthiness con- attributed to a systemic failure; it may have more siderations. Maintaining a stable flow of financing to do with the policies and procedures of home is important in facilitating a smooth net absorption and host countries. And a dearth of commercial of real resources, in avoiding unduly severe bal- finance for low-income countries and some mid- ance of payments adjustment, and in sustaining dle-income countries in many instances reflects the debt-servicing capacity of borrowers. Stability appropriate market judgments rather than a failure implies an absence of "herd instincts" among of the system. What creates an additional difficulty lenders and investors. Official flows and direct 92 investment grew steadily for much of the past credit, carried a medium-term maturity whose cost decade, providing a foundation for other flows. was linked to a short-term interest rate. The risks Banks, while contributing to the system's flexibil- of rising interest rates were thus transferred to bor- ity, have nonetheless been inclined to lend exces- rowers. sively to a few developing countries; some have Another weakness was the behavior of ODA. It then suddenly withdrawn altogether from lending increased substantially in the aftermath of the first to specific countries, as happened in 1982 with the oil price increase in the early 1970s, but it stag- largest Latin American debtors. nated in the 1980s at the very time when the banks Balance. This refers to the range of instruments were seeking to reduce their lending. and facilities offered, so that borrowers can spread Any assessment of the present institutional their risks and diversify the currency composition arrangements must therefore consider how the of their debt at minimum cost. A high degree of stability of external capital flows can be increased dependence on a single kind of institution or and lending by commercial banks be restored. In instrument makes borrowers vulnerable to abrupt particular, it must address the question of how changes in supply or cost. Taken as a whole, the future capital flows, including the provision of sources of capital became more diversified in the enough concessional finance to meet the needs of 1970s, even though not all developing countries low-income countries, can be made available. were eligible for all of them all the time. However, There is a need for solutions that will avoid a recur- there was a concentration of risks in a small num- rence of the difficulties of the early 1980s. Reme- ber of large banks in meeting the financing require- dies lie in five main areas: ments of major borrowers. The provision of longer-maturity capital. Judged by these three yardsticks that contribute Commercial risk sharing through the develop- to efficient liability management and steady ment of secondary markets for developing-country growth in developing countries, the system debts. responded quickly and effectively to the pressures An increase in equity investment. of the 1970s. However, the early 1980s exposed Increased levels and better coordination of aid some serious weaknesses that were inherent in programs to improve their effectiveness. bank lending. The rapid growth of lending in the Greater availability of mechanisms for hedg- 1970s was unstable. If the growth in such lending ing interest rate and exchange rate risks. during the 1980s is construed as a one-time stock The first four of these are explored in greater adjustment by banks, then moderation in this detail in the Chapters 7, 8, and 9; the last was growth might have happened even without the noted in Chapter 5. None of these changes will deterioration in the world economy that began in come about quickly. But even slow progress on 1979. A system in which one type of lender grows every front would do much to reduce the weak- increasingly exposed to relatively few borrowers nesses and increase the strengths of the present may be inherently unstable. Furthermore, the institutional arrangements. banks' main form of lending, the syndicated 93 7 Official development flows Since the end of World War II, a variety of ways to provide economic assistance to developing coun- Box 7.1 A brief chronology tries have evolved; these range from grants and of official development flows highly concessional loans to loans on nearly com- The years between World War II and the early 1970s saw: mercial terms. The number of donors has also The creation of the International Monetary Fund increased: most industrial countries, OPEC mem- and the World Bank, first agreed to at the Bretton Woods bers, and centrally planned economies have conference in 1944; the establishment in 1945 of the become bilateral donors, while multilateral institu- United Nations and its various specialized agencies tions include the World Bank, the regional devel- which provide technical assistance to the developing opment banks, the OPEC and European Commu- countries; and the enactment in 1947 by the United nity development funds, and some UN agencies. States of the Marshall Plan which provided grants for the reconstruction of Europe. Between 1947 and 1951, the The evolution of these development-oriented offi- United States provided aid to Europe equivalent to 2.5 cial economic assistance flowsgenerally referred percent of the U.S. GDP. to here simply as official flowsis described in Box The gradual establishment and expansion of ongo- 7.1. These changes suggest an increasing recogni- ing bilateral aid programs for developing countries. In tion of the complexity of development and the 1951 the United States established the Point Four pro- desire to structure assistance accordingly. gram which provided technical assistance to developing The motives for these official flows range from countriesinitially capital funding was left largely to the private sector and the Export-Import Bank. In 1957 the the humanitarian desire to reduce poverty to the United States set up the Development Loan Fund (the political, security, and commercial interests of sup- predecessor to the current U.S. Agency for International pliers. Underlying the general effort of donors to Development program) to provide concessional long- promote and accelerate the development process term project and nonproject loans. By the late 1950s the and alleviate poverty has been the recognition that larger European countries also had in place ongoing aid many countries cannot get from private sources programs. In 1961 the main donors set up the Develop- the external capital and other services they need. ment Assistance Committee (DAC) of the OECD as a forum for aid coordination and for discussion of develop- Development, particularly in the low-income ment issues. The continued expansion in the number countries, is a long-term process that requires and size of bilateral donors can be seen in the fact that, investment in basic human, physical, and institu- while the United States in the early 1960s provided over tional infrastructure. Used to good effect, official 60 percent of total DAC bilateral development assistance flowsboth concessional and nonconcessional- and with three other countries (France, Germany, and can enhance investment and growth in developing the United Kingdom) accounted for over 90 percent, by countries, increase global output and efficiency, the early 1970s the United States accounted for less than 30 percent of the total, and these four countries com- and improve the long-term ability of poor people bined constituted less than 70 percent. to increase their own incomes. In this process, In the late 1960s, the establishment by the United developing countries' demand for imports from Nations of an aid target for donors of 0.7 percent of their industrial countries also increases. Thus, if used GNP. Some donors strongly supported this target, some effectively, the process benefits both donor and accepted it more as a statement of intent, but others recipient. specifically rejected it. Official flows, particularly concessiorial flows or The formation in 1958 of the aid consortium for India, the first of the country aid consultative groups. official development assistance (ODA), have been The creation of a concessional affiliate of the World especially important for low-income countries. Bank, the International Development Association (IDA), During 1981-82 they represented 82 percent of the in 1960, reflecting an increasing recognition of the needs total net capital receipts of such countries. of the low-income countries. With the growth of commercial lending and the 94 "graduation" of some developing countries away flows from multilateral institutions. Not included from aid, the relative importance of these official in these official flow figures, and only briefly flows to the developing world as a whole has treated in this chapter, are (a) drawings from the shrunk. Nonetheless, they remain a large and rela- IMF, which, although official, are generally treated tively stable source of capital. In 1983 official flows as monetary transactions (see Box 7.6), and (b) still accounted for 40 percent of the total net capital export credits, which are viewed primarily as com- receipts of all developing countries. Some $26.1 mercial transactions, although they receive official billion came in bilateral ODA; $7.5 billion in multi- support (see Box 7.2). Another significant source lateral ODA; and $7.0 billion in nonconcessional of assistance for the developing world not Box figure 7.1A Net disbursements to developing countries by multilateral agencies Billions of dollars Billions of dollars 6 6 1970 Concessional flows 1980 Nonconcessional flows 1983 4 4 2 2 0 0 IDA Regional EC/EIB UN OPEC OPEC EC/EIB Regional IFC IBRD banks banks World Bank Other agencies Other agencies World Bank Note: Data for regional banks comprise disbursements by the African Development Bank, the Asian Development Bank, and the Inter-American Development Bank. EC/EIB indicates the European Investment Bank of the European Communities. Source: OECD 1984. The establishment of the regional development work, notably the UN Development Programme and the banks: the Inter-American Development Bank (1959), the World Food Program. African Development Bank (1964), and the Asian Devel- The continued growth in DAC bilateral ODA, with opment Bank (1966). developing-country receipts increasing from less than $6 The 1970s witnessed: billion in 1970 to over $18 billion in 1980. A rapid growth in official flows, from $11 billion in The early 1980s have seen: 1972 to over $42 billion in 1980. Even in constant 1982 A fall in official flows of $2 billion to $41 billion, prices and exchange rates, the increase was substantial reflecting a decline of over 40 percent in the level of from $24 billion to $40 billion. OPEC ODA. DAC countries' bilateral ODA stagnated. The spectacular growth of OPEC aid, with develop- An apparent shift in emphasis by donors toward ing-country receipts of OPEC bilateral ODA jumping bilateral assistance. Between 1980 and 1983, DAC contri- from only $450 million in 1972 to $4.2 billion in 1974 to a butions to multilateral financial institutions (including peak of over $8.7 billion in 1980. the EC) remained virtually unchanged in nominal terms. A substantial growth of multilateral aid (see Box fig- The proportion of total DAC ODA accounted for by mul- ure 7.IA), which increased its share of DAC donors' total tilateral agencies fell from a high of 32 percent in 1977-78 ODA from less than 6 percent in 1965 to 15 percent in to 28 percent in 1982-83. Correspondingly, multilateral 1970-71 to 32 percent in 1977-78. The European Commu- concessional flows, which are dependent upon donor nity's multilateral assistance programs became a signifi- contributions, have stagnated. cant source of finance. UN agencies also expanded their 95 Box 7.2 Export credits There are two basic forms of export credit: (a) supplier countries has fallen sharply. In 1983, net export credits credits, which are extended by an exporter to his cus- totaled about $8 billion-less than 8 percent of develop- tomer, and (b) buyer credits, which are credits extended ing countries' net receipts. This decline reflected cuts in to the buyer by somebody other than the exporter-usu- the investment programs of developing countries, as ally a bank. Export credits become "official" when the well as retrenchment by the export credit agencies them- exporter's government participates in the credit, either selves in response to operating losses. The falloff was as a lender or as insurer or guarantor to the lender. particularly sharp for the low-income African countries, In 1980, gross disbursements of medium- and long- where disbursements of new medium- and long-term term official and officially supported export credits from credits fell from over $1.25 billion in 1980 to only $250 DAC countries to developing countries totaled $35 bil- million in 1983. Middle-income countries with debt-ser- lion (see Box table 7.2A). Net disbursements were $14 vicing problems have also found it harder to obtain billion, or 14 percent of the net financial receipts of devel- export credits. oping countries. Export credits currently represent a lit- Although export credits tend to be concentrated on the tle over 20 percent of developing countries' long-term main developing-country markets, they are more widely debt, and almost one-third of their annual debt service distributed among countries than bank lending has payments. For the low-income countries, they account been. Approximately 25 percent go to low-income coun- for some 18 percent of long-term debt (the share of com- tries, 15 percent to lower-middle-income countries, and mercial debt is less than 10 percent) and nearly 40 per- 60 percent to upper-middle-income countries. The cent of their debt service requirements. credits have been a significant source of project finance Since 1981 the flow of export credits to developing for many developing countries, with interest and repay- Box table 7.2A Export credits to developing countries, 1970-72 and 1977-83 (billions of dollars, unless otherwise noted) 1970-72 Item average 1977 1978 1979 1980 1981 1982 1983 Net disbursements from DAC countries Official export credits 0.8 1.4 2.2 1.7 2.5 2.0 2.7 2.1 Private export credits 1.9 8.8 9.7 8.9 11.1 11.3 7.1 5.5 Total 2.8 10.3 11.9 10.6 13.6 13.3 9.8 7.6 Total export credits as a percentage of developing- country total receipts 15 15 14 12 14 12 10 8 Gross disbursements from DAC countries 7.7 22.9 27.7 28.7 34.9 36.2 32.9 29.9 Note: Data are for official or officially supported medium- and long-term export credits. Source: OECD Development Co-operation. Box 7.3 Nongovernmental organizations Nongovernmental organizations (NGOs) have a long the real contribution of the NGOs, since they do not tradition of relief and development assistance. Such include the value of the services provided by volun- NGOs as Oxfam, Red Cross and Crescent, Misereor, teers-often a major element of the NGOs' efforts. World Vision, Caritas, and CARE are particularly active In the past few years, NGOs have put greater empha- in supporting education, health and population services, sis on development programs and less on relief assis- rural and urban development, and small-scale enterprise tance. They are trying to reach marginal groups, tackle development. widespread poverty at the grassroots, and strengthen In 1983, NGOs from industrial countries provided popular participation in development. As a corollary, about $3.6 billion in concessional aid. They raised about NGOs pay increasing attention to cost effectiveness, cost $2.3 billion from their own members and private sup- recovery, and evaluation of projects. They also recognize porters and received almost $1.3 billion in cash, services, the need to coordinate their activities with other donors. and commodities from official aid donors. The largest Support for closer government-NGO cooperation in NGO aid was from the United States ($1.9 billion), Ger- development is provided by bilateral aid agencies, inter- many ($547 million), Canada ($257 million), and the national NGOs, and multilateral institutions such as the Netherlands ($128 million). These figures underestimate EC, the UNDP, UNICEF, and the World Bank. 96 Figure 7.1 Net receipts of official flows, by source, 1970-83 Multilateral flows ment profiles that often match the nature and character- istics of projects more closely than most bank loans do. Billions of dollars However, there have been many cases of export 8 Official development credits' supporting inappropriate and poorly designed projects, promoting an excessive amount of borrowing, / P . .' assistance Nonconcessional II leading to overpricing of goods, or being an instrument lending of corruption. In recent years several developing coun- I tries have used short-term export credits to finance their longer-term investments, thus exacerbating their exter- nal debt position. Such problems arise because the basic purpose of export credits is the promotion of exports, 0 not development; and some developing countries do not 1970 [973 1976 1979 1982 have any machinery for reviewing and controlling the Bilateral official development assistance use of export credits. Billions of dollars In order to promote their exports, industrial countries have often provided credits on concessional terms. In the 19 DAC countries late 1970s, they sought to reduce the rapidly expanding 15 use of subsidized loans. Under the OECD Consensus, they adopted guidelines on the terms and conditions of export credits, including minimum interest rates and 10 maximum maturities. Many developing countries, how- ever, view this agreement not as an effort to improve the quality of export credits, but rather as a cartel that IpS S S OPEC members reduces interest rate competition and increases the cost Nonniarket of export credits. 0 economies and To increase the contribution that export credits can 1970 1973 1976 1979 1982 other make to longer-term programs of structural reform and faster economic growth in developing countries, all gov- Source: OECD 1984. ernments need to address two issues: first, how to encourage export credit agencies to resume guarantees and insurance to developing countries that are imple- menting adjustment programs; and second, recognizing This chapter focuses on four issues. that the basic objective of export credit agencies is to The basic arguments for official assistance and promote exports, what steps to take to enhance the the way that the motives and objectives of donors developmental impact of export credits. One key to both can influence the effectiveness of their assistance objectives may be to increase the availability and use of information on adjustment and investment programs of programs. individual developing countries. The criticisms that have been leveled against aid. The attempts that have been made to measure the impact of these official flows on development. included are the private and religious relief agen- Recent efforts to make aid more effective. cies such as CARE, the Red Cross, and Catholic Relief Services; their role is discussed in Box 7.3. Changing perceptions of development Since 1980 the dollar value of the various types of ODA has stagnated or fallen (see Figure 7.1). On The nature of official flows is strongly influenced present prospects little or no real increase is likely by the way that donors and recipients perceive for the foreseeable future. The recent decline has development. The success of the Marshall Plan in occurred in the face of a continuing need for sub- the 1940s and 1950s led many to believe that a simi- stantial external capital flows and a slowdown in lar transfer of capital to developing countries the growth of commercial lending. It highlights the would, despite their physical, human, and institu- need to ensure that external capital is put to the tional limitations, achieve similar results. The early best possible use by the recipients. For that, the model of development therefore placed nearly developing countries' own economic policies have total emphasis on increasing physical capital to an important role to playan issue discussed in raise production and income and to alleviate pov- Chapter 4. erty. This strategy meant investing not only in 97 machinery and equipment, but also in physical For others, however, this was an artificial dichot- infrastructure such as roads and ports. The World omy: economic growth and improving the lot of Bank, for example, devoted almost 50 percent of its the poor were not mutually exclusive goals; lending in its first fifteen years to power projects indeed, they were largely interdependent. Long- and railroads; less than 10 percent went to agricul- term economic growth was critically dependent ture, and none went directly to the social sectors. upon increasing the productive capacity of the In the 1950s and 1960s overall growth was the poor, including improving their health and educa- objective, and industrialization was regarded as its tion. At the same time, the ability of the poor to prime instrument. For political as well as economic achieve a sustainable increase in income necessary reasons, many developing countries were con- to meet their basic needs depended on the econ- vinced that a modern society meant an industrial- omy's ability to both grow and generate additional ized one. To achieve industrial growth, many gov- employment opportunities: redistribution was not ernments opted for import substitution, using enough. From this perspective, the issue was not high tariffs and quantitative controls against one of equity versus growth, but rather the nature imports. These policies distorted domestic prices of growth. Supporters of this "growth with and made the exchange rate increasingly overval- equity" approach have emphasized the need for a ued. This in turn discouraged exports and encour- mixture of efforts, some aimed directly at the prob- aged the growth of inefficient industries. Agricul- lems and constraints faced by the poor, others ture was largely neglected. Some governments aimed at increasing growth and output and tacitly or explicitly relied on the ready availability improving economic policies, which directly or of food aid, assuming that agriculture could be indirectly benefit the poor. As a result of this improved once industrial strength was ensured. debate, poverty alleviation has gained greater The longer these inward-looking development attention in the design and evaluation of develop- strategies persisted, the more evidence accumu- ment programs. For most donors, the demonstra- lated on the costs of these policies not only to the tion that aid funds do in fact seek to address the economy but also particularly to the poor. An basic long-term problems faced by the poor and do increasing number of countries also started to not primarily benefit the higher-income groups in show that the possibilities for expanding agricul- recipient countries has been an important element tural output and exports were larger than had been in public and legislative support for aid programs. assumed. As a result, a more outward-looking, The economic pressures of the past dozen years market-oriented approach to development increas- have highlighted the complexity of development. ingly became the standard. It also became increas- The differing achievements of developing coun- ingly recognized that the development of human tries have emphasized the critical role of their own capital was a critical factor in the promotion of economic policies, including (a) the cost of ineffi- development. cient import substitution, price distortions, and In the early 1970s some observers began to ques- consumer subsidies and the major contribution to tion the appropriateness of the conventional growth and employment that can be made emphasis on overall growth. A number of eco- through open trade policies and realistic exchange nomic studies of the relationship of economic rates and domestic prices, (b) the part that agricul- growth and income distribution, as well as more ture can play not only in boosting economic casual observations of the incidence of poverty in growth and strengthening the balance of pay- individual countries, led some economists and aid ments, but also in raising the incomes and nutri- supporters to conclude that the major beneficiaries tional standards of the poor, and (c) the impor- of development efforts had often been the middle- tance of developing a country's institutional as and upper-income groups; growth had not "trick- well as its physical infrastructure. led down" to the poor. These observations were The recent past has also raised questions about an important element in the development of the the flexibility of official institutions and flows in so-called basic human needs approach. Some sup- meeting the specific needs of developing coun- porters of the approach saw a conflict between tries. Such questions cover the ability and willing- programs that sought to promote growth and ness of official institutions to support policy reform those that sought to help the poor and therefore efforts, to finance local costs, to fund the mainte- argued that development efforts needed to be nance and rehabilitation of existing capital, to help directly targeted to the poor and to addressing develop the institutional capacity of developing basic needseducation, health, and nutrition. countries, or to finance critical imports. Also at 98 issue is the right balance between short-term and ondary education over 15 percent. Numerous longer-term assistance and between different studies of agricultural research have indicated real forms of assistance, including general balance of returns well above the 10-15 percent range. How- payments support and sector and project assis- ever, these yields may be realized over a period of tance. thirty to forty years, with no returns at all in the early years. This makes them unsuitable for pri- Rationale for official flows vate markets, so official help is needed at least dur- ing the initial stages of development. The economic case for official flows has two basic Furthermore, economic development depends strands: efficiency and equity. These are often rein- on more than just accumulating physical capital forced by a recognition of what is realistically pos- and improving human resources. It also requires sible given the economic, political, and social institutional development, technology transfers structure of the country. and adaptation, and an appropriate framework for The efficiency argument is based on the view economic policy. Foreign private investment can that private markets for capital, technology, and provide a package that may include financial and other services do not provide the amount and type physical capital, technology transfer, and manage- of resources most suited to the specific economic rial services. But, as discussed in Chapter 9, for- conditions and potentials of individual developing eign investment not only has tended to be highly countries and to the efficient allocation of world selective in its choice of sectors and countries, but savings. Official action and assistance, by comple- also has been in limited supply. In addition, the menting the flows from these markets, can types of technical services and resources needed improve the worldwide allocation of resources. are often not easily obtainable in private financial Rates of return on investment are often higher in markets. Low-income countries, in particular, may developing countries, so providing these resources also lack the technical skills to identify, evaluate, (concessionally and nonconcessionally) to them and acquire them. Official flows can be a vehicle can yield higher future income not only for the for providing the combination of capital, technical recipients but also for the world as a whole. assistance, and policy advice that developing Although private capital markets supplied large countries need. Donors can help to build up insti- amounts of finance to middle-income countries in tutions that can then make more effective technical the 1970s, many countries, including those in the and policy choices. By assisting in the creation of low-income category, had limited access to private basic infrastructure, the development of institu- capital. This limited access to private capital stems tions, and the promotion of market-oriented poli- from several factors: (a) the existence of sovereign cies, official flows often encourage, directly or indi- risk, which constrains the volume of lending; (b) rectly, inflows of private capital. industrial countries' regulations on their capital The efficiency argument provides the rationale markets, which discriminate against overseas for official action but says little about whether such lending by certain financial institutions; (c) the na- flows should be on concessional or nonconces- ture of many investments in developing countries sional terms. One argument for providing official (particularly those in basic infrastructure), which flows on concessional terms rests on equity consid- yield high social returns, but may yield benefits erations. Although concessional assistance is vol- that are not readily capturable or in the short run untary, in economic terms the line of reasoning can earn little or no foreign exchange with which to be viewed as a simple extension of the progressive service foreign commercial loans; (d) inadequate taxation argument, whereby income transfers are information for lenders about investment opportu- made between rich and poor countries rather than nities and the capacity of developing countries to between higher- and lower-income groups within repay loans; and (e) the traditional objections of a donor country. In this view, higher-income private banks to long-term funding. industrial countries can use part of their domestic This last point is particularly important. Many of tax revenues to fund transfers to the lower-income the investments needed to ease the basic con- developing countries in order to improve directly straints on developmenthealth, education, agri- the welfare of citizens in the latter andthrough cultural research, and some types of infrastruc- expansion of economic activity and tradealso tureyield high returns. For example, the real rate indirectly increase world welfare. Concessional of return on primary education in Africa has been aid, compared with a similar initial financial flow estimated to be as high as 30 percent, and for sec- on market terms, more effectively serves this 99 objective because it provides a larger net flow of Given that the economic objective of official capital over the long run. assistance is ultimately to improve the allocation of There can also be a practical rationale for conces- resources and to increase the rate of economic sional assistance. In low-income countries many of development, the form of assistance that will most the direct beneficiaries of public investments and effectively promote this objective can vary signifi- services (health and education are examples) are cantly among countries depending on the coun- too poor to pay their full costyet the economy as try's specific economic situation. It will also be a whole benefits. Since the benefits occur some- influenced by the capabilities and strengths of the where in the economy, it might be argued that individual donorof course, as the next section governments should be able to capture a portion of discusses, other donor motivations also influence them, through fees and taxes, in order to service the nature of assistance. From a development per- borrowing on market terms. However, the time spective the basic question is, What are the basic period over which the returns accrue can be very constraints to economic growth and how can off i- long, thus producing a debt-servicing mismatch cia! assistance help reduce or remove them? In for commercial loans. In addition, it is often diffi- many countries in order for existing and future cult for a government, for social, political, or investment to contribute effectively to increased administrative reasons, to capture the benefits of economic growth, policy reforms are needed to such investments, particularly those designed to remove economic distortions that prevent the effi- increase the earning capacity and well-being of the cient allocation of resources. Such policy reforms, poor. It has also been argued that in certain cases however, generally take time to produce positive for example, clean water supplies and immuniza- results while additional costs may arise very tion programsattempts to charge fully for the quickly. In such circumstances, noriproject assis- services can substantially reduce their use by the tance can both encourage the undertaking of the poor, thereby harming the economy and society as needed reform and provide rapidly disbursing a whole. resources needed during the transition process. Another practical argument for concessional Similarly, when countries face severe balance of assistance relates to the fact that to service external payments and domestic budget constraints, efforts debt not only do domestic resources have to be that help stabilize the economy and lay the foun- increased, but they also have to be converted into dation for future growth and investment can be a foreign exchange. Countries at early stages of critical component of a package of actions and pro- developmentwhere there is great need to under- grams designed to assist the country. Such efforts take investments in social services and infrastruc- can include: the financing of the importation of tureoften face institutional and other constraints intermediate inputs, which will permit the use of that can reduce their capacity to increase export existing private and public sector idle capacity, earnings rapidly. Since concessional flows do not thereby quickly increasing domestic supplies and generate as large a debt-servicing and foreign exports; and the financing of the maintenance and exchange burden as flows at market rates, they rehabilitation of existing investment. These types increase the ability of these countries to make such of assistance have been particularly important in needed investments. many of the middle- and low-income countries, The arguments for concessional assistance apply where the flow of private capital has typically primarily to the low-income countries. Although declined with the onset of debt-servicing difficul- middle- and upper-income developing countries ties. also need to invest in basic social infrastructure, which has long gestation periods and externalities, Donors' objectives their more developed economies provide a basis to obtain increased levels of private capital and also Donors supply official assistance for many differ- to generate the foreign exchange needed to service ent reasons: to assist the economic development of commercial loans. However, even in many middle- the recipient; to further their own strategic, politi- income countries, official assistance can play a cal, and commercial interests; to maintain histori- valuable role by providing not only long-term non- cal and cultural ties; and to express their humani- concessional capital, but also technical assistance tarian concern. This combination of objectives can and policy advice. It can also be a catalyst to pri- affect the nature of official flowsand can seri- vate flows, stimulating increased levels and ously reduce the effectiveness of such flows in pro- improved terms. moting development. The level, growth, and rela- 100 tive performance of different countries in the provision of concessional assistance, ODA, is illus- Figure 7.2 Volume and growth of ODA disbursements by donors, 1983 trated in Figure 7.2 and Box 7.4. Volume of disbursements Recent studies have demonstrated the role of nondevelopmental considerations in determining Disbursements as a percentage of GNP 1.2 the distribution of ODA. Political interests Norway undoubtedly played an important role in the allo- Netherlands cation during 1981-82 of 39 percent of U.S. bilat- eral ODA to Egypt and Israel; of 38 percent of 0.8 Sweden French ODA to four overseas departments and ter- Denmark France ritories; and of 42 percent of OPEC members' bilat- Belgium eral and multilateral ODA to two countries, Jordan Australia and Syria. Similarly, the mineral resources of Zaire 0.4 Canada Germany and Zambia are often cited as a significant com- irtland--United Kingdom Japan mercial reason for U.S. aid to these countries. Italy The influence of nondevelopmental motives for \witzerland New Zealand United States aid is also highlighted by a comparison of bilateral Austria 0 and multilateral programs. During 1980-82 only 40 0 2 4 6 8 percent of the bilateral aid from the DAC countries Disbursements (billions of dollars) and less than 20 percent of OPEC bilateral aid went to low-income countries, whereas two-thirds of all Real growth of disbursements, 1977-78 to 1982-83' multilateral aid went to them. Finland In addition, DAC donors usually require the Japan recipient to purchase goods and services in the Switzerland donor country; this is not true for OPEC donors. Italy This "tying" of aid covered some 43 percent of Germany bilateral ODA from DAC donors in 1982-83, while France another 11 percent was classified as partially tied. Norway These figures probably understate the volume of Austria tied aid, since informal arrangements often exist to Netherlands place orders with donors. The result can be a lower Denmark quality of goods and services, often more expen- Australia sive and less appropriate to the needs of the recipi- ent. Studies on the costs of aid tying suggest that it reduces the value of development loans by about Belgium United States :iI Sweden 15 to 20 percent, and in individual cases by much Canada more. New Zealand In recent years, donors have increasingly used United Kingdom mixed credits (combining aid with export credits) to promote their commercial interests. Use of this 4 0 4 8 12 16 financing mechanism can distort trade flows and Percent reduce the effectiveness of aid (see Box 7.5). a. Average annual percentage change in real terms betwen period averages. In contrast, most procurement resulting from Source: OECD 1984. multilateral assistance is subject to international competitive bidding procedures. Indeed, one of the often-cited advantages of multilateral assis- tance is that it is generally far less influenced by development and tackle poverty, or that it is harm- nondevelopmental interests than is bilateral aid. ful in principle. Those who object to aid on princi- ple do so from two distinct viewpoints: Does aid help development? One school derives from dependency theory, arguing that underdevelopment is not merely the Foreign aid has always been controversial. Its crit- absence of progress; it reflects active exploitation ics believe either that it is often badly adminis- of the "periphery" by the developed market econ- tered, severely reducing its ability to promote omies of the "center." Aid is therefore a tool to 101 Box 7.4 OPEC economic assistance Until 1973, only three OPEC members (Kuwait, Libya, percent for Kuwait, 8 percent for Saudi Arabia, 12 per- and Saudi Arabia) were significant aid donors. Most of cent for the United Arab Emirates, and 16 percent for their assistance took the form of grants for budgetary Qatar. support for Egypt, Jordan, and Syria; it averaged a little OPEC's disbursements of ODA reached a peak in 1980 over $400 million a year in 1970.-72. OPEC members' aid and have since declined by over 40 percent in nominal for long-term development averaged between $40 mil- terms and in 1983 accounted for 15 percent of world lion and $60 million a year before 1973 when it had two ODA flows (see Box table 7.4A). This decline reflects in sources only: the Kuwait Fund and the Abu Dhabi Fund. part the declining oil revenues and balance of payments After the rise in oil prices in 1973-74, OPEC assistance position of these countries as well as the political conflict increased dramatically. During 1974-77 net disburse- in the Gulf region. The sharpest falls have been from ments averaged more than $5 billion a year, almost 30 Iran, Iraq, and the United Arab Emirates. Kuwait and percent of total ODA from all sources. They also repre- Saudi Arabia provided 90 percent of total OPEC aid in sented a much larger proportion of the GNP of OPEC 1983. donors than the aid from DAC donors, which was OPEC donors kept more than 80 percent of their ODA between 0.3 and 0.4 percent of GNP throughout the in 1981-83 in bilateral programs. Over 85 percent of their 1970s. In 1975 ODA as a proportion of GNP reached 7 geographically identified bilateral disbursements went to Box table 7.4A Concessional aid flows from OPEC members, selected years, 1970-83 (net disbursements in millions of dollars) Source 1970 1975 1980 1981 1982 1983' Arab states Kuwait 148 946 1,140 1,154 1,168 995 Qatar 338 270 250 50 22 Saudi Arabia 173 2,756 5,943 5,664 4,028 3,916 United Arab Emirates 1,046 909 811 402 100 Other OPEC donors 77 1153 1328 645 243 444 Total 398 6,239 9,589 8,525 5,891 5,476 Total as a percentage of GNP 1.18 2.92 1.80 1.51 1.06 1.05 Total as a percentage of world ODA 4.8 28.3 24.0 22.7 15.9 15.1 Arab states total as a per- centage of their GNP 4.04 8.50 4.48 3.45 2.65 2.98 Preliminary. Average of the aid-giving countries. Source: OECD Development Co-operation. perpetuate the dominance of donors. If aid pro- designed. In essence, such criticism is about the vides any benefits, these merely prevent unrest way aid is implemented rather than its basic and keep developing countries in a submissive rationale. state. The effectiveness of aid can also be analyzed as The other school claims that aid inevitably an empirical question. At the most general level, it expands the role of government, distorts market should be noted that the progress made by many signals, and finances some investments that the developing countries over the past thirty years is private sector would undertake if it were given the inconsistent with the charge that aid hinders chance. Indeed, these critics would also argue that development. Nor do the facts support the claim a liberalized private sector could provide all the that aid fosters government control and under- resources needed for development, so aid is not mines incentives. A number of early aid recipients justified. such as Brazil, Colombia, Korea, and Thailand Neither of these extreme views is convincing. have grown rapidly and have thriving private sec- The critics of aid offer little analytical evidence for tors. Contrary to the expectations of dependency their view, relying instead on anecdotal accounts theorists, these and other countries that have of cases in which aid was used for nondevelop- adopted outward-looking policies have had the mental reasons or aid projects were badly most success in raising income and improving gen- 102 tion of aid directly supports private sector activity: Arab countries and 10 percent to non-Arab African coun- for example, aid to agriculture generally benefits tries. More than half of all OPEC bilateral aid goes for private farmers, and much of the money put into general budgetary support, and less than one-fifth for development finance institutions is channeled into project assistance. private industrial investment. Official donors, par- Within their bilateral programs, four of the OPEC ticularly the MDBs, have also directly encouraged donors (Abu Dhabi, Iraq, Kuwait, and Saudi Arabia) private sector flows through their cofinancing with have established National Funds that administer a signif- the private sector. icant part of their project assistance. These National Funds have an authorized capital of $16 billion. They The role played by official assistance in support disbursed slightly less than $600 million in 1983, down of the private sector is substantiated by the analy- from nearly $900 million in 1980. sis and conclusions of the 1982 study by the U.S. Of the 15 to 20 percent of total OPEC aid that is chan- Treasury Department of the multilateral develop- neled through multilateral organizations, 40 percent ment banks (MDBs). The study identified only 8 goes to multilateral institutions with a broad member- percent of MDB loans supporting public sector ship; IDA and IFAD are the main recipients. The remain- ing 60 percent goes to multilateral agencies established activities that would clearly have been supplied by by OPEC members. The largest is the OPEC Fund, the private sector in an economy like that of the which received 30 percent of OPEC multilateral contribu- United States. The study noted that even this 8 tions. Other significant agencies are the Arab Fund for percent may be an overestimate, since such activi- Economic and Social Development, the Islamic Develop- ties might not have been undertaken at all without ment Bank, and the Arab Bank for Economic Develop- MDB financing, given the small size of the private ment in Africa (BADEA). These four institutions have an sector in most developing countries. The study authorized capital of close to $10 billion. They disbursed an average $360 million a year in net ODA between 1981 also concluded that overall the MDBs' policy and 1983. approach and advice have taken a fairly conven- The assistance offered by OPEC to the developing tional market orientation. countries in the future will continue to be influenced by Over the years many studies have tried to iden- its liquidity position. Given present prospects for oil tify more precisely, and if possible to quantify, the prices, the volume of OPEC aid commitments may not impact of aid on development. The biggest and register significant growth in the next few years. How- most systematic attempts have been those that ever, the level of aid disbursements by OPEC members is likely to decline less rapidly than their commitments for evaluate individual projects. In the case of the some time, reflecting the lag in the former. Moreover, the World Bank, for the past ten years each of its com- lending levels of the development institutions created by pleted loans and credits has been covered by a OPEC members, because they have their own capital Project Performance Audit Report or Project Com- endowments, may not experience as sharp a decline in pletion Report. The results are largely favorable. lending as OPEC government-to-government programs. For 504 projects where it was feasible to reestimate economic rates of return, returns of 10 percent or better were expected from 79 percent of the projects. The average return, weighted by project era! economic welfare. cost, was almost 18 percent. By sector, returns It is also true that governments have a central averaged more than 20 percent in agriculture, 18 role to play in developing countries in building the percent in transport, and a little less than 13 per- basic infrastructure, administration, and human cent in industry. For 459 projects for which rates of skills needed for long-term growth and in creating return were not estimated at the time of project an environment in which the private sector can appraisal, 93 percent were judged substantially to' expanda fact generally ignored by the ardent have achieved their main objectives. Overall, only antigovernment critics. As noted earlier, a signifi- 14 percent of the projects, accounting for 9 percent cant quantity of official assistance has been of total investment, were judged at the time of directed to developing basic infrastructure, which audit to be unsatisfactory or uncertain in outcome. is an essential precondition for a modern private Although rates of return have not differed much sector. Assistance has also been used to finance between the loans to the low-income countries imports that have permitted the liberalization of made by IDA and those from the IBRD to the less the country's trade regime and to promote other poor countries, the number of projects with inade- critical economic policy reforms aimed at improved quate rates of return has recently been growing. efficiency and increased reliance on market forces These have been mainly in agriculture and in and private initiative. Furthermore, a large propor- Africa. 103 Box 7.5 Mixed credits The term mixed credit usually refers to loans that are a infrastructure for only 2 percent. Similary, exporters are combination of aid and government (or government- keen to extend mixed credits to middle- and high-income guaranteed) trade credits that are given to finance spe- countries where trade competition is greatest, which cific exports from the lending country. Until the late would shift aid away from the low-income countries. 1970s, mixed credits were only a small fraction of total Supporters of mixed credits have argued that mixed aid budgets and export credits; the main exception was credits can promote development by "stretching" ODA; in France, which used mixed credits as a standard part of increase the total flow of finance to the developing its aid program. However, with recession and balance of world; improve the quality of export credits by bringing payments difficulties in the late 1970s and early 1980s, all the judgment and monitoring of aid agencies to bear; industrial countries came under increasing domestic reduce the cost of finance for countries with limited debt- pressure to use mixed credits to promote exports and to servicing capacity; and provide more appropriate, less match the mixed credit offers of other donors. concessional financing terms for middle-income coun- Data on mixed credits are sketchy. The DAC is seeking tries. The merits of these points, however, remain in to increase the availability and quality of data on the use dispute. Not only is there little evidence that aid stretch- of "associated financing" credits, a concept that covers ing actually occurs, but also opponents have argued that all trade financing in which some ODA is included but such effects could be attained more effectively through which is composed primarily of mixed credits. Although other mechanisms, such as the direct allocation of a lim- mixed credits have been estimated to have totaled less ited volume of aid to a country. Reflecting the concern than a quarter of a billion dollars in 1975, some $10.5 over the potential distortion of aid and trade that can billion of associated financing was reported by fifteen result from mixed credits, the DAC in June 1983 adopted DAC countries for 1981-83. The amount of ODA "Guiding Principles on the Use of Aid in Association involved in these associated financing transactions with Export Credits and Other Market Funds." The totaled $3.1 billion. France accounted for 45 percent of objective of these guidelines was to avoid aid and trade the total, followed by the United Kingdom with 23 per- distortions by increasing the transparency of such trans- cent, and Italy and Japan each with 9 percent. actions and strengthening the deterrent to the possible Since mixed credits are largely based on commercial diversion of aid resources to purposes that are primarily considerations, they could easily dilute the development commercial. In 1984 the DAC adopted measures to impact of a donor's program. Mixed credits can divert improve the reporting by members of associated financ- funds to capital-intensive and import-intensive ing transactions, and in April 1985 the ministers of the projectssuch as transportation, telecommunications, OECD agreed on reinforced notification and consultation and power generation. They have a built-in bias against procedures and an increase in the minimum permissible projects and programs with a low import content, such grant element for such transactions. Supportive of DAC as rural development or primary health care, and in par- objectives, the World Bank has recently established a ticular against local cost financing. In 1981-83, energy cofinancing "framework" agreement with one member accounted for 30 percent of associated financing transac- country, which involves, among other flows, mixed tions; industry and transport for 20 percent each; food credits. and agriculture for 10 percent; but health and social The Inter-American Development Bank (1DB) tion of aid has been provided to countries at low and the Asian Development Bank (ADB) have also levels of development with weak institutional and evaluated samples of their loans. Their results are managerial structures. Investments, whether broadly similar: 60 percent or more of their undertaken by private or official sources, are there- projects met their objectives fully; about 30 percent fore more risky than those in more advanced coun- partially did so; well under 10 percent were unsat- tries. Furthermore, the innovative or experimental isfactory or marginal. Several bilateral donors have nature of some activities adds to their risks, but the also developed evaluation programs. These gener- lessons derived from these efforts, both successes ally do not place as much emphasis on the quanti- and failures, can be critical to the design and fication of project results. However, those studies implementation of future projects. that have looked at the impact of particular To judge the cumulative impact of individual projects have usually found a substantial measure projects, and donors' contributions to policy, stud- of success. ies of countries would obviously provide a better Even where failures do occur it is important that guide. They too involve problems, the most funda- they be placed in perspective. A significant propor- mental being the question of what would have 104 happened in the absence of aid. Two recent stud- The effectiveness of dissemination not only among iesone supported by the U.S. Department of donors, but also within aid institutions is, how- State (Krueger and Ruttan 1983) and the other car- ever, considered by many to be inadequate. Les- ried out for the Development Committee of the sons learned from aid assessments need to be World Bank and the IMFanalyzed the role of aid exchanged among donors and transmitted to aid in promoting economic growth in, together, close project managers to a much greater extent than to a dozen developing countries. They note that currently occurs. the impact of aid has varied considerably from Much remains to be done to ensure the best use country to country and over time. They identify of aid flows, particularly in low-income African areas in which results could have been improved. countries. One important aspect of Africa's eco- But both conclude that aid has generally brought nomic crisis is the low rate of return on its capital long-term benefits to recipient countries. investments, which have been extensively Another inescapable conclusion of these studies financed by external assistance. Many donor- is that much depends on the recipient's policy financed projects have taken much longer to com- framework and institutional strength, both areas plete than anticipated and have been much more where official assistance is actively involved. To expensive. These startup problems have fre- take some well-known examples, growth in Korea quently been followed by disappointing opera- accelerated sharply when the government adopted tional performance due to a lack of staff, equip- more liberal trade and industrial policies; the per- ment, and materials and to poor maintenance and formance of Ghana until recently has been as dif- administrative weaknesses. In the worst cases, ferent from neighboring Ivory Coast as its policy new aid has been needed to rehabilitate projects regime; India's faster growth in recent years completely. It is from this perspective that donors results in part from its policy reforms in 1980; and are seeking to structure their assistance to more the general lack of progress in sub-Saharan Africa effectively address the problems faced by the low- has its roots in part in institutional and policy fail- income countries. ings that governments there increasingly recog- nize. Improving the effectiveness of aid Another factor that shows up repeatedly in country studies and project evaluations is the time Economic difficulties in developing countries and it takes for investments to produce results, and the budgetary constraints of donors have focused hence the importance of perseverance. In Korea, attention on increasing the effectiveness of official secondary education programs undertaken in the aid. Donors have responded in three related ways: 1940s and 1950s seemed to yield relatively low (a) by putting greater emphasis on policy reform in returns at first; the same was true of overseas recipient countries; (b) by developing flexible training programs in the 1960s and transport and instruments to meet the specific needs of recipi- power investments in the 1950s and early 1960s. ents; and (c) by coordinating their assistance pro- Yet they all clearly contributed to the country's grams more closely. rapid growth from the mid-1960s onward. The extensive assistance to India's agriculture began as Emphasizing policy reforms early as 1950, and for years did not seem to be producing beneficial results. But it developed the The need for policy reforms, highlighted by the necessary institutional framework for adopting the external shocks that have affected many develop- high-yielding grains of the green revolution. ing countries in the past dozen years, is now com- Both the detailed assessments of individual mon ground between donors and recipients. The projects and the broader studies of particular coun- recent World Bank report entitled Toward Sustained tries provide strong support for the view that aid Development in Sub-Saharan Africa observed that: can and often does contribute effectively to devel- "Neither the essential objectives of Africa's devel- opment. Where they have demonstrated the short- opment nor the policy issues that must be comings of aid, they have been a valuable spur to addressed to achieve them are in dispute, . . . the making it more effectivethe aid process indeed emerging consensus on policy issues dwarfs any has involved a large component of learning from remaining areas of dissent" (pp. 2-3). There experience. One of the major objectives of donor remain, of course, questions about the timing and evaluation programs is in fact to identify and dis- detail of these reforms as well as the finance that seminate the lessons from successes and failures. donors will provide for support. 105 The IMF has often played a key role in promot- large and growing repayments obligations to the ing policy reform in countries facing severe bal- IMF. For example, sub-Saharan African countries ance of payments problems (see Box 7.6). The scale will have to repay to the IMF about $1 billion a year of its financial assistance has increased enormously over the next few years. in the past five years. Between 1981 and October Given that IMF financing is relatively short term, 1984, developing-country net drawings from the it needs to be complemented by longer-term con- IMF totaled almost $26 billion. At the end of Octo- cessional and nonconcessional finance from pri- ber 1984, thirty-one developing countries had pro- vate and official sources. To provide longer-term grams with the IMF, involving a total of SDR 13 support for policy reforms, the World Bank in 1981 billion. Many developing countries, however, face launched its structural adjustment loan (SAL) pro- Box 7.6 IMF lending, its role, and its size The International Monetary Fund's first financial opera- services and cereal imports. Drawings under the CFF tion was in 1947. Since the early 1960s, its main instru- grew dramatically during the late 1970s and early 1980s, ment for assisting member countries has been the reaching SDR 2.6 billion in 1982 and SDR 2.8 billion in standby arrangement. Under a standby arrangement, 1983. In 1969 the IMF established the Buffer Stock the IMF agrees to make available during a certain period Financing Facility, which allows members in balance of (usually a year, but it can be up to three years) a specified payments difficulties to draw on the IMF to finance their amount of its resources, which the member may use in contributions to international buffer stocks that meet cer- support of an agreed upon program of economic adjust- tain criteria. The use of this facility has been very limited. ment designed to reestablish a viable balance of pay- The IMF has also recognized that a short-term standby ments position. Drawings are phased over the life of the arrangement is not always the most appropriate form of arrangement and are contingent on the country's fulfill- assistance for members having deep-seated balance of ment of its program. Since the first standby arrangement payments problems. In 1974 it created the Extended in 1952, the IMF has approved 548 standby arrangements Fund Facility (EFF) to provide larger loans in support of for a total of SDR 50 billion (one SDR currently equals three-year adjustment programs for members whose bal- about one dollar). ance of payments problems were occasioned by a dis- During the 1960s, governments believed that the sup- torted structure of production and trade, with wide- ply of international reserves was likely to become inade- spread cost and price distortions. To date, the IMF has quate. They therefore agreed to create a facility in the approved thirty-three extended arrangements for a total IMF for a new international reserve asset, the special amount of SDR 24.5 billion. drawing right (SDR), which is allocated to IMF members The IMF has also temporarily adapted its policies in in proportion to their quotas. Since 1969 the IMF has response to specific problems arising in the international allocated SDR 21.4 billion in SDRs. economy, as in the case of the IMF oil facilities of 1974 After the adoption of floating exchange rates by most and 1975. Similarly, in response to the particularly diffi- major countries in the early 1970s, and the amendment cult balance of payments and adjustment problems of of the IMF Articles of Agreement in 1978 to permit many of its members in the past five years, members' arrangements of a member's choice, the IMF was given quotas in the IMF were again increased both in 1980 and new responsibilities with regard to the firm surveillance 1983. They now total over SDR 89 billion. of the exchange rate policies of members and the domes- Access to the IMF's resources has been expanded, first tic policies impinging on exchange rates. The IMF carries under the Supplementary Financing Facility (SFF) and out its surveillance mainly through annual consultations more recently under the enlarged access policy. Mem- with most members, assessing all aspects of members' bers' access to IMF resources under standby and economic and financial policies that might have an extended arrangements was traditionally a maximum of impact on exchange rates. 25 percent of quota a year, with a cumulative maximum In addition to the standby arrangement, the IMF has of 100 percent of quota. It can now go as high as 95 or 115 established other facilities in response to members' spe- percent of quota a year, with cumulative net limits of 408 cific needs. In 1963 the Compensatory Financing Facility or 450 percent of quota, depending on the seriousness of (CFF) was set up, allowing members to make drawings the balance of payments need and the strength of the on the IMF to support their balance of payments when adjustment effort. In addition, for a number of heavily they faced temporary shortfalls in their exports. This indebted countries under severe balance of payments facility has been liberalized several times, both in the pressures, the IMF has also recently helped mobilize access to resources that it provides and in the range of additional assistance from official and commercial compensable shortfalls, which now include exports of sources. 106 gram. This involves close collaboration with the needs of developing countries. Bilateral donors borrower in developing policies and programs for have also funded the local and recurrent cost com- restructuring the economy. To date, SAL programs ponent of projects in individual cases. In 1979 have been negotiated in sixteen countries, includ- DAC adopted its "Guidelines on Local and Recur- ing six in Africa. Other donors have encouraged rent Cost Financing" and in 1982 supplemented the Bank to work with developing countries on these with "Guidelines for Maintenance and such programs, sometimes reinforcing the Bank's Strengthening of Existing Services and Facilities." efforts through their own bilateral programs. In Direct financing of local costs by DAC members, principle, donors recognize that nonproject aid can however, still averages only about 8 percent of sometimes be the most effective way to support their ODA. policy reforms and to finance the imports an econ- One challenge for all donors is to increase the omy needs for completion, rehabilitation, and proportion of concessional assistance going to low- maintenance of existing projects. On one estimate, income countries. There has been some progress up to a third of total ODA is for nonproject assis- in increasing the level and share of concessional tance. A large part of this aid is special-purpose assistance going to low-income Africa. Its share of assistance, such as disaster relief, food aid, and total ODA has increased by roughly five percent- debt relief. age points since the mid-1970s, to approximately However, most donors still prefer to finance spe- one-fifth of the total today. This increase, however, cific projects. Project lending is a highly effective seems to have come largely from a shift of aid form of assistance. Apart from finance, it provides away from other low-income countries, such as countries with institutional support and other India, not from middle-income countries. India technical assistance that many badly need. How- and China, which account for 50 percent of the ever, the preference for project lending, coupled developing world's population, now together with a lack of aid coordination, can produce an receive only 10 percent of the total net flow of inordinate proliferation of projects, straining the ODA. The reduction in the level of IDA resources financial and manpower capacity of recipient coun- provided by the current replenishment represents tries to implement, monitor, and maintain them. a further serious constraint to expanding conces- For example, Kenya in the early 1980s was trying sional flows to the low-income countries (Box 7.7). to cope with 600 projects from sixty donors. Simi- The need for more aid for Africa was highlighted larly, the UNDP has estimated that there were 188 in the recent World Bank report on sub-Saharan projects from fifty donors in Malawi; 321 projects Africa mentioned earlier. The report recommended from sixty-one donors in Lesotho; and 614 projects additional assistance to support policy reforms, from sixty-nine donors in Zambia. In such num- structural adjustment, and rehabilitation, and bers, the effectiveness of aid can be severely donors have responded by recently committing reduced; in sub-Saharan Africa, the proliferation some $750 million in direct contributions and of projects may actually have undermined the about $500 million in special joint financing for the development effort of individual countries. The World Bank's Special Facility for Africa. Several keys to dealing with this problem are the formula- bilateral donors have also increased their African tion of well-articulated investment programs by programs. The United States "economic policy recipient countries and coordination by donors of reform program" would provide additional aid up their activities (discussed below). to $500 million over five years to African countries that undertake to reform their price structures and Meeting the needs of recipients other policies. Commitments to the African Devel- opment Fund of the African Development Bank for The distinction between project and nonproject 1985-87 are up by 50 percent ($500 million) over lending should not be exaggerated. Indeed, they the previous replenishment. But the resources pro- can be viewed as part of a spectrum of assistance. vided by these initiatives will still fall short of Several donors, including the World Bank, have requirements, and projections still indicate a created a variety of flexible forms of assistance, tai- decline in the net concessional capital flows to lored to the specific needs of the recipient. The these countries over the next several years. World Bank adopted a Special Action Program in 1983, which concentrated on accelerating disburse- Coordinating assistance ments to rehabilitate existing capacity and com- plete priority projects in response to the urgent Effective coordination among donors, and 107 between donors and recipients, is needed to avoid concerned (see Box 7.8). duplication and proliferation of projects, to share Despite these efforts to improve the effective- information and experience, and to increase the ness of aid there remain significant barriers. Non- overall impact of aid efforts. Yet coordination has developmental motives still play a major role in aid often been superficial at best, and many low- programs. They can sometimes stand in the way of income countries have not developed their own multilateral institutions' efforts to promote a policy machinery to coordinate aid flows and programs. dialogue with aid recipients. A high proportion of Donors and recipients have increasingly recog- aid remains tied; if anything, its share is increas- nized this need and have started to act on it. The ing, particularly through the use of mixed credits. World Bank is now taking action to increase the Although donors have recently tried to negotiate a number of consultative groups in sub-Saharan framework for reducing mixed credits, the results Africa from the current eleven to possibly as many of their efforts are unclear. as eighteen. Existing consultative groups are pay- Finally, the overall level of aid is a major cause of ing special attention to sectoral problems and to concern. The low- and middle-income oil-import- improving their coordination within the countries ing countries now face serious debt and balance of Box 7.7 IDA The International Development Association (IDA) is cur- In order for IDA to concentrate its resources on the rently the largest single multilateral source of conces- poorest countries, it has been necessary to put a ceiling sional assistance for low-income countries. While the on its lending to those recipients economically capable of terms of IDA are highly concessional, its projects are servicing funds on harder terms. These countries, which generally identical in scope and rigor to IBRD projects. receive a blend of IDA and IBRD loans, include India and Since its inception, twenty-seven countries have gradu- China and would on a strict application of IDA's alloca- ated from IDA to IBRD lending, and thirteen countries, tion criteria receive three-quarters of its resources. The including India, receive a blend of IBRD and IDA financ- ceiling has reduced their share substantially below that, ing. and it will fall further during the IDA 7 period, with Following its establishment in 1960 with an initial sub- India's share being reduced and China's share being scription of $750 million, IDA's resources have been aug- increased. mented through seven replenishments totaling $40 bil- The 1980-83 period was also characterized by in- lion. The association provided 5 percent of net ODA creased external financing requirements on the part of a flows during 1979-83 to eligible countries, namely, those number of IDA recipients, particularly those in sub- with 1983 GNP per capita of $790 or less. Within the Saharan Africa. The plight of sub-Saharan African coun- eligible group, IDA has concentrated its lending in the tries has been recognized by IDA in its shift in allocation poorest countries. Over 80 percent of total commitments toward these countries in recent years. Lending to this since 1960 have been made to countries with 1983 per region has increased to an average of 32 percent of IDA capita incomes below $400. In 1981-83, this share of IDA commitments between 1981 and 1984 from 24 percent in commitments increased to 89 percent. the previous three years. Further increases are planned. Since the beginning of the 1980s, IDA's resources have On a per capita basis, IDA lending to sub-Saharan Afri- become increasingly constrained, because of slower than can countries increased from an average of $2.10 over the anticipated contributions to the sixth replenishment 1978-80 period to an average of $2.79 over the 1981-84 (IDA 6) and, more recently, because of the reduced size period. Because of the sharply reduced resources of the of the seventh replenishment (IDA 7)$9 billion com- seventh replenishment, per capita lending to sub- pared with $12 billion for IDA 6. These reductions have Saharan African countries is expected to remain about caused a decline in IDA lending, in current dollars, from the same as during the early 1980s. an annual level of $3.8 billion in 1980 to $3.2 billion on In recognition of the resource needs of low-income average over the subsequent three years. A further African countries, a meeting of donor countries in Janu- decline in real annual lending is in prospect over the next ary 1985 agreed to establish a Special Facility for the several years. region. This facility, which will be administered by IDA, In 1980 China joined IDA and became eligible for IDA is important to maintaining adequate levels of conces- credits. This addition, coupled with the overall decline in sional assistance to some of IDA's poorest recipients. IDA lending, produced a sharp fall in per capita lending These funds along with IDA credits will support policy levels from an average of $2.24 between 1978 and 1980 to dialogue with governments on sectoral and institutional an average of $1.47 in 1984. Under the IDA 7 replenish- adjustments that are critical for their economic develop- ment per capita lending is expected to decline further, to ment. an average of $1.15. 108 Box 7.8 Aid coordination Aid coordination has been the subject of discussion and try's development problems and the programs of the at times controversy since the early years of the interna- donors. tional aid effort. The term coordination encompasses a Another forum for aid coordination is the Round broad range of activities: from general discussions in an Tables of the United Nations Development Programme international forum; to periodic meetings of donors and (UNDP). The Round Tables, although not new, have recipients, which address the recipients' development assumed increased importance since the 1981 UN Con- constraints and policies and the donors' assistance ference on the Least Developed Countries. Many of the plans; to very narrow and concrete actions by several poorest countries did not at that time have formal aid donors and a recipient concerning specific project or sec- coordination groups and saw the Round Tables as one tor assistance activities. means of focusing donor attention on their individual At the international level the major aid donors in 1961 development problems; most of these countries have established the Development Assistance Committee now had a Round Table or World Bank lead aid group (DAC) of the Organisation for Economic Co-operation meeting. and Development. The DAC has played a central role in Other coordinating groups operate at the interna- (a) the collection, analysis, and dissemination of infor- tional, regional, and sectoral levels. They include the mation on assistance programs and policies, and (b) the Club du Sahel, the Central America Consultative Group, analysis and discussion of development issues among its a coordination group for Arab funds, and the Consulta- members and the formulation of general principles of tive Group on International Agricultural Research donor assistance. It has not, however, generally dealt (CGIAR). Ad hoc conferences, such as the UN Confer- with the analysis of the development constraints of indi- ence on Renewable Energy and the UN Conference on vidual countries or sought to coordinate donor programs Population, have also provided opportunities to discuss in specific countries. development issues and improve coordination. The World Bank has taken the lead in sponsoring aid All these efforts need to be complemented by closer groups, often called consultative groups or consortia, on-the-spot coordination. At several recent aid group which are one of the main mechanisms for coordinating meetings, donors and recipients agreed to establish or aid to particular countries. The first aid group was estab- strengthen parallel groups that would meet more fre- lished in 1958 for India. Since then, some thirty countries quently in the recipient countries and deal mainly with have had one or more of these aid group meetings; operational issues. The World Bank plans to develop twenty of these groups are still active. models of on-the-spot coordination in some African Aid groups typically meet at one- to two-year intervals, countries, in association with the recipients, the UNDP, for some countries less frequently. These meetings gen- the African Development Bank, and interested bilateral erally review the World Bank's economic analysis of the donors. In sub-Saharan Africa it is establishing a number country, the recipient's development plan, and the of new resident missions, strengthening existing mis- donors' current and prospective assistance programs. sions, and organizing new consultative groups. In most These meetings are often the only real opportunity to cases, subgroups concentrating on specific sectors are bring donors and recipients together to explore the coun- also being formed. payments problems, a result in part of their reli- stagnation in assistance levels or at best a small ance on commercial borrowing, particularly short- increase. As a result, many developing countries term trade credits, to finance long-term develop- may face an undesirable choice: either they try to ment requirements during the 1970s. For borrow more from commercial sources, running low-income Africa debt service has reached about the risk that their debt-servicing burden will 20 percent of export earnings, and for middle- become unsustainable, or they retrench even income oil-importing countries 25 percent. This more, creating further economic dislocation, losing necessitates difficult stabilization and adjustment the opportunity to make better use of their existing programs. These countries will need substantial resources, and by cutting investment harming flows of official assistance to undertake, maintain, their long-term economic potential. For many of and extend these policy reforms and support the these countries this could translate into little if any efforts to restructure their development and increase in per capita incomes over the remainder investment programs. Current trends, however, of the decade. Both courses imply increased hard- point to (a) a substantial drop in net capital flows ship for people living in the developing countries. to low-income countries because of a stagnation of They also threaten an unnecessary loss in effi- gross flows in nominal terms and the substantial ciency and global economic growth. growth in debt service, and (b) a continuing overall 109 8 International bank lending and the securities markets The relationship between commercial banks and banks, while the middle-income groups have developing countries has been transformed in the become net borrowers. This contrast reflects the past fifteen years. Before 1970 banks lent develop- fact that low-income countries are seldom credit- ing countries relatively small amounts to finance worthy enough to borrow from the banks. trade and to meet the requirements of subsidiaries Developing countries have dealt both with the of multinational companies located there. After head offices of international banks and with offices 1970, banks went on to become the fastest-growing operating in the Eurocurrency markets. However, and most flexible source of foreign finance for many banks have set up offices in developing developing countriesprimarily to cover balance countries, both to channel external finance and to of payments deficitsonly to run into the debt undertake domestic banking business. Altogether problems of the early 1980s. The past three years the various banks located within developing coun- have been traumatic for many banks and their bor- tries have received about 36 percent of the funds rowers in the developing world. There has been a channeled by outside banks to these countries over retrenchment of bank lending that has emphasized the past four years. Developing countries' own the instability of the relationship with developing banks are playing an increasing role in raising countries. All parties have learned some valuable external funds for domestic users as well as in per- lessons, which will help to redefine their relation- forming a broad range of business services (see ship for the years ahead. The securities markets, in Box 8.1). contrast, have not had such strong ties with devel- Lending has been the main form of international oping countries. Given that the markets for bonds banks' business with developing countries (see and a number of innovative securities have grown Figure 8.2), and it grew very rapidly between 1973 recently while traditional bank lending has fallen, and 1981. Bank claims on developing countries there is a question as to whether the securities increased at an average annual rate of 28 percent markets could play a bigger role in financing devel- over this period. In 1973 total new international oping countries. lending amounted to $33 billion, of which 29 per- cent went to developing countries. By 1981 new The banking relationship lending was $165 billion, of which developing countries composed 32 percent. Much of the lend- The commercial links between banks and develop- ing was syndicated Eurocurrency loans carrying ing countries are complex and extensive. They run five- to ten-year maturities and floating interest from simple deposit taking to short-term lending, rates. Lending to developing countries in this form trade financing (both with and without official increased from $7 billion in 1973 to $45 billion in guarantees), and medium-term lending (often in 1981. Most syndicated loans were arranged by a syndicated form). All of these types of business core of twenty-five to fifty large commercial banks appear on banks' balance sheets. But off-balance- (hereafter called first-tier banks) based in the sheet operations have also been important; they industrial countries. Up to 3,000 others (second- include advice on managing debt and reserves, tier banks) joined in from time to time. They and business such as letters of credit for financing included regional banks from industrial countries, trade. banks from developing and centrally planned These ties often started when developing coun- economies, and consortium banks. tries placed their liquid reserves with the banks. Initially in the 1970s it was the large U.S. banks As Figure 8.1 shows, the low-income countries that increased their international lending, with have consistently been net depositors with the much going to developing countries. By 1977 the 110 Figure 8.1 Net position of developing countries with commercial banks, 1974, 1979, and 1983 Billions of dollars 0 50 100 150 200 250 1974 1979 50 1983 / 100 / Upper middle-income countries / Lower middle-income countries 200 / / Low-income countries / 0 All developing countries Note: Net positions are calculated by subtracting liabilities from assets held with banks reporting to the Bank for International Settlements. Source: BIS Quarterly Report 1974-85. Box 8.1 Developing-country banks In many developing countries, the growing presence of Brazilian banks have also been active managers, while industrial-country banks has provided significant com- some Arab banks have become major international petition for local banks. They in turn have expanded lenders (see Box 8.2). their international operations to include: Borrowing in the international interbank markets. Some More branches and representative offices in the major developing-country banks won the confidence of the internationalfinancial centers. Banks from the newly indus- interbank market and have been able at certain junctures trializing countries have often followed domestic compa- to use it for funding some domestic lending. They have nies abroad, financing their trade and other activities. therefore enjoyed cheaper financing than that offered by Other banks have set up branches where migrant work- more traditional types of loans. ers have settled, serving as a channel for repatriating The international experience gained by developing- their savings. country banks has benefited their domestic operations as Lending in the Eurocurrency markets. One example is well. Not only have they been able to identify new busi- the State Bank of India, which has arranged a large share ness and develop markets, they have also introduced of India's syndicated loans and played a role in manag- new techniques and ideas into the financial systems of ing loans to a number of other countries. Mexican and developing countries. 111 8.2), but banks from other developing countries Figure 8.2 International bank lending, 1973-84 have also been increasingly active in international lending. The ability of non-American banks to par- Net new bank lending ticipate in what was primarily a dollar-based mar- Billions of dollars ket was enhanced by the growth of the interna- 150 tional interbank market (see Box 6.3 in Chapter 6). This market permitted the distribution of dollar liquidity around the international banking system. 100 The relationship between banks and developing All countries countries expanded rapidly in the 1970s for two main reasons: changes in the pattern of global cur- 50 rent account balances and changes in the willing- ness and ability of banks to act as intermediaries. Developing 0 countries 1973 1977 1981 1983 Global imbalance and portfolio choice Gross syndicated lending On one theory, changes in the distribution of cur- 100 rent surpluses and deficits around the world should not change the role of banks; they would still act as intermediaries between lenders and bor- rowers. But that theory holds good only if (a) the portfolio preferences of all lenders are the same; All countries (b) banks have the same perception of credit- worthiness for all potential borrowers; and (c) the interbank market operates without friction to Developing redistribute liquidity. Without these conditions, countries the pattern of surpluses and deficits does indeed have a powerful effect on the banks. 1973 1977 1981 1984 During the 1970s both the volume and geograph- ical structure of current account balances changed Note: International bank lending is measured here in two ways. dramatically (see Table 3.1 in Chapter 3). The First, total international lending is measured net of loan repay- ments for a defined set of reporting banks (in this instance, banks members of OPEC ran large surpluses for much of reporting to the Bank for International Settlements). These data, the 1970s and initially had a strong preference for after 1976, are adjusted for the valuation effects of exchange rate movements. Second, a major element of international lending bank deposits (see Box 6.2 in Chapter 6). They syndicated loansis measured on a gross basis, no allowance favored the Eurocurrency market rather than being made for repayments. Only published syndicated lending is covered by the data, however. domestic banking systems, in part because of the Source: For net bank lending: Watson, Keller, and Mathieson higher returns available in the former. Over the 1984; for syndicated lending: OECD Financial Market Trends. decade, sizable amounts of funds were transferred by oil importers from domestic banks in industrial countries to OPEC members and ultimately to the twelve largest U.S. banks derived almost half of Eurocurrency markets. Such a switch of funds their total earnings from international lending, the increased the lending capacity of the Eurocurrency bulk of which came from developing-country markets. loans. Groups of banks from several different The expansion of liquidity in the banking mar- countries next increased their inter-national expo- kets coincided with a positive shift in the attitude sureparticularly those from the Federal Republic of the banks toward international lending. After of Germany, France, and the United Kingdom. the first major increase in oil prices, when there Japanese banks also assumed an important role in was a need to recycle large amounts of funds, international lending, but they were sometimes banks were lauded for the success with which they held back by adverse developments in Japan's bal- performed this function. Confidence in the bank- ance of payments position. The second-tier banks ing system was maintained by central banks and from the United States also gradually increased deposit insurance agencies, which gradually their participation. The most notable recent increased their protection for depositors at the entrants, however, were the Arab banks (see Box major banks. The behavior of regulatorsor, more 112 Box 8.2 Arab banks and international business Many of the well-established Arab banks became Arab banks increased gradually during 1978-80, but involved in international lending during the 1970s, some sharply during 1981 (see Box table 8.2A). Their lending linking up with Western partners to form consortium volume fell in 1983 and 1984, amid generally more sub- banks. Further impetus came from wholly owned Arab dued activity in the market as a whole. Arab-led syndi- international banks and the establishment of Islamic cates channeled about one-quarter of their lending to the banks (offering an alternative to nba, the charging and industrial countries and the rest to developing countries. paying of interest). Some banks set up in the new Arab developing countries received the bulk of Arab regional centers-Bahrain, Dubai, and Kuwait-and bank lending in 1978-80, but others then took an increas- many expanded abroad. London hosts the largest num- ing share. The main source of finance for Arab banks has ber of Arab banks (sixty), followed by Paris (thirty-nine), been the international interbank market, though some New York and Singapore (nineteen each), and Switzer- OPEC money may have been channeled through them land and Hong Kong (fifteen each). Arab banks have also as well. Some specialized Arab banks have become heav- been expanding into developing countries. ily involved in arranging international bond issues and The volume of syndicated Eurocurrency loans led by in undertaking direct investment. Box table 8.2A Arab-led syndicated lending, 1977-84 (billions of dollars, unless otherwise noted) Type of lending 1977 1978 1979 1980 1981 1982 1983 1984 Total market lending 34 74 79 81 91 91 60 52 Arab-led syndications' 1.0 2.3 2.5 3.6 9.1 9.8 6.9 5.3 Toindustrialcountries 0.1 0.3 0.7 1.1 2.6 1.9 1.6 To developing countries 0.9 2.0 1.8 2.5 6.5 7.9 4.6 Arab-led syndications as a percentage of total lending 2.9 3.1 3.2 4.4 10.0 10.8 11.5 10.2 Note: Data are for Eurocurrency credits with a maturity of one year or more, publicly announced in the year given. a. Syndications in which one or more Arab banks acted as lead or colead managers. Source: For total market lending: OECD Financial Market Trends; for Arab-led syndications: Middle East Economic Survey. precisely, expectations of their behavior-gave As in many other industries, banking benefited comfort to depositors and helped attract money to from innovations that increased its efficiency. The banks. This may have led banks, in turn, to take growth of the Eurocurrency market (described in larger lending risks than would otherwise have Box 8.3) was especially significant, because banks been the case. operating there were free of reserve requirements. The preferences of developing countries also They were therefore able simultaneously to offer encouraged the growth of bank lending in the higher interest rates for depositors and lower rates 1970s. Developing countries were attracted by the for borrowers than other banks could. The market general purpose nature of bank finance and by the was also efficient in that it could quickly mobilize large volumes and flexibility of instruments avail- very large loans. able at a time when alternative sources of finance Changes in the portfolio objectives and preferences were growing very slowly. Developing countries of banks. Banks radically changed their portfolio naturally favored the low or negative real interest objectives in the 1970s, placing greater emphasis rates charged by banks in preference to the condi- on balance sheet growth rather than the immediate tionality attached to some official finance and the rate of return on assets or other measures of profit- strict creditworthiness standards of bond markets. ability. International lending was a means of satis- fying this aim when domestic loan demand was The supply of banking services weak and when banking liquidity, induced by easy monetary policy, was high. Foreign lending also In addition to the macroeconomic forces working offered a means of diversifying portfolios, which to increase bank lending in the 1970s, several fac- was seen as a way of reducing risks because tors specific to the behavior of banks were pushing domestic lending often had an inferior loan-loss in the same direction. record. Banks saw the rapid growth achieved by The increased efficiency of international banking. many developing countries as an indication that 113 Box 8.3 The origins of the Eurocurrency markets The origins of the Eurocurrency marketsthat is, the The growth of the Eurocurrency market was also stim- markets in currencies traded outside their respective ulated by certain monetary regulations in the United domestic economiesgo back to the late 1950s and early States. For instance, Regulation Q put a ceiling on the 1960s. Several factors were behind their birth. interest rates that banks operating in the United States The centrally planned economies were reluctant to could offer to domestic depositors. Since market rates hold bank deposits in the United States, so they put their often went above the ceiling, depositors were naturally dollar earnings on deposit in London. Gradually other attracted to Eurobanks that were not bound by Regula- European dollar holders did the same, a tendency that tion Q. In addition, banks in the United States were was particularly marked when the United States ran required to hold non-interest-bearing reserves. By large balance of payments deficits. diverting dollar deposits to their offshore branches or Balance of payments pressures made the United subsidiaries, U.S. banks were able to avoid tying up so Kingdom government limit British banks' external use of much of their funds in reserve requirements at a zero sterling, so they had a strong incentive to develop busi- rate. ness in foreign currencies. General controls on the movement of capital also By the end of 1958 the main industrial countries had helped to boost the Eurocurrency markets. One example restored full convertibility of their currencies. The new was the introduction, in 1965, of the Voluntary Foreign freedom produced a surge of international banking busi- Credit Restraint Program (VFCR) in the United States. ness. The specific goal of the VFCR was to limit the growth of foreign lending by U.S. banks. Instead, their foreign Box figure 8.3A Stock of international and brancheswhich were not subject to the VFCRtook Eurocurrency loans, 1973-84 deposits and onlent them outside the ceiling. Between 1964 and 1973 the number of U.S. banks with overseas Billions of dollars branches increased from 11 to 125. The number of 2,800 branches increased from 181 to 699 over the same period. At the end of the 1960s and during the early 1970s the Eurocurrency markets, which had been located in West- ern Europe (and centered in London), expanded to a number of other "offshore" banking centers. These were typically small territories that had tax, exchange control, and banking laws favorable to international banks. The business was entrepôt in nature, with foreign currency funds deposited by one foreign source and then onlent to another. Offshore centers have been set up in the Caribbean area, Latin America, the Middle East, and Southeast Asia. A recent development has been the establishment of international banking facilities (IBFs) in the United States designed to bring the locus of Ameri- can banking business back "onshore." With the recent strong growth of domestic currency 1973 1976 1979 1982 lending abroad, total international lending is now the Note: Data indicate stock at the end of the last quarter of each year, most meaningful lending aggregate, and it encompasses except data for 1984 are as of the end of the third quarter. Eurocurrency market activity. Box figure 8.3A shows the Source: BIS Quarterly Report 1974-85. growing stock of total bank lending alongside that of the Eurocurrency market. the returns on lending to these countries would be default clause specifies that the loan will be consid- high compared with the risks involved. Aside from ered to be in default if the borrower defaults on the direct returns they expected on loans, banks any other loan. It strengthened the guarantee on wanted to develop a wider and more profitable sovereign loans and blurred the differences in risk business relationship with developing countries. between individual borrowers or projects within a The development of mechanisms for dealing with developing country. Hence, bankers paid less sovereign risk, One important development that attention to the viability of the particular projects helped banks overcome their concern about sover- they financed, and more to macroeconomic condi- eign risk was the introduction of a cross-default tions in borrowing countries. Furthermore, if a clause covering publicly guaranteed debt. A cross- developing-country borrower defaulted, cross- 114 default clauses would ensure that all bank lenders loans on the basis of short-term depositsa would be affected. As a result, a borrower con- process of maturity transformationwithout hav- fronted with debt-servicing difficulties had a ing to absorb the interest rate risk themselves, strong incentive to reschedule its lending rather since lending rates were tied to a short-term rate than default on a loan. This type of lending there- (LIBOR). But this proved to be a volatile element in fore appeared less risky to banks. Furthermore, debt service for borrowers. Other key innovations the view that sovereign lending was less risky than included the certificate of deposit (and variations domestic commercial lending because the sover- on it), which allowed banks to offer a marketable eign states could not go bankrupt was widely held and high-yielding asset to depositors while provid- among banks. These perceptions contributed to ing the banks themselves with flexibility in the the growth of lending and the fine terms (spread management of their liabilities. and fees) carried on many loans. Changes in the regulatory environment. Most Innovations in banking. Banks proved adept at changes in the regulatory environment were con- designing instrumentslike the syndicated loan ducive to bank lending to developing countries. that would match their portfolio requirements (for The industrial countries eased or abolished their country risk diversification and interest risk mini- exchange controls, thus encouraging banks to also mization) with the requirements of borrowers lend abroad off their base of domestic deposits. (longer-maturity, high-volume loans). This partic- The growth of largely unregulated offshore bank- ular innovation enabled banks to make long-term ing centers (as noted in Box 8.3) also gave a signifi- cant stimulus to overseas lending. Regulations such as the requirement to maintain certain capital ratios, which had the effect of limiting the growth Figure 8.3 Outstanding bank claims on developing countries, 1978-83 of banks' total assets, did not disproportionately affect developing countries. Billions of dollars All of these factors produced a strong momen- 500 tum for lending to developing countries. Although some banks may have come up against their lend- ing limits for certain developing countries, overall lending grew rapidly in part because uncon- strained banks new to international lending entered the market. Indeed, banks competed vig- orously, exhibiting, in some instances, "herdlike" behavior in their quest for new business. Problems in the banking relationship In the late 1970s and early 1980s banks were becoming increasingly concerned about their expo- 1978 1979 1980 1982 sure to both lending and funding risks in their 1981 1983 international business. Much of their developing- LI Upper-middle-income countries country lending, for instance, had been concen- Lower-middle-income countries trated in a narrow range of countries (see Figure Low-income countries 8.3). On average, 72 percent of it went to the upper-middle-income countries over the 1978-81 - International Monetary Fund data period. The five largest borrowers alone accounted Bank for International Settlements data for 53 percent of developing-country borrowing. Having shifted the interest rate risk onto the bor- Note: The IMF has only recently been collecting and publishing rowers, banks were becoming increasingly aware international banking statistics. The difference between IMP and BIS data is largely accounted for by the different coverage of the that in practice they had simply traded off one risk two series. The IMF series includes statistics from all its member (see Box 3.2 in Chapter 3) for greater potential countries, as well as statistics from major international banking centers. transfer and commercial risk. On the liabilities side, many banks had come to depend on inter- Source: BIS Quarterly Report 1974-85; IMF International Financial Statistics. bank markets for a large part of their funding. This had made them susceptible to sudden funding 115 Box 8.4 Bank supervision and its impact on lending to developing countries Banking supervisors in industrial countries seek in a limits, and lending to two or more subsidiaries owned by variety of ways to ensure that commercial banks are pru- a single holding company may count as a single expo- dent in their lending and balance sheet management. sure. Typically borrowers within a country are not con- The assessment of Ca pi (a! adequacy. To ensure that solidated, so that banks can lend to a variety of enter- banks have enough capital to meet potential losses, prises within a country without meeting exposure limits. supervisors typically prescribe a ratio of capital to total Tighter exposure limits have not generally been intro- assets. The ratio varies in its makeup and desired level duced. Increasingly, however, as developing-country from country to country, but the normal range is 4 to 6 debt is rolled over in new financing packages for the percentthat is, $4 million to $6 million of capital can government and, as sometimes occurs, the government support $100 million of lending. In determining this takes over private sector debt, these loans are accrued to ratio, some supervisors weight assets according to their a single borrower, and exposure limits may be reached. riskiness: the riskier the loan, the more capital a bank Loan-loss provisioning. Supervisors have been con- must have to back it. cerned in recent years that the quality of assets on banks' Exposure limits. Supervisors pay close attention to books are properly reflected in their balance sheets and how bank assets are diversified, aiming to avoid any so have encouraged banks to provision against losses. undue concentration of risk. In recent years some of the Policies regarding provisioningthat is, the setting aside adverse risks attached to international lending material- of funds to cover potential general or specific losses ized simultaneously, which underlined the need to bol- vary significantly among countries. The accounting and ster banks' capital bases. Supervisors normally require tax treatment of loan losses can have important implica- that lending to a single borrower be limited to a fraction tions for the profitability of banks' loans to some coun- of the bank's capital, or a group of large exposures to a tries and therefore for their willingness to lend. The multiple of capital. In some countries, borrowers may be accounting issue revolves around whether provisions consolidated for the purpose of determining exposure can be counted as part of a bank's capital base or not; Box 8.5 Financial deregulation in Japan: some implications for developing countries Developing countries and international development Box table 8.5B Foreign bond issues denominated in banks have been active in raising funds from Japan (see yen, 1980-83 Box tables 8.5A and B). As of the end of 1983, developing Share of countries accounted for 24 percent of total yen-denomi- Amount developing countries nated foreign bonds issued in Japan, with international Year (billions of dollars) (percent)' development banks accounting for another 24 percent. 1980 261.0 35 In 1983, Japanese banks made total medium- and long- 1981 612.5 16 term loan commitments of some $16.8 billion, 49 percent 1982 856.0 11 of which were for oil-importing developing countries. 1983 899.0 16 Along with other foreign borrowers, developing coun- a. Developing countries as defined by the DAC. Source: Japanese Ministry of Finance International Finance Bureau tries could perhaps benefit from the gradual liberaliza- Annual Report 1984. tion of the world's second-largest capital market. The deregulation of the Japanese financial system has hold savings, which had once gone largely into compa- been prompted by a marked change in the domestic flow nies, either were used to finance the public sector deficits of funds resulting from the slowdown in economic or found profitable investment opportunities overseas. growth since the mid-1970s. Industrial investment grew Exchange controls were liberalized, while many Japa- less rapidly; corporate demand for credit fell; and house- nese corporations raised money abroad to strengthen their overseas operations. At the same time, the govern- Box table 8.5A External loans by Japanese banks ment liberalized some domestic interest rates to be able denominated in foreign currency, 1980-83 to finance its own deficits. Share These moves have recently been extended. External of oil-importing lending by Japanese banks is now free of any restrictions Amount developing countries Year (billions of dollars) (percent) except those dictated by prudential guidelines. The gov- ernment has made it easier for foreigners to issue yen- 1980 6.7 41 1981 12.7 44 denominated bonds in Japan through both public issues 1982 18.0 33 and private placements. It has also eased restrictions on 1983 16.8 49 Euroyen bond issues and Euroyen lending. As a result, Source: Japanese Ministry of Finance International Finance Bureau the Euroyen market could become as accessible to non- Annual Reports. residents as the Eurodollar market already is. 116 perceived creditworthiness of developing coun- tries led to a reduced willingness by banks to increase their exposure further. Bank regulators this can affect a bank's capacity to lend. The tax treat- responded to the same concerns by seeking to ment is a matter of whether banks can write off their monitor liquidity and solvency ratios more closely. provisions as a tax loss against income. In some Euro- Furthermore, banks were urged to diversify their pean countries banks benefit from relatively favorable tax treatment, but in the United States and Japan banks lending and also encouraged or required to set have had more limited possibilities for tax deductibility. more funds aside in loan-loss reserves (see Box As supervisory rules and practices vary from country 8.4). The need to strengthen capital ratios led to to country, central bankers have been trying to harmo- the banks' placing greater emphasis on profitabil- nize them through the Cooke Committee,1 which meets ity; the growth of assets became less important. under the auspices of the Bank for International Settle- Second, these changed attitudes to international ments. At present supervisors are seeking to consolidate lending were reinforced by the emergence of prof- branches and subsidiaries into the accounts of parent banks. The need to ensure adequacy of capital and diver- itable opportunities for lending within some sification of lending on a global basis could slow lending industrial countries, particularly as economic to developing countries as the adjustment in reporting is growth revived. In addition, financial markets in being made. However, by strengthening the fabric of the several industrial countriesespecially the United international banking system, effective supervision can States and the United Kingdombegan a process ensure a more stable flow of funds to developing coun- of deregulation, so banks faced competition from tries in the long run. other financial institutions and concentrated on consolidating their domestic position. In the case 1. The committee has drafted a revised concordat that sets Out the of Japan, however, financial deregulation has led principles that should govern the allocation of supervisory responsi- bilities for banks operating in different international centers. to the opening up of domestic capital markets to foreign borrowers, including developing coun- tries, and Japanese banks will now be freer to lend overseas (see Box 8.5). One casualty of the trend pressure if concerns about the quality of their toward domestic lending has been the syndicated assets developed. loan market, which has become much less active In addition, the capital to assets ratios of many than it once was (see Box 8.6). banks in the industrial countries had been falling Third, the era of OPEC surpluses and large bank for much of the period between 1977 and the early 1980s (see Figure 8.4), partly reflecting the growth in their international lending, which outstripped the growth of their capital. This trend was exacer- bated for non-U.S. banks by the strength of the Figure 8.4 Capital assets ratios of banks U.S. dollar after 1980. Capital to assets ratios were in major financial markets, 1977-83 weakened because a dollar appreciation increased Percent the domestic currency equivalent of a bank's out- 5.5 United States standing dollar lending, inflating the denominator of the ratio. Given these pressures alone, the banks' relation- 4.5 '-Switzerland -- ....- United Kingdom ship with developing countries may well have run into difficulties. In any case the large growth in 3.5 bank lending registered in the 1970s could perhaps Germany be attributed to a one-time stock adjustment 2.5 toward international assets, which was nearing completion at the turn of the decade. A natural France 1.5 moderation in the pace of lending growth might 1977 1979 1981 1983 have been expected. The banking relationship was modified more Note: Given the problem of inconsistency among banks and over abruptly, however, by three factors. First, the time in the accounting of bank assets and capital, aggregate fig- ures such as the ones presented here must be interpreted with onset of debt difficulties in a number of developing caution. countries led to a need to reschedule significant Source: Watson, Keller, and Mathieson 1984. volumes of debt. The sudden deterioration in the 117 Box 8.6 The rise and fall of syndicated lending The syndicated Eurocurrency credit is a relatively new debt difficulties have had to rely on "concerted" lending invention. Although some small private syndications arranged in conjunction with debt restructuring. The were arranged in 1968 and 1969, the market did not take data in Box table 8.6A contain $14.3 billion in 1983 and off until 1972 (see Box table 8.6A). From then on, it grew $11.3 billion in 1984 of new money provided under the rapidly-and particularly for developing countries in umbrella of rescheduling packages. Most of these 1976-79. With the world economy moving into recession amounts went to Latin American countries. These coun- in the early 1980s, banks' perceptions of risk-especially tries were able to secure very litle spontaneous lending in regard to developing countries-increased. Bankers in 1983 and 1984. During 1984 there was a more general increasingly felt that the spreads on their loans did not easing of terms (in conjunction with multiyear resche- adequately reflect the risks. Lending spreads rose in the duling) reflecting what were perceived to be favorable early 1980s and the average maturities of loans fell (see policy adjustments in those developing countries that Box figure 8.6A). With the onset of debt-servicing prob- had earlier experienced debt-servicing difficulties. lems in many developing countries in 1982, new lending The stock of syndicated loans outstanding was esti- commitments fell sharply. Only the most creditworthy mated at about $125 billion at the end of 1982. By the end borrowers-including some developing countries from of 1984, however, this figure had fallen to close to $100 East Asia-were able to borrow on the same terms as billion. When the present difficulties subside, traditional before. syndicated lending may well revive-but it is unlikely to Developing countries now face a two-tier market. East regain its earlier momentum. As illustrated in Boxes 8.7 Asian countries can still attract "spontaneous" lending and 8.8 there are an increasing number of substitutes for from banks on competitive terms. But countries with the syndicated loan. For many highly creditworthy bor- Box table 8.6A Syndicated Eurocurrency lending to developing countries, by region, 1972-84 (billions of dollars, unless otherwise noted) Region 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 East Asia and Pacific 0.40 0.5 2.0 3.3 2.9 2.4 7.5 7.6 8.8 10.7 10.3 7.7 7.4 Percentage of total 11 7 24 28 20 15 22 16 24 24 27 25 33 Europe and Mediterranean 0.60 0.8 1.2 0.5 0.6 0.9 2.3 6.6 3.9 3.5 3.2 2.9 2.2 Percentage of total 16 11 14 4 4 5 7 13 11 8 8 10 10 Latin America and Caribbean 2.00 3.4 4.5 6.0 8.7 9.0 17.4 26.0 19.9 24.9 22.2 15.0 11.4 Percentage of total 53 47 53 51 60 55 51 53 55 55 58 50 50 Other regions' 0.80 2.6 0.8 1.9 2.4 4.1 6.9 8.8 3.6 5.8 2.6 4.6 1.7 Percentage of total 20 35 9 16 16 25 20 18 10 13 7 15 7 Total 3.80 7.3 8.5 11.7 14.6 16.4 34.1 49.0 36.2 44.9 38.3 30.2 22.7 a. Includes sub-Saharan Africa, China, India, the Middle East, North Africa, and South Asia. Source: OECD Financial Market Trends. deposits has given way to an entirely different mix- eral other industrial countries, but not available to ture of surpluses and deficits, with different finan- developing countries. As a result the process of cial implications. OPEC members are now net bor- intermediation has been shifting from banking to rowers from the international banks, and the asset markets even while many developing coun- industrial countries, which had also been signifi- tries remained dependent on bank finance. cant net depositors until recently, are placing less In principle, had the interbank market worked with banks (see Figure 8.5). The major imbalance without friction, their demand for banking funds in the world economy is now between the United could have been satisfied. Even though the surplus States, with a large current account deficit, and the countries chose not to hold bank deposits, interna- Federal Republic of Germany and Japan, with tional banks could have bid in money markets to large surpluses. Given the nature of the U.S. fund the continuing demand for credit by deficit financial system, the deficit has been financed developing countries. International banks were, rather more by trading in financial assets than however, increasingly constrained by both capital through the intermediation of banks. The United and sovereign risk considerations, so were reluc- States has both the assets and the markets to make tant to increase their exposure to developing coun- this feasible. The option might also be open to sev- tries or their banks. In fact, many developing 118 Debt rescheduling and the banks Banks have had to temper their desire to contain rowers the syndicated loan is now a relatively expensive the growth of exposure to some developing coun- borrowing option. Indeed, some banks have reportedly tries with their need to safeguard existing loans. disbanded their syndicated credit departments in favor Accordingly they have adopted a flexible approach of a more broadly based lending operation. to dealing with countries with debt-servicing diffi- culties. Banks quickly realized that rescheduling Box figure 8.6A Spreads and maturities on syndicated only principal payments due or in arrears was not lending, 1972-84 adequate. Debtors needed more relief, and banks Average spreads rescheduled debt and provided new loans in the Percent context of IMF programs. Each bank's share of the 1.8 new loan was based on its share of all the bank Developing countries debt owed by the rescheduling country. While not 1.4 without difficulties, this burden-sharing approach has been generally successful. In some of the early reschedulings, short-term 1 bank debt was included along with one or two All countries years of maturities of long-term bank debt. How- 0,6 ever, all the participants soon recognized the spe- 1972 976 1980 1984 Average maturities Figure 8.5 Net new bank deposits and Years borrowing of selected country groups, 1979-83 Developing 9 countries Net new deposits Net new borrowing 7 Other 1983 countries Centrally 5 1972 1976 All countries 1980 1984 0 planned economies 1982 nj Note: Data are for new publicized syndicated loans. Oil-importing o developing Source: Bond 1985. countries 1981 Oil-exporting o developing -U countries' 1980 'U - I Industrial countries, even some that did not experience debt- D countries servicing difficulties, reduced their demand for 1979 bank lending. As a result of these factors, banks' net lending to 1 developing countries fell significantly after 1981 I I I (see Figure 8.2). Spontaneous lending fell most 40 20 0 20 40 and concerted lending (in conjunction with IMF Billions of dollars programs) became an increasingly important Note: Data are for banks reporting to the Bank for International source of funds for developing countries (see Box Settlements. Net deposits with the banks take place when new deposits by a country group exceed new borrowing; a repayment 8.6). Most of the spontaneous lending went to of past borrowing would also serve to increase net deposits. Net developing countries in East Asia and Europe. Evi- borrowing takes place when new borrowing exceeds new deposits by a country group; it might also reflect a reduction in dence provided by the latest BIS data for end- outstanding deposits with banks. December 1984 suggests that banks' outstanding a. Mainly OPEC members. claims on developing countries have remained vir- tually unchanged, at $433 billion, compared with a Source: IMF 1981, no. 7; Watson, Keller, and Mathieson 1984; BIS data. year earlier (see Figure 8.3). 119 cial nature of short-term debt and its importance Despite the progress made in tackling debt- for maintaining the debtor's foreign trade. More servicing difficulties, problems remain. Banks and recently, banks have been handling short-term other creditors have, for instance, sometimes credits separately or creating short-term credit reduced trade financing when a developing coun- facilities. Bankers have also realized that high try has run into difficulty. They have insisted on spreads and large fees may be self-defeating. In guarantees and have preferred sovereign borrow- 1983, when they signed major rescheduling agree- ers. They have also been reluctant to lend for fear ments with (among others) Brazil, Chile, Ecuador, that foreign exchange will be reserved for servicing Mexico, Uruguay, and Yugoslavia, their interest long-term public debt and that short-term com- spreads on rescheduled loans ranged from one mercial credits will be rescheduled into long-term and seven-eighths to two and a half percentage claims. The decline in commercial credit has there- points. However, during the second half of 1984 fore harmed borrowers and inhibited developing spreads on rescheduled loans under agreements in countries' ability to secure needed imports. principle with Argentina, Mexico, and Venezuela In summary, new lending by banks is an essen- were reduced to a range of seven-eighths to one tial part of a financing package designed to sup- and one-quarter percentage points. Bankers have port policy reforms for structural adjustment by reduced or eliminated their fees and sometimes developing countries. On a case by case basis, con- dropped the expensive pricing option of using the sideration needs to be given to multiyear debt U.S. prime rate. Lenders are also being given the restructurings to smooth out debt service streams option of shifting the denomination of some of for those countries that are implementing struc- their dollar loans to their home currencies, which tural adjustment programs. could reduce some mterest costs for debtor coun- tries. Access to securities markets Perhaps the most significant development in debt reschedulings is the movement toward multi- At the same time as banks are reappraising their year agreements for some countries that have relationship with developing countries a signifi- made significant progress in adjusting their econo- cant structural change is taking place. The securi- mies. A bunching of loan maturities poses an ties marketsand the institutions that operate in obstacle to the restoration of a normal market rela- themhave increased in importance. A number of tionship between a rescheduling country and its new instruments have been developedsuch as creditors. The Mexican agreement covers public the note issuance facility (see Box 8.7)which sector maturities through 1990 and stretches out blend some of the features of bank loans and payments over fourteen years. The Venezuelan bonds. These innovations increase the marketabil- agreement covers public sector maturities through ity and hence the liquidity of international assets. 1988 and spreads payments over twelve and a half From the banks' standpoint such innovations have years. In both these schemes, a combination of served to reduce some of the risks associated with long repayment periods and shorter grace periods more traditional lending. Those banks that wish to smooths out principal payments. Both agreements maintain a significant presence in international provide for the monitoring of the debtor's eco- lending are switching the focus of their operations nomic performance; banks wanted to be assured of toward these new instrumentalities. A trend the strong commitment of rescheduling countries toward the securitization of international lending to policy adjustment and reform. In the cases of may be under way, which could have significant Mexico and Venezuela, the banks will receive the implications for the nature of private lending to semiannual reports on consultations between developing countries in the future. these countries' authorities and the International Despite the development of hybrid instruments, Monetary Fund. the traditional international bond markets have The first-tier banks have therefore adopted a flourished in recent years. International bond mar- pragmatic approach to the debt-servicing problems kets have two components: the Eurobond and the of major debtors. The second-tier banks, however, foreign bond markets. Eurobonds are under- with smaller exposures to the big debtors, have written by an international group of banks and are been less willing to join in debt rescheduling issued in several different national markets simul- arrangements because there was a strong incentive taneously; they are not subject to formal controls. for an individual bank to withdraw from lending to Foreign bond markets are simply domestic bond countries in difficulty. markets to which foreign borrowers are permitted 120 Box 8.7 Increasing the flexibility of bank lending Two new market instruments are examples of financial value of developing-country debt is not abruptly innovation that help increase the liquidity of banks' port- reduced when TLIs are traded. folios and encourage banks (especially in the second tier) Note issuance facility (NIF). The NIF combines the to maintain a lending relationship with developing coun- characteristics of a traditional syndicated credit and a tries. bond. The NIF is one of a set of hybrid instruments Transferable loan instrument (TLI). The TLI provides a which have recently been launched in the market. A NIF standardized means by which a transfer of lending com- is a medium-term loan which is funded by selling short- mitments can take place from a primary lender to a sec- term paper, typically of three or six months' maturity. A ondary market. In effect, TLIs create a secondary market group of underwriting banks guarantees the availability for bank loans. When a bank makes a loan commitment, of funds to the borrower by purchasing any unsold notes it can sell one or more TLIs to another bank or financial at each roll-over date or by providing a standby credit. institution. The TLI entitles its holder to receive interest As funds are drawn, the underwriter either sells the and other benefits of the original loan agreement, just as securities or holds them for its own account. The bor- though the holder had itself been the primary lender. rower has guaranteed access to long-term funds; the The TLI would be sold in various denominations, subject underwriter holds a liquid, marketable security, poten- to some minimum size. It would typically be repaid in tially attractive to a wide range of investors. The facility one lump sum on a date determined by the scheduled has the added attraction to the borrower that it can be repayment dates on the original loan. From the borrow- substantially cheaper than a standard Eurocurrency er's standpoint, the amount, terms, and conditions of loan. The Korean Exchange Bank and the Republic of the original loan remain intact. From the lender's stan- Portugal have, for instance, recently arranged Euronote point, TLIs offer international banks scope for managing facilities. their assets more flexibly. And because TLIs can be sold The fast pace of growth of NIFs and similar hybrid in packages of varying maturities and denominations, instrumentswhich totaled $9.5 billion in 1983 and they are potentially attractive to second-tier banks. increased to about $20 billion in 1984has raised con- Although TLIs have thus far been used for industrial- cerns among banking regulators. Banks could have to country loans, they could be extended to developing- take on their books high-risk loans if a borrowing entity country finance as well. However, borrowers and (faced with, say, a fall in its creditworthiness) were not lenders will have to move gradually, so that the market able to refinance its Euronotes in the market. access. Foreign bonds are denominated in the cur- In the 1960s and early 1970s bonds issued by rency of the host country, which often subjects developing countries averaged little more than 3 borrowers to tight entry requirements. percent of total issues (see Table 8.1). By 1978 Developing countries have been attracted to the developing countries had increased the volume of international bond markets primarily because they their borrowing to $5.2 billion and their market offer long-term money, at either fixed or floating share to 15 percent. In 1979 and 1980, however, rates of interest. As a group, developing countries their borrowing and market share declined have indirect access to the bond markets, since the sharply, reviving only slightly in 1981. Since then, World Bank and regional development banks are only developing countries that have avoided debt major borrowers there and onlend the proceeds to problems have been able to tap the markets. In their member governments. However, few devel- 1984 they raised $3.8 billion in bond issues, with oping countries have managed to borrow in those ten countries accounting for the bulk of the total. markets directly, and then only in small amounts. The most promising conditions in which devel- One important reason is the existence of sovereign oping countries might issue bonds are when the risk (described in Chapter 6, Box 6.4). Bondholders markets as a whole are buoyant and competition enjoy none of the advantages that banks have in from more creditworthy borrowers is light. Fixed coping with sovereign risk. Their relationship with rate markets are most buoyant when inflation is developing countries is extremely remote, so they relatively low and stable. The shape of the yield have virtually no leverage to enforce repayments curve also influences the chances of issuing fixed in the event of debt difficulties. It is noteworthy, rate bonds: if short-term interest rates exceed long- however, that those developing countries in diff i- term rates, it is difficult to launch new issues. As culty have continued to service outstanding bonds for competition from other borrowers, that can be held by nonbanks so as not to damage their repu- affected by the actions of the host government. If it tation in the bond markets. is borrowing heavily to finance its own budget def- 121 icit, it is likely to crowd out others. However, if the As FRNs can be more marketable than fixed rate host country has a strong current account and bonds, they offer a means by which some develop- wishes to encourage a capital outflow, it will often ing countries might graduate to the fixed rate mar- allow its domestic bond market to be tapped by kets. foreign borrowers. Another type of security that is already estab- Assessment lished and may become more important for devel- oping countries is the floating rate note (FRN). The growth in international bank lending during These instruments have flourished in recent years the past fifteen years has on balance been benefi- in the Eurobond market and some foreign bond cial to developing countries, despite the difficult markets (see Table 8.1 and Box 8.8). They have economic adjustments they have had to make provided much of the buoyancy in bond markets. recently. In the 1970s, the banks' recycling of the Table 8.1 International bond issues and placements, 1965, 1970, and 1975-84 (billions of dollars, unless otherwise noted) Type of issue or placement 1965 1970 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 Issues or placements in foreign markets 2.4 2.4 12.3 18.9 16.6 20.7 20.3 17.9 20.5 25.2 27.1 27.8 Amount by developing countries 0.1 0.1 0.5 0.9 1.6 2.2 1.2 0.6 1.1 0.6 0.6 1.2 Percent by developing countries 4.2 4.2 4.1 4.8 9.6 10.6 5.9 3.4 5.4 2.4 2.2 4.3 Issues in the Eurobond market 0.9 3.5 10.5 15.4 19.5 14.9 18.6 20.4 31.3 50.3 50.1 81.7 Amount by developing countries 0 0.1 0.2 1.1 2.5 3.0 1.9 1.2 3.1 3.7 2.1 2.6 Percent by developing countries 0 2.9 1.9 7.1 12.8 20.1 10.2 5.9 9.9 7.4 4.2 3.2 Total international bond issues 3.3 5.9 22.8 34.3 36.1 35.6 33.9 38.3 51.8 75.5 77.2 109.5 Amount by developing countries 0.1 0.2 0.7 2.0 4.1 5.2 3.1 1.8 4.2 4.3 2.7 3.8 Percent by developing countries 3.0 3.4 3.1 5.8 11.4 14.6 8.0 4.7 8.1 5.7 3.5 3.5 Issues of floating rate notes Amount by all entities 0.3 1.4 2.2 2.9 4.2 4.8 11.3 15.3 19.5 38.2 Percent of total bond issues 1.3 4.1 6.1 8.1 10.8 12.5 21.8 20.3 25.2 34.9 Note: Details may not add to totals because of rounding. Source: OECD Financial Statistics 1971; OECD Financial Market Trends 1984. Box 8.8 Floating rate notes Box figure 8.8A Growth of the floating rate note The first floating rate note (FRN) was launched in the market, 1975-84 Eurodollar market in 1970. As Box figure 8.8A shows, issues grew quite slowly until the late 1970s, but have Billions of dollars expanded dramatically in the past four years. 40 Private corporations, commercial banks, and govern- ment bodies all issue FRNs. Only a few developing coun- tries have done so: Mexico and Brazil before their debt- Floating rate notes of all entities 30 servicing difficulties in 1982, and since then mainly those East Asian countries that have avoided debt problems. For some developing countries-such as Malaysia and Thailand recently-the FRN market has became less 20 expensive than syndicated loans. Institutional investors and individuals have bought FRNs, but the biggest buy- ers are commercial banks. They have taken about 70 per- 10 cent of all FRNs, either holding them on their books as Floating rate notes of investments (to match their floating rate liabilities) or developing countries using them as a substitute for syndicated lending. 0 There may be scope for developing countries to tap this market further as their creditworthiness improves. 1975 1977 1979 1981 1983 These instruments, however, require the borrower to Source: OECD Pinoncial Market Trends. bear the interest rate risk. 122 Box 8.9 World Bank cofinancing The World Bank has long encouraged other lenders- recently. In the mid-1970s, banks lent in parallel with bilateral aid agencies and official export credit and bank- standard World Bank loans (known as A loans in this ing institutions-to link their financing with the Bank's. context), with or without an optional cross-default clause The number of cofinanced projects almost doubled or a memorandum of agreement with the World Bank. In between 1975 and 1984, and cofinancing averaged $3.6 1983, however, the Bank introduced its B loans, which billion a year over this period (see Box table 8.9A). have terms and conditions that are more closely aligned The type of partners involved in cofinancing depends with the loans of the cofinanciers. largely on the borrowers. For the poorest countries, These B loans offer three options designed to extend lenders that can offer concessional terms are the main the range of cofinancing instruments and to benefit all cofinancing sources, whereas for creditworthy develop- three parties-the borrowers, the colenders, and the ing countries the World Bank seeks commercial banks Bank. These options are (a) direct Bank participation in and official export credit agencies as cofinanciers. The the late maturities of the B loan, with an option to sell all volume of export credits used in cofinancing World Bank or part of its share; (b) a Bank guarantee of the late matu- projects has grown in recent years, but is still a small part rities, with an option to release all or part of its guaran- of the long-term export credits annually committed by tee; and (c) Bank acceptance of a contingent obligation to industrial lenders to developing countries. Given the finance part of the deferred principal at final maturity of constraints on official aid and the cautious approach of a loan, with level debt service payments of floating rate commercial banks to increasing their international expo- interest and variable amounts of principal repayments. sure, export credit cofinancing may play a bigger role in Despite the financial difficulties of the past few years, the the future. The Bank is pursuing a more systematic new instruments have been broadly welcomed in the approach that would help borrowers secure export market. They have produced cofinancing worth more credits in larger volumes and possibly on better terms. than $1 billion so far. Cofinancing with commercial banks has evolved more Box table 8.9A World Bank cofinancing operations, 1975-84 (billions of dollars, unless otherwise noted) Cofinanciers' contribution Number of Export Other Bank Total Fiscal projects with Commercial credit official contribution project year cofinancing banks agencies sources Total IBRD IDA costs 1975 51 0.1 1.0 0.9 1.9 1.0 0.3 8.8 1976 67 0.3 0.9 1.1 2.2 1.6 0.4 9.6 1977 78 0.7 0.2 1.5 2.4 1.9 0.7 10.0 1978 79 0.2 0.5 1.8 2.5 1.7 0.8 11.4 1979 105 0.5 0.3 2.0 2.8 3.0 1.1 13.3 1980 86 1.7 1.6 2.6 5.9 3.0 1.6 20.3 1981 72 1.1 0.5 1.5 3.1 2.6 1.5 15.1 1982 98 1.2 1.8 2.2 5.3 4.1 1.2 20.0 1983 84 1.1 3.0 1.8 5.7 3.3 1.1 20.8 1984 98 1.1 0.9 2.0 4.0 4.6 1.3 21.7 Note: Components may not add to totals because of rounding. These amounts represent private cofinancing as reflected in the financing plans at the time of Board approval of A loans. They do not represent private cofinancing loans actually signed in the fiscal year. An analysis of cofinancing operations can also be found in World Bank Annual Reports. Source: World Bank data. OPEC surpluses prevented what might otherwise provide new money in conjunction with IMF pro- have been an even deeper world recession. Fur- grams. And the fact that bank lending was domi- thermore, the banks contributed to the substantial nated by floating rate loans meant that developing expansion of world trade through the provision of countries were vulnerable to the vagaries of policy trade-related finance. Banking innovations also in the industrial countries. increased the flexibility of the international finan- Several factors are likely to shape the develop- cial system's response to the borrowing require- ment of the international capital markets over the ments of developing countries in the 1970s. How- rest of this decade. International banks are cur- ever, the "herd instinct" of banks periodically rently redefining their strategies, after a decade of undermined the stability of finance for developing unprecedented growth in a highly competitive countries. More recently, banks have agreed to market. It is not clear whether their current caution 123 signals a permanent shift toward slower growth in embrace new instruments. These instruments now their international lending, or whether they are evolving in the international markets may encour- merely consolidating before starting a new phase age second-tier banks and nonbanking institutions of expansion. However, it is clear that international to maintain or increase their presence in interna- banks are having to learn new ways of collaborat- tional lending. ingwith each other, with the International Mone- The evolution of a viable secondary market for bank tary Fund, with their own central banks, and with loans. Banks making loans are typically locked in their largest borrowers in the developing world. for the duration, albeit at a variable interest rate, so They are also showing a renewed interest in are less able to adjust their exposure to changing project-related lending, so they are also cooperat- circumstances. This makes them more reluctant to ing with the World Bank on cofinancing (see Box increase their lending. A secondary market might 8.9). Furthermore, the banks are seeking ways to add depth to the lending market by encouraging a cope with some of the risks involved in interna- wider range of investors to take up developing- tional lending. country paper. Without a mature secondary mar- Despite the many problems they have had ket, there is no adequate mechanism for pricing recently, developing countries need a continuing assets and revealing the market's collective judg- flow of bank lending to regain their growth ment about risk. As a result, bank lending is more momentum. For this to happen, however, devel- likely to be volatile. Secondary markets for loans to oping countries must restore their creditworthi- developing countries are controversial, however. nessand that depends on their own policies and Bankers, for instance, do not want to publicize the on the strength and stability of world economic fluctuating value of their assets, and borrowers are growth. Because banks examine closely the returns concerned about the difficulty of managing their relative to the risks involved on each loan, an debt in the secondary market. Moreover, second- increase in creditworthiness would reduce the risk ary markets offer a guide to creditworthiness that and increase the attractiveness of developing- could signal the need to modify policies if borrow- country loans. Beyond that, the revival of bank ing difficulties were emerging. The expansion of lending depends upon: secondary markets is desirable, but it must be a The ability of banks to rebuild their capital bases. phased process in which creditors and debtors, as There is evidence that such a trend is already well as banking regulators, are given time to delin- under way among U.S. banks. This is significant eate and then adapt to their functions. Without a because these banks have been major lenders to phased introduction of secondary markets, the developing countries in the past. Their capital banks, for instance, might be forced to write down grew by approximately 12 percent a year during the value of large amounts of lending, which could 1982-84, and their capital ratios have risen sharply. reduce their ability to provide new resources. U.S. banks' exposure to developing countries The international bond markets may continue to declined substantially relative to their capital in flourish, as they have done for the past three 1982-84. Whether this development will presage years. For the fixed rate markets to remain buoyant an increase in lending to developing countries will will require a continuation of low inflation. Float- depend on the relative attraction of domestic lend- ing rate notes, meanwhile, are likely to remain a ing during the present phase of financial deregula- feature of these markets. It is possible that the tion in the United States. The capital position of locus of lending to developing countries may shift non-U.S. banks would also improve if the dollar to the innovative shorter-term segment of the weakened appreciably on the foreign exchange securities markets. The restoration of the cre- markets. ditworthiness of developing countries will be the The degree to which developing countries can key to their access to the securities markets. 124 9 Direct and portfolio investment Throughout most of the twentieth century, direct nology and management, both of which can investment has been an important source of capi- increase the productivity of the capital. In addi- tal, technology, and expertise for countries in the tion, like portfolio investment, direct investment process of development. In the early years of the shares in both the risks and rewards of each partic- century, foreign investors built railroads and elec- ular project. The financial value of direct invest- tric power systems and invested in plantations and ment therefore normally understates its overall mines to produce for export markets. Later, direct benefits to the recipient country. investment in manufacturing industries and ser- Direct investment and other types of foreign vices became more common. Portfolio investment, capital are not necessarily substitutes; indeed, they in contrast, is a relatively new phenomenon that often complement each other. For example, only has only assumed significance with the growth of about 60 percent of the external finance for the large public companies in developing countries Latin American subsidiaries of American compa- and the emergence of local stock markets. Direct nies has come from their parent firms. The rest has investment normally involves an ownership inter- come from commercial banks (both local and for- est and an effective voice in the management of an eign) and trade credit. Roughly three-quarters of enterprise, while portfolio investment entails a all the borrowing done by those subsidiaries has share in ownership but no significant influence been in the form of trade credit. Other forms of over the enterprise's operations. international capitalsuch as bilateral and multi- Many developing countries have recently made lateral aidhave also facilitated direct investment policy reforms that, among other things, give more by helping to create investment opportunities and scope for private sector activities. They have also by financing essential infrastructure. become more receptive to foreign direct invest- The bulk of direct investment is done by a rela- ment as lending by banks has declined. In the light tively small number of large firms. The 380 largest of these changes, this chapter examines whether transnational corporations had foreign sales of equity forms of investment can expand to provide about $1,000 billion in 1980, almost $3 billion a a larger amount of capital to developing countries. firm. They are usually attracted to invest abroad by It concludes that equity investment is beneficial to a country's natural resources or its favorable eco- developing countries and can be increased, but nomic environment; occasionally they are also that it is largely a complement to commercial bank attracted by the special inducements offered by lending, not a substitute for it. Because it is nar- host countries. rowly concentrated in countries and sectors, its One common motive for a company to under- potential for expansion is limited. To maximize take foreign investment is a threat to an existing that potential, developing countries need policies export market. The threat might come either from that promote trade, plus a stable economic and the actions of a competitor or from measures political environment that does not discriminate restricting the market to local producers. The only against foreign investment. For their part, indus- way to avoid the trade barriers is to be inside them. trial countries can support direct investment in Companies are also keen to invest abroad when developing countries by liberalizing their own there are clear cost advantages from doing so. trade and investment policies. Direct investments in manufacturing and services are often made by firms with some kind of special The nature and role of direct investment advantage that is best utilized by maintaining management control of operations in foreign coun- Unlike commercial bank lending, direct invest- tries. Such advantages may be a superior product ment provides finance as part of a package of tech- or production process, or a product that the for- 125 Table 9.1 Direct foreign investment in selected country groups, 1965-83 Average annual value of flows Share of flows (billions of dollars) (percent) Count ry group 1965-69 1970-74 1975-79 1980-83 1965-69 1970-74 1975-79 1980-83 Industrial countries 5.2 11.0 18.4 31.3 79 86 72 63 Developing countries 1.2 2.8 6.6 13.4 18 22 26 27 Latin America and Caribbean 0.8 1.4 3.4 6.7 12 11 13 14 Africa 0.2 0.6 1.0 1.4 3 5 4 3 Asia, including Middle East 0.2 0.8 2.2 5.2 3 6 9 11 Other countries and esti- mated unreported flows 0.2 -1.0 0.6 4.8 3 -8 2 10 TotaP' 6.6 12.8 25.6 49.4 100 100 100 100 Figures converted from billions of SDR to billions of U.S. dollars based on average IMF-IFS exchange rates. Total includes IMF estimates for unreported flows. Source: For 1965-79: U.S. Department of Commerce 1984, Table 4; for 1980-83: IMF Balance of Payments Statistics Yearbook 1984. eign company can differentiate from those of com- Table 9.1 shows that about three-quarters of for- petitors. eign direct investment has gone to industrial coun- tries on average since 1965. The remainder has Growth and concentration been concentrated for the most part in a few devel- oping countries, predominantly the higher-income While the nominal value of direct investment in countries of Asia and Latin America. In particular, developing countries grew by 10 percent a year Brazil (see Box 9.1) and Mexico have received large between 1967 and 1982, its real value hardly volumes of direct investment. Within Asia, Hong increased at all. By contrast, the amount of Kong, Malaysia, the Philippines, and Singapore medium- and long-term finance for developing have been the largest recipients; Singapore alone countries from private lenders increased by about has accounted for nearly one-half of total Asian 9.5 percent a year in real terms. More than half of receipts of foreign direct investment in recent the measured flow of direct investment now takes years. Among those developing countries that the form of reinvested earnings from existing sub- have accumulated a large volume of external liabil- sidiaries. ities there are marked differences in the share of direct investment in the total (see Figure 9.1). Direct investment has provided very little capital for the low-income countries. This often reflects Figure 9.1 Direct foreign investment the small size of their domestic markets and their as a percentage of external liabilities lack of skilled manpower; in India's case, it has of seven major borrowers, 1983 reflected in part the strong public sector bias of its Average for the industrial policies and in part a search for eco- seven nomic self-reliance (see Box 9.2). Argentina Direct investment in developing countries comes almost entirely from industrial countries. Brazil Although companies from the United States and Indonesia the United Kingdom are the largest foreign inves- Korea tors in developing countries, their relative status has declined. Companies from the Federal Repub- Mexico lic of Germany and, until recently, Japan (see Box Philippines 9.3) have substantially increased their investment in developing countries. Together, these four Venezuela countries have supplied more than three-quarters of direct investment in developing countries, with 0 4 8 12 16 20 the United States alone accounting for nearly one- Percent half of the total. Source: IMF 1985. Almost all investing countries have a regional bias in their investment in developing countries. 126 Box 9.1 Direct foreign investment in Brazil Brazil has received more direct foreign investment than 45 percent of the local sales of manufactured goods were any other developing country. At the end of 1983, the by foreign-controlled companies. They seem to have stock of direct foreign investment in Brazil totaled almost accounted for roughly the same proportion of exports of $22.3 billion. This is a big amount, even allowing for the manufactures. large size of Brazil compared with other developing countries. In the next largest recipient, Mexico, the stock was only half that size. Over the past decade, flows of Box figure 9.1A Capital flows to Brazil, 1974-83 direct investment to Brazil have been consistently posi- tive and have risen every year except for 1980 and 1983. Billions of dollars About two-thirds of this investment was new inflows, 12 with the rest coming from reinvested earnings. While the Long-term capital flows rate of growth of direct investment has been much slower than other forms of foreign capital, it has also 8 been much less erratic (see Box figure 9.IA). For foreign investors, Brazil's attractions include a large and growing local market and policies that gener- ally encourage foreign investment. Most foreign invest- 4 ments are not restricted, though a fewsuch as the Direct foreign investment production and marketing of minicomputers and micro- computersare closely controlled and increasingly restricted to Brazilian-owned firms The United States is the largest single source of foreign Short-term capital flows investment in Brazil, with about one-third of the stock of assets; its share has recently been rising. Germany is 4 second with about 13 percent, followed by Japan with 9 1974 1976 1978 1980 1982 percent. Note: Long-term flows include direct foreign investment. Nearly 75 percent of direct investment in Brazil is in manufacturing, and these foreign manufacturers have a Source: IMF Balance of Payments Yearbook 1978; IMF Balance of Payments big weight in the whole economy. The UN Centre for Statistics 1984. Transnational Corporations estimates that in 1977 nearly The United States' investment is largely in Latin loans. Returns required by private investors are America, while Japan's investment goes mainly to estimated to have been much higher than those on its Asian neighbors. Similarly, much of the United bank loans. Kingdom's investment goes to Commonwealth At the same time, many developing countries nations, and France has focused on countries with increased restrictions on direct investment, reduc- past colonial ties, mainly in Africa. ing the range of industries in which foreigners Direct investment is also concentrated in a few could invest and raising local ownership require- economic sectors. Figure 9.2 shows that invest- ments. Some policymakers in developing coun- ment by U.K. and German firms in particular has tries questioned the contribution that direct invest- been mainly in manufacturing; while U.S. and Jap- ment could make to economic development. anese investment, although more evenly spread The reasons for their skepticism have always over the major economic sectors, has a bias toward started with political opposition to letting national manufacturing and the primary industries. And resources be controlled from abroad. In addition, within manufacturing, direct investment has been critics charge that multinational companies use mainly in transportation equipment, chemicals, inappropriate technologies and that their central- and machinery (which includes electronics). ized management structures prevent the develop- ment of local initiative. They also say that multina- Causes of stagnation tionals often fund themselves in the local capital market, crowding out potential domestic borrow- The near stagnation of direct investment in the ers. Finally, they suggest that direct investors use 1970s reflected the increased availability of bank transfer prices, royalty and interest payments, lending and the low real interest rates on bank management fees, and other means to avoid price 127 Box 9.2 Direct foreign investment in India The Indian government has traditionally been cautious subject to the provisions of the Foreign Exchange Regu- about foreign investment. However, it has recently rec- lation Act of 1973. This act, enforced by the Reserve Bank ognized that joint venturesor collaborationscan be of India, governs the entry of foreign investment, the useful in bringing in new technologies, increasing activities of resident foreigners, and the holding of and exports, and creating domestic employment (see Box fig- payments in foreign exchange. ure 9.2A). Regulations have therefore begun to be eased. Because of restrictions on foreign ownership and While direct foreign investment still constitutes a expansion, many multinational firms prefer to license small proportion of India's foreign capital flows, the their products in India. However, royalties and fees paid number of collaborations and the amount of foreign by Indian licensees are also subject to close scrutiny by investment approved by the government have risen sig- the authorities. The royalty allowed in a technical collab- nificantly in recent years. Procedural simplification, oration will depend on the nature of the technology, but improved industrial policy environment, and favorable will normally not exceed 8 percent of the ex-factory value reassessment of India's economic management and of production. prospects have been major factors in this upsurge. Several industries are reserved to the public sector and therefore are closed to private domestic and foreign investment. Elsewhere, foreign ownership is normally Box figure 9.2A Direct foreign investment in India, restricted to 40 percent of a company's equity, though a 1978-83 higher percentage may be allowed if the venture is Number of largely export oriented or brings with it a highly desired collaborations Millions of dollars kind of technology. Companies exporting all their output 700 can be wholly foreign owned. Corporate income taxes are high, and tax laws are complex. However, new companies can obtain various Collaborations (right scale) incentives that tend to reduce their potential tax liability 50 500 in the first five years of their operations. Procedures governing inward investment and 40 400 repatriation are elaborate and time consuming, though the government is now trying to streamline them. All 30 applications for industrial approvals, including the granting of industrial licenses, the approval of foreign 20 Amount of 200 collaborations, and the import of capital goods, can now investment be made to one agencythe Secretariat for Industrial 10 (left scale) 100 Approvals. The Indian Investment Centre meanwhile acts as a separate promotional agency operating along- side the existing regulatory structures. Once the government approves a foreign investment, 1978 1979 1980 1981 1982 1983 remittance of royalties and dividends are unrestricted. Source World Bank estimate, Repatriation of capital invested by foreigners is allowed controls, foreign exchange regulations, local taxes, The skepticism of developing countries was and limits on profit remittances. often echoed by potential investors. Faced with These charges have been particularly common in unreceptive host countries, volatile economic poli- countries where governments have used import cies, and confusing combinations of incentives and restrictions to encourage local production. Inap- restrictions, investors were wary of committing propriate trade regimes sometimes provide foreign capital to developing countries. During the 1970s, investors with financial rates of return that are multinational companies and developing-country markedly higher than the economic returns to the governments put increased emphasis on unbun- country. When governments attempt to control dling the management, technology, and financial such profits, the controls provide incentives for components of direct investment. Licensing and firms to try to evade them. Open trade regimes other contractual arrangements permitted devel- increase the benefits to developing countries of oping countries to obtain some of the benefits of foreign direct investment and reduce the problems direct investment without incurring some of the associated with it. perceived costs of foreign ownership. Recently, 128 however, there has been a positive shift in the receptivity of some countries to direct investment. Figure 9.2 Sectoral composition of direct foreign investment in developing countries by four source countries, 1980 Improving the environment for direct investment Countries with large internal markets and import- United Kingdom United States substituting strategies are among those that have received the largest amount of direct investment. They are also the countries where prices have been most distorted and where complaints about the development contribution of direct investment have been most common. Countries that have fol- lowed a more open development strategy have had fewer problems with direct investment. Their strategy makes production for domestic and export markets equally attractive and generally requires Germany Japan market prices to reflect relative scarcities. In these countries, governments have tended to lower tar- iffs and to allow real interest rates to be positive. As a result, the direct investment that has taken place has been geared more closely to the coun- try's comparative advantage. The contribution that direct investment makes to development therefore depends significantly on the policy framework in which it takes place. The policies of host countries E Mining and petroleum El Manufacturing All developing countries have policies and institu- Other tions for dealing with direct investment. These Source: IMF 1985. include investment incentives and the services and Box 9.3 Japanese direct investment in manufacturing Japan's overseas investment in manufacturing industries that reduced the competitiveness of labor-intensive man- only became sizable in the late 1960s and early 1970s. ufacturing. At the same time, large current account sur- Between 1971 and 1982 Japan's cumulative investment in pluses led the Japanese government to liberalize controls manufacturing was about $16 billion, compared with its on overseas investment. total cumulative direct investment abroad of some $50 The pattern of Japanese direct investment is changing. billion. Japanese investment in manufacturing has dif- Manufacturing investments are going more into indus- fered in several ways from that of the other OECD coun- trial countriesespecially North Americathan devel- tries. For example, most American foreign investment oping countries. Between 1971 and 1980 Japanese direct was done by sizable multinational firms usually in a large investment in manufacturing in developing countries industrial country, for the purpose of supplying the local the bulk of which was in Asiarepresented 68 percent of market. Their investments were normally in capital- cumulative investment in manufacturing worldwide. intensive industries and often involved sophisticated During 1981-82 this figure fell to 46 percent. This change technology. is partly a reaction to the protectionist measures that By contrast, Japanese foreign investment in manufac- some industrial countries have adopted to restrict Japa- turing was made by a large number of small and nese imports; Japanese companies have sought to estab- medium-sized firms in labor-intensive and low-technol- lish themselves inside the protectionist barriers. But it ogy industries, initially in such countries as Korea and also reflects the view of many Japanese companies that Hong Kong, and much of it was aimed at export mar- the investment climate in developing countries has dete- kets. These characteristics can be attributed in part to riorated as growth has slowed and some countries have labor shortages in Japan and a rapid rise in real wages run into debt-servicing difficulties. 129 infrastructure provided for foreign investors. They other countriesespecially in Latin Americafor- also include various restrictions on the way foreign eign companies are required to dilute ownership companies can operate. and control gradually through the sale of shares to Incentives. They are typically designed either residents. to enhance the revenues of foreign firms or to Many developing countries restrict remittances reduce their costs. Revenue-enhancing incentives of interest and dividends. This can be a major dis- include import tariffs or quotas on the product incentive to foreign companies and has encour- concerned, tax breaks, and preferential treatments aged such practices as the manipulation of transfer of various kinds. Among these none has been pricing. Some governments in developing coun- more influential than tariffs and other forms of tries (Latin America, for instance) also stipulate protection covering products to be sold on the local performance requirements, so a company has to market. Cost-reducing incentives include reduced export a minimum proportion of its output or use a tariffs on imports and exemptions from taxes on certain amount of local components, labor, and so inputs. The nature of the incentives that a country on. Countries such as Argentina, Kenya, Peru, offers will depend on the kind of investment it and Turkey have limited the amount of local bor- wishes to obtain and on competition from other rowing that foreign investors can do. The IFC countries to attract that type of investment. There study showed that companies tend to take these are indications that incentives become less effec- requirements into consideration in choosing where tive the greater their complexity and the more fre- to locate. quently they are altered. The impact of specific The specific incentives and regulations govern- incentives for direct investment is uncertain. ing direct investment have had less effect on how Numerous studies have suggested that business much investment a country receives than has its executives tend to ignore or downplay incentives general economic and political climate, and its in making decisions on where to invest. However, financial and exchange rate policies. This conclu- a study by the IFC suggests that incentives can sion can be illustrated by the varying experience of influence the investment decision: other things many different countries. Despite offering sub- being equal, companies might choose one country stantial incentives to potential investors, countries rather than another on the basis of the relative in Africa and the Caribbeanwith small domestic attractiveness of incentives. markets and limited natural resourceshave not Regulations. These can take many forms. Some attracted much direct investment. India, Nigeria, countriesincluding Brazil, Egypt, India, and and several Latin American countries have had the Mexicoreserve key industries for local (and often potential to obtain direct investment for import- state-owned) enterprises. Some countries allow substitution purposes. They, too, have had only foreign investors to hold only a minority stake in a modest success because they have chosen to company, unless the industry is defined as "high impose restrictions and performance requirements priority" or the production is mainly for export. In on foreign companies. Box 9.4 Turkish seed production When the World Bank was reviewing its lending plans dures before a new seed could be sold. for Turkey's agriculture in 1981, it concluded that Partly as a result of initiatives by the Bank and the IFC, farmers would benefit considerably if the quality of seed the government has changed many of these policies. was improved. The Bank judged that the most effective Price controls have been abolished. Seed may be way of doing this would be to promote a private sector imported more freely into Turkey, and testing and certifi- seed industry, with the participation of foreign compa- cation procedures have been liberalized. nies. Eleven foreign seed companies have begun working in However, government policies toward the seed indus- Turkey, importing seeds and testing them in local condi- try had discouraged direct investment by foreign firms tions. They then plan to develop distribution channels, and limited the supply and range of seeds that farmers importing the best varieties and selling them to test the could buy. These policies included price controls on market. Once a market is established, the companies seeds; restrictions on importing seeds for testing and intend to set up local growing and processing opera- market development; a government monopoly on test- tions. Ultimately, they may establish local research facili- ing; and lengthy and complicated certification proce- ties to develop new varieties. 130 By contrast, some of the newly industrializing of developing countries. They have tax laws that countries in East AsiaMalaysia and Singapore, make it attractive for individuals to work abroad in for instancehave obtained considerable inflows a multinational company. Such measures are valu- without offering significant incentives. Their able. But the most powerful stimulus to invest in export-oriented development policies have been developing countries comes from liberal trade poli- the attraction. They prove a general rule: what is cies, since companies can then manufacture good policy for domestic investors is also good for abroad to produce for industrial-country markets. foreign investors. As pointed out in Box 9.3, Japanese textile firms Although the macroeconomic climate is of prime made direct investments in Asian developing importance, policies for specific sectors and indus- countries in order to remain competitive in export tries can determine whether investments are actu- markets. ally made. Box 9.4 describes one case, the seed industry in Turkey, where sector-specific policies Investment protection and insurance were crucial. Once policy failings were identified and acted upon, substantial new foreign invest- As direct investment is long term and usually takes ment took place in the industry. the form of plant and machinery, it is exposed to political riskthe threat of expropriation, blocked The policies of industrial countries currency, war, revolution, or insurrection. To reas- sure actual and potential investors, many develop- As with the policies of host countries, it is the gen- ing countries have passed laws protecting them eral economic policies of the industrial countries against expropriation; some have embodied the that have the most effect on the amount of direct protection in their constitutions. Governments in investment going to developing countries. Lower industrial and developing countries have con- rates of economic growth and high production cluded some 200 bilateral treaties on investment costs at home wifi increase the attraction of foreign protection, which cover, among other things, investment. transfer and expropriation risks. In addition, At the same time, the efforts of industrial coun- twenty-two countriesalmost all industrial coun- tries to encourage and protect production at home tries, as well as India and the Republic of Korea have sometimes discouraged investment in devel- have set up investment guarantee schemes. oping countries. Some industrial countries provide These schemes offer guarantees to companies generous concessions to attract investment from and individuals from each guaranteeing country abroad. Although many of these incentives are against political risks abroad. National schemes directed toward specific industries, usually high differ appreciably in their terms and conditions, technology ones, they can be directly competitive scope of coverage, and administrative practices. with the incentives offered by developing coun- As a result, their coverage of direct foreign invest- tries. Direct and indirect subsidies to ailing indus- ment to developing countries ranges from less tries have also reduced the incentives for firms in than 5 percent to more than 50 percent. In all, these industries to consider investing in develop- some 10 to 15 percent of direct foreign investment ing countries. Restrictions on trade flows have had to developing countries from countries with similar effects. The 1982-85 restrictions on Japa- national schemes was guaranteed in 1977-81. By nese automobile exports to the United States, for the end of 1981, about 9 percent of the stock of instance, reduced the incentive for U.S. producers direct foreign investment was covered by national to seek lower-cost manufacturing bases in devel- guarantees. oping countries to produce parts and components. Another approach to mitigating political risk has To increase investment in developing countries, it been through private insurance. In the early 1970s, would clearly be desirable to remove the subsidies underwriters and brokers of Lloyd's of London and tariffs that protect domestic industry in the pioneered political risk insurance for overseas industrial economies. investments and export contracts. Since then, the Some policy initiatives in industrial countries practice has grown substantially. In 1973, private have had positive effects on investment in devel- insurers received premiums of $2 million to $3 mil- oping countries. Governments and trade bodies lion from underwriting political risk, and their have spread information about investment oppor- underwriting capacity did not exceed $8 million for tunities. They have negotiated procedures for set- each project. In 1982, total premiums were worth tling disputes over investment with governments an estimated $95 mfflion, the underwriting capac- 131 Box 9.5 A multilateral investment guarantee agency The proposal to establish a multilateral facility for guar- technical assistance, and encouraging policy coopera- anteeing international investment has been discussed tion. While the ideas previously discussed within the periodically since the early 1960s. One regional agency, World Bank envisaged a facility closely linked with the the Inter-Arab Investment Guarantee Agency, was Bank and financed as well as controlled by industrial established in 1974 and has operated successfully since countries, the new proposal suggests an autonomous then. However, its operations are limited to investments agency, with some link to the Bank, which would be between its various Arab member countries. In 1981, the financed and controlled jointly by home countries and Bank's management resumed the initiative to create a host countries of investments. As such, MICA would multilateral investment guarantee agency (MIGA) under provide a confidence-building framework for policy the auspices of the World Bank. Since then, Bank man- cooperation between host and home governments and agement has presented a concrete proposal and has had private investors. consultations on it with member governments and in MICA would finance itself from its own revenues, business circles. In the light of these consultations, it has notably from premiums charged for its guarantees. It prepared a draft Convention as a basis for negotiations. would, however, have its own share capital and would As proposed, MIGA would aim to improve the invest- become operational when a certain number of capital- ment climate in developing countries through (a) issuing exporting and capital-importing countries had ratified guarantees for foreign investment against noncommer- the Convention and subscribed to a minimum amount of cial risks, and (b) supplementing the activities of the MICA's capital stock. Every member country, including Bank and the IFC in promoting such investments by car- every developing member country, would subscribe to a rying out research, providing information, rendering minimum number of shares. A small percentage of the ity for a single project had soared to $450 million, make credit scarce, and change the relative prices and the sum insured was estimated to be around that determine profits. $8 billion. Privatization of state-owned enterprises that the government no longer wishes to hold. The IFC The role of the World Bank Group may advise on strategic aspects of privatization: whether to sell, lease, or offer a management con- Besides building up domestic infrastructures and tract; the sequence in which enterprises should be providing complementary financing, the World privatized; the kinds of buyers to seek and how to Bank and its affiliate, the International Finance seek them; and how to evaluate the enterprises. Corporation, try to promote policies in developing The IFC may also participate in the financing when countries that will increase all investment, domes- particular enterprises are sold to private buyers. tic and foreign. The focus of the Bank's structural Acting directly as an investor, but always as a adjustment lending, for example, is to encourage minority participant, the IFC promotes the flow of governments to reduce economic distortions by foreign investment to developing countries and cutting subsidies, sharpening incentives, and seeks to stimulate the domestic private sector. The phasing out protection for inefficient producers. 773 projects in eighty-four developing countries The Bank and the IFC are able to help in the that the IFC has financed through June 1984 repre- design of policies to stimulate productive private sent a total investment cost of almost $27 billion; investment. The IFC in particular is well placed to the IFC has complemented its own investments of give such advice because it sees firsthand, as a par- $3.7 billion by $2.5 billion that has been syndicated ticipant, how policies affect investment decisions. to other lenders. The IFC has also helped to attract Sometimes in collaboration with the Bank, it to these projects direct foreign private investment responds to requests from its member countries for amounting to roughly $1 billion. policy advice on topics such as: The IFC provides services that help to bring The drafting or revision of investment codes, domestic and foreign investors together. Its pres- laws, and regulations that govern private direct or ence often serves to raise the confidence of foreign foreign investment. investors, and as a neutral partner it helps to struc- Measures to help private companies through ture projects so that the benefits are shared equita- the difficulties that occur when austerity or econo- bly among local public and private investors and mywide restructuring programs reduce demand, foreign interests. Three recent examples of IFC 132 recognition of the relevance of this institution to the investors and the countries that wish to attract them. The Bank's management has also proposed subscriptions would be paid in; the rest would be call- a multilateral investment guarantee agency (see able in case of need. MIGA's underwriting capacity Box 9.5). would be subject to ceilings that would maintain a sound ratio between its capital and its liabilities under issued Foreign portfolio investment guarantees. In addition to its own guarantees, MIGA would be authorized to issue guarantees on behalf of Portfolio investment has not yet provided much 'sponsoring members," which would recommend such finance for developing countries, though its contri- guarantees and share in the risks on a pro rata basis. bution is growing. An attractive feature is that it Under this additional window, guarantees of sponsored investments would have no ceiling. can provide equity finance for developing coun- In accordance with the proposed draft Convention, tries with fewer of the difficulties about foreign MICA would be subrogated to the relevant rights of control that are associated with direct investment. indemnified investors against host countries. Disputes However, many developing countries have been between the agency and host countries concerning such skeptical of the benefits of portfolio investment rights would be settled by negotiation and, ultimately, and so have restricted and regulated it. For their international arbitration. Host countries' sovereignty part, investors in the industrial countries have would be safeguarded by the principle that both the investment and the agency's guarantee must be ap- known little about the securities markets in devel- proved by the host country concerned. oping countries and have been concerned about the perceived risks involved. The experience of host countries In many developing countries, companies have assistance show the range of the services that go outgrown their domestic capital markets and with its financing: would benefit from an injection of foreign equity. It has arranged project technology agreements By the same token, more foreign investors would so that the foreign suppliers of technology bear a increase the demand for stocks in domestic capital larger share of the risk when their technologies are markets. Greater market activity could ultimately unproven lead to new stock issues and perhaps new invest- In helping to draw up management agree- ment. The secondary market would gain some ments between foreign companies and develop- much needed stability if purchases and sales by ing-country companies, it has insisted that man- foreign investors helped to offset the cyclical agement fees be related to performance-related behavior of domestic investors. indexes, such as profitability, rather than to the If developing countries are to obtain portfolio value of sales or similar less relevant yardsticks. capital, they must take steps to attract it. At It has discouraged some developing-country present, many have barriers against it, including: governments from putting uneconomic perfor- Capital gains taxes and unduly high withhold- mance criteria or other restrictions on foreign com- ing taxes on dividend income. panies, where such measures might reduce the Minimum periods during which foreign funds benefits from the projects. must remain invested. The World Bank has also taken some interna- Foreign exchange restrictions on foreign port- tional initiatives over foreign investment. The folios. establishment of the International Center for the Restrictions on the types of shares that can be Settlement of Investment Disputes (ICSID) in 1965 bought or held by foreign investors. has helped to improve the framework for direct Discriminatory treatment of foreign investors investment by providing acceptable procedures for compared with domestic investors. the settlement of disputes between foreign inves- The removal of these barriers could facilitate a tors and their host countries. It has thereby built a growth in portfolio investment. greater measure of confidence in the relationship between these two parties. The increasing mem- The perspective of international investors bership of ICSID, now totaling seventy-eight countries, with four other signatories expected to Portfolio investment offers the investor long-term become members soon, is evidence of the growing returns and diversified risk without the responsi- 133 biity of management and control. Thus far, almost ment would allow investors to hold a broader all portfolio investment has been in the markets of range of international assets. Significantly, the the major industrial economies or in a few devel- returns from investing in the stock markets of the oping countries (such as Malaysia and Mexico). United States and other big industrial countries During the past five years, however, a number of have not been synchronized with the returns from developing countries have emerged as potential developing-country markets, so the widest spread markets for portfolio investment. For example, of assets has also been the least risky. Further- equity funds of Brazilian, Indian, Korean, and more, the returns obtainable from the emerging Mexican shares have been organized. developing-country markets (excluding Hong The total capitalization of the developing coun- Kong and Singapore) have recently been higher tries' equity markets amounted to $133 billion in in dollar terms on a cumulative basisover the 1983. This was more than one-quarter of the Euro- past eight years, more than double that of the pean market capitalization, and 10 percent of all world's major equity markets (see Table 9.2). How- the stocks quoted outside the United States. ever, devaluations and major economic changes in Excluding Hong Kong and Singapore, the capitali- the developing countries mean that returns have zation of developing-country markets totaled $75 been volatile. billion. The IFC has supported the development of local Assessment markets by helping to establish specialized equity funds for individual countries. One example is the The following principal conclusions emerge from Korea Fund (see Box 9.6). The IFC has also pro- the preceding review. posed the formation of investment trusts through Equity forms of investment can clearly be ben- which commercial banks would be able to sell eficial to developing countries, and it is desirable some of their loans to developing countries for that they be increased. Developing countries can shares. The trusts would then swap the loans reduce the level of risk attached to external capital bought from the banks for equity stakes in the bor- inflows and secure the benefits of technology and rowing entities. expertise transfers by expanding the amount of In general, developing countries have a reputa- direct investment in total external financing. tion as high-risk options for portfolio investors Given that equity investment is desirable, from industrial countries. However, such invest- there is a question of how developing countries Box 9.6 The IFC and foreign portfolio investment: the Korean case The Korea Fund is one example of the IFC's work in assets will be invested in Korean listed stocks. The fund trying to stimulate foreign portfolio investment in devel- is managed by Scudder, Stevens & Clark, an American oping countries. In the early 1980s the Korean authorities investment counseling firm, with the help of Daewoo decided to open their securities market gradually to for- Research Institute, an investment advisory firm in eign investors. As a first step, two semi-open-end Korea. The IFC was involved from the beginning and mutual funds (Korea Trust and Korea International acted as one of the colead managers of the underwriting. Trust) were offered in the Euroequity market at the end In future years, foreign investment in Korean listed of 1981. These offerings totaled $30 million (later doubled securities is likely to be liberalized further. As presently through a second tranche) and were underwritten by envisaged, the guidelines will say that total foreign leading international securities houses. The minimum investment should not exceed 10 percent of total market denominations of $10,000 were aimed at institutions and capitalization and that foreign holdings should not individuals with sizable portfolios. The funds are man- exceed 10 percent of the voting rights of any company, aged by two established Korean investment manage- with a 5 percent restriction on any single foreign share- ment companies. holder. As part of this development, leading Korean As a second step, the Korea Fund was offered to the companies are expected to list their stocks on major general public as well as institutional investors in mid- international stock exchanges and offer their shares for 1984. This fund is a closed-end investment company, public subscription in the Euroequity market. In addi- registered with the U.S. Securities and Exchange Com- tion, Korean securities firms are expected to allow inter- mission and listed on the New York Stock Exchange. It is national investment banks to take their shares. expected that normally at least 80 percent of the fund's 134 Table 9.2 Return on investment in emerging markets, 1976-83 (percent) Average annual change, Country group 1976 1977 1978 1979 1980 1981 1982 1983' 1976-83' Emerging markets Argentina 147.0 -43.6 79.9 233.6 -72.2 -54.5 66.2 124.5 18.7 Brazil 1.3 11.9 -6.0 -12.5 4.1 9.0 -19.9 974b 66b Chile 103.4 146.3 56.3 131.6 92.7 -48.3 -52.1 -18.4 27.7 Hong Kong 40.0 -11.0 18.0 80.0 71.0 -16.0 -42.0 -8.6 9.2 India 34.1 13.7 51.2 21.1 42.3 23.8 -5.9 6.0 22.0 J ordan' 53.4 27.7 21.5 35.0 8.0 -7.0 19.9 Korea 72.4 114.2 23.7 -13.0 -26.5 40.2 7.9 7.4 21.5 Mexico 19.1 22.3 127.8 96.3 17.7 -46.8' 798d 1702d _06d Singapore 14.0 6.0 52.0 -12.0 29.0 15.0 -1.0 29.2 15.0 Thailand 0.4 187.7 43.2 -40.7 -12.9 -19.2 21.1 9.7 12.3 Zimbabwe 13.2 3.1 -6.9 178.7 30.4 -56.7 -32.4 -7.9 0.8 Industrial countries United States 23 -8 6 14 29 -4 21 20 13.5 Japan 25 15 52 -12 29 15 -1 23 16.8 Cumulative return Capital Interna- tional world indexe 114 116 136 152 192 184 205 250 12.1 IFC emerging market index 134 196 304 514 645 593 412 617 25.5 Note: The returns depicted are calculated as follows. Assume a U.S. investor has $100 to invest in an emerging market. After conversion to domestic currency, the proceeds are placed in a basket of actively traded stocks. Dividends may be paid on the investment during the year, and capital gains may also be secured if the market price of the stock rises. These two sources of income are converted back to U.S. dollars at yearend exchange rates to yield a return denominated in U.S. dollars. This return is expressed as a percentage of the original $100 investment. Returns for 1983 are up to the end of November for Argentina and to the end of December for Brazil, Hong Kong, India, Jordan, Mexico, Singapore, Thailand, and Zimbabwe. Based on preliminary data for 1983. Jordan's stock market opened in January 1978, hence data are not available for earlier years. Based on Capital International data for 1981-83, including net dividends. Based on Capital International data; January 1, 1976 100. Returns in emerging markets included in this table, except for Hong Kong and Singapore, on a market-weighted basis (1980 for 1975-80; individual years for 1981-83); January 1, 1976 = 100. Source: van Agtmael 1984; for emerging markets: IFC data; for industrial countries: Capital International. might attract it and use it efficiently. Experience industrial policies are most conducive to direct over the last decade suggests that countries with investment in developing countries. Bilateral stable economic and political environments are the understandings and insurance schemes have also most successful in this regard. Some countries proved useful in mitigating some of the risks have succeeded in attracting direct investment by inherent in direct investment. The World Bank has offering inducements of various kinds to compen- played an important catalytic role in fostering both sate for inappropriate macroeconomic policies, but direct and portfolio investment and in some these normally encourage inefficient investment instances has provided needed complementary and malpractices in investing firms. Special incen- financing to direct investment projects. While all of tives can be costly for individual developing coun- these factors could encourage a greater flow, direct tries and offsetting within developing countries as investment, which is undertaken by relatively few a group. In general, developing countries benefit companies in a narrow range of countries and most from equity forms of investment when the industries, is likely to be relatively slow to overall policy environment is favorable for invest- respond. ment and when the policies adopted toward for- Foreign portfolio investment might be stimu- eign investors are the same as those under which lated by the removal of restrictions, regulations, domestic investors operate. and tax barriers that impede international inves- Policies in industrial countries are also impor- tors' access to domestic stock markets. Further- tant for encouraging equity flows; liberal trade and more, major indigenous corporations might also 135 be permitted to list their shares on international Both direct and portfolio investment have the stock exchanges. A more favorable climate for for- potential for covering a higher proportion of the eign portfolio investment might stimulate interest funding needs of developing countries than they among investors and facilitate the establishment of have hitherto. To realize this potential, however, emerging equity market funds. Pension funds in requires a wholesale reassessment of the benefits the industrial countries have assets worth $1.5 tril- of those types of investment in host and investing lion, and they are increasingly seeking investment countries alike. It is necessary, however, to be real- opportunities worldwide. A small shift in invest- istic about its potential for providing large ment toward emerging markets could increase the amounts of finance to a broad range of developing volume of capital flowing to developing countries. countries. 136 Part IV Perspectives and Policies for the Future 10 Perspectives and policy agenda The financial difficulties of the past few years have Budgetary deficits, inflation, unemployment, and been effectively handled by a combination of eco- interest rates would remain high. GDP growth in nomic recovery, very tough adjustment measures industrial economies would average 2.5 percent a by debtors, and actions by creditors and interna- year. In developing countries, GDP would grow at tional agencies. But the deep-seated problems of 4.7 percent a year (or well below the 5.5 percent both industrial and developing countries continue growth rate of 1973-80), and with increased pro- to need fundamental treatment if sustainable tectionism in industrial economies GDP growth growth and normal relationships between debtors would be reduced to only 4.3 percent a year in and creditors are to be restored. Only when this 1985-95. All forms of foreign capital for developing happens will developing countries really be able to countries would grow slowly, with only a small resume the encouraging progress they made in the increase in aid. In such circumstances, most 1960s and 1970s. groups of developing countries would grow more To examine the prospects for development, this slowly than they did in 1973-80, and all would chapter starts by presenting two broad scenarios grow much more slowly than in the 1960s (see High and Low casesfor the years up to 1995. In Table 10.1). Including the difficult 1980-85 period, essence, these are the same as those included in the Low case would mean fifteen years of very last year's World Development Report. However, slow economic progress for many countries. the chapter then pays much closer attention to the The High case, by contrast, assumes a path of period 1985-90. That is the time during which the sustained noninflationary growth in industrial transition to resumed sustained growth would economies. The long-term determinants of pro- occur, if all goes well. Such a successful transition ductivity growth in industrial economies were dis- will require continued policy reforms in develop- cussed in detail in last year's Report. The projected ing countries, sustained growth in industrial coun- growth rate of industrial economies of 4.3 percent tries, and a rollback of protectionism so that devel- a year in 1985-95 assumes that industrial econo- oping countries can access industrial countries' mies would be successful in putting into place poli- markets. cies that would permit output growth close to long-term potential rates. Unemployment, infla- The next ten years tion, and interest rates would all fall, almost back to their levels in the 1960s. Governments would The two scenarios presented in last year's World reduce trade barriers, allowing exports from devel- Development Report and summarized here are not, it oping countries to grow more rapidly. Capital needs stressing, predictions or forecasts. What flows to developing countries could be expected to happens in the next ten years will depend critically expand, and the prospects for more aid for low- on the policies adopted by industrial and develop- income countries would be considerably ing countries, and their broad outlines can only be improved. Developing countries would restore assumed. Nor do the projections include any cycli- their growth rates to somewhere near their aver- cal volatility that in practice will probably occur, age in the 1970s. nor any major exogenous shocks caused by disrup- The contrast between the Low and High cases is tions in the supplies or sharp rises in prices of criti- even more pronounced when growth in develop- cal commodities. ing countries is expressed in per capita terms (see The Low case indicates what might happen if Table 10.2). One striking feature is the bleak out- industrial countries fail to overcome the causes of look for the low-income countries of Africa. Even their erratic performance in the past ten years. in the High case, their per capita incomes decline- 137 Table 10.1 Average performance of industrial and developing countries, 1960-95 (average annual percentage change) 1985-95 Country group 1960-73 1973-80 1980-85 High Low Industrial countries CDP growth 4.9 2.8 2.3 4.3 2.5 Developing countries GDP growth 6.1 5.5 3.0 5.5 4.7 Low-income countries Asia 6.0 5.2 6.4 5.3 4.6 Africa 3.7 2.7 1.4 3.2 2.8 Middle-income oil importers Major exporters of manufactures 6.8 5.9 2.1 6.3 5.2 Other countries 5.2 4.6 1.5 4.3 3.8 Middle-income oil exporters 6.1 5.8 1.8 5.4 4.7 Export growth 5.2 4.1 5.7 6.4 4.7 Manufactures 13.8 11.0 9.7 9.7 7.5 Primary goods 3.6a 1.3 2.8 3.4 2.1 Import growth 5.9 5.9 1.2 7.2 5.1 Note: Projected growth rates, which are based on a sample of ninety developing countries, are from World Development Report 1984. Historical growth rates have been revised since last year's Report. a. Historical growth rates are for the period 1965-73. Source: World Bank data. Table 10.2 Growth of GDP per capita, 1960-95 (average annual percentage change) 1985-95 Country group 1960-73 1973 -80 1980-85 High Low Industrial countries 3.9 2.1 1.8 3.7 2.0 Developing countries 3.6 3.4 0.9 3.5 2.7 Low-income countries 3.3 3.0 4.0 3.4 2.7 Asia 3.6 3.4 4.5 3.7 3.0 Africa 1.2 -0.1 -1.7 -0.1 -0.5 Middle-income oil importers 3.8 3.3 -0.2 3.6 2.6 Major exporters of manufactures 4.3 3.7 0.1 4.4 3.3 Other countries 2.5 2.1 -1.0 1.5 1.0 Middle-income oil exporters 3.5 3.1 -0.8 2.7 2.0 Note: Projections are from World Development Report 1984. Historical growth rates have been revised since last year's Report. Source: World Bank data. and that comes after ten years in which they have to make would strain the fabric of their societies. fallen steeply. Nothing could prove more clearly The High and Low cases obviously produce very the urgent need for domestic policy reforms in different outcomes for the current accounts and Africa and for matching assistance from the world creditworthiness of developing countries. Last at large. year's Report indicated that there were consider- The second trend highlighted in Table 10.2 is the able uncertainties about the prospects for financ- differing capacities of countries to benefit from ing. Outcomes in the long term will depend on improvements in the international environment developments in the next five years. Accordingly, and to resist any deterioration. Just as they have in this Report examines that period in greater detail. the past, some of the major exporters of manufac- tures-such as Korea-could adjust rapidly to the A period of transition, 1985-90 vagaries of the world economy and maintain or increase their GDP growth rates. But the incipient Many developing countries have made progress economic recovery in some major debtor coun- over the past few years in dealing with their finan- tries, particularly in Latin America, would be seri- cia! difficulties. Despite this progress, the eco- ously set back by the Low case. Their difficulties in nomic situation remains fragile in individual devel- servicing their debt would increase enormously; oping countries. As can be seen in Table 10.1, GDP the extra economic adjustments they would need growth in developing countries in 1980-85 is cur- 138 rently estimated at slightly more than one-half that indication of success in addressing adjustment of 1973-80. Despite export growth of close to 6 problems-in the next few years. As a result, there percent, imports have increased at a little more is a reduction in unemployment rates, and the than 1 percent a year in recent years. The share of annual increase in real labor costs in industrial interest in total debt service has increased from 36 economies is assumed to slow by two percentage percent in 1979 to 52 percent in 1983. Many devel- points. The Low simulation assumes that a failure oping countries have run substantial trade sur- to tackle labor market rigidities would contribute pluses in order to meet greatly increased interest to some increases in real labor costs and to keeping payments. Current account deficits of developing unemployment, particularly in Europe, at high countries declined sharply (in current prices) from levels. $57 billion in 1983 to $36 billion in 1984. The high Protectionism. Rapid and noninflationary level of interest rates is thus one of the critical vari- growth in industrial economies in the High simula- ables whose course will influence outcomes in the tion would permit governments to reduce protec- next five years. Developing countries need a rate of tion over the next few years. This would help to growth in export earnings in excess of the rate of stimulate a more rapid growth of international interest to bring down the principal debt ratios to trade from which both industrial and developing more sustainable levels, even if the current countries would draw benefits. By contrast, the account net of interest payments remains in bal- Low simulation assumes that difficulties in adjust- ance. ment and low rates of economic growth contribute Over the next five years, policies in industrial to substantially increased protection against and developing countries will determine whether exports from developing countries. developing countries can make a smooth transition The implications of these assumptions are sum- back to creditworthiness and steady growth. In marized in Table 10.3. The average annual growth order to highlight the policy options and their con- rate in industrial countries is nearly a percentage sequences for developing countries in 1985-90, point higher (3.5 versus 2.7 percent) in the High two simulations have been prepared: a High simu- simulation than in the Low. It should be noted that lation which embodies policies that result in progress in adjustment, and a Low simulation which essentially assumes no particular further Table 10.3 Average performance of industrial progress in adjustment. and developing countries, 1980-90 (average annual percentage change) Three aspects of industrial-country policy are particularly relevant. 1985-90 Count ry group 1980-85 High Low Monetary-fiscal balance. The High simulation Industrial countries assumes a sustained reduction in budget deficits in GDP growth 2.3 3.5 2.7 major industrial countries, particularly in the Inflation ratea 0.5 7.5 5.0 United States. By the end of the decade, deficits Real interest rate 6.8 2.5 6.5 are assumed to be about one-third less than the Nominal lending ratec 12.6 6.1 11.8 levels that governments are currently projecting Developing countries GDP growth 3.0 5.5 4.1 for that year. This permits steps to be taken to Low-income countries 5.9 5.6 5.2 redress the monetary-fiscal balance and to accentu- Asia 6.4 5.8 5.4 ate international cooperation required for noninfla- Africa 1.4 3.4 2.5 tionary growth in industrial countries. In these cir- Middle-income oil importers 1.9 5.9 3.6 cumstances, real interest rates could be expected to Major exporters of manufactures 2.1 6.4 3.8 come down by 1990 to the levels that prevailed in Other countries 1.5 4.2 2.8 Middle-income oil exporters 1.8 4.7 3.6 the 1960s and exchange rate relationships to Export growth 5.7 6.7 3.5 become more reasonable. The Low simulation, on Manufactures 9.7 10.4 5.4 the other hand, assumes that fiscal deficits in 1990 Primary goods 2.8 3.1 1.7 will be no lower than officially projected. Real Import growth 1.2 8.8 2.4 interest rates could thus be expected to rise and the Note: Projected growth rates are based on a sample of ninety devel- oping countries. exchange value of the U.S. dollar to continue to be Industrial countries' U.S. dollar GDP deflator. Inflation in the strong. United States is 3.5 percent a year in the High and 5 percent a year in the Low simulation. Labor markets. The High simulation assumes Average of six-month U.S. dollar Eurocurrency rates, deflated by that industrial economies will have increased suc- the rate of change in the GDP deflator of the United States. End of period rate. cess in reducing rigidities in labor markets-an Source: World Bank data. 139 part of the reason for the faster growth in indus- improve the efficiency of utilization of domestic trial countries is that they expand their exports to and external resources and to ensure that external developing countries by 7.7 percent a year on aver- capital complements and does not substitute for age-whereas, in the Low simulation, those domestic resources. Economic policies of individ- exports fall by an average of 1 percent a year. The ual developing countries thus are assumed to con- difference is primarily due to increased protection tinue to play a central role in determining future in the industrial countries themselves-a vivid outcomes. In the High simulation, investment in demonstration of how protection will reduce both developing countries is more than 25 percent imports and exports of the countries that raise the higher in 1990 than it is in the Low simulation. trade barriers. Higher protection in the Low simu- GDP growth is sustained at a healthy 5.5 percent a lation implies that developing countries have their year in the High, but would be only 4.1 percent a export growth reduced to only 3.5 percent a year, year in the Low simulation. As the population of compared with 6.7 percent a year in the High sim- developing countries grows by about 2 percent a ulation. As a result, they have to cut back on their year, GDP per capita would rise more than half imports as well. again as fast in the High simulation as in the Low- The difference in real interest rates between the 3.7 percent a year against 2.3 percent a year. High and Low simulations is also very striking. It These aggregate numbers hide substantial is caused by a combination of three factors: regional variations. The average annual growth The continued growth in fiscal deficits in the rate of GDP in low-income countries is reduced by Low simulation keeps up the demand for credit. 0.4 percentage points between the High and Low The deteriorating current accounts of the simulations; for African countries, it is 0.9 percent- developing countries also have the same effect. age points. For the middle-income oil importers, Both of these run up against: the difference is much greater-2.3 percentage Lower private savings in industrial econo- points a year-because they are more affected by mies, the result of slower GDP growth and larger higher interest rates (on their debt) and increased increases in real labor costs. protectionism (on their manufactured exports). Under the High simulation, major exporters of Implications for developing countries manufactures would expand their manufactured exports at 10.5 percent a year (see Table 10.4), The simulations show a range of possibilities for somewhat faster growth than they achieved in developing countries over the next five years. It is 1980-85. As a group, the middle-income oil assumed in both simulations that developing importers would raise their GDP growth from the countries continue to implement policies required doldrums of the early 1980s to 5.9 percent a year in for structural adjustment. The specific policies dif- 1985-90-almost back to what they achieved in the fer by country, but generally involve improve- 1960s and 1970s. Even among these countries, ments in three principal areas-key economic however, differences in economic performance prices, exchange rates and trade policies, and could be expected. Under both the High and Low domestic savings. These measures are designed to simulations, the more flexible East Asian econo- Table 10.4 Change in trade in developing countries, 1980-90 (average annual percentage change) Exports of goods Exports of Exports of Imports of goods and nonfactor services manufactures primary goods and nonfactor services 1985-90 1985-90 1985-90 1985-90 Country group 1980-85 High Low 1980-85 High Low 1980-85 High Low 1980-85 High Low Developing countries 5.4 6.8 3.6 9.7 10.4 5.4 2.8 3.1 1.7 1.1 9.3 2.5 Low-income countries 7.1 5.5 2.6 8.6 9.5 4.5 5.4 2.6 1.3 4.2 7.2 1.6 Asia 9.2 6.0 2.8 9.6 9.5 4.6 8.0 2.5 1.2 5.9 8.1 2.1 Africa -1.6 2.5 1.5 -12.6 8.6 3.7 -1.2 3.1 1.8 -2.1 2.6 -0.8 Middle-income oil importers 7.2 8.2 4.3 9.3 10.4 5.5 5.7 3.4 2.1 1.5 10.9 2.9 Major exporters of manufactures 7.5 8.9 4.7 9.1 10.5 5.5 6.4 3.6 2.3 1.8 12.1 3.7 Other countries 6.3 4.8 2.6 12.1 9.6 4.7 4.4 3.1 1.7 0.6 5.9 -0.1 Middle-income oil exporters 1.0 4.1 2.1 17.0 11.0 6.0 0.0 2.8 1.5 -1.6 6.4 1.9 Source: World Bank data. 140 mies would continue to grow faster than Latin low-income Asia; although growing more rapidly American countries. On average, the East Asian than Africa, low-income Asian countries would be countries are less indebted, and their resilience to faced with a deteriorating external environment external shocks is greater. The large group of mid- for trade and finance just when they are making dle-income oil importers (other than major progress in liberalizing their economies. They exporters of manufactures) would, in the High would hardly be encouraged to liberalize any fur- simulation, see their exports grow rapidly enough ther. But if the High simulation prevails, they to permit them not only to meet required interest could grow at 5.8 percent a year (or somewhat payments, but also to resume import growth (5.9 below the 6.4 percent growth rate of recent years). percent a year) and improve capacity utilization In the process, they would restructure their econo- and economic growth. In the Low simulation, to mies for stable and sustained growth in the 1990s. the contrary, middle-income countries would be required to continue the compression of imports Capital flows and debt and cuts in investment that have characterized recent years. This would put in severe jeopardy The financial implications of the two scenarios efforts to achieve structural adjustments and estab- show profound differences (see Table 10.5 and Fig- lish the base for resumed growth in the 1990s. No ure 10.1). In the High simulation, the developing doubt there is room for increasing allocative effi- countries' interest payments on medium- and ciency of economic resources, especially energy, in long-term debt (in 1980 dollars) decline from $59 many middle-income countries. But the economic bfflion in 1984 to $45 billion in 1990. Interest pay- outcomes portrayed for them raise questions about ments in 1990 would be far outweighed by exports. the ability of sociopolitical fabrics in many coun- The most significant outcome of the High simula- tries to withstand such continuing pressures. The tion is that the creditworthiness of developing development crisis in many middle-income coun- countries improves, partly because they persist tries would become more pronounced. with the policy reforms that are under way in For many low-income African countries, the eco- many countries. As a result, developing countries nomic outlook is bleak. The Low simulation would would obtain more external capital (see Table mean another five-year period of falling per capita 10.5)enough to finance a rise in their current incomes. Incipient economic reforms in many of account deficits (in 1980 dollars) from $36 billion in these countries would surely fall victim to an inter- 1984 to $61 billion in 1990. The bulk of that increase national environment in which primary commod- is accounted for by low-income Asian countries, ity prices would not improve from present very which with their limited debt and low debt service depressed levels, imports would need to be com- ratios are also projected to attract more capital pressed further, and additional aid flows would inflows, and by major exporters of manufactures not be available. Unfortunately, the High simula- and the oil exporters. tion holds out hopes only for a maintenance of In the High simulation, total net financing flows average per capita incomes at the low levels to (see Table 10.6) would increase in current prices which they had declined by 1984. Additional exter- from $72 billion in 1984 to $121 billion in 1990, or at nal assistance, by itself, is not the key to dealing an average annual rate of 11.6 percent. In 1980 with the problems of low-income African coun- prices, the growth rate would be only 3.8 percent a tries. Reforms of domestic economic policies to year, and total net financing flows would be only improve the utilization of domestic and external slightly larger in 1990 than they were in 1980. Net resources are essential. Without them, no amount ODA flows are projected to be 0.37 percent of GNP of external assistance can improve the economic of industrial countries and to increase by 10.3 per- conditions of African countries. Nonetheless, such cent a year in current prices and 2.7 percent a year reforms are unlikely to be effectively sustained in 1980 dollars. This would provide some limited unless there are parallel reforms in donor pro- scope for meeting the financing needs of low- grams. Donors must, in particular, be willing to income African countries without continuing the make adequate financial assistance, over and current process of diverting concessional financing above that projected in the High simulation, avail- from other low-income countries. An adequate able to support those low-income African coun- response to the financing needs of low-income tries that are implementing substantial policy African countries would require aid flows larger reforms. than those projected in the High simulation. The The Low simulation would also be a setback for share of net private capital flows (nonconcessional 141 Table 10.5 Current account balance and its financing in developing countries, 1984 and 1990 (billions of 1980 dollars) Developing countries Low-income Asia Low-income Africa High Low High Low High Low Item 1984' 1990 1990 1984' 1990 1990 1984a 1990 1990 Net exports of goods and nonf actor services 14.5 -38.6 6.3 -8.9 -19.9 -12.8 -3.9 -3.7 -3.0 Interest on medium- and long-term debt -59.3 -44.9 -76.3 -1.9 -3.5 -4.2 -1.0 -1.0 -1.5 Official -10.8 -12.8 -18.4 -1.1 -1.4 -1.8 -0.4 -0.9 -1.3 Private -48.5 -32.1 -57.9 -0.8 -2.1 -2.3 -0.6 -0.1 -0.2 Current account balanc&' -36.4 -60.7 -48.6 -3.2 -15.7 -9.4 -4.7 -4.3 -4.2 Net official transfers 12.2 15.2 14.5 2.0 1.9 1.8 2.0 2.4 2.3 Medium- and long-term Ioans 51.3 55.1 36.6 6.7 15.7 7.4 2.1 1.9 1.8 Off icial 26.2 20.4 20.2 4.3 5.1 5.0 2.3 2.3 2.2 Private 25.1 34.7 16.4 2.4 10.6 2.4 -0.2 -0.4 -0.4 Debt outstanding and disbursed 702.5 716.2 741.4 54.1 93.2 78.8 27.2 27.1 29.6 As percentage of GNP 33.8 24.7 27.8 9.7 11.9 10.3 54.6 44.6 51.5 As percentage of exports 135.4 98.2 133.1 100.0 131.0 148.4 278.1 250.3 328.1 Debt service as percentage of exports 19.7 16.0 28.0 8.4 10.6 15.6 19.9 25.2 37.5 Note: The table is based on a sample of ninety developing countries. The GDP deflator for industrial countries was used to deflate all items. Details may not add to totals because of rounding. Net exports in this table exclude factor services and thus differ from those in Table 10.6. Net exports plus interest does not equal the current account balance because of the omission of net workers' remittances, private transfers, and investment income. The current account balance not financed by official transfers and loans is covered by direct foreign investment, other capital (including short-term credit and errors and Omissions), and changes in reserves. Ratios are calculated using current price data. private capital and direct investment) in total flows 10.2). Total net financing flows would increase is projected to be in 1990 similar to that in 1980. from $72 billion in 1984 to $82 billion in 1990; in Nonconcessional private lending (mainly by com- 1980 prices, however, they would decline by 1.7 mercial banks) is projected to increase by 13.0 per- percent a year in the period 1985-90. This would be cent a year in current prices (5.1 percent a year in the result of very slow growth of official flows and 1980 dollars). Private direct investment is projected a sharp contraction in lending by commercial to increase by 12 percent a year in current prices banks. In the Low simulation, as in the High, ODA (4.2 percent in 1980 dollars). from industrial countries is assumed to be 0.37 per- Despite the increase in external finance in the cent of their GNP. However, since their GNP is High simulation, the main debt indicators all lower in the Low simulation, ODA in 1990 is 15 improve over the period. For developing countries percent less in current dollars (or 3.7 percent less as a group, debt outstanding as a percentage of in 1980 dollars). This would have major conse- exports declines from 135 percent in 1984 to 98 quences for low-income countries, particularly percent in 1990, and their debt service ratio falls those in Africa. Redistributing concessional capital from 20 to 16 percent. The prizes for achieving the among low-income countries would not be an ade- High simulation are therefore substantial-a faster quate answer to their increased needs. Nonconces- growth of output and exports, along with an sional private lending (mainly by commercial improvement in creditworthiness and a reduction banks) is projected to increase by 13.0 percent a in the debt-servicing burden. The improvements year in current prices (5.1 percent in 1980 dollars) in creditworthiness lead to increases in private in the High simulation and decline by 5.0 percent a financial flows in excess of interest payments by year in current prices (9.5 percent in 1980 dollars) 1990 in most regions. in the Low, reflecting changes in creditworthiness By contrast, the prospects offered by the Low and the differences in real interest rates. The rate simulation are very disturbing. Although develop- of growth in private direct investment is projected ing countries are assumed to continue the policy to be 8.4 percent in current prices (3.2 percent in reforms that are already in train, the less favorable 1980 dollars) in the Low. Overall, net financing external conditions produce slower growth and flows grow more than three times faster in current less external finance (see Table 10.6 and Figure prices in the High simulation than the Low; in 1980 142 Middle-income countries Major exporters of manufacturers Other oil-importing countries Oil-exporting countries High Low High Low High Low 19840 1990 1990 1984° 1990 1990 1984° 1990 1990 20.0 -4.9 14.6 -9.8 -8.2 -2.2 17.1 -1.8 9.8 -26.4 -19.3 -33.7 -8.2 -6.3 -10.9 -21.7 -14.8 -26.2 -3.9 -4.4 -6.3 -2.5 -2.9 -4.2 -2.9 -3.3 -4.9 -22.5 -14.9 -27.4 -5.7 -3.5 -6.7 -18.9 -11.5 -21.3 -9.6 -19.7 -15.0 -15.4 -10.8 -10.7 -3.6 -10.2 -9.2 3.8 6.0 5.7 2.6 2.9 2.8 1.9 2.0 1.9 17.9 21.2 12.9 11.1 6.2 5.3 13.6 10.2 9.3 7.8 3.7 3.7 5.5 4.6 4.5 6.3 4.8 4.8 10.1 17.5 9.2 5.6 1.6 0.8 7.3 5.4 4.5 273.1 274.1 280.6 110.6 107.4 116.8 237.6 214.4 235.6 37.6 25.9 30.6 53.0 39.9 47.6 43.8 29.5 347 109.1 67.8 97.0 183.9 139.5 189.5 164.3 129.1 163.5 16.0 12.9 24.2 24.9 22.0 36.9 28.1 22.7 35.9 Estimated. Excludes official transfers. Net disbursements. Source: World Bank data. dollars, they increase by 3.8 percent a year in the pressures for "involuntary" lending would be High simulation and decline by 1.7 percent a year greatly increased. in the Low. In addition, interest rates increase sig- nificantly in the Low simulation, so that interest Policies and priorities payments on medium- and long-term debt would increase from $58 billion in 1984 to $100 billion in The projections made in this chapter underline the current prices (and $76 billion in 1980 dollars) in essential message of the Report: the world has 1990. Given the small amount of new capital they made progress in overcoming the financial difficul- would obtain, developing countries would virtu- ties of the early 1980s, but it still has much to do. ally have to double their trade surpluses just to Debt cannot be seen in isolation, as something that satisfy their interest obligations. It is generally occasionally becomes a "crisis," needing urgent doubtful whether they could do that-or whether attention. On the contrary, international finance is an increasingly protectionist trading regime would an essential part of economic development in an even allow them to try. interdependent world. If it reaches the proportions The full extent of the difficulties of the Low sim- of a crisis, that is because countries have mis- ulation are apparent from the indicators of devel- handled their policies over many years. oping countries' indebtedness. If current account The constructive and collaborative actions by deficits should increase as projected, in 1980 dol- debtors, creditors, and international institutions to lars, from $36 billion in 1984 to $49 billion in 1990, smooth out debt service payments in the context the outstanding debt of all developing countries of countries' adjustment efforts needs to be contin- would fall only slightly from the high present level ued. The objective is to accelerate the return to of about 135 percent of exports, and the debt ser- creditworthiness of countries that are pursuing vice ratio would rise to 28 percent, from 20 percent sound economic policies and have sizable short- to in 1984. Three groups of countries-low-income medium-term debt-servicing requirements. Con- Africa, middle-income oil importers (aside from sideration needs to be given to the extent to which the main exporters of manufactures), and the oil multiyear debt restructurings for official credits exporters-would have debt service ratios of about and other arrangements might be considered on a 36 percent. The need for reschedulings and the case by case basis as part of the overall financial 143 Figure 10.1 The current account, capital flows, Figure 10.2 Net financing flows to developing and debt of developing countries, High and countries, High and Low projections for 1990 Low projections for 1990 (billions of 1980 dollars) Billions of dollars 1990 120 1980 1984 High Low 20 Components of the 100 current account Net exports of 20 80 goods and services 40 60 60 40 interest on medium- 20 and long-termdebt 20 0 ] to official sources =4!) L ] to private sources 60 1980 1984 High Low L__.. - - 80 fl Direct foreign investment 1990 El Private nonconcessional lending Current account 0 fl Official nonconcessional lending balance, excluding net official transfers 20 LI Official development assistance 40 Source: World Bank data. 60 package supporting stabilization and adjustment, particularly in low-income sub-Saharan African 15 countries committed to strong adjustment efforts. Financing of the current account The prospects for the next ten years do not 10 exclude the possibility of further debt-servicing Net official transfers difficulty for many developing countries. The Low 5 scenarios in this chapter show how it could hap- pen. The world economy does not need to slump, 0 as it did in 1981-82, for debt problems to recur. If industrial economies grow at 2.7 percent a year for 60 Medium- and the next five years, as in the Low simulation, and long-term loans this growth is accompanied by high real interest 40 rates and increased protectionism, several groups official sources U of developing countries could find themselves private sources 20 with heavier debt-servicing burdens at the end of this decade than they had at the beginning. 0 The financial outcomes of the Low scenarios are, of course, just one aspect of a much wider failure. 800 Stock of debt Slow economic growth in the industrial countries 600 would increase their unemployment, adding to the Debt outstanding protectionist pressures that would, if conceded to, 400 and disbursed hamper growth still further. The attainment of long-term potential growth by industrial econo- mies in the next ten years would become more 0 remote. The developing countries would find it Source: World Bank data. hard to liberalize their economic policies if their export efforts were frustrated by trade barriers and 144 Table 10.6 Net financing flows to developing countries in selected years, 1980-90 (billions of dollars, unless otherwise noted) Growth rate (percent)' 1990 1985-90 Type of flow 1980 1983 1984 High Low 1970-80 High Low Official development assistanc&' Current dollars 23.4 19.9 21.3 36.8 31.7 16.8 10.3 7.1 1980 dollars 23.4 20.2 21.8 25.1 24.2 6.1 2.7 2.0 Noncessional loans Current dollars 46.7 40.6 40.8 66.3 35.1 23.6 12.3 -1.2 1980 dollars 46.7 41.2 41.8 45.2 26.9 12.3 4.4 -5.9 Official Current dollars 9.8 12.7 16.3 15.4 13.7 25.3 9.9 7.4 1980 dollars 9.8 12.8 16.6 10.5 10.5 13.9 2.3 2.3 Private Current dollars 36.8 28.0 24.6 51.0 21.4 23.1 13.0 -5.0 1980 dollars 36.8 28.4 25.1 34.7 16.4 11.9 5.1 -9.5 Direct investment Current dollars 10.6 10.3 9.4 18.1 15.4 16.4 12.0 8.4 1980 dollars 10.6 10.5 9.6 12.3 11.8 5.8 4.2 3.2 Total Current dollars 80.6 70.9 71.5 121.3 82.1 20.1 11.6 3.2 1980 dollars 80.6 71.9 73.2 82.6 62.9 9.1 3.8 -1.7 Memo items Net exports of goods and servicesd Current dollars -92.8 -82.2 -61.5 -132.4 -101.0 1980 dollars -92.8 -83.4 -62.9 -90.2 -77.3 Current account balancee Current dollars -67.8 -56.7 -35.6 -89.2 -63.4 1980 dollars -67.8 -57.5 -36.4 -60.7 -48.6 ODA from DAC countries as a percentage of their GNP 0.38 0.38 0.38 0.37 0.37 Note: All items net of repayments. Data are for a sample of ninety countries. Average annual percentage change. Includes ODA grants (official transfers). DAC reporting includes, and the World Bank Debtor Reporting System excludes, ODA flows from nonmarket economies and the technical assistance component of grants. There are also differences in coverage of recipient countries in the two data sources. Excludes short-term capital and reserve changes. Net exports of goods and nonfactor services plus net investment receipts minus interest on medium- and long-term debt. Excludes official transfers. Source: World Bank data. by limited availability of official finance, including proceed through a realistic set of assumptions ODA. Yet a retreat from liberalization would slow about the future. down their economic growth and compound their Those assumptions chiefly concern the policy debt-servicing difficulties. For many countries, choices of governments. For the industrial coun- development in its widest sense-people leading tries, the assumptions reflect the proclaimed goals longer, healthier, fuller lives-would have to take of government leaders: smaller budget deficits, second place to sheer economic survival. more flexible labor markets, freer trade. These poli- However, such outcomes are avoidable. The cies would produce the results that governments High scenarios offer an entirely different prospect, say they want: faster growth, less unemployment, of faster and more stable growth for both industrial lower real interest rates, and low inflation. The and developing countries and improving credit- means and the ends of the High scenarios are the worthiness for every group of developing coun- same as those being discussed and strived for in tries. This is not just a hope for the 1990s; it could the industrial countries. There is no gap between be achieved during the transition of the next five economic model and political reality. years. And, it needs emphasizing, the High sce- The same is true for the developing countries. narios do not describe some idealized set of out- The High scenarios assume that the policy reforms comes. They start from the less than ideal circum- already under way in many countries will be con- stances of 1985, with all its awkward legacies, and tinued. The objectives of those policies-to restruc- 145 ture economies, ease debt-servicing burdens, and investors have confidence in the policies and pro- restore economic growthare the results projected grams of the recipient countries. Here, the Bank in the High scenarios. However difficult the policy plays a dual role. In its own lending, the Bank has reforms may have been to adopt, in due course a unique perspective from which to analyze a they will create much easier conditions for devel- country's prospects and needed policy reforms oping countries than would prevail if the reforms and to provide this analysis to policymakers. In its are diluted or abandoned. cofinancing efforts, the Bank provides instruments The High scenarios therefore convey a strong to increase the assurance of investors in projects sense of encouragement. Policies and policy aspi- and countries' development prospects. In order to rations are on the right lines; governments are try- carry out these functions, the Bank's ability to ing to steer their economies in directions that will increase its own lending is crucial. indeed bear fruit. The achievements of the 1950s Low-income countries that must depend on con- and 1960sstrong growth, low inflation, financial cessional capital have experienced relative stagna- stabilitycan be recaptured. Under these circum- tion in new commitments in recent years. Atten- stances, provided institutional innovations take tion has focused on sub-Saharan Africa, where the place, normal relationships between private credi- prospect for a dramatic decrease in concessional tors and debtor countries can be resumed, and flows has been highlighted as an overriding obsta- concessional aid can be expected to increase. Inter- cle to achieving sustainable development. This national capital can then resume its productive role underscores the need for a substantial increase in in economic development. IDA resources in the medium term to meet the needs of this region and to provide uninterrupted The role of the World Bank support to IDA borrowers in Asia. In its proposals to respond to the potential The role of the Bank as a provider of finance and decline in funds for sub-Saharan Africa, the Bank other services must be seen in the context of the has stressed that increases in the volume of aid to increased importance of international finance in the region must go hand in hand with improve- economic development. The Bank is playing an ments in aid effectiveness. It has also been recog- increasingly active role in assisting developing nized that ODA flows to Africa could be better countries with needed policy reforms. It has been utilized with new forms of aid coordination that flexible in adapting its operations and instruments emphasize targeted support by lenders for reform to the changing needs of its member countries. It efforts by borrowers. The potential Bank contribu- complements andto the extent possibleexer- tion to achieving these dual objectives through cises a constructive influence on capital flows from enhanced aid coordination has received strong other sources. In order to carry out these func- support from the aid community. In exercising this tions, the Bank's own financing must be on a scale function, the Bank is prepared to assist borrowing that is meaningful both to borrowing countries and governments in strengthening existing mecha- to other sources of finance. nisms for investment review to help ensure that The Bank is the major channel by which devel- proposed projects are consistent with explicit oping countries access the international bond mar- development priorities and with the capacity to ket and other financial markets. This function is effectively implement and operate projects. critical particularly for countries that rely mainly The Bank also has a long history of collaboration on commercial capital and are most sensitive to the with export credit agencies and commercial banks. impact of fluctuations in the world economy. Bank Various cofinancing instruments have been devel- lending is an important component in the accept- oped and will continue to evolve in the future as able balance between official and private sources, the demand increases for resources from the Bank between short- and long-term maturities, and and other sources of finance. The Bank could, between fixed and variable rate instruments. through its assessments of investment programs Although the worldwide recession has meant and individual projects, support the efforts of both temporary slowdowns in many investment export credit agencies and commercial banks to projects in developing countries and reductions in improve the quality of lending, thereby increasing private and public investment, resumed growth the development benefits of such flows while will involve increased ability to use external strengthening the portfolios of the lending institu- resources productively. The resumption of growth tions. Beyond specific cofinancing arrangements, of private capital flows will be more likely if private the Bank's role in regularly reviewing country poli- 146 cies and performance against the medium-term Finally, foreign direct investment is an important growth objectives should provide a basis for aspect of the Bank's catalytic role and its function encouraging the flow of new lending into high- in international capital flows. In the past, the Bank priority sectors and investments. Group has sought to encourage private investment To ensure that the resumption of growth is sus- both directly, through the activities of the IFC and tainable, the continuing adjustment efforts must certain specific Bank projects, and indirectly, by be based on a stable economy and a sound financing investments in physical and human medium-term policy framework. This requires that infrastructure and by helping governments revise the Bank's relations with the International Mone- their foreign investment codes. Much of the work tary Fund enable both institutions to provide con- the Bank does in support of structural adjustment sistent, effective support to their members. This is also directly related to the prospects for private objective is critical in resolving stabilization prob- investment. An important new initiative is the pro- lems and in supporting the transition to sustain- posed Multilateral Investment Guarantee Agency, able growth in major middle-income debtor coun- which would provide various forms of guarantees tries whose economies have recently begun to to foreign investments, including multinationally recover. This implies the need for a coherent financed investments, and reinsure guarantees approach to policy issues and coordinated efforts written by national insurance agencies. to mobilize support for policy reform. 147 Statistical appendix The tables in this Statistical Appendix present data external debt. The data shown have been used for a sample panel of developing countries, along extensively for the analysis in this Report. Readers with information available for developed countries are urged to refer to the Technical Notes to the and high-income oil exporters. The tables show World Development Indicators for definitions and data on population, national accounts, trade, and concepts used in these tables. Table A.1 Population growth, 1965-84 and projected to 2000 1984 Average annual growth (percent) population Country group (millions) 1965-73 1973-80 1980-84 1984-90 1990-2000 Developing countries 3,386 2.4 2.0 2.0 1.8 1.8 Low-income countries 2,263 2.4 1.8 1.8 1.8 1.7 Asia 2,040 2.4 1.7 1.7 1.6 1.4 India 749 2.3 2.3 2.2 2.0 1.7 China 1,032 2.4 1.2 1.3 1.0 0.9 Africa 223 2.6 2.8 3.1 3.3 3.4 Middle-income countries 1,123 2.4 2.4 2.4 2.2 2.1 Oil exporters 491 2.5 2.6 2.6 2.5 2.4 Oil importers 632 2.4 2.2 2.2 2.1 1.9 Major exporters of manufactures 413 2.3 2.1 2.0 1.9 1.7 High-income oil exporters 19 4.5 5.3 4.4 3.9 3.4 Industrial market economies 729 0.9 0.7 0.5 0.5 0.4 World, excluding nonmarket industrial economies 4,134 2.1 1.8 1.8 1.6 1.6 Nonmarket industrial economies 390 0.8 0.8 0.8 0.7 0.6 Table A.2 Population and GNP per capita, 1980, and growth rates, 1965-84 1980 1980 GNP 1980 GNP (billions population per capita Average annual growth of GNP per capita (percent) Country group of dollars) (millions) (dollars) 1965-73 1973 -80 1981 1982 1983' 1984" Developing countries 2,059 3,119 660 4.1 3.3 0.8 -0.7 -0.1 2.1 Low-income countries 547 2,098 260 3.0 3.1 2.0 2.8 5.2 4.7 Asia 495 1,901 260 3.2 3.5 2.5 3.4 6.0 5.3 China 284 980 290 4.9 4.5 1.6 5.8 7.6 7.7 India 162 687 240 1.7 1.9 3.5 0.4 4.2 2.0 Africa 52 197 270 1.3 0.0 -1.7 -2.6 -2.6 -1.5 Middle-income oil importers 962 579 1,660 4.6 3.1 -0.8 -2.0 -1.6 1.1 East Asia and Pacific 212 162 1,310 5.6 5.7 3.7 1.9 4.5 3.4 Middle East and North Africa 25 31 830 3.5 4.3 -2.5 2.6 0.5 -1.3 Sub-Saharan Africa 26 33 780 2.0 0.5 4.1 -4.8 -5.4 -5.4 Southern Europe 214 91 2,350 5.4 2.9 0.2 0.3 -0.5 0.2 Latin America and Caribbean 409 234 1,750 4.5 2.9 -4.1 -4.8 -4.5 1.1 Middle-income oil exporters 550 442 1,240 4.6 3.1 1.5 -2.3 -3.6 0.1 High-income oil exporters 229 16 14,050 4.1 6.2 -1.1 -7.8 -14.1 -6.4 Industrial market economies 7,477 714 10,480 3.7 2.1 0.7 -1.0 1.5 4.3 a. Estimated. b. Projected. 148 Table A.3 GDP, 1980, and growth rates, 1965-84 1980 GDP (billions Average annual growth of GDP (percent) Country group of dollars) 1965-73 1973-80 1981 1982 1983a 1984b Developing countries 2,085 6.6 5.5 3.3 1.9 2.0 4.1 Low-income countries 546 5.5 4.9 4.0 5.0 7.2 6.6 Asia 493 5.7 5.2 4.3 5.4 7.8 7.1 China 284 7.4 5.8 2.9 7.4 9.0 9.0 India 162 4.0 4.1 5.8 2.6 6.5 4.2 Africa 53 3.9 2.7 1.7 0.7 0.7 1.6 Middle-income oil importers 978 7.0 5.6 2.0 0.8 0.7 3.3 EastAsiaandPacific 214 8.6 8.1 6.5 3.9 6.3 5.4 MiddleEastandNorthAfrica 24 5.6 7.1 0.7 6.2 1.5 1.2 Sub-SaharanAfrica 27 5.1 3.6 6.9 -1.0 -1.8 -2.1 Southern Europe 213 7.0 4.8 2.0 2.4 0.8 1.5 Latin America and Caribbean 420 7.1 5.4 -1.0 -1.5 -1.8 3.4 Middle-incomeoilexporters 561 7.1 5.8 4.6 0.9 -1.0 2.7 High-income oil exporters 230 9.2 7.7 0.1 -1.7 -7.0 0.6 Industrial market economies 7,440 4.7 2.8 1.4 -0.3 2.6 4.8 a. Estimated. b. Projected. Table A.4 Population and composition of GDP, selected years, 1965-84 (billions of dollars, unless otherwise specified) Country group and indicator 1965 1973 1980 1981 1982 198Y 1984b Developing countries GDP 327 736 2,085 2,210 2,126 2,046 2,111 Domestic absorption' 331 743 2,132 2,282 2,179 2,063 2,099 Net exportsd -4 -7 -47 -72 -53 -17 12 Population (millions) 2,239 2,710 3,119 3,183 3,251 3,319 3,386 Low-income countries GDP 141 248 546 537 539 561 593 Domestic absorption' 143 250 565 553 551 573 606 Net exportsd -2 -2 -19 -16 -12 -12 -13 Population (millions) 1,525 1,845 2,098 2,137 2,180 2,223 2,263 Middle-income oil importers GDP 128 333 978 1,034 1,027 940 963 Domestic absorption' 130 340 1,018 1,079 1,059 953 954 Net exportsd -2 -7 -40 -45 -32 -13 9 Population (millions) 412 496 579 592 605 618 632 Middle-income oil exporters GDP 58 155 561 639 560 545 555 Domestic absorption' 58 153 549 650 569 537 571 Net exports' 0 2 12 -11 -9 8 16 Population (millions) 302 369 442 454 466 478 491 High-income oil exporters GDP 7 28 230 266 255 219 Domestic absorption' 5 16 148 174 193 Net exportsd 2 12 82 92 62 . . Population (millions) 8 11 16 17 18 19 19 Industrial market economies GDP 1,369 3,240 7,440 7,498 7,418 7,672 8,417 Domestic absorption' 1,363 3,231 7,505 7,526 7,433 7,671 8,417 Net exportsd 6 9 -65 -28 -15 1 0 Population (millions) 632 680 714 719 723 726 729 a. Estimated. b. Projected. c. Private consumption plus government consumption plus gross domestic investment. d. Includes goods and nonf actor services. 149 Table A.5 GDP structure of production, selected years, 1965-82 (percent of GDP) 1965 1973 1980 1981 1982 Agri- Agri- Agri- Agri- Agri- Count ry group culture Industry culture Industry culture Industry culture Industry culture Industry Developing countries 31 29 26 33 20 38 19 37 19 36 Low-income countries 44 27 42 31 36 36 36 34 36 34 Asia 44 28 42 32 35 38 35 36 36 35 India 47 22 50 20 37 25 35 26 33 26 China 43 36 37 41 33 48 35 46 37 45 Africa 47 15 42 19 41 18 41 17 41 17 Middle-income countries 22 31 17 35 14 39 14 38 14 37 Oil exporters 22 26 18 33 14 42 13 40 14 40 Oil importers 21 33 17 35 14 37 14 36 13 36 Major exporters of manufactures 20 35 15 37 12 39 12 38 12 38 High-income oil exporters 5 65 2 72 1 77 1 76 1 74 Industrial market economies 5 40 5 39 4 38 3 37 3 36 World, excluding nonmarket industrial economies 10 38 9 38 7 39 7 38 7 37 Table A.6 Sector growth rates, 1965-82 Agriculture Industry Service Count ry group 1965-73 1973 -80 1980-82 1965-73 1973-80 1980-82 1965-73 1973-80 1980-82 Developing countries 3.4 2.0 3.2 7.9 6.5 0.7 7.7 6.4 4.0 Low-income countries 3.5 1.3 4.2 7.0 8.1 4.8 7.7 6.7 4-5 Asia 3.7 1.2 4.6 6.9 8.5 5.3 8.5 7.2 4.6 India 3.7 2.0 -0.4 3.7 5.0 4.6 4.5 5-7 8.3 China 3.8 0.2 7.7 9.0 10.0 5.3 21.4 8.9 0.3 Africa 2.2 2.2 1.4 7.8 1.0 -4.1 4.3 4.0 3.4 Middle-income countries 3.4 2.7 2.3 8.2 6.0 -0.6 7.7 6.4 3.8 Oil exporters 3.9 2.0 1.8 8.3 5.2 -0.2 7.4 7-9 5.8 Oil importers 3.1 3.1 2.5 8.2 6.5 -0.9 7.8 5.6 2.8 Major exporters of manufactures 3.0 2.9 3.1 8.8 7.2 -1.0 8.5 5.7 3.0 High-income oil exporters 2.3 -16.4 Industrialmarketeconomies 1.7 0.9 1.2 5.1 2.3 -1.0 4.6 3.3 1.5 150 Table A.7 Consumption, savings, and investment indicators, selected years, 1965-83 (percent of GDP) Country group and indicator 1965 1973 1980 1981 1982 1983a Developing countries Consumption 79.8 76.7 75.6 77.2 77.9 76.0 Investment 21.1 24.3 26.7 26.0 24.6 24.7 Savings 20.2 23.3 24.4 22.8 22.1 24.0 Low-income Asia Consumption 79.8 75.1 75.5 76.3 75.8 74.7 Investment 21.5 25.4 27.6 25.7 25.7 26.5 Savings 20.2 24.9 24.5 23.7 24.2 25.3 Low-income Africa Consumption 88.6 85.7 90.4 92.7 94.1 94.6 Investment 14.2 16.8 18.7 17.3 16.2 14.7 Savings 11.4 14.3 9.6 7.3 5.9 5.4 Middle-income oil importers Consumption 79.1 77.0 77.5 78.7 79.1 77.0 Investment 22.0 24.9 26.6 25.7 24.0 24.0 Savings 20.9 23.0 22.5 21.3 20.9 23.0 Middle-income oil exporters Consumption 79.9 76.8 71.0 74.2 76.0 71.2 Investment 19.8 22.3 26.7 27.6 25.7 26.2 Savings 20.1 23.2 29.0 25.8 24.0 28.8 Industrial market economies Consumption 76.7 75.0 78.4 78.4 80.1 80.0 Investment 22.9 24.7 22.5 21.9 20.1 20.0 Savings 23.3 25.0 21.6 21.6 19.9 20.0 a. Estimated. 151 Table A.8 Growth of exports, 1965-84 Average annual change in export volume (percent) Country group and commodity 1965-73 1973 -80 1981 1982 1983' Export volume, by commodities Developing countries Manufactures 13.8 11.0 14.1 1.0 11.5 15.0 Food 2.2 5.4 12.4 11.8 4.6 4.8 Nonfood 3.6 1.6 0.7 -3.9 1.3 -1.8 Metals and minerals 5.7 5.5 -2.4 5.9 -5.2 3.9 Fuels 3.9 -1.0 -12.9 1.6 1.6 5.1 World, excluding nonmarket industrial economies Manufactures 10.7 5.8 6.0 -2.1 4.4 11.7 Food 4.5 9.0 7.2 9.9 6.0 7.0 Nonfood 3.2 3.6 3.1 -0.9 -9.7 0.2 Metals and minerals 6.8 7.2 -15.7 -4.0 -5.7 0.5 Fuels 9.5 0.7 -7.9 -11.2 -5.7 2.5 Export volume, by country group Developing countries 5.2 4.1 3.3 3.2 5.8 8.9 Manufactures 13.8 11.0 14.1 1.0 11.5 15.0 Primary goods 3.6 1.3 -3.4 4.8 1.8 4.2 Low-income countries 3.1 5.2 7.0 6.6 3.6 11.4 Manufactures 5.3 6.5 17.0 -4.8 6.2 23.5 Primary goods 2.0 4.4 -0.1 16.1 2.3 2.9 Asia 2.3 7.2 13.0 8.1 5.6 12.8 Manufactures 5.2 6.7 20.7 -3.8 6.5 24.0 Primary goods -0.1 7.8 5.6 21.4 4.8 2.8 Africa 5.1 -0.5 -14.8 -0.7 -5.3 3.2 Manufactures 5.6 3.1 -33.4 -30.5 -7.3 2.5 Primary goods 5.0 -0.9 -12.1 2.7 -5.1 3.2 Middle-incomeoilimporters 7.3 8.3 12.5 4.5 7.3 9.1 Manufactures 17.0 12.2 13.8 1.6 11.1 13.2 Primary goods 3.1 4.3 10.8 8.7 2.0 3.1 Major manufacturing exporters 10.0 9.7 13.7 4.0 8.0 9.6 Manufactures 17.4 12.6 13.8 1.4 10.9 12.9 Primary goods 5.1 5.5 13.6 9.2 2.6 2.8 Other middle-income oil importers 1.6 3.4 7.2 7.0 3.9 6.9 Manufactures 13.5 7.6 13.9 5.2 14.5 17.1 Primary goods 0.3 2.4 5.3 7.6 0.7 3.5 Middle-incomeoilexporters 4.2 -0.4 -11.6 -0.5 3.6 7.4 Manufactures 11.5 6.9 13.5 5.0 27.5 24.5 Primary goods 4.1 -0.7 -13.2 -0.9 1.6 5.5 High-income oil exporters 15.9 1.1 -7.3 -25.5 -15.8 -7.6 Industrial market economies 9.5 5.6 2.9 -1.1 2.5 10.0 World, excluding nonmarket industrial economies 9.1 4.7 2.0 -2.5 1.9 8.7 a. Estimated. b. Projected. 152 Table A.9 Change in export prices and in terms of trade, 1965-84 (average annual percentage change) Country group 1965-73 1973 -80 1981 1982 1983 1984k Change in export prices Developing countries 6.0 14.7 -2.5 -6.1 -3.7 -1.0 Manufactures 5.1 10.9 -5.0 -1.9 -4.2 -2.8 Food 5.8 8.0 -12.1 -17.4 10.2 7.3 Nonfood 4.0 10.3 -13.5 -8.1 4.8 -3.4 Metals and minerals 1.8 5.8 -10.5 -9.5 0.5 -4.9 Fuels 7.9 27.2 12.5 -3.2 -12.4 -2.4 High-income oil exporters 7.4 24.8 8.3 -2.7 -11.3 -1.6 Industrial countries Total 4.7 10.1 -4.6 -4.0 -3.2 -1.5 Manufactures 4.7 10.9 -6.0 -2.1 -4.3 -2.3 Change in terms of trade Developingcountries 0.5 2.0 0.5 -1.1 -0.6 1.0 Low-income countries 0.4 -1.5 -0.2 -1.5 0.9 4.1 Asia 0.8 -1.6 1.3 -2.2 0.4 3.5 Africa -0.7 -1.0 -7.2 1.1 4.2 7.8 Middle-income oil importers -0.2 -2.3 -5.0 -2.2 3.7 0.4 Middle-income oil exporters -0.4 9.0 11.7 1.7 -8.5 0.9 High-income oil exporters 2.9 12.3 14.6 2.3 -8.6 -1.0 Industrial countries -0.5 -3.5 -2.1 2.0 2.1 -0.2 a. Estimated. b. Projected. Table A.10 Growth of long-term debt of developing countries, 1970-84 (average annual percentage change) Country group 1970-73 1973 -80 1981 1982 1983a 1984a Developing countries Debtoutstandinganddisbursed 18.3 21.3 13.5 11.9 13.5 10.8 Official 15.3 17.6 9.7 10.4 9.8 13.2 Private 21.1 24.0 15.7 12.8 15.6 9.5 Low-income countries Debt outstanding and disbursed 12.9 16.0 5.5 8.0 6.3 10.8 Official 12.5 14.1 7.7 10.2 8.2 10.5 Private 16.0 24.9 -2.3 -1.0 -2.2 12.3 Asia Debtoutstandinganddisbursed 11.1 13.2 2.9 8.6 7.8 14.1 Official 11.6 11.2 6.2 10.1 7.4 10.6 Private 4.3 33.2 -12.4 0.1 10.5 36.0 Africa Debt outstanding and disbursed 19.7 22.6 10.2 6.9 3.7 4.7 Official 17.3 24.2 10.9 10.6 10.1 10.2 Private 24.4 19.7 8.5 -2.0 -13.5 -14.6 Middle-income oil importers Debt outstanding and disbursed 19.7 21.0 14.9 12.9 11.5 10.3 Official 17.8 18.5 12.1 11.0 13.4 15.0 Private 20.8 22.2 16.1 13.7 10.7 8.3 Major exporters of manufactures Debt outstanding and disbursed 22.6 20.8 14.7 13.0 12.1 10.2 Official 21.0 18.9 10.5 9.1 12.6 18.8 Private 23.2 21.4 15.9 14.1 12.0 7.9 Other middle-income oil importers Debt outstanding and disbursed 13.4 21.5 15.4 12.8 9.9 10.5 Official 14.6 18.0 13.9 13.0 14.3 11.0 Private 11.9 25.8 16.8 12.5 5.8 10.0 Middle-income oil exporters Debt outstanding and disbursed 19.6 24.9 14.6 11.8 19.9 11.5 Official 15.5 20.6 7.9 9.4 4.9 12.8 Private 22.6 27.1 17.5 12.7 25.8 11.1 a. The increase in debt outstanding and disbursed and the shift from private to official sources is in part due to the impact of rescheduling. 153 Table A.11 Savings, investment, and the current account balance, 1965-83 (percent) Gross domestic investment/GNP Gross national savings/GNP Current account balance/GNP Country 1965-72 1973-78 1979-83 1965-72 1973-78 1979-83 1965-72 1973-78 1979-83 Latin America and Caribbean *Argentina 20.4 24.6 20.5 20.3 26.2 17.9 -0.1 1.6 -2.6 Bolivia 17.5 21.1 9.0 12.9 16.1 -7.2 -4.6 -5.0 -16.2 *Brazil 25.8 28.1 22.5 24.0 24.0 17.6 -0.8 -4.1 -4.9 *Chile 15.3 15.3 17.2 13.0 11.9 7.0 -2.3 -3.4 -10.2 Colombia 19.0 18.8 20.0 15.4 19.1 17.2 -3.6 -0.3 -2.8 Costa Rica 21.2 24.5 27.1 11.9 17.7 11.5 -9.3 -6.8 -15.6 Ecuador 18.6 26.4 24.2 11.3 20.4 20.5 -7.3 -6.0 -3.7 Guatemala 13.2 19.3 15.6 10.2 14.8 11.7 -3.0 -4.5 -3.9 Jamaica 32.2 20.3 21.6 22.3 12.8 6.5 -9.9 -7.5 -15.1 *Mexico 21.3 23.4 26.1 19.2 20.2 24.2 -2.1 -3.2 -1.9 Peru 16.7 18.0 17.0 15.2 11.4 13.5 -1.5 -6.6 -3.5 Uruguay 11.9 14.4 15.2 11.8 10.6 10.3 - 0.1 -3.8 -4.9 *Venezuela 29.1 35.4 26.2 29.8 36.1 29.3 0.7 0.7 3.1 Africa Cameroon 15.6 21.6 26.0 12.3 17.6 19.4 -3.3 -4.0 -6.6 Ethiopia 13.1 9.5 10.1 10.7 7.6 3.4 -2.4 -1.9 -6.7 Ghana 12.4 10.0 4.2 8.8 9.5 3.9 -4.3 -0.6 -0.3 Ivory Coast 21.1 25.9 29.3 15.9 23.1 17.4 -5.2 -2.8 -11.9 Kenya 21.7 25.4 26.1 17.0 17.3 15.5 -4.7 -8.1 -10.6 Liberia 24.7 32.6 27.7 27.6 17.0 11.9 2.9 -15.6 -15.8 Malawi 19.8 29.8 25.0 4.8 17.4 11.2 -15.0 -12.4 -13.8 Niger 15.9 29.3 30.7 6.5 12.3 15.0 -9.4 -17.1 -15.7 Nigeria 20.0 28.0 25.2 15.2 28.8 23.8 -4.8 0.8 1.4 Senegal 13.7 18.9 17.3 6.4 7.7 -3.1 -7.3 -11.2 -20.4 SierraLeone 14.0 13.2 14.5 8.0 3.1 -2.0 -6.0 -10.1 -16.5 Sudan 11.9 17.3 16.0 11.0 9.1 0.9 -0.9 -8.2 -15.1 Tanzania 19.7 20.5 21.6 17.7 11.3 9.8 -2.0 -9.2 -11.8 Zaire 27.7 29.3 18.9 20.9 9.1 11.2 -6.8 -20.2 -7.7 Zambia 32.5 31.8 19.1 38.1 24.6 6.7 5.6 -7.2 -12.4 South Asia *India 18.3 21.7 24.6 13.4 19.2 21.0 -4.9 -2.5 -3.6 Pakistan 16.3 15.9 15.8 10.2 10.0 12.1 -6.1 -5.9 -3.7 SriLanka 16.1 16.2 29.9 11.3 11.9 10.9 -4.8 -4.3 -19.0 East Asia *Indonesia 12.6 20.6 23.0 6.9 18.8 20.1 -5.7 -1.8 -2.9 *Korea 24.1 29.0 30.0 14.9 24.9 23.7 -9.2 -4.1 -6.3 Malaysia 19.6 25.7 33.4 20.8 27.2 26.3 1.2 1.5 -7.1 PapuaNewGuinea 31.0 20.1 28.8 1.8 16.3 10.2 -29.2 -3.8 -18.6 Philippines 20.9 28.6 29.6 17.1 23.9 23.3 -3.8 -4.7 -6.3 Thailand 23.8 25.4 25.3 21.3 23.6 20.5 -2.5 -1.8 -4.8 Europe and North Africa Algeria 28.8 46.8 40.2 27.3 39.2 38.2 -1.5 -7.6 -2.0 *Egypt 14.1 26.1 29.0 8.8 17.4 18.1 -5.3 -8.7 -10.9 Morocco 14.5 24.9 22.7 12.5 16.5 11.6 -2.0 -8.4 -11.1 Portugal 25.9 28.2 34.7 20.3 13.8 13.9 -5.6 -14.4 -20.8 Tunisia 22.9 28.2 30.5 15.6 21.0 23.1 -7.3 -7.2 -7.4 *Turkey 18.0 21.9 20.3 17.1 17.9 17.0 -0.9 -4.0 -3.3 *Yugoslavia 30.2 33.1 36.5 27.6 27.3 31.7 -2.6 -5.8 -4.8 Note: Asterisk indicates a major borrower. a. Excluding net unrequited transfers. 154 Table A.12 Composition of debt outstanding, 1970-83 (percent of total debt) Debt from official sources Debt from private sources Debt at floating rates Country 1970-72 1980-82 1983 1970-72 1980-82 1983 1973-75 1980-82 1983 Latin America and Caribbean *Argentina 12.6 8.8 5.7 87.4 91.2 94.3 13.9 53.6 34.0 Bolivia 57.9 51.1 62.4 42.1 48.9 37.6 7.6 36.9 32.5 *Brazil 29.7 11.8 12.6 70.3 88.2 87.4 43.5 66.0 76.5 *Chile 47.1 11.8 9.9 52.9 88.2 90.1 9.6 58.2 72.0 Colombia 67.1 44.9 42.8 32.9 55.1 57.2 6.2 39.2 42.1 Costa Rica 39.9 37.6 39.4 60.1 62.4 60.6 24.6 50.2 57.0 Ecuador 54.8 31.5 24.4 45.2 68.5 75.6 11.9 50.5 71.1 Guatemala 47.6 74.8 76.0 52.4 25.2 24.0 5.2 8.6 19.0 Jamaica 7.4 67.2 77.2 92.6 32.8 22.8 35.7 22.7 19.7 *Mexico 19.8 11.2 8.2 80.2 88.8 91.8 46.8 74.0 82.4 Peru 15.7 40.5 36.3 84.3 59.5 63.7 31.0 28.0 37.4 Uruguay 48.7 20.8 14.3 51.3 79.2 85.7 11.6 33.5 65.0 *Venezuela 28.5 2.4 1.3 71.5 97.6 98.7 20.6 81.4 87.9 Africa Cameroon 81.6 56.9 59.0 18.4 43.1 41.0 3.0 12.8 6.6 Ethiopia 87.8 92.4 92.6 12.2 7.6 7.4 1.5 2.1 1.5 Ghana 56.3 82.5 87.4 43.7 17.5 12.6 0.0 0.7 0.0 Ivory Coast 51.3 24.0 27.3 48.7 76.0 72.7 23.3 43.2 47.0 Kenya 58.4 52.6 62.7 41.6 47.4 37.3 3.3 11.8 9.1 Liberia 80.8 74.8 76.0 19.2 25.2 24.0 0.0 16.0 18.1 Malawi 77.5 67.8 76.1 22.5 32.2 23.9 2.3 21.2 17.0 Niger 96.5 42.3 55.7 3.5 57.7 44.3 0.0 20.3 19.4 Nigeria 69.9 14.2 14.9 30.1 85.8 85.1 0.7 67.2 62.0 Senegal 59.0 70.6 78.6 41.0 29.4 21.4 26.1 9.8 8.1 Sierra Leone 61.0 70.4 75.6 39.0 29.6 24.4 3.8 0.1 0.1 Sudan 86.3 73.4 74.2 13.7 26.6 25.8 2.2 10.1 14.2 Tanzania 63.6 76.6 79.4 36.4 23.4 20.6 0.4 1.1 1.3 Zaire 24.5 65.7 78.2 75.5 34.3 21.8 32.8 11.8 10.5 Zambia 22.0 70.1 76.2 78.0 29.9 23.8 22.6 10.4 12.3 South Asia *India 95.2 94.9 91.6 4.8 5.1 8.4 0.0 3.1 5.0 Pakistan 90.9 92.2 91.1 9.1 7.8 8.9 0.0 1.5 1.2 Sri Lanka 81.8 79.4 73.2 18.2 20.6 26.8 0.0 11.9 14.5 East Asia *Indonesia 71.5 51.7 48.0 28.5 48.3 52.0 10.2 18.2 22.7 *Korea 38.8 38.6 40.4 61.2 61.4 59.6 15.1 35.8 42.1 Malaysia 49.1 21.7 16.3 50.9 78.3 83.7 23.0 47.2 62.9 Papua New Guinea 7.2 23.9 19.5 92.8 76.1 80.5 0.0 37.4 48.4 Philippines 21.3 32.4 35.3 78.7 67.6 64.7 15.7 32.2 36.0 Thailand 40.1 40.1 44.3 59.9 59.9 55.7 0.9 30.9 27.5 Europe and North Africa Algeria 45.0 16.6 20.8 55.0 83.4 79.2 34.0 24.2 21.3 *Egypt 66.0 82.2 79.2 34.0 17.8 20.8 4.8 3.1 1.2 Morocco 79.2 52.0 60.9 20.8 48.0 39.1 2.7 31.9 28.2 Portugal 39.1 25.7 23.1 60.9 74.3 76.9 0.0 23.5 31.7 Tunisia 72.4 60.8 65.7 27.6 39.2 34.3 0.0 14.1 8.7 *Turkey 92.1 65.9 67.5 7.9 34.1 32.5 0.8 22.7 25.0 *Yugoslavia 37.3 24.7 23.8 62.7 75.3 76.2 7.6 32.2 59.4 Note: Asterisk indicates a major borrower. 155 Bibliographical note This Report has drawn on a wide range of World Chapter 3 Bank work, as well as on numerous outside sources. World Bank sources include ongoing eco- Data used in this chapter draw on GATT, IMF, and nomic analysis and research, as well as project, OECD publications, as well as on World Bank sector, and economic work on individual coun- data. The discussion of the links between macroec- tries. Outside sources include research publica- onomic developments in industrial countries and tions and the unpublished reports of other organi- capital flows and trade intervention draws on a zations working on global economic and background paper by Dornbusch and on Bruno development issues. Selected sources are noted and Bruno and Sachs. The discussion of fiscal poli- briefly by chapter, listed in three groups. The first cies and interest rates is mostly based on the paper two are background papers and country studies by Layard and others and on the background commissioned for this Report; they synthesize rel- papers by Blanchard and Summers and van Wijn- evant literature and Bank work. Most include bergen. The analysis of macroeconomic effects of extensive bibliographies; the sources cited in these protectionism follows van Wijnbergen 1984, while papers are not listed separately. Those issued as the link between protectionism in industrial coun- Staff Working Papers in the months following pub- tries and the debt problem is stressed in Dorn- lication of this Report will be available from the busch and Fischer and quantified in a background Bank's Publications Sales Unit. The views they paper by van Wijnbergen. Data on the extent of express are not necessarily those of the World nontariff barriers are drawn from Nogues, Ole- Bank or of this Report. The third group consists of chowsky, and Winters. Boxes draw on background other selected sources used in the preparation of papers prepared for this Report, as follows. Box this Report. 3.1 is based on Fleisig and van Wijnbergen. Boxes 3.2 and 3.3 draw on van Wijnbergen. Box 3.4 is based on Zietz and Valdez, while Box 3.5 draws on Selected sources, by chapter Fleisig and van Wijnbergen, van Wijnbergen, and Dornbusch. Chapter 1 The bibliographical and data sources in this over- Chapter 4 view chapter are discussed in detail in the notes to subsequent chapters. This chapter draws heavily on Bank operational experience and country economic work. The coun- Chapter 2 try group data draw from GATT, IMF, OECD, BIS, and UN publications, as well as World Bank Historical capital flows data and analysis are based sources. For an analysis of the origins and dimen- on a background paper by Fishlow and on Maddi- sions of external shocks in the 1970s and 1980s, see son 1982. Data on net flows to developing coun- Balassa and McCarthy, Enders and Mattione, and tries are from the OECD Development Assistance Mitra. The discussion of country policy responses Committee (OECD 1984). Boxes 2.1 and 2.2 draw and economic structures draws mainly upon inter- on the World Bank World Debt Tables, 1984-85 edi- nal Bank documents. Other views on debt prob- tion. Box 2.3 is based on Melton and Kincaid. Box lems and shocks can be found in Cline, Donovan, 2.4 is based on a paper by Krugman. All other data Ffrench-Davis, and Hasan. Ardito-Barletta, Blejer, on national accounts, balance of payments, and and Landau and Corbo and de Melo provide external debt come from the World Bank. extensive analyses of the debt and adjustment 156 problems in the Latin American countries of the others discusses the role aid can play in promoting Southern Cone. Box 4.1 on the debt cycle hypothe- development. Basic philosophical criticisms of aid sis draws on a background paper by Genberg and are presented in Bauer, Krauss, and Hayter. The Swoboda and on Kindleberger, Crowther, and influence of donors' commercial interests on the Halevi. Box 4.9 on World Bank lending for adjust- nature of aid programs, including aid tying and ment draws from the 1980-84 editions of the World the use of mixed credits, is discussed in Jay. Morss Bank Annual Report. explores the impact that project proliferation has had on sub-Saharan African countries. Chapter 5 Chapter 8 Most of the information in this chapter concerning the management of capital flows in various devel- The evolving relationship between banks and oping countries derives from recent World Bank developing countries has been explored exten- and IMF missions to the countries cited. Data on sively in the financial press and journals. Some of the composition of capital flows comes from the the stages of this evolution are covered in the back- World Bank's Debtor Reporting System, the ground paper by O'Brien and Calverley. Llewel- OECD, the BIS, and the IFS. Estimates of short- lyn's background paper highlights the separate term debt were derived from BIS data on the matu- forces working on the relationship through rity structure of commercial banks' assets, changes in the macroeconomic environment and adjusted by World Bank staff. Reserves data are changes in the willingness of banks to supply their from the IFS. services. Analysis contained in the IMF's series of occasional papers, collectively entitled "Interna- Chapter 6 tional Capital Markets: Recent Developments and Future Prospects," OECD's Financial Market Chapter 6 is an introductory chapter that draws Trends, the Bank of England's Quarterly Bulletin, out from the ensuing three chapters the main and the World Bank's World Debt Tables are also trends in the international financial system and employed in this chapter. The discussion of access how they have impinged on the developing coun- to securities markets is based on the background tries. Some of the factors shaping the system are paper by Fleming and Partoazam. In Box 8.2 the discussed in background papers by Llewellyn and operations of Arab banks are discussed with refer- Rybczynski. The evolution of World Bank lend- ence to Sherbiny's background paper. The origins ingthe subject of Box 6.1is from Bank data. Box of the Eurocurrency markets (Box 8.3), which have 6.2, which analyzes the deployment of the OPEC been much discussed in academic literature, have surplus, is based on a background paper by Sher- benefited from the analysis contained in John- biny and on Mattione. The discussion of the func- ston's book. A background paper by Wallich is the tioning of the international interbank market has main source for gauging the impact of banking drawn on a BIS study and on Johnston's book. The supervision on developing countries in Box 8.4. influence of sovereign risk on capital flowsBox Further discussion of the trend toward financial 6.4is covered in Lessard's background paper. deregulation in Japansee Box 8.5is contained in the background paper by Atsumi and Ishiyama. Chapter 7 Box 8.6 draws on Bond. The new instrumentalities explored in Box 8.7 are covered in greater detail in This chapter draws heavily on the data and analy- Saini's background paper. This chapter also draws sis prepared over the years by the OECD Develop- extensively on additional World Bank staff work. ment Assistance Committee, particularly its annual report, Development Co-operation. Addi- Chapter 9 tional information on Arab aid programs is con- tained in the background paper by Sherbiny. The A number of papers and books have been written contribution made by official flows to the develop- on equity investment recently. The key reference ment process is analyzed in the study of aid effec- for Chapter 9 is a background paper by Weigel and tiveness by Krueger and Ruttan, which reviews Miller, which examines the role of direct foreign the aid experience in a number of sectors, includ- investment in economic development. Similar sur- ing infrastructure, population, and agriculture, veys in this area have been prepared by the U.S. and for five principal aid recipients. Mikesell and Department of Commerce and by the IMF. 157 Another important source of material is Sherbiny, Naiem A. "Arab Finance and Developing Coun- Guisinger's book, which focuses on investment tries." incentives and performance requirements. Portfo- van Wijnbergen, Sweder. "Global Interdependence via Trade and Capital Markets: An Empirical Analysis." lio investment has been the subject of studies by van Wijnbergen, Sweder. "International Repercussions of the IFC; many of these findings are contained in Trade Intervention and Macroeconomic Policies in the van Agtmael's book. All of the boxes in Chapter 9 OECD: A Developing Country Perspective." are based upon internal World Bank analyses; Box Wallich, Christine. "The Regulatory Environment for Capi- 9.3 uses data from the Japanese Ministry of tal Flows to Developing Countries: A Survey of Seven OECD Countries." Finance. Weigel, Dale, and Robert Miller. "Foreign Direct Investment in Economic Development." Chapter 10 Zietz, Jochan, and Alberto Valdez. "The Costs of Protection- ism to Less-Developed Countries: An Analysis for Data used in this chapter draw on GATT, IMF, Selected Agricultural Products." OECD, and UNCTAD publications, as well as on World Bank data. Quantitative analysis of the implications of industrial-country policies for Country papers developing countries is in the two background Argentina: Johnson, John. "Role of International Finance in papers by van Wijnbergen. Argentine Development." Brazil: Batista, Paulo Nogueira. "International Financial Flows to Brazil since the Late 1960s: An Analysis of Debt Background papers Expansion and Current Payments Problems." Brazil: Knight, Peter, and C. Martone. "International Finan- Aliber, Robert. "Banks, Financial Intermediation, and the cial Flows to Development in Brazil, 1965-84." External Debt Crisis." Ethiopia: Codippily, Hilarian. "International Financial Atsumi, Keiko, and Yoshihide Ishiyama. "Capital Outflows Flows, 1965-84." from Japan to Developing Countries." Ivory Coast: Noel, Michel. "Adjustment Policies in the Blanchard, Oliver J., and Lawrence H. Summers. "Perspec- Ivory Coast." tives on High World Real Interest Rates." Kenya: Ibrahim, Tigani. "Use of External Resources, 1965- 84." Dornbusch, Rudiger. "The Effects of OECD Macroeconomic Policies on Non-Oil Developing Countries: A Review." Korea: Iqbal, Farukh. "External Finance and Korean Devel- Fishlow, Albert. "Lessons from the Past: Capital Markets opment." during the Nineteenth Century and the Inter-War Morocco: Mateus, Abel M. "External Debt Management Period." and Macroeconomic Policies." Fleisig, Heywood, and Sweder van Wijnbergen. "Primary Philippines: Khan, Sarshar. "The Philippine External Commodity Prices, the Business Cycle, and the Real Debt." Exchange Rate of the Dollar." Turkey: Roy, Jayanta. "External Capital and Economic Fleming, Alex, and Hossein Ali Partoazam. "Developing Development, 1963-84." Country Access to the Securities Markets." Yugoslavia: Pant, Chandraskekar. "External Shocks and Genberg, Hans, and Alexander Swoboda. "The 'Stages in Adjustment in the 1970s and 1980s." the Balance of Payments Hypothesis' Revisited." Hooper, Peter. "International Repercussions of the U.S. Budget Deficit." Selected bibliography Lessard, Donald. "International Finance for Less Developed Countries: The Unfulfilled Promise." 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Basic indicators 174 Population E Area GNP per capita LI Inflation D Life expectancy Table 2 Growth of production 176 GDP E Agriculture J Industry n Manufacturing Services Table 3. Structure of production 178 GDP E Agriculture L Industry Manufacturing E Services Table 4. Growth of consumption and investment 180 Public consumption Private consumption Gross domestic investment Table 5. Structure of demand 182 Public consumption Private consumption E Gross domestic investment Gross domestic saving U Exports of goods and nonf actor services L Resource balance Table 6. Agriculture and food 184 Value added Cereal imports U U Food aid U Fertilizer consumption U Food production per capita Table 7. Industry 186 Share of value added in food and agriculture U in textiles and clothing in machinery and transport equipment U in chemicals LI in other manufacturing U Value added in manufacturing Table 8. Commercial energy 188 Growth of energy production 0 Growth of energy consumption 0 Energy consumption per capita LI Energy imports as percentage of merchandise exports Table 9. Growth of merchandise trade 190 Export values LI Import values U Growth of exports LI Growth of imports LI Terms of trade 165 Table 10. Structure of merchandise exports 192 Fuels, minerals, and metals LI Other primary commodities LI Textiles and clothing LI Machinery and transport equipment LI Other manufactures Table 11. Structure of merchandise imports 194 Food LI Fuels LI Other primary commodities LI Machinery and transport equipment LI Other manufactures Table 12. Origin and destination of merchandise exports 196 Industrial market economies East European nonmarket economies LI LI High-income oil exporters LI Developing economies Table 13. Origin and destination of manufactured exports 198 Industrial market economies LI East European nonmarket economies LI High-income oil exporters LI Developing economies LI Value of manufactured exports Table 14. Balance of payments and reserves 200 Current account balance LI Receipts of workers' remittances Net direct private investment LI Gross international reserves i in months of import coverage Table 15. How of public and publicly guaranteed external capital 202 Gross inflow of public and publicly guaranteed medium- and long-term loans LI Repayment of principal LI Net inflow of public and publicly guaranteed medium- and long-term loans Table 16. External public debt and debt service ratios 204 External public debt outstanding and disbursed LI as percentage of GNP LI Interest payments on external public debt LI Debt service as percentage of GNP LI of exports of goods and services Table 17. Terms of public borrowing 206 Commitments LI Average interest rate LI Average maturity LI Average grace period Table 18. Official development assistance from OECD and OPEC members 208 Amount in dollars LI as percentage of donor GNP LI in national currencies LI Net bilateral flow to low-income economies Table 19. Population growth and projections 210 Population growth LI Population size LI Hypothetical size of stationary population LI Assumed year of reaching net reproduction rate of 1 LI Population momentum Table 20. Demographic and fertility-related indicators 212 Crude birth rate LI Crude death rate LI Total fertility rate LI Percentage of married women using contraception 166 Table 21. Labor force 214 Population of working age LI Labor force in agriculture LI in industry LI in services L Growth of labor force, past and projected Table 22. Urbanization 216 Urban population as percentage of total population LI Growth of urban population L Percentage in largest city LI in cities of over 500,000 persons LI Number of cities of over 500,000 persons Table 23. Indicators related to life expectancy 218 Life expectancy LI Infant mortality rate LI Child death rate Table 24. Health-related indicators 220 Population per physician LI per nursing person LI Daily calorie supply per capita Table 25. Education 222 Number enrolled as percentage of age group LI in primary school LI in secondary school LI in higher education Table 26. Central government expenditure 224 Defense LI Education LI Health LI Housing and community amenities; social security and welfare LI Economic services LI Other LI Total expenditure as percentage of GNP LI Overall surplus/deficit as percentage of GNP Table 27. Central government current revenue 226 Tax revenue LI Current nontax revenue LI Total current revenue as percentage of GNP Table 28. Income distribution 228 Percentage share of household income, by percentile groups of households Technical notes 230 Bibliography of data sources 243 167 Key In each table, economies are listed in their Figures in the colored bands are Not available. group in ascending order of GNP per cap- summary measures for groups of ita except for those for which no GNP per economies. The letter wafter a (.) Less than half the unit shown. capita can be calculated. These are listed in summary measure indicates that it is All growth rates are in real terms. alphabetical order, in italics, at the end of a weighted average; the letter m, their group. The reference numbers below that it is a median value; Figures in italics are for years or periods reflect the order in the tables. the letter t, that it is a total. other than those specified. Afghanistan 29 Honduras 45 Panama 80 Albania 120 Hong Kong 90 Papua New Guinea 51 Algeria 83 Hungary 119 Paraguay 65 Angola 68 India 14 Peru 58 Argentina 79 Indonesia 43 Philippines 52 Australia 112 Iran, Islamic Republic of 93 Poland 124 Austria 106 Iraq 94 Portugal 81 Bangladesh 2 Ireland 101 Romania 125 Belgium 104 Israel 89 Rwanda 15 Benin 18 Italy 102 Saudi Arabia 97 Bhutan 30 Ivory Coast 48 Senegal 36 Bolivia 40 Jamaica 63 Sierra Leone 24 Brazil 77 Japan 108 Singapore 91 Bulgaria 121 Jordan 73 Somalia 13 Burkina 6 Kampuchea, Democratic 32 South Africa 84 Burma 7 Kenya 26 Spain 100 Burundi 10 Korea, Democratic People's Sri Lanka 25 Cameroon 54 Republic of 70 Sudan 28 Canada 114 Korea, Republic of 78 Sweden 115 Central African Republic 16 Kuwait 98 Switzerland 118 Chad 31 Lao People's Democratic Republic 33 Syrian Arab Republic 74 Chile 76 Lebanon 71 Tanzania 12 China 19 Lesotho 37 Thailand 55 Colombia 67 Liberia 38 Togo 17 Congo, People's Republic of the 60 Libya 96 Trinidad and Tobago 92 Costa Rica 57 Madagascar 23 Tunisia 62 Cuba 69 Malawi 8 Turkey 61 Czechoslovakia 122 Malaysia 75 Uganda 9 Denmark 113 Mali 3 Union of Soviet Socialist Dominican Republic 64 Mauritania 39 Republics 126 Ecuador 66 Mexico 82 United Arab Emirates 99 Egypt, Arab Republic of 46 Mongolia 72 United Kingdom 105 El Salvador 47 Morocco 50 United States 117 Ethiopia I Mozambique 34 Uruguay 85 Finland 110 Nepal 4 Venezuela 87 France 109 Netherlands 107 Viet Nam 35 German Democratic Republic 123 New Zealand 103 Yemen Arab Republic 42 Germany, Federal Republic of 111 Nicaragua 56 Yemen, People's Democratic Ghana 22 Niger 11 Republic of 41 Greece 88 Nigeria 53 Yugoslavia 86 Guatemala 59 Norway 116 Zaire 5 Guinea 20 Oman 95 Zambia 44 Haiti 21 Pakistan 27 Zimbabwe 49 168 Introduction The World Development Indicators provide infor- 1965-73 and 1973-83, or 1965-82 if data for 1983 mation on the main features of social and eco- were not available. All growth rates are in constant nomic development. Most of the data collected by prices and were computed, unless noted other- the World Bank are on its developing member wise, by using the least-squares method. Because countries. Because comparable data for developed this method takes all observations in a period into market economies are readily available, these are account, the resulting growth rates reflect general also included in the indicators. Data for nonmarket trends that are not unduly influenced by excep- economies, a few of which are members of the tional values. Table entries in italics indicate that World Bank, are included if available in a compara- they are for years or periods other than those spec- ble form. ified. All dollar figures are US dollars. The various Every effort has been made to standardize the methods used for converting from national cur- data. However, full comparability cannot be rency figures are described, where appropriate, in ensured and care must be taken in interpreting the the technical notes. indicators. The statistics are drawn from sources Some of the differences between figures shown thought to be most authoritative but many of them in this year's and last year's editions reflect not are subject to considerable margins of error. Varia- only updating but also revisions to historical tions in national statistical practices also reduce the series. comparability of data which should thus be con- As in the World Development Report itself, the strued only as indicating trends and characterizing economies included in the World Development major differences among economies, rather than Indicators are grouped into several major catego- taken as precise quantitative indications of those ries. These groupings are analytically useful in dis- differences. tinguishing economies at different stages of devel- The indicators in Table 1 give a summary profile opment. Many of the economies included are of economies. Data in the other tables fall into the further classified by dominant characteristicsto following broad areas: national accounts, agricul- distinguish oil importers and exporters and to dis- ture, industry, energy, external trade, external tinguish industrial market from industrial nonmar- debt, aid flows, other external transactions, ket economies. The major groups used in the demography, labor force, urbanization, social indi- tables are 35 low-income developing economies cators, central government finances and income with a per capita income of less than $400 in 1983, distribution. The table on central government 59 middle-income developing economies with a expenditure is an expanded version of an earlier per capita income of $400 or more, 5 high-income table, and is complemented by a table on central oil exporters, 19 industrial market economies, and government current revenue. 8 East European nonmarket economies. Note that The national accounts data are obtained from because of the paucity of data and differences in member governments by Bank missions and are, the method for computing national income, as well in some instances, adjusted to conform with inter- as difficulties of conversion, estimates of GNP per national definitions and concepts and to ensure capita are not generally available for nonmarket consistency. Data on external debt are reported to economies. the Bank by member countries through the Debtor The format of this edition generally follows that Reporting System. Other data sets are drawn from used in previous years. In each group, economies the International Monetary Fund, the United are listed in ascending order of income per capita Nations and specialized agencies. except for economies for which no GNP per capita For ease of reference, ratios and rates of growth figure can be calculated. These economies are are shown; absolute values are reported only in a listed in italics in alphabetical order at the end of few instances. This year's edition presents new the appropriate income groups. This order is used periods for the ratios and rates in growth. Most in all tables. The alphabetical list in the key shows growth rates were calculated for two periods: the reference number of each economy; italics mdi- 169 cate those economies placed at the end of a group edition, an additional subgroup for low-income due to unavailability of GNP per capita figures. sub-Saharan Africa. Because trade in oil affects the Countries with populations of less than a million economic characteristics and performance of mid- are not reported in the tables. The technical note to dle-income economies, summary measures are Table 1 shows some basic indicators for 35 small shown for oil importers and for oil exporters. countries that are members of the United Nations, Moreover, the group of middle-income economies the World Bank, or both. is divided into lower and upper categories to pro- In the colored bands are summary measures vide more meaningful summary measures. Note totals or weighted averagesthat were calculated that this year's edition also includes separate sum- for the economy groups if data were adequate and mary measures for middle-income sub-Saharan meaningful statistics could be obtained. Because Africa. Note also that the term "sub-Saharan" China and India heavily influence the overall sum- applies to all countries south of the Sahara mary measures for the low-income economies, excluding South Africa. summary measures are shown separately for sev- The methodology used in computing the sum- eral subgroups. These are: China and India, all mary measures is described in the technical notes. other low-income economies and, in this year's The letter w after a summary measure indicates Groups of economies The colors on the map show what group a country has been placed in on the basis of its GNP per capita and, in some instances, its distinguishing eco- nomic characteristics. For example, all low-income economies, those with a GNP per capita of less than $400 (in 1983), are colored yellow. The groups are the same as those used in the 28 tables that follow, and they include only the 126 countries with a popula- tion of more than 1 million. Low-income economies Middle-income oil importers Middle-income oil exporters High-income oil exporters Industrial market economies East European nonmarket economies Not included in the Indicators Tobelau)NZ) O Western S WaRs arrd Fatuna Samoa (Fr) AmencanSamco Frnh Nsse (NV) S. Domirocan Tong, (Fr) Repobhc Puerto Rico (US) St Chrjstopher and Nevro Virgo Islandd Antrgua and Barbuda WV) _Montserrat UK) Goadeloupe (Fr) Dominica Netherlands An Vies Martinique (Fr) (Seth) St. Lucia4 Barbados St Vincent and the Grenada,. Grenadines zmnnU0d and Tobago 170 that it is a weighted average; the letter m, that it is the groups in which economies have been placed. a median value; and the letter t, that it is a total. The maps on the following pages show popula- Because the coverage of economies is not uniform tion, life expectancy at birth, and the share of agri- for all indicators and because the variation around culture in gross domestic product (GDP). The Eck- central tendencies can be large, readers should ert IV projection has been used for these maps exercise caution in comparing the summary mea- because it maintains correct areas for all countries, sures for different indicators, groups, and years or though at the cost of some distortions in shape, periods. distance, and direction. The maps have been pre- The technical notes should be referred to in any pared exclusively for the convenience of the read- use of the data. These notes outline the methods, ers of this Report; the denominations used, and concepts, definitions, and data sources. The bibli- the boundaries shown, do not imply on the part of ography gives details of the data sources, which the World Bank and its affiliates any judgment on contain comprehensive definitions and descrip- the legal status of any territory or any endorse- tions of concepts used. ment or acceptance of such boundaries. This year's edition includes four world maps. The World Development Indicators are prepared The first map, below, shows country names and under the supervision of Ramesh Chander. Iceland Nway Fciland Faeroe Islands' p H OtM5\ mak Netherleod5 Fed Rep 01 Germany DeesiPen leS Switzerland pan olKorea Ponu. .1 Spain Gibraltar° -- China (UK) Afghanistarr Pakistan Solon Nepal FOR Sear San Bangladesh India Burma Roeg Kong (UK) Macan (Port) Cape Verde Niger C PegplesDem Rep Lao Peoples Chad Vt Yemen em Rep Philippines The Gambia Guinea-Bissau Guinea Burkina Sudan - bo drab Rep ui I Dem et Nam Pomp sea Guam (55) Trust Territory 01 the r5ri Lanka Pacitic Islands Sierra Leon- Ethiopa (US) Central Atrican Rep Liberia Soqrlalua alaysia Maldiuen Ghana ydganda Kiribati ogo ,-5Kenya Rwanda Papua Equatorial Guinea - Zaure Bujundi Mew GwQea Sao Tome and Principe Peoples Rep 01 the Congo - Tanzania -Seychelles Solomon 'lslandn Tuualu - Comoros Malawi Zambia Vanuatu Fii 2keba° Maurihus Reunion 'New Caledonua (Fr) Australia (Fr) aziland Soude L ho Africa Zealand 171 Population V million The colors on the map show the gen- lation for each of 125 countries; the eral size of a country's population. For technical note to that table gives data I0-15 15-50 million example, countries with a population for 35 more countries with a popula- 50-100 million of less than 15 million are colored yel- tion of less than I million. 100 + million low. Note that Table I gives the popu- Data not available The bar chart at right shows popula- Population by country group, tion by country group for the years Shares of total population, 1983 1965, 1983, 2000 1965 and 1983 as well as projected East European - - Other population for the year 2000. The nonmarket \ I country groups are those used in the economies map on the preceding pages and in Millions the tables that follow. 3000 The pie chart at right shows the pro- portion of total population, excluding countries with populations of less than 1 million, accounted for by each country group. "Other" refers to high-income oil producers. 2000 LII 2000 ElI 1953 LII 1965 1000 0 Low-income Middle- Industrial East European economies income economies nonmarket economies economies 172 Life expectancy The map classifies countries by life 0-49 years expectancy at birththat is, by the years number of years a baby born in 1983 P50-59 years 60-69 can expect to live. For example, life 70+ years expectancy at birth is less than fifty years in countries colored yellow. Data not available Share of agriculture in GDP F 0-9 percent The value added by a country's agri- nothing about absolute values of pro- cultural sector divided by the gross duction. For countries with high levels 10-19 percent domestic product gives the share of of subsistence farming, the share of 20-39 percent agriculture in GDP. The map classifies agriculture in GDP is difficult to mea- 40+ percent countries by those shares. For exam- sure due to difficulties in assigning ple, countries whose shares of agricul- subsistence farming its appropriate Data not available ture in GDP range from 0 to 9 percent value. are colored dark green. The shares say 173 Table 1. Basic indicators GNP per capita' Life Average annual expectancy Area Average annual Population (thousands growth rate rate of inflation at birth (millions) of square (percent) (percent) (years) Dollars mid-1983 kilometers) 1983 1965_83b 1965-73 1973.83c 1983 Low-income economies 2,335.4 31,603 260 w 2.7 u' 1.4w 5.4w 59 w China and India 1,752.3 12,849 280 u' 3.2 w 0.9w 3.7w 62 w Other low-income 583.0 1 18,754 200 w 0.7w 4.8w 13.8 w 51w Sub-Saharan Africa 245.2 15,451 220 w -0.2w 3.9 w 17.5w 48 w 1 Ethiopia 40.9 1,222 120 0.5 1.8 4.4 43 2 Bangladesh 95.5 144 130 0.5 7.3 9.6 50 3 Mali 7.2 1,240 160 1.2 7.6 10.3 45 4 Nepal 15.7 141 160 0.1 5.8 8.1 46 5 Zaire 29.7 2,345 170 -1.3 18.7 48.2 51 6 Burkina 6.5 274 180 1.4 2.6 10.8 44 7 Burma 35.5 677 180 2.2 28 6.5 55 8 Malawi 6.6 118 210 2.2 4.5 9.8 44 9 Uganda 13.9 236 220 -4.4 5.6 62 7 49 10 Burundi 4.5 28 240 2.1 2.9 124 47 11 Niger 61 1,267 240 -1.2 4.0 11.8 45 12 Tanzania 20.8 945 240 0.9 3.2 11.5 51 13 Somalia 5.1 638 250 -0.8 3.8 20.1 45 14 India 733.2 3,288 260 1.5 6.3 7.7 55 15 Rwanda 5.7 26 270 2.3 7.7 11.2 47 16 CentralAfricanRep. 2.5 623 280 0.1 3.0 14.4 48 17 Togo 2.8 57 280 1.1 3.1 8.3 49 18 Benin 3.8 113 290 1.0 3.6 10.8 48 19 China 1,019.1 9,561 300 4.4 -1 0 1.7 67 20 Guinea 5.8 246 300 1.1 3.0 4.0 37 21 Haiti 5,3 28 300 1.1 4.0 7.8 54 22 Ghana 12.8 239 310 -2.1 8.1 51.6 59 23 Madagascar 9.5 587 310 -1.2 4.1 13.9 49 24 SierraLeone 3.6 72 330 1.1 1.9 14.7 38 25 Sri Lanka 154 66 330 2.9 51 14.5 69 26 Kenya 18.9 583 340 2.3 2.3 10.8 57 27 'Pakistan 89.7 804 390 2.5 48 111 50 28 Sudan 20.8 2,506 400 1.3 7.2 18.0 48 29 Afghanistan 17.2 648 . 0.5 38 .. 36 30 Bhu(an 1.2 47 , .. . . .. 43 31 Chad 4.8 1,284 .. .. 4.5 8.3 43 32 Kampuchea, Dem. .. 181 .. .. 33 Lao PDR 3.7 237 .. . .. .. 44 34 Mozambique 13.1 802 . . .. .. . . 46 35 VietNam 58.5 330 .. .. .. .. 64 Middle-income economies 1,165.2 40,525 1,310w 3.4w 5.2w 29.3 w 61 iv Oil exporters 542.6 15,511 1,060w 3.3 w 4.4w 19.6 w 57 U' Oil importers 622.6 25,014 1,530w 3.5w 5.7 w 34.4 w 64 iv Sub-Saharan Africa 148.2 5,822 700 w 1.9w 4.8w 12.4w 50 iv Lower middle-Income 665.1 1 18,446 t 750w 2.9 w 5.6 iv 17.9w 57w 36 Senegal 6.2 196 440 -05 3.0 89 46 37 Lesotho 1.5 30 460 6.3 44 11 9 53 38 Liberia 2.1 111 480 0.8 1.5 7.2 49 39 Mauritania 1.6 1,031 480 0.3 3.9 7.8 46 40 Bolivia 6.0 1,099 510 0.6 7.5 35.2 51 41 Yemen, PDR 2.0 333 520 .. .. .. 46 42 YemenArabRep. 7.6 195 550 5.7 .. 13.9 44 43 Indonesia 155.7 1,919 560 5.0 63.0 18.0 54 44 Zambia 63 753 580 -1.3 5.2 10.3 51 45 Honduras 4.1 112 670 0.6 2.9 8.6 60 46 Egypt, Arab Rep. 45.2 1,001 700 4.2 26 13.2 58 47 ElSalvador 5.2 21 710 -0.2 1.6 11.7 64 48 IvoryCoast 9.5 322 710 1.0 4.1 11.9 52 49 Zimbabwe 7.9 391 740 1.5 3.0 9.7 56 50 Morocco 20.8 447 760 2.9 20 8.4 52 51 Papua New Guinea 3.2 462 760 0.9 6.6 6.9 54 52 Philippines 52.1 300 760 2.9 8.8 11.7 64 53 Nigeria 93.6 924 770 3.2 10.3 13.3 49 54 Cameroon 96 475 820 2.7 58 126 54 55 Thailand 49.2 514 820 43 2.5 8.7 63 56 Nicaragua 3.0 130 880 -1.8 3.4 16.5 58 57 Costa Rica 2.4 51 1,020 2.1 4.7 23.2 74 58 Peru 17.9 1,285 1,040 0.1 10.1 52.3 58 59 Guatemala 7.9 109 1,120 2.1 1.9 9.9 60 60 Congo, People's Rep. 1.8 342 1,230 3.5 4.6 12.4 63 61 Turkey 47.3 781 1,240 3.0 10.5 42.0 63 62 Tunisia 6.9 164 1,290 5.0 34 9.4 62 63 Jamaica 2.3 11 1,300 -0.5 5.9 16.0 70 64 Dominican Rep. 6.0 49 1,370 3.9 2.7 8.5 63 Note; For data comparability and coverage see the technical notes, 174 GNP per capita Life Area Average annual Average annual expectancy Population (thousands growth rate rate of inflation at birth (millions) of square Dollars (percent) (percent) (years) mid-1983 kilometers) 1983 1965_83b 1965-73 1973_83c 1983 65 Paraguay 3.2 407 1410 4.5 4.3 126 65 66 Ecuador 8.2 284 1,420 46 6.2 16.6 63 67 Colombia 27.5 1,139 1,430 3.2 10.8 24.0 64 68 Angola 8.2 1,247 . .. . . . 43 69 Cuba 98 115 . . . . .. .. 75 70 Korea, Oem. Rep. 19.2 121 65 71 Lebanon 2.6 10 2.5 . . 65 72 Mon golla 1.8 1,565 65 Upper middle-income 500.1 I 22,079 2,050w 3.8w 5.3w 34.0w 65w 73 Jordan 3.2 98 1,640 6.9 .. 10.0 64 74 SyrianArab Rep. 9.6 185 1,760 4.9 3.1 12.7 67 75 Malaysia 14.9 330 1,860 4.5 1.2 6.5 67 76 Chile 11 7 757 1,870 -0.1 50.3 86.2 70 77 Brazil 129.7 8,512 1,880 5.0 232 639 64 78 Korea, Rep. of 40.0 98 2,010 6.7 155 190 67 79 Argentina 29.6 2,767 2,070 0.5 24.1 167.8 70 80 Panama 2.0 77 2,120 2.9 2.4 71 71 81 Portugal 10.1 92 2,230 3.7 4.9 20.1 71 82 Mexico 75.0 1,973 2,240 3.2 4.8 28.2 66 83 Algeria 20.6 2,382 2,320 3.6 3.8 12.8 57 84 South Africa 31.5 1,221 2,490 1.6 5.8 13.3 64 85 Uruguay 3.0 176 2,490 2.0 51.7 51.0 73 86 Yugoslavia 228 256 2,570 4.7 109 22.8 69 87 Venezuela 173 912 3,840 15 33 11.7 68 88 Greece 9.8 132 3,920 40 44 16.8 75 89 Israel 4.1 21 5,370 2.9 8.2 73.0 74 90 Hong Kong 5.3 1 6,000 6.2 64 9.9 76 91 Singapore 2.5 1 6,620 78 3.1 4.5 73 92 Trinidad and Tobago 11 5 6,850 3.4 5.7 15.6 68 93 Iran, Islamic Rep. 42 5 1,648 5.5 . 60 94 Iraq 14.7 435 32 59 High-income oil exporters 17.9 t 4,312 t 12,370w 3.8 a 6.1 zr 13.5w 59w 95 Oman 1.1 300 6,250 6.5 71 17.9 53 96 Libya 3.4 1,760 8,480 -0.9 9.4 11 6 58 97 Saudi Arabia 10.4 2,150 12,230 6.7 5.1 16.5 56 98 Kuwait 1.7 18 17,880 0.2 4.6 10.2 71 99 United Arab Emirates 1.2 84 22,870 . . 12.7 71 Industrial market economies 728.91 30,935 I 11,060w 2.5 w 5.2w 8.0w 76w 100 Spain 38.2 505 4,780 3.0 7.0 16.7 75 101 Ireland 3.5 70 5,000 2.3 8.5 14.5 73 102 Italy 56.8 301 6.400 2.8 5.1 17.4 76 103 NewZealand 3.2 269 7,730 1.2 7.2 14.2 74 104 Belgium 9.9 31 9,150 3.1 4.4 6.4 73 105 United Kingdom 563 245 9,200 1.7 62 14.3 74 106 Austria 7.5 84 9,250 3.7 4.5 5.4 73 107 Netherlands 14.4 41 9,890 2.3 64 6.2 76 108 Japan 119.3 372 10,120 4.8 6.0 4.7 77 109 France 54.7 547 10,500 3.1 5.3 10.8 75 110 Finland 4.9 337 10,740 3.3 72 10.6 73 111 Germany, Fed. Rep 61.4 249 11,430 2.8 4.7 4.3 75 112 Australia 15.4 7,687 11,490 1.7 5.7 10.5 76 113 Denmark 5.1 43 11.570 1.9 7.6 9.5 74 114 Canada 24.9 9.976 12.310 2.5 4.4 9.4 76 115 Sweden 8.3 450 12,470 1.9 53 10.3 78 116 Norway 4.1 324 14,020 3.3 63 97 77 117 United States 234.5 9,363 14,110 1.7 4.7 7.5 75 118 Switzerland 6.5 41 16,290 1.4 5.5 3.9 79 East European nonmarket economies 386.11 23,4221 70w 119 Hungary 10.7 93 2,150 6.4 2.6 4.1 70 120 Albania 2.8 29 . . .. .. . . 71 121 Bulgaria 89 111 .. .. . 70 122 Czechoslovakia 154 128 . . . . . . , , 70 123 German Oem Rep, 16.7 108 . . . . . . . . 71 124 Poland 36.6 313 .. . . .. . . 71 125 Roman/a 22.6 238 . . .. . . . . 71 126 USSR 272.5 22,402 . . .. .. .. 69 a. See the technical notes. b. Because data for the entire period are not always available, figures in italics are for periods other than that specified. c. Fig. ures in italics are for 1973-82, not 1973-83. 175 Table 2. Growth of production Average annual growth rate (percent) GDP Agriculture Industry (Manufacturing)a Services 1965-73' 1973_83c 1g65_73b 1973_83c 1965_73b 1973_83c 1965,,73b 1973_83c 196573b 1973_83c Low-incomeeconomies 5,5w 5,0w 2.6w 2.9w 7.2w 7.1w 4.2w 5.0w China and India 6.0w 5.4w 2.5w 3.0w 7,4w 7.5w .. .. .. 5.3w Other low-income 3.7w 3.3 w 2.8w 2.2w 5.6w 3.5w 4.2w 4.4w Sub-Saharan Africa 4.2 w 1.7w 3.1 w 1.2 w 6.9w 0.6w .. .. 4.6w 2.9w 1 Ethiopia 4.1 2.3 2.1 1.2 61 26 8.8 3.5 67 3.6 2 Bangladesh (.) 5.2 0.4 3.2 -6.1 8.1 .. .. 1.5 7.4 3 Mali 31 4.1 0.9 5.0 52 0.6 .. .. 4.7 4.5 4 Nepal 1.7 30 1.5 1.0 . . .. .. .. 2.1 69 5 Zaire 3.9 -1.0 .. 1.4 .. -20 .. .. .. -1.1 6 Burkina 2.4 3.5 .. 1.3 . . 5.1 .. .. .. 4.5 7 Burma 2.9 6.0 2.8 6.6 3.6 7.7 3.2 6.1 2.8 5.1 8 Malawi 5.7 4.2 . 4.1 . . 4.2 .. .. . . 4.2 9 Uganda 36 -2 1 36 -1 6 3.0 -10.1 .. . 3.8 -1.0 10 Burundi 48 36 4.7 23 104 8.3 . ,. 3,0 53 11 Niger -0.8 5.2 -29 1.6 13.2 10.9 . . .. -1.5 59 12 Tanzania 50 3.6 3.1 2.6 6.9 0.2 . 6.2 5.4 13 Somalia .. 2.8 .. 3.5 .. 1.1 . .. .. 2.6 14 India 3,9 4.0 3.7 2.2 3.7 4.3 4.0 4.2 4.2 6.1 15 Rwanda 6.3 5.6 .. . . .. .. . 16 Central African Rep 27 10 2.1 2.4 7.1 1.0 . .. 1.6 -0.7 17 Togo 5.3 2.3 2.6 1.1 6.2 2.6 .. .. 7.3 3.0 18 Benin 2.2 4.8 .. 2.7 . 6.9 .. .. 60 19 China 7.4 6.0 1.9 3.5 9.1 8.4 .. .. . . 4.5 20 Guinea 3.0 3.1 . . 2.4 . . 6.7 . . . . . . 1.9 21 Haiti 1.7 3.0 -0.3 07 4.8 5.3 3.0 6.1 2.5 3.8 22 Ghana 3.4 -1.3 4.5 (.) 4.3 -7.0 6.5 -6.2 1,1 -0.3 23 Madagascar 3.5 0.3 .. -0.2 . . -1.8 .. .. .. 1.2 24 Sierra Leone 3.7 1.9 1.5 2.2 1.9 -2.9 3.3 2.5 7.1 4.1 25 Sri Lanka 4.2 52 2.7 4.1 73 4.8 5.5 3.4 3.8 6.0 26 Kenya 79 4.6 6.2 3.4 12.4 5.3 124 6.3 7.8 5.3 27 Pakistan 5.4 5.6 4.7 3.4 66 7.2 62 7.0 5.4 6.3 28 Sudan 0.2 63 0.3 3.5 1.0 6.7 0.5 8.6 29 Afghanistan 1.0 2.4 -1.5 .. 4.0 .. .. . . 5.1 30 Bhu(an , .. . . .. 31 Chad 05 -5.8 32 Kampuchea, Dem. -2.7 33 Lao PDR 34 Mozambique 35 VietNam Middle-income economies 7.1 w 4.7w 3.3w 2.5w 9.1 w 4.9 w 9.3w 4.9w 7.5 w 5.3w Oil exporters 7.2w 4.9w 3.5w 1.8w 10.0w 5.2w 9.1 w 6.4w 7.1 w 5.9w Oil importers 7.0w 4.5w 3.2w 3.1w 8.5w 4.7w 9.4w 4.2w 7.8w 4.9w Sub-Saharan Africa 7.7w 1.4w 2.4w -1.3w 17.7w 1.0w 7.1 w 3.5 w Lower middle-income 6.6w 4.1 w 3.4w 1.9w 10.6w 4.4w 8.5w 5.4w 6.8w 5.3w 36 Senegal 1.5 2.6 02 0.3 35 6.1 1.5 22 37 Lesotho 3.9 5.5 38 Liberia 55 02 65 2.0 62 -1.5 13.2 05 38 0.8 39 Mauritania 2.6 2.5 -2.1 2.6 3.5 (.) 8.7 3.9 40 Bolivia 4.4 1.5 3,5 15 5.1 -06 4.2 1.7 4.3 2.6 41 Yemen, PDR 42 Yemen Arab Rep. 8.2 21 132 113 43 Indonesia 8.1 7.0 4.8 3.7 13.4 86 9.0 12.6 9.6 9.0 44 Zambia 3.0 0.2 1.4 . -0.3 .. .. 0.6 45 Honduras 4.4 40 2.4 3.3 5.8 5.1 65 5.5 5.5 4.0 46 Egypt, Arab Rep. 3.8 8.8 2.6 2.5 3.8 10.6 . , 4.7 11.1 47 El Salvador 4.4 -0.1 3.6 0.7 5.2 -1.4 5.1 -2.4 4.4 0.0 48 Ivory Coast 7.1 4.7 3.7 4.0 88 74 8.9 4.5 8.5 41 49 Zimbabwe 7.3 1.8 1.2 (.) . , .. .. 3.3 50 Morocco 5,7 4,7 4.8 07 54 40 61 4.0 6.1 6.1 51 Papua New Guinea 6.7 1.0 2.6 . 37 -0.1 52 Philippines 54 5.4 41 4.3 74 64 85 5.0 48 5.2 53 Nigeria 97 12 28 -19 19.7 03 15.0 107 88 4.1 54 Cameroon 4.2 6.8 4.7 1.8 4.7 13.7 7.5 9.9 3.6 73 55 Thailand 78 6.9 52 38 90 9.0 11.4 89 9.1 7.6 56 Nicaragua 3.9 -1.3 2.8 14 5.5 -0.9 7.2 08 3.6 -2.9 57 Costa Rica 7.1 2.7 7.0 1.7 9.3 3.0 61 2.9 58 Peru 35 18 2.0 0.9 41 1.6 4.4 0.4 3.6 2.2 59 Guatemala 6.0 3.7 5.8 23 7.2 5.1 7.4 40 5.8 3.8 60 Congo, People's Rep. 6.8 79 41 0.4 9.3 12.7 6.7 68 61 Turkey 65 4.1 25 3.4 7.9 4.2 9.5 37 8.4 4.3 62 Tunisia 7.3 6.0 69 1.6 8.6 81 10.3 11.1 6.7 6.3 63 Jamaica 5.4 -1.7 0.6 -0.2 4.5 -43 4.0 -36 6.8 -0.3 64 Dominican Rep. 8.5 4.4 59 3.2 14.4 3,9 12.0 4.4 6.9 5.2 Note: For data comparability and coverage see the technical notes. 176 Average annual growth rate (percent) GDP Agriculture Industry (Manufacturing) Services 96573b 1 973_.83c 1 965_73b I 97383C 965_73b 1 973-83 1 965_73b 1 973_83c 1 965.73b 1 97383c 65 Paraguay 5.1 8.2 2.7 6.0 6.8 10.6 6.1 7.4 6.5 8.5 66 Ecuador 7.2 5.2 3.9 1.9 13.9 5.0 11.4 8.9 5.1 6.5 67 Colombia 6.4 3.9 4.0 3.7 82 2.2 8.8 1.9 69 4.8 68 Angola 69 Cuba 70 Korea, Oem. Rep. .. .. .. .. .. .. 71 Lebanon 6.2 .. 1.4 .. 5.5 .. ,, .. 7.1 72 Mongolia .. .. . .. .. .. Upper middle-income 7.4w 4.9w 3.2w 3.2w 8.4w 5.0w .. .. 7.8 w 5.2w 73 Jordan .. 11.1 .. 4.3 .. 14.7 . . .. .. 10.5 74 Syrian Arab Rep. 6.2 8.0 -0.7 8.2 14.7 5.9 .. .. 6.1 8.9 75 Malaysia 6.7 7.3 .. 4.4 .. 8.7 .. .. .. 8.2 76 Chile 3.4 2.9 -1.1 3.7 3.0 1.7 4.1 0.5 4.4 3.6 77 Brazil 9.8 4.8 3.8 4.2 11.0 4.7 11.2 4.2 10.5 5.0 78 Korea, Rep of 10.0 7.3 2.9 1.5 18.4 11.2 21.1 11.8 11.3 6.9 79 Argentina 4,3 0.4 -0.1 1.5 5.1 -07 4.6 -1.8 5.5 1.1 80 Panama 7.4 5.3 3.4 1.4 9.3 4.2 7.8 6.4 81 Portugal 70 82 Mexico 7.9 5.6 5,4 3.5 8.6 6.2 9.9 5.5 8.0 57 83 Algeria 70 6.5 2.4 4.3 9.1 6.4 10.9 12.6 5.3 7.1 84 South Africa 5.2 3.1 85 Uruguay 1.3 2.5 0.4 15 2.0 2.4 .. .. 1.1 2.7 86 Yugoslavia 6.1 5.3 3.2 2.2 7.1 6.3 .. .. 6.4 5.4 87 Venezuela 5.1 2.5 4.5 2.6 4.1 1.5 5.7 3.7 6.0 3.1 88 Greece 7.5 3.0 2.5 1.3 11.1 2.3 12.0 2.7 7.3 3.8 89 Israel 9.6 3.2 .. .. .. .. .. 90 HongKong 7.9 9.3 -0.6 1.1 8.4 8.2 .. .. 8.1 9.8 91 Singapore 13.0 8.2 5.7 1.5 17.6 8.5 19.5 7.9 11.5 8.1 92 Trinidad and Tobago 3.5 5.2 1.6 .. 2.3 .. .. .. 4.5 93 Iran, Islamic Rep. 10.4 . 5.2 105 . .. .. 12.7 94 Iraq 4.4 .. 1.7 .. 4.8 .. .. .. 5.1 High-income oilexporters 9.0w 5.2w .. 6.7w 0.8w .. 12.3w 95 Oman 21.9 6.5 96 Libya 7.7 3.0 11.5 6.5 66 -43 124 114 13.4 14.7 97 Saudi Arabia 11.2 6.9 2.6 66 13.3 3.9 106 8.0 8.3 12.9 98 Kuwait 5.1 1.4 9.1 -4.3 . .. .. 7.8 99 United Arab Emirates 10.8 Industrial market economies 4.7w 2.4w 1.8w 1.0w 5.1w 1.9w 3.8w 1.1w 4.8w 2.1w 100 Spain 6.4 1.8 2.8 . . 8.6 . . .. 5.6 101 Ireland 5.0 3.2 .. .. .. .. . 102 Italy 52 22 0.5 15 6.2 19 . .. 5.2 26 103 New Zealand 3.7 0.8 .. .. .. .. .. 104 Belgium 5.2 18 22 1.9 64 07 7.4 1.0 44 2.6 105 United Kingdom 2.8 1.1 2.6 24 21 -0.3 2.6 -1.9 33 19 106 Austria 55 2.8 1.7 1.3 6.4 2.3 6.9 2.7 5.2 3.5 107 Netherlands 5.5 1.5 5.0 .. 6.5 .. .. .. 5.0 108 Japan 98 4.3 2.1 -1.6 13.5 5.5 .. .. 8.3 3.8 109 France 5.5 2.5 1.7 . . 6.7 . . .. .. 5.2 110 Finland 5.3 2.7 1.0 1.1 6.4 2.9 7.5 3.6 5.6 2.8 111 Germany, Fed. Rep. 4.6 2.1 2.5 21 4.9 1.6 53 1.8 4.4 2.6 112 Australia 5.6 2.4 1.6 . . 5.7 .. . . .. 5.4 113 Denmark 3.9 1.8 -1 5 3.4 4.0 0.5 4.7 23 4.3 2.2 114 Canada 5.2 2.3 1.2 2.2 5.2 0.9 5.4 0.8 5.5 3.0 115 Sweden 3.6 1.3 1.1 -0.1 3.9 0.2 4.1 -0.1 3.6 2.1 116 Norway 4.0 3.7 -0.5 1.2 4.8 4.4 4.6 (.) 4.0 3.5 117 United States 32 2.3 1.8 1.4 2.8 1.2 2.9 1.4 3.5 3.0 118 Switzerland 4.2 07 East European nonmarket economies 119 Hungaryd 6.1 3.7 3.1 3.1 6.5 4.4 . . .. 7.5 3.3 120 Albania .. .. .. .. .. . . .. 121 Bulgaria .. .. .. .. .. . . .. . 122 Czechoslovakia .. .. .. .. .. .. . . .. 123 German Oem. Rep. .. .. .. .. .. ., .. .. 124 Poland 125 Romania 126 USSR Manufacturing is a part of the industrial sector, but its share of GDP is shown separately because it typically is the most dynamic part of the industrial sector. Figures in italics are for 1966-73, not 1965-73. c. Figures in italics are for 1973-82, not 1973-83. Services include the unallocated share of GDP 177 Table 3. Structure of production GDP Distribution of gross domestic product (percent) (millions of dollars) Agriculture Industry (Manufacturing)' Services 1965 1953d 1965C 1983d 1965c 1983d 1965C 1983d 1965 1983d Low-income economies 43 w 37w 29 w 34 w 14w 14w 28 w 29 w China and India 42 w 37w 32 w 38 w 15w 15w 26 w 25 w Other low-income 44 w 38 w 16w 19w 11 w 12w 40 w 43 w Sub-Saharan Africa 44 w 41 w 16w 17w 9w 7w 40 w 42 w 1 Ethiopia 1180 4270 58 48 14 16 7 11 28 36 2 Bangladesh 4,380 10,640 53 47 11 13 . .. 36 40 3 Mali 370 980 49 46 13 11 .. . 38 43 4 Nepal 730 2,180 65 59 11 14 3 4 23 27 5 Zaire 1,640 5,440 22 36 27 20 17 2 51 44 6 Burkina 250 900 52 41 15 19 .. .. 32 40 7 Burma 1,600 6,190 35 48 13 13 9 9 52 39 8 Malawi 220 1,330 50 . 13 . .. 37 9 Uganda 1,080 3,360 52 .. 13 8 .. 35 10 Burundi 160 1,020 .. 58 .. 16 . .. 26 11 Niger 370 1,340 63 33 9 31 . .. 28 37 12 Tanzania 790 4,550 46 52 14 15 8 9 40 33 13 Somalia 220 1,540 71 50 6 11 3 6 24 39 14 India 46,260 168,170 47 36 22 26 15 15 31 38 15 Rwanda 150 1,560 75 . 7 . . 2 18 16 Central African Rep. 140 600 46 37 16 21 4 8 38 42 17 logo 190 720 45 22 21 28 10 6 34 50 18 Benin 210 930 53 40 9 14 .. .. 38 47 19 China 65,360 274,630 40 37 38 45 .. 22 18 20 Guinea 520 1,910 .. 38 . 23 .. 2 . . 39 21 Haiti 350 1,630 .. .. .. . . .. 22 Ghana 1,330 3,720 41 53 19 7 10 4 41 40 23 Madagascar 730 2,850 31 41 16 15 .. .. 53 44 24 Sierra Leone 320 950 34 32 28 20 6 5 38 48 25 Sri Lanka 1,770 4,770 28 27 21 26 17 14 51 47 26 Kenya 920 4,940 35 33 18 20 11 12 47 46 27 Pakistan 5,450 25,880 40 27 20 27 14 19 40 46 28 Sudan 1,330 6,850 54 34 9 15 4 8 37 51 29 Afghanistan 620 . . . . . . . . . .. .. . 30 Bhutan .. .. .. .. .. .. 31 Chad 240 320 47 .. 12 . .. .. 41 32 Kampuchea, Cern, 870 33 Lao PDR 34 Mozambique 35 VietNam Middle-income economies 21w 15w 31 w 36w 20 w 21 w 47w 49w Oil exporters 22 w 16 w 28w 39w 15 w 16w 50 w 45 01 Oil importers 21w 14w 33w 34w 22 w 24 w 46 w 52 w Sub-Saharan Africa 39 w 26 w 23w 33w 8w 8w 38w 42w Lower middle-income 31 w 22w 24w 33w 15 w 16 u 45 UI 45 w 36 Senegal 810 2,570 25 21 18 26 17 56 54 37 Lesotho 50 300 65 23 5 22 1 6 30 55 38 Liberia 270 980 27 36 40 26 3 7 34 38 39 Mauritania 160 700 32 34 36 21 4 . . 32 45 40 Bolivia 920 3,340 21 23 30 26 16 16 49 52 41 Yemen, FDA .. 850 . .. .. .. , 42 YemenArabRep. ,, 3,710 . . 21 .. 17 . 7 . . 62 43 Indonesia 3,630 78,320 59 26 12 39 8 13 29 35 44 Zambia 1,040 3,350 14 14 54 38 7 19 32 48 45 Honduras 460 2,640 40 27 19 26 12 15 41 47 46 Egypt, Arab Rep. 4,550 27,920 29 20 27 33 . .. 45 47 47 El Salvador 800 3,700 29 20 22 21 18 15 49 59 48 IvoryCoast 960 7,090 36 27 17 24 10 13 47 50 49 Zimbabwe 960 4,730 18 11 34 32 20 21 48 57 50 Morocco 2,950 13,300 23 17 28 32 16 17 49 51 51 Papua New Guinea 340 2,360 42 . . 18 . . . , 41 52 Philippines 6,010 34,640 26 22 28 36 20 25 46 42 53 Nigeria 4,190 64,570 53 26 19 34 7 5 29 40 54 Cameroon 750 7,220 32 24 17 32 10 11 50 45 55 Thailand 4,050 40,430 35 23 23 27 14 19 42 50 56 Nicaragua 710 2,700 25 22 24 32 18 26 51 47 57 Costa Rica 590 3,060 24 23 23 27 .. . . 53 50 58 Peru 4,900 17,630 15 8 30 41 20 26 55 51 59 Guatemala 1,330 9,030 .. . . . . . . , 60 Congo, People's Rep. 200 2,110 19 7 19 55 6 62 38 61 Turkey 7,660 47,840 34 19 25 33 16 24 41 48 62 Tunisia 880 7,020 22 14 24 36 9 14 54 50 63 Jamaica 870 3,140 10 7 37 34 17 19 53 60 64 Dominican Rep. 960 8,530 26 17 20 29 14 18 53 55 Note: For data comparability and coverage see the technical notes, 178 GDP Distribution of gross domestic product (percent) (millions of dollars) Agriculture Industry (Manufacturing)b Services 1965C 1g83d 1965C 1983d 1965 l983d 1965 1983d 1965C 1983d 65 Paraguay 550 4610 37 26 19 26 16 16 45 48 66 Ecuador 1150 10700 27 14 22 40 18 18 50 46 67 Colombia 5570 35310 30 20 25 28 18 17 46 51 68 Angola . . .. .. .. . . .. 69 Cuba S .. .. . . 70 Korea, Gem. Rep. 71 Lebanon 1,150 12 21 67 72 Mongolia Uppermiddle-income 17w 11w 35w 37w 22w 24w 49w 52w 73 Jordan . . 3,630 8 . . 31 . 15 61 74 Syrian Arab Rep. 1,470 16,850 29 19 22 25 . . . . 49 55 75 Malaysia 3,000 29,280 30 21 24 35 10 19 45 44 76 Chile 5,940 19,290 9 10 40 36 24 20 52 55 77 Brazil 19,260 254,660 19 12 33 35 26 27 48 53 78 Korea, Rep of 3,000 76,640 38 14 25 39 18 27 37 47 79 Argentina 14,430 71,550 17 12 42 39 33 28 42 49 80 Panama 660 4,370 18 .. 19 . . 12 .. 63 81 Portugal 3,740 20,340 . 8 .. 40 , , 51 82 Mexico 20,160 145,130 14 8 31 40 21 22 54 52 83 Algeria 3,170 47,200 15 6 34 54 11 13 51 40 84 South Atnca 10,540 80,850 10 . . 42 23 .. 48 85 Uruguay 930 4,750 15 12 32 28 .. .. 53 60 86 Yugoslavia 11,190 46,890 23 42 , , .. .. 35 87 Venezuela 8,290 8,170 7 7 23 40 17 71 53 88 Greece 5,270 30,770 24 17 26 29 16 18 49 53 89 Israel 3,590 20,660 8 6 37 27 .. . . 55 67 90 Hong Kong 2,150 27,500 2 1 40 30 24 22 58 69 91 Singapore 970 16,640 3 1 24 37 15 24 73 62 92 Trinidad and Tobago 660 8,620 5 38 19 . 57 93 Iran, Islamic Rep, 6,170 , , 26 36 12 38 94 Iraq 2,430 . 18 46 8 36 High-income oil exporters 5w 2w 65 w 65w 5w 6w 30w 33w 95 Oman 60 7,460 61 .. 23 . . . , 16 96 Libya 1,500 31,360 5 2 63 64 3 4 33 34 97 SaudiArabia 2,300 120,560 8 2 60 66 9 6 31 32 98 Kuwait 2,100 21,330 (.) 1 73 61 3 6 27 38 99 United Arab Emirates . . 27,520 1 . . 65 10 . 34 Industrial market economies 5w 3w 39 w 35 w 29 w 24 w 56 w 62 w 100 Spain 23,320 157,880 15 .. 36 . . 25 . . 49 101 Ireland 2.690 18,040 .. .. . . 102 Italy 62,600 352,840 11 6 41 40 . . . . 48 54 103 NewZealand 5,580 23,820 . . 8 . . 33 .. 23 . 59 104 Belgium 16,840 80,090 5 2 41 35 30 25 53 63 105 United Kingdom 99,530 455,100 3 2 41 32 30 18 56 66 106 Austria 9,470 66,640 9 4 46 39 33 27 45 58 107 Netherlands 19,700 136,520 . 4 . . 33 . . 24 . . 63 108 Japan 90,970 1,062,870 9 4 43 42 32 30 48 55 109 France 97,930 519,200 . . . . . . . . .. 110 Finland 8,190 49,390 15 7 33 33 21 23 52 60 111 Germany, Fed. Rep. 114,830 653,080 . . 2 46 .. 36 .. 52 112 Australia 23,260 167,110 10 . . 41 . 28 . . 50 113 Denmark 10,180 56,360 8 4 32 23 20 16 60 72 114 Canada 51,840 324,000 5 3 34 29 23 16 61 68 115 Sweden 21,670 91,880 6 3 40 31 28 22 53 66 116 Norway 7,080 55,060 8 4 33 42 21 14 59 55 117 UnitedStales 688,600 3,275,701 3 2 38 32 29 21 59 66 118 Switzerland 13,920 97,120 . . . . . . . . East European nonmarket economies 119 Hungary1 . 21,020 24 19 37 42 31 35 39 39 120 Albania .. .. .. ,, ,, .. . 121 Bulgaria . . . . . , . . . . . . . . . . 122 Czechoslovakia . . .. .. .. . .. . . .. 123 German Oem Rep .. .. .. .. .. .. 124 Poland 125 Romania 126 USSR a Seethe technical notes. b. Manufacturing isa part of the industrial sector, but its share of GDP is shown separately because it typically is the most dynamic part of the industrial sector, c. Figures in italics are for 1966. not 1965. d. Figures in italics are for 1982, not 1983. e. Based on net material product. t. Based on constant price series. Services include the unallocated share of GDP 179 Table 4. Growth of consumption and investment Average annual growth rate (percent) Public Private Gross consumption consumption domestic investment 1965-73° 1 g733b 1965-73° 1g73.3b 1965-73° 1973...83b Low-income economies 5.9w 6.8 w 3.5 w 4.5 w 6.4 w 5.7 w China and India 3.5 w 4.8w 7.0 w 5.9w Other low-income 4.9 w 3.3w 3.1 w 3.2w 3.0w 4.4 w Sub-Saharan Africa 4.7w 2.7w 2.8 w 0.9 w 6.3 w 2.2 w 1 Ethiopia 3.7 7.1 4.2 2.6 1.5 2.6 2 Bangladesh c c 0.9 5.4 -6.4 4.2 3 Mali (.) 7.5 3.9 2.8 1.0 4.2 4 Nepal 5 Zaire 5.8 2.2 2.2 -7.7 10.2 4.9 6 Burkina 10.7 3.6 0.4 4.9 13.7 -3.7 7 Burma c c 2.9 5.4 2.5 14.1 8 Malawi 3.0 .. 4.0 .. 16.0 9 Uganda c c 3.8 -6.4 2.1 -5.2 10 Burundi 12.3 5.4 4.7 2.8 -1.4 15.7 11 Niger 2.1 2.3 -3.3 6.6 4.6 3.5 12 Tanzania c c 5.0 3.0 9.6 4.4 13 Somalia 1.5 . 79 .. -8.2 14 India 68 8.8 3.3 3.3 39 4.2 15 Rwanda 2.8 . 7.7 .. 6.3 16 Central African Rep. 1.7 -1.5 3.6 3.2 2.3 -6.7 17 Togo 7.9 8.4 6.0 3.3 3,3 -0.2 18 Benin 3.6 3.7 1.1 3.1 3.9 10.3 19 China c c 3.7 5.5 8.9 6.6 20 Guinea 6.4 .. 2.0 .. -0.7 21 Haiti 3.1 5.1 0.8 2.9 14.4 8.4 22 Ghana 1.1 48 2.3 -1.3 -3.5 -8.1 23 Madagascar 3.3 3.9 4.0 -0.5 3.9 -1.0 24 Sierra Leone 5.3 -2.1 38 3.2 -1.4 1.1 25 Sri Lanka 23 1.6 3.5 4.3 7.9 15.7 26 Kenya 131 63 5.8 36 15.9 34 27 Pakistan 6.2 4.7 5.9 6.1 04 4.9 28 Sudan 1.4 4.5 -1.7 7.6 0.2 5.6 29 Afghanistan c . 1.1 .. -2.2 30 Bhutan , ,, .. 31 Chad 6.0 07 .. 4.5 32 Kampuchea, Oem. 33 Lao PDR 34 Mozambique 35 VietNam Middle-income economies 7.0w 4.9w 6.8w 4.8 w 8.8w 4.2 w Oil exporters 8.8w 6.4w 6.3 w 5.8 w 9.4 w 6.0 w Oil importers 6.3w 4.0w 7.1 w 4.2w 8.5 w 3.1 w Sub-Saharan Africa 12.0w 4.3 w 4.3 w 2.8 w 12.3w 3.2 w Lower middle-income 8.5w 6.1 w 5.4w 4.4w 8.4w 5.1 w 36 Senegal -1.2 6.6 01 3.3 8.1 -0.7 37 Lesotho 5.4 . . 5.9 .. 11.0 38 Liberia 4.5 4.1 03 -0.1 5.6 1.5 39 Mauritania 6.1 1.4 2.7 3.0 12.5 7.0 40 Bolivia 8.4 2.3 3.1 2.9 6.9 -11.4 41 Yemen, PDR 42 Yemen Arab Rep 20.6 . 1 5.8 . 18.2 43 Indonesia 9.8 11.4 7.1 9.3 17.5 12.3 44 Zambia 10.4 -0.8 -1.2 3.9 6.2 -125 45 Honduras 70 6.3 3.8 43 43 0.7 46 Egypt, Arab Rep c c 5.3 8.1 -1 5 12.0 47 El Salvador 8.3 3.3 3.0 0.6 3.7 -5.7 48 Ivory Coast 15.2 9.6 5.1 3.7 10.2 6.0 49 Zimbabwe 6.9 10.8 7.3 2.9 9.2 1.9 50 Morocco 5.5 c 5.1 5.5 11.0 2.4 51 Papua New Guinea 2.4 -2.2 5.2 3.1 10.9 4.2 52 Philippines 84 3,7 40 46 4.4 73 53 Nigeria 16.1 3.3 4.9 2.5 15.2 3.5 54 Cameroon 4.6 59 3.4 5.4 86 10.6 55 Thailand 98 9.4 6.9 59 7.6 6.2 56 Nicaragua 32 13.4 2.7 -4.3 3.3 -2.7 57 Costa Rica 6.8 37 5.1 1.9 9.3 -3.4 58 Peru 5.4 3.2 5.6 1.9 -26 -2.7 59 Guatemala 5.7 67 5.4 3.7 5.3 1.2 60 Congo, Peoples Rep. 7.4 5.0 39 10.8 9.3 10.2 61 Turkey 5,7 58 6.0 2.2 97 2.3 62 Tunisia 5.7 8.1 7.0 7.2 3.6 9.5 63 Jamaica 136 2.6 4.5 -2.0 75 -6.5 64 Dominican Rep. -3.6 6.5 8.6 4.5 19.2 2.5 Note: For data comparability and coverage see the technical notes 180 Average annual growth rate (percent) Public Private Gross consumption consumption domestic investment 1965-73 1g733b 1 965-73 1 973_83b 1 965-73k I 973-83k 65 Paraguay 6.2 10.3 50 7.0 8.4 14.0 66 Ecuador 7.0 8.5 5.2 6.4 6.0 3.2 67 Colombia 8.8 6.5 6.5 4.5 6.7 6.0 68 Angola 69 Cuba 70 Korea, Dem. Rep. 71 Lebanon 3,7 5.4 .. 5.1 72 Mongolia Upper middle-income 6.5w 4.4w 7.6w 5.0w 8.9w 3.8w 73 Jordan .. 9.5 . . 11.5 . . 19.9 74 SyrianArabRep. 12.5 10.7 6.5 9.2 7.2 11.3 75 Malaysia 6.9 10.2 4.6 7.2 9.1 11.9 76 Chile 6.3 0.4 4.8 2.6 (.) -0.3 77 Brazil 7.3 4.4 10.2 6.0 11.3 2.5 78 Korea, Rep. of 7.3 5.8 8.7 6.0 197 9.1 79 Argentina 2.4 2.9 4.3 0.3 6.7 -2.0 80 Panama 9.7 .. 5.2 .. 15.4 81 Portugal 7.1 6.6 8.4 1.7 8.0 4.0 82 Mexico 8.7 6.9 7.7 5.4 8.4 4.5 83 Algeria 5.8 10.8 6.4 9.5 17.4 7.2 84 South Africa 5.2 . . 6.1 .. 6.1 85 Uruguay 2.1 3.7 4.1 1.1 3.9 7.0 86 Yugoslavia 2.2 2.4 9.7 3.9 4.8 5.2 87 Venezuela 6.8 5.2 5.5 7.1 9.0 2.5 88 Greece 5.7 5.2 6.9 3.0 11.1 -1.4 89 Israel 15.8 -1.1 6.9 5.4 13.3 -1.7 90 Hong Kong 6.9 94 9.5 10.2 3.7 10.8 91 Singapore 16.3 6.4 9.9 6.1 22 7 9.2 92 Trinidad and Tobago c c 4.9 7.7 2.4 13.0 93 Iran, Islamic Rep. 17.3 . . 7.9 .. 11.2 94 Iraq c . . 3.3 .. 7.2 High-income oil exporters 8.7w ., 4.3w 95 Oman c 96 Libya 19.8 7.3 22.1 9.0 2.7 3.7 97 Saudi Arabia c c 8.8 21.2 9.4 27.1 98 Kuwait c 4.3 08 99 United Arab Emirates Industrial market economies 3.2 w 2.6w 4.8w 2.6w 5.4w 0.8w 100 Spain 4.0 4.4 6.1 1.8 6.7 -2.3 101 Ireland 6.4 4.3 4.8 1.5 8.5 2.6 102 Italy 4.1 2.3 5.7 2.4 5.9 -1.0 103 New Zealand 2.9 1.8 3.2 0.5 2.6 -2.7 104 Belgium 4.9 2.9 5.0 2.2 4.1 -1.9 105 United Kingdom 2.1 1.5 2.9 1.5 3.1 (,) 106 Austria 3.8 3.1 4,7 2.5 6.9 0.4 107 Netherlands 3.2 2.5 5.1 2.0 5.9 -2.1 108 Japan 53 41 8.4 3.2 14.1 3.1 109 France 30 3.0 5.3 3.3 6.9 03 110 Finland 5.5 4,4 4.8 2.3 49 -0.4 111 Germany, Fed. Rep. 4.0 2.3 4.9 2.0 44 1.9 112 Australia 4.8 4.3 4.9 3.0 3,7 0.7 113 Denmark 6.0 38 2.9 1.2 4.9 -3.3 114 Canada 6.2 1.5 5.3 2.7 38 0.8 115 Sweden 4.9 3.0 2.9 1.0 2.1 -1 7 116 Norway 5.6 38 3.7 4.5 4.5 -2.7 117 United States 1.8 2.4 4.0 2.9 2.7 1.0 118 Switzerland 39 1.5 4.5 1.1 5.3 0.9 East European nonmarket economies 119 Hungary 3.9 3.2 .. 3.1 120 Albania 121 Bulgaria 122 Czechoslovakia 123 German Dem. Rep. 124 Poland 125 Roman/a 126 USSR a. Figures in italics are for 1966-73, not 1965-73. b. Figures in italics are for 1973-82, not 1973-83. c. Public consumption figures are not available sepa- rately; they are therefore /ncluded in private consumption. 181 Table 5. Structure of demand Distribution of gross domestic product (percent) Exports of goods Public Private Gross domestic Gross domestic and nonfactor Resource consumption consumption investment savings services balance 1965 1983b 1965 1983b 1965 19$3b 1965 1983b 1965 1983b 1965a 19$3b Low-income economies lOw 12w 75w 70w 21w 26 w 19w 24 w 6w 9w 2w 2w China and India 75w 68w 22 w 28 w 21w 28 w 4w 8w 1w (.)w Other low-income 12w 13w 78w 80w 16w 18w 11 to 7w 18w 15w 11w 2w 8w 1 Sub-Saharan Africa Ethiopia 2 Bangladesh 13w 11 9 16w 17 8 74w 77 83 78w 81 91 15w 13 11 16w 11 17 13w 12 8 7w 2 2 24w 12 10 18w 12 8 1 9 4 15 3 Mali 4 Nepal 17 c 27 c 72 100 75 91 23 6 17 20 11 2 9 13 8 23 10 11 19 6 11 (.) 5 Zaire 18 19 44 55 28 24 38 26 70 33 10 2 6 Burkina 7 Burma 7 c 14 14 91 87 100 69 10 19 12 22 13 2 15 17 9 14 17 8 8 6527 8 Malawi 16 16 82 70 14 23 2 14 16 19 12 9 9 Uganda 10 Burundi 10 7 14 c 78 89 95 79 11 6 21 8 12 4 5 7 26 10 5 9 2 1431 11 Niger 12 Tanzania 8 10 10 22 84 74 79 70 15 15 25 20 9 16 11 8 12 22 7 14 12 13 Somalia 14 India 10 8 24 11 84 74 78 67 11 18 20 25 16 8 2 22 26 17 4 11 10 6 3 2322 1 15 Rwanda 14 81 .. 10 .. 5 ,. 12 5 16 CentralAfricanRep. 22 13 67 89 21 1 27 23 11 13 17 Togo 18 Benin 8 14 17 12 76 83 79 91 22 12 11 23 12 11 17 3 3 4 20 14 31 20 6 19 9 14 19 China c C 75 69 25 31 25 31 3 9 (.) 1 20 Guinea - - 19 65 14 16 29 -. 2 21 Haiti 22 Ghana 14 8 12 6 90 77 85 90 18 7 16 2 3 13 17 27 5 10 3 13 23 Madagascar 24 Sierra Leone 23 8 15 7 74 83 81 91 10 12 8 14 9 9 8 4 5 4 2 16 30 5 13 12 3 10 6 7 25 Sri Lanka 13 8 74 78 12 29 13 14 38 26 1 15 26 Kenya 15 20 70 61 14 21 15 19 31 25 2 8 11 1 27 Pakistan 76 82 21 17 13 13 8 1 16 11 11 7 28 Sudan 12 13 79 88 10 15 9 1 15 11 29 Afghanistan C 99 11 1 - 11 - 10 30 Bhutan 7 - - - - - - - - - - 31 Chad 14 84 9 -- 2 23 32 Kampuchea, Dam. 16 - - 71 - 13 - - 12 - - 12 1 33 Lao PDR - - - - - - - - - - - -. 34 Mozambique - - - - - - - - - - - - - - 35 VietNam - - - - - - - - - - Middle-income economies 11 to 13w 68w 66w 21w 22w 21w 21w 18w 24w (.)w 1w Oil exporters 11w 14w 68w 62w 19w 22w 21w 24w 19w 25w 2w 2w Oil importers Sub-Saharan Africa 11w 11w 13w 13w 67w 68w 68w 22w 23w 21w 20w 18w 23w 1w 3w 70w 18w 20w 19w 19w 27w 21w 1w Lower middle-income 11w 13w 73w 70w 17w 22w 16w 17w 17w 21w 1w 5w 36 Senegal 37 Lesotho 17 18 19 31 75 109 78 146 12 11 17 29 26 8 77 3 24 16 28 14 4 13 38 106 38 Liberia 12 23 61 62 17 20 27 14 50 40 10 5 39 Mauritania 19 23 54 88 18 27 11 42 47 29 40 Bolivia 10 9 80 94 14 16 7 11 3 17 19 5 10 13 41 Yemen, PDR - - - - - - - - - - - - . - -- - .. 20 50 - - - 42 Yemen Arab Rep. 41 79 29 7 4 . . - - - - - - . - - - 43 Indonesia 6 11 88 69 7 24 6 20 5 25 (.) 44 Zambia 15 26 44 60 26 15 41 15 50 31 15 1 45 Honduras 10 15 75 72 15 17 15 13 27 27 4 46 EgyptArabRep. 47 ElSalvador 19 9 25 13 67 79 63 81 18 15 28 12 14 12 12 6 18 27 29 21 4(.) 2716 48 Ivory Coast 49 Zimbabwe 11 12 17 20 69 65 67 61 19 15 18 22 20 23 16 19 35 34 .. 2 3 1 8 50 Morocco 12 20 76 69 10 21 12 11 18 23 9 1 51 PapuaNewGuinea 34 25 64 63 22 31 2 12 18 39 20 18 52 Philippines 53 Nigeria 7 9 8 11 70 76 71 70 21 19 27 19 21 17 21 19 17 18 20 16 2 7 (.) 0 1 54 Cameroon 55 Thailand 56 Nicaragua 14 10 8 10 13 31 73 71 74 54 67 61 13 20 21 27 25 20 13 19 18 37 20 8 25 18 29 32 22 21 1 3 5 13 10 57 Costa Rica 13 16 78 64 20 21 9 20 23 35 10 1 1 58 Peru 59 Guatemala 12 7 15 8 69 82 72 83 21 13 13 11 19 10 14 9 16 17 21 13 32 17 1 60 Congo, People's Rep. 61 Turkey 62 Tunisia 14 12 15 13 10 17 80 74 71 51 73 63 22 15 28 46 21 29 5 13 35 16 36 6 19 55 16 35 14 13 9 -11 63 Jamaica 64 Dominican Rep. 8 18 21 9 69 75 69 73 27 9 22 22 14 23 7 20 9 18 33 15 40 15 213 4 4 Note. For data comparability and coverage see the techrucal notes. 182 Distribution of gross domestic product (percent) Exports of goods Public Private Gross domestic Gross domestic and nonfactor Resource consumption consumption investment savings services balance 1965 19$3b 1965 1983b 1965 1983b 1965e 1983b 1965 1983b 1965 1983b 65 Paraguay 7 7 79 78 15 26 14 15 15 8 1 11 66 Ecuador 9 12 80 65 14 17 11 24 16 25 3 7 67 Colombia 68 Angola .. 8 12 75 73 16 19 17 15 11 10 1 4 . . . . .. .. . 69 Cuba .. . ., .. 70 Korea, Oem. Rep. 71 Lebanon 10 81 . . 22 36 .. 13 72 Mongolia Upper middle-income 11w 13w 65w 64w 23w 22w 24w 23w 19w 25w 1w 1w 73 Jordan . . 26 . 91 . . 40 . . 16 43 . . 56 74 Syrian Arab Rep. 14 21 76 66 10 23 10 13 17 12 11 75 Malaysia 76 Chile 15 11 18 15 63 73 53 75 18 15 34 8 23 16 29 11 44 14 54 24 (.) 4 1 52 77 Brazil 11 10 62 69 25 21 27 21 8 8 2 78 Korea, Rep. of 9 11 83 62 15 27 8 26 9 37 7 1 79 Argentina 80 Panama 81 Portugal 11 12 8 12 23 15 69 73 68 70 53 69 19 18 25 13 29 29 . 22 16 20 18 24 16 36 27 8 13 39 32 2 5 5 13 3 5 82 Mexico 7 11 72 61 22 17 21 28 9 20 1 11 83 Algeria 84 South Africa 15 11 16 66 62 46 22 28 37 . . 19 27 38 22 26 28 . 3 1 . . . . . (.) 85 Uruguay 15 12 68 73 11 10 18 14 19 24 7 4 86 Yugoslavia 18 15 52 49 30 35 30 37 22 30 (.) 1 87 Venezuela 12 14 54 63 24 12 34 23 31 26 10 10 88 Greece 12 19 73 70 26 22 15 12 9 19 11 10 13 13 89 Israel 90 Hong Kong 91 Singapore 20 7 10 30 11 8 65 64 80 61 67 47 29 36 22 22 27 45 15 29 10 9 25 42 19 71 123 33 95 176 72 123 92 Trinidad and Tobago 11 C 66 69 23 34 23 31 39 36 (.) 3 93 Iran, Islamic Rep. 13 63 . 17 24 .. 20 6 94 Iraq 20 50 16 . . 31 38 15 High-income oil exporters 15w 26w 32w 35w 19w 29w 53w 39w 61w 53w 34w lOw 95 Oman . . c 54 . . 29 . 46 61 .. 18 96 Libya 14 34 36 31 29 23 50 35 53 43 21 12 97 SaudiArabia 18 27 34 33 14 31 48 40 60 54 34 8 98 Kuwait 13 19 26 51 16 23 60 29 68 56 45 7 99 UnitedArabEmirates .. 22 .. 29 .. 32 .. 50 57 .. 17 Industrial market economies 15w 18w 61 w 63w 23w 20w 23w 20w 12w 18w 100 Spain 101 Ireland 7 14 12 20 71 72 70 59 25 24 20 23 21 15 18 21 11 35 18 53 3(.) w 922 (.) w 102 Italy 103 NewZealand 104 Belgium 15 12 13 19 17 18 62 63 64 63 58 65 20 27 23 17 25 16 23 25 23 18 25 17 16 22 36 26 31 74 21 (.) 3 1 1 105 United Kingdom 17 22 64 60 20 17 19 18 20 27 1 1 106 Austria 13 19 59 58 28 22 27 23 26 43 1 1 107 Netherlands 15 18 59 60 27 18 26 22 43 58 1 4 108 Japan 8 10 58 59 32 28 33 30 11 14 2 1 1 109 France 13 16 61 64 26 20 26 20 14 23 (.) 110 Finland 14 19 60 55 28 25 26 25 21 31 2 (.) 111 Germany, Fed. Rep. 112 Australia 113 Denmark 15 11 16 20 17 27 56 63 59 57 63 54 28 28 26 21 21 16 29 26 25 23 20 18 18 15 29 30 15 36 2 2 1 (.) 2 2 114 Canada 15 21 60 57 26 19 25 22 19 26 (.) 3 115 Sweden 18 28 56 52 27 17 26 20 22 35 1 2 116 Norway 15 19 56 48 30 24 29 33 41 46 1 8 117 UnitedStates 118 Switzerland 17 10 19 13 62 60 66 63 20 30 17 24 21 30 15 24 29 5 8 35 1 1 2 (.) East European nonmarket economies 119 Hungary c 10 75 61 26 27 25 29 . . 40 .. 2 120 Albania .. .. .. .. .. .. .. .. 121 Bulgaria . . . . . . . . . . 122 Czechoslovakia . . . . . . . . . . . . . - . . . . . . . . - 123 German Oem. Rep. .. .. .. .. .. .. .. . .. 124 Poland 125 Romania 126 USSR a. Figures in italics are for 1966, not 1965. b. Figures in italics are for 1982, not 1983. c. Public consumption figures are not available separately; they are therefore included in private consumption. 183 Table 6. Agriculture and food Value added Food aid Fertilizer consumption Average index of in agriculture Cereal imports in cereals (hundreds of grams of food production (millions of (thousands of (thousands of plant nutrient per per capita 1980 dollars) metric tons) metric tons) hectare of arable land) (1974-76=100) 1970 1983 1974 1983 1974/75b 1982/83b 1970C 1982 198 1-83 Low-income economies 22,899 t 30,553 5,661 4,5721 179 w 592 w 111w China and India 14,437t 23,4471 327 1 230 w 804 w 115w Other low-income 8,4621 7,1061 4,0791 4,245 148 w 387 w 102w Sub-Saharan Africa 2,232 1 3,277 765 1 1,969 23 w 42 w 94 w 1 Ethiopia 1,663 1,971 118 325 59 344 4 26 106 2 Bangladesh 5,427 6,545 1,719 1,844 2,130 1,252 142 512 101 3 Mali 403 606 281 183 114 88 29 30 106 4 Nepal 1,102 1,255 19 72 0 44 30 138 91 5 Zaire 1,503 1,866 343 273 (.) 110 8 8 93 6 Burkina 444 517 99 59 0 45 3 42 100 7 Burma 1,705 3,256 26 7 14 10 34 167 121 8 Malawi 17 21 (.) 3 52 138 101 9 Uganda 2,579 2,614 37 19 16 14 13 91 10 Burundi 468 585 7 20 6 7 5 10 97 11 Niger 851 649 155 45 75 12 8 122 12 Tanzania 1,583 1,886 431 214 148 171 30 44 103 13 Somalia 434 570 42 246 110 189 31 9 72 14 India 45,793 58,981 5,261 4,280 1,582 282 114 346 108 15 Rwanda 3 23 19 12 3 10 114 16 Central African Rep. 241 325 7 29 1 5 11 4 94 17 Togo 212 238 6 61 0 5 3 19 99 18 Benin 415 8 67 9 14 33 17 95 19 China 73,170 116,986 9,176 19,167 45 418 1,575 119 20 Guinea 755 63 112 49 25 18 17 85 21 Haiti 83 209 25 90 4 51 90 22 Ghana 2,323 2,265 177 285 43 58 9 98 65 23 Madagascar 1,111 1,171 114 240 7 141 56 52 90 24 Sierra Leone 261 312 72 119 10 29 13 6 98 25 Sri Lanka 812 1,199 951 775 271 369 496 713 127 26 Kenya 1,223 2,253 15 160 2 165 224 289 86 27 Pakistan 5,005 7,061 1,274 396 619 369 168 616 105 28 Sudan 1,610 2,318 125 435 50 330 31 44 94 29 Afghanistan 5 156 10 66 24 56 105 30 Bhutan 23 13 0 3 (.) 10 104 31 Chad 339 50 54 13 36 7 17 101 32 Kampuchea, Dem. 223 83 226 46 13 36 98 33 Lao POR 53 35 13 (.) 4 6 125 34 Mozambique 62 287 34 166 27 130 68 35 VietNam 1,854 239 6 27 512 506 111 Middle-income economies 41,293 1 78,552 1 2,340 1 4,1271 211 w 445 w 105w Oil exporters 18,0221 43,580 1,0781 2,355 1 139 w 468 w 105w Oil importers 23,271 1 34,972 1 1,2621 1,7721 254 w 432 w 105w Sub-Saharan Africa 1,521 t 4,8591 111 I 411 I 40w 91w 93 w Lower middle-income 16,7761 29,831 I 1,491 1 3,9991 176w 398w 105 w 36 Senegal 603 702 341 591 28 91 20 35 71 37 Lesotho 94 49 91 14 28 17 151 76 38 Liberia 235 334 42 126 3 57 55 35 92 39 Mauritania 259 258 115 227 48 71 6 5 102 40 Bolivia 540 643 207 415 22 164 13 8 87 41 Yemen, PDR 149 205 38 9 (.) 109 84 42 Yemen Arab Rep. 451 761 158 556 0 28 51 80 43 Indonesia 12,097 20,225 1,919 2,992 30 155 119 750 121 44 Zambia 444 562 93 247 83 71 185 74 45 Honduras 477 664 52 83 31 95 160 137 107 46 Egypt, Arab Rep. 3,282 4,728 3,877 8,154 610 1,816 1,282 3,346 92 47 El Salvador 736 871 75 171 4 211 1,048 830 91 48 Ivory Coast 1,733 2,670 172 562 4 0 71 85 108 49 Zimbabwe 557 673 56 124 6 466 532 79 50 Morocco 2,783 2,848 891 1,896 75 142 130 253 89 51 Papua New Guinea 655 926 71 155 0 76 151 95 52 Philippines 5,115 8,609 817 1,343 89 49 214 288 113 53 Nigeria 17,186 16,001 389 2,336 7 0 3 65 98 54 Cameroon 1,492 1,955 81 178 4 6 28 57 84 55 Thailand 5,631 9,444 97 225 0 9 76 183 112 56 Nicaragua 410 608 44 109 3 51 184 186 74 57 Costa Rica 666 898 110 201 1 194 1,086 1,134 88 58 Peru 1,716 1,649 637 1,772 37 111 297 266 82 59 Guatemala 138 129 9 19 224 498 102 60 Congo, People's Rep. 147 164 34 90 2 9 112 19 99 61 Turkey 8,701 12,890 1,276 177 70 0 166 535 104 62 Tunisia 697 1,191 307 1,131 1 160 82 168 87 63 Jamaica 204 209 340 394 1 127 886 571 95 64 Dominican Rep. 993 1,577 252 392 16 167 354 353 95 Note: For data comparability and coverage see the technical notes 184 Value added Food aid Fertilizer consumption Average index of in agriculture Cereal imports in cereals (hundreds at grams of food production (millions of (thousands of (thousands of plant nutrient per per capita 1980 dollars) metric tons) metric tons) hectare of arable land) (1974-76=100) 1970 1983 1974 1983 1974/75° 1982/83° 19700 1982 1981-83 65 Paraguay 640 1,193 71 94 10 1 58 39 109 66 Ecuador 1,054 1,343 152 400 13 8 123 277 92 67 Colombia 4,247 6,660 503 1,017 28 1 310 538 106 68 Angola 149 287 0 60 45 14 82 69 Cuba 1,622 2,105 .. 2 1,539 1,726 127 70 Korea, Dem. Rep 1,108 350 1,484 3,382 111 71 Lebanon 354 407 21 69 1,279 1,487 124 72 Mongolia 28 99 18 109 88 Upper middle-income 24,5171 48,7211 8491 1281 242w 486w 106 w 73 Jordan 185 264 171 572 63 40 20 346 107 74 Syrian Arab Rep. 1,057 2,751 339 1,487 4 28 67 270 129 75 Malaysia 3,511 6,401 1,017 1,785 0 436 1,021 113 76 Chile 1,597 2,024 1,737 1,370 331 2 317 189 102 77 Brazil 18,425 33,202 2,485 4,925 31 0 169 365 113 78 Korea, Rep. of 8,176 12,250 2,679 6,354 234 53 2,466 2,817 109 79 Argent.na 3,947 5,332 0 0 24 31 112 80 Panama 292 344 63 90 3 3 391 469 102 81 Portugal 2,194 1,860 3,031 0 0 411 720 82 82 Mexico 11,125 16,968 2,881 8483 246 778 106 83 Algeria 1,731 2,693 1,816 3,667 54 2 174 211 83 84 South Africa 127 1,517 425 831 93 85 Uruguay 897 893 70 114 31 0 392 376 106 86 Yugoslavia 5,486 8,310 992 409 766 1,199 108 87 Venezuela 1,168 1,616 1,270 2,555 165 408 91 88 Greece 4,929 6,049 1,341 242 858 1,606 102 89 Israel 1,176 1,495 53 0 1,394 1,783 93 90 Hong Kong 321 244 657 907 101 91 Singapore 118 143 682 1,455 (.) (.) 2,667 7,833 107 92 Trinidad and Tobago 160 208 295 (,) 640 304 70 93 Iran, Islamic Rep. 2,076 4456 0 76 656 103 94 Iraq 870 3,512 1 (.) 35 145 110 High-income oil exporters 1,3791 5,2501 58w 55w 95 Oman 52 173 272 96 Libya 168 572 612 808 64 385 84 97 Saudi Arabia 833 1,713 482 3,482 44 832 34 98 Kuwait 42 108 101 459 7,320 99 United Arab Emirates 132 328 (.) 3.324 Industrial market economies 65,4941 61,7521 985w 1,115w 107w 100 Spain 10,888 4,675 6,445 595 725 101 101 Ireland 631 514 3,573 6,438 97 102 Italy 22,099 25,577 8,100 6,128 962 1,614 112 103 New Zealand 92 89 8,875 9,468 110 104 Belgium5 2,212 2,798 4,585 6,043 5,686 5,206 103 105 United Kingdom 7,9 13 10,269 7,541 3,416 2,521 3,647 119 106 Austria 2,903 3,004 165 59 2,517 2,159 111 107 Netherlands 3,986 6,675 7,199 4,254 7,165 7,381 112 108 Japan 38,299 39,554 19,557 25, 296 3,849 4,121 91 109 France 24,282 29,090 654 1,889 2,424 2,993 112 110 Finland 4,014 3,923 222 62 1,931 2,242 101 111 Germany Fed Rep. 15,442 19,586 7,164 4,209 4,208 4,350 113 112 Australia 7,102 8,337 2 32 246 237 103 113 Denmark 2,316 3,381 462 510 2,254 2,462 117 114 Canada 8,625 11,507 1,513 449 192 437 121 115 Sweden 3,983 4,252 301 122 1,639 1,612 108 116 Norway 2,048 2,380 713 404 2,471 3,185 114 117 United States 62,108 66,669 460 594 800 867 108 118 Switzerland 1,458 1,237 3,842 4,139 112 East European nonmarket economies 18,5431 41,006t 635w 1,128w 100w 119 Hungary 2,782 4,290 408 87 1,485 2,885 119 120 Albania 48 3 745 1,550 105 121 Bulgaria 649 204 1,446 2,501 117 122 Czechoslovakia 1,296 778 2,402 3,369 110 123 German Dem Rep. 2,821 3,221 3,202 2,815 108 124 Poland 4,185 3,389 83 1,715 2,134 91 125 Romania 1,381 1,192 559 1,591 114 126 USSR 7,755 32,132 437 867 98 a. Figures in italics are for 1982, not 1983. b. Figures are for the crop years 1974/75 and 1982/83. c. Average for 1969-71 ., d. Includes Luxembourg 185 Table 7. Industry Distribution of manufacturing value added (percent; 1975 prices) Value added Textiles Machinery and in manufacturing Food and and transport Other (millions of agriculture clothing equipment Chemicals manufacturing 1975 dollars) 1982 1982 1982 1982 1982 1970 l982 Low-income economies China and India Other low-income Sub-Saharan Africa 1 Ethiopia 27 27 2 44 236 361 2 Bangladesh 30 37 4 17 12 647 1,294 3 Mali 30 53 5 1 11 44 57 4 Nepal 5 Zaire 322 253 6 Burkina 74 7 11 8 67 137 7 Burma 31 14 1 4 50 287 486 8 Malawi 54 10 .. 36 44 76 9 Uganda 54 25 21 183 81 10 Burundi 32 53 11 Niger 54 158 12 Tanzania 190 151 13 Somalia 42 53 14 India 15 16 20 14 35 10,232 16,210 15 Rwanda ,, . . . 107 16 Central African Rep. 57 28 0 2 13 68 29 17 logo . . . . .. . 13 18 Benin 59 19 China . . . . . . . . 20 Guinea . . . . . .. . . 26 21 Haiti 22 Ghana . .. .. 364 198 23 Madagascar . . .. . . . 295 233 24 Sierra Leone 25 38 25 Sri Lanka 45 13 . . .. 42 556 748 26 Kenya 26 10 31 8 25 167 536 27 Pakistan 46 14 7 16 17 1,492 2,967 28 Sudan . .. . . . . 253 433 29 Afghanistan . . , . . . S ' 30 Bhutan .. . . . 31 Chad . . . .. 37 21 32 Kampuchea, Bern. . . . 33 Lao PDR .. .. .. 34 Mozambique . . .. .. .. . . . 35 VietNam . . . . Middle-income economies Oil exporters Oil importers Sub-Saharan Africa Lower middle-income 36 Senegal 39 22 .. . . 39 276 443 37 Lesotho . . . . 3 10 38 Liberia . . .. .. .. . 25 39 39 Mauritania . .. . . , . . . 18 26 40 Bolivia , . . . . . 241 344 41 Yemen. PDR 42 Yemen Arab Rep 25 118 43 Indonesia 29 7 7 12 45 1,517 6,072 44 Zambia 16 24 10 12 38 319 427 45 Honduras 138 246 46 Egypt, Arab Rep .. . . .. .. 1.835 4,847 47 El Salvador . .. . . . .. 252 255 48 Ivory Coast .. . . .. . .. 398 705 49 Zimbabwe 21 19 10 11 39 552 925 50 Morocco 31 12 9 10 38 1,138 1,960 51 PapuaNewGuinea .. . . , . .. . 59 138 52 Philippines 39 13 9 9 30 2,659 5510 53 Nigeria 33 18 12 11 26 1,191 4,049 54 Cameroon . . .. , , .. . 199 533 55 Thailand , . , , . . . , . 1,675 4,837 56 Nicaragua . . . .. . . . 282 382 57 Costa Rica . , . . . . . . 261 452 58 Peru 26 13 11 12 38 2,929 3,963 59 Guatemala .. . . 60 Congo, People's Rep 37 5 7 51 73 121 61 Turkey 24 11 14 12 38 3,678 6,898 62 Tunisia 22 12 13 16 37 222 841 63 Jamaica . . .. .. .. 328 284 64 Dominican Rep. 69 4 1 6 20 483 1,005 Note For data comparability and coverage see the technical notes. 186 Distribution of manufacturing value added (percent; 1975 prices) Value added Textiles Machinery and in manufacturing Food and and transport Other (millions of agriculture clothing equipment Chemicals manufacturing 1975 dollars) 1982a 1982 1982 1982 1982 1970 1982 65 Paraguay 36 12 14 4 34 203 455 66 Ecuador 26 15 11 7 41 432 1,247 67 Colombia 32 15 11 12 30 1,625 2,686 68 Angola .. .. .. 69 Cuba 38 13 1 16 32 70 Korea, Oem. Rep. 71 Lebanon 72 Mongolia 21 29 .. 5 45 Uppermiddt 'ome 73 Jordan .. .. ,. ., .. 55 300 74 SyrianArabRep. 27 32 4 4 33 706 1,510 75 Malaysia 20 7 22 5 46 1,022 3,287 76 Chile 19 4 11 12 54 1,881 1,694 77 Brazil 15 10 23 13 39 19,235 43,300 78 Korea,Rep.of 15 22 20 11 32 2,368 11,492 79 Argentina 14 11 21 14 40 9,554 8,980 80 Panama 51 11 2 6 30 204 288 81 Portugal 11 18 22 15 34 82 Mexico 19 8 20 12 41 14,592 30,217 83 Algeria 16 20 8 3 53 1,068 3,643 84 South Africa 15 12 18 11 44 . S 85 Uruguay 37 18 9 9 27 723 787 86 Yugoslavia 15 14 20 8 43 4,844 12,605 87 Venezuela 27 6 8 8 51 3419 5,709 88 Greece 21 25 9 9 36 2,558 4,381 89 Israel 15 12 25 8 40 90 HongKong .. .. .. .. .. 1,914 3,679 91 Singapore 5 3 53 5 34 827 2,431 92 TrinidadandTobago . . . . .. .. . . 404 434 93 Iran, Islamic Rep. 14 21 10 5 50 2,601 94 Iraq 522 gh-income il exporters 95 Oman 96 Ubya 154 638 97 Saudi Arabia 96 1,726 3,817 98 Kuwait 368 894 99 United Arab Emirates Industrial market economies 100 Spain 13 15 16 10 46 18,331 28,734 101 Ireland 24 10 13 15 38 102 Italy 10 15 30 7 38 103 New Zealand 24 11 16 4 45 104 Belgium 19 8 28 13 32 14,386 19,192 105 United Kingdom 13 7 35 10 35 58,677 52,963 106 Austria 15 8 24 7 46 9,112 13,363 107 Netherlands 19 4 28 13 36 18,684 23,525 108 Japan 7 5 39 8 41 118,403 252,581 109 France 17 7 33 8 35 75,800 106,356 110 Finland 12 7 25 7 49 5,636 9,067 111 Germany, Fed Rep, 10 5 38 10 37 149,113 187,404 112 Australia 19 8 21 9 43 20,206 23,604 113 Denmark 24 6 25 8 37 5,858 8,138 114 Canada 15 7 22 7 49 25,748 32,315 115 Sweden 10 3 35 7 45 16,743 18,046 116 Norway 14 3 30 8 45 5,322 6,181 117 UnitedStates 12 6 32 12 38 328,200 414,600 118 Switzerland 21 8 21 14 36 East European nonmarket economies 119 Hungary 11 9 30 10 40 3,244 6,267 120 Albania . . .. . .. . . 121 Bulgaria 24 16 16 6 38 122 Czechoslovakia 7 9 38 8 38 . , 123 German Dem. Rep. 17 10 35 9 29 .. 124 Poland 5 18 33 9 35 125 Roman/a 11 15 31 12 31 126 USSR 12 11 29 6 42 a. Fiqures in italics are for 1981, not 1982. 187 Table 8. Commercial energy Energy consumption Average annual energy per capita Energy imports growth rate (percent) (kilograms as a percentage of Energy production Energy consumption of oil equivalent) merchandise exports 1965_730 1973-83 1965-73 1973-83 1965 1983 1965 1983b Low-income economies 10.0w 6.1 w 9.7 w 5.5 w 128 w 276 w 8w China and India 10.1 w 6.0w 10.2w 5.6 w 143 w 341 w Other low-income 8.0w 7.1 w 6.1 w 3.4 w 67 w 80 w 7w Sub-Saharan Africa 10.4w 8.4 w 9.5 w 1.1w 45 w 56 w 8w 1 Ethiopia 11.1 6.2 11.4 4.4 10 19 8 2 Bangladesh 12.6 74 36 , 20 3 Mali 80.5 5.0 4.6 4.8 15 22 16 4 Nepal 27.2 7.3 8.8 7.3 6 13 . 5 Zaire 4.8 9.1 60 1,5 67 77 6 6 Burkina . . . 8.0 107 8 22 11 50 7 Burma 9.6 7.2 59 5.7 39 65 4 8 Malawi 31.1 8.3 8.3 4.3 25 45 7 9 Uganda 3.7 -2.6 8.4 -5.8 36 23 10 Burundi . . 30.2 5.6 12.5 5 17 11 11 Niger . . . 14.7 11.7 8 43 9 17 12 Tanzania 6.8 5.9 10.5 -2.6 37 38 . 13 Somalia .. . . 9.3 16.8 15 84 9 14 India 3.7 77 5.1 6.6 100 182 8 15 Rwanda 15.7 20 11.4 130 8 35 10 16 Central African Rep 10.6 3.9 9.8 4.7 22 35 7 17 Togo -6.1 27.4 12.9 13.9 25 88 6 18 18 Benin 19.7 0.3 21 39 14 19 China 11.8 5.7 11.9 5.4 170 455 . 20 Guinea 17.1 2.2 2.3 1.5 56 54 . 21 Haiti .. 9.7 6.2 6.9 25 55 22 Ghana 43.4 1.0 15.0 -0.4 76 111 6 23 Madagascar 8.6 2.3 13.6 1.4 33 59 8 32 24 SierraLeone . , . . 5.1 6.9 90 102 11 25 Sri Lanka 12.0 6.0 5.3 34 107 143 6 40 26 Kenya 9.9 15.0 7.1 14 114 109 27 Pakistan 5.8 86 17 7.8 136 197 7 49 28 Sudan 14.7 90 12.4 -3.3 67 66 5 57 29 Afghanistan 46.5 -0.3 5.5 2.4 30 46 8 30 Bhu(an . . .. , . 106 . . 31 Chad . . ,, . ., . . . . 23 32 Kampuchea, Dem , . . , 19.8 0.8 19 .. 7 33 Lao PDR .. 20.2 16.6 70 22 76 34 Mozambique 4.6 18.6 9.3 1.5 93 95 13 35 VietNam -3.4 5.6 6.7 -2.1 . 90 Middle-income economies 8.5w (.) w 7.9w 5.2w 380 w 745 w 8w 29w Oil exporters 9.1 w -1.5w 7.2w 7.1w 295 w 606 w 5w Oil importers 6.0w 5.4w 8.2w 4.2w 448 w 866 w lOw 35w Sub-Saharan Africa 30.8 w -2.5w 8.9w 7.0w 90 w 189 w 5w Lower middle-income 15.9w 2.2w 7.4w 5.5w 183w 382w 8w 36 Senegal 14.3 -2.8 169 151 8 58 37 Lesotho 38 Liberia 37.0 -0.4 16.1 19 181 357 6 39 Mauritania 16.0 36 48 130 2 40 Bolivia 178 -0.2 52 6.1 156 292 1 41 Yemen, PDR . . . -21.7 7.1 . 934 63 42 YemenArabflep. . . .. 16.5 22.4 7 116 43 Indonesia 12.7 2.7 6.4 7.8 91 204 3 20 44 Zambia 26.3 6.4 1.6 1.9 464 432 5 45 Honduras 15.6 10.9 10.4 3.9 111 204 5 28 46 Egypt, Arab Rep 10.0 16.4 1.9 115 211 532 11 12 47 El Salvador 2.1 148 5.7 33 140 190 5 57 48 IvoryCoast 05 45.8 10.9 51 109 186 5 16 49 Zimbabwe 1.8 -2.6 9.9 05 441 491 (.) 50 Morocco 2.6 (.) 8.9 5.4 124 258 5 57 51 PapuaNewGuinea 16.5 7.8 20.3 3.6 56 223 7 52 Philippines 4.6 208 91 2.3 160 252 12 44 53 Nigeria 33.4 -4.4 9.6 15.4 33 150 7 54 Cameroon 1.2 45.6 6.5 8.0 67 128 6 4 55 Thailand 10.5 13.7 146 5.4 80 269 11 39 56 Nicaragua 4.8 6.4 9.8 0.7 187 262 6 46 57 Costa Rica 10.2 8.9 12.2 4.9 267 609 8 22 58 Peru 1.9 11.2 5.1 3.6 406 550 3 2 59 Guatemala 18.3 25.1 71 2.8 148 178 9 68 60 Congo, People's Rep. 33.4 10.5 75 11.9 90 216 8 61 Turkey 5.7 3.8 100 4.6 258 599 12 66 62 Tunisia 58.7 4.3 8.7 8.2 170 473 12 31 63 Jamaica -1.8 2.2 10.2 -1.5 707 980 12 64 DominicanRep. 4.9 40.0 18.6 1.8 130 407 7 71 Note: For data comparability and coverage see the technical notes 188 Energy consumption Average annual energy per capita Energy imports growth rate (percent) as a percentage of (kilograms Energy production Energy consumption of oil equivalent) merchandise exports 1965-7Y 1973-83 1965-73 1973-83 1965 1983 1965 1983b 65 Paraguay .. 63 9.3 7.5 86 187 14 66 Ecuador 36.6 2.5 ,- 9.3 13.6 163 675 11 67 Colombia 2.2 3.6 6.5 5.6 416 786 1 21 68 Angola 47.1 -1.0 106 4.1 111 226 2 69 Cuba 7.2 11.8 56 3.8 604 1,042 12 70 Korea, Oem. Rep 9.3 3.1 9.5 3.6 504 2,093 71 Lebanon 2.4 0.2 6.1 -4.2 713 610 5 72 Mongolia 11.2 8.5 9.1 9.0 471 1,137 . (Jppermiddle-income 6.8w -0.8w 8.1w 5.1w 646w 1,225w 8w 29w 73 Jordan . . .. 4.3 15.3 226 790 33 101 74 Syrran Arab Rep. 164.4 3.6 9.7 13.3 212 847 13 75 Malaysia 60.8 15.9 8.5 7.1 312 702 10 16 76 Chile 4.1 1.5 7.2 0.6 657 755 5 24 77 Brazil 8.7 9.0 11.5 49 287 745 14 56 78 Korea, Rep. of 2.6 4.6 15.8 8.8 237 1,168 18 28 79 Argentina 6.4 4.5 5.9 2,7 977 1,460 8 9 80 Panama 2.7 17.0 76 -63 3,203 2,082 54 82 81 Portugal 3.9 (.) 87 3.7 506 1,194 13 48 82 Mexico 4.5 17.0 7.2 8.7 622 1,332 4 83 Algeria 7.2 3.3 11.2 12.5 226 982 (.) 2 84 South Africa 3.5 8.2 5.2 4.2 1,695 2,278 85 Uruguay 52 18.2 1.7 0.7 767 776 13 28 86 Yugoslavia 3.5 4.1 6.8 4.3 898 1,903 7 33 87 Venezuela 0.1 -3.5 4.3 4.5 2,269 2,295 (.) 88 Greece 12.7 9.0 11.7 3.8 615 1,790 29 59 89 Israel 53.4 -35.6 6.1 2.2 1,574 1,932 13 29 90 Hong Kong . . . . 110 58 599 1,647 4 7 91 Singapore .. .. 11.4 4.9 2,002 4,757 17 40 92 TrinidadandTobago 0.6 0.8 2.7 3.9 4,132 5,191 59 4 93 Iran, Islamic Rep. 16.3 -12.9 13.3 1.0 537 976 (.) 94 Iraq 45 -70 62 8.3 399 763 (.) High-income oil exporters 11.7w -2.8w 8.6w 7.9w 1,344 w 3,858 w (.) w 95 Oman 57.2 0.9 89.7 -4.1 .. 764 .. 1 96 Libya 8.6 -4.4 14.8 19.6 222 2,769 2 1 97 SaudiArabia 15.7 -1.2 12.4 6.8 1,759 3,536 (.) 98 Kuwait 4.3 -9.8 0.5 0.4 .. 5,443 (.) 99 UnitedArabEmirates 24.1 -1.7 65.3 25.4 108 7,554 Industrial market economies 3.2w 1.6w 5.2w 0.1w 3,764w 4,733w 11w 25w 100 Spain 32 3.6 8.6 2.3 901 1,858 31 59 101 Ireland -1.4 12.1 5.8 2.7 1,504 2,354 14 14 102 Italy 2.3 0.5 7.1 (.) 1,568 2,458 16 34 103 NewZealand 4,5 4,3 4.7 1.5 2,622 3,808 7 18 104 Belgium -9.0 4.0 6.0 -0.7 3,402 4,401 9 18 105 United Kingdom -0.7 8.9 2.6 -1 4 3,481 3,461 13 12 106 Austria -0.2 0.4 6.6 0.5 2,060 3,083 10 17 107 Netherlands 25.7 0.9 9.0 0.6 3,134 5,397 12 23 108 Japan -3.1 5.0 11.9 0.4 1,496 2,929 19 40 109 France -3.1 5.5 6.0 0.5 2,468 3,429 16 28 110 Finland 0.3 12.3 8.4 2.1 2,233 4,649 11 28 111 Germany, Fed. Rep. (.) 0.3 4.9 (.) 3,197 4,156 8 19 112 Australia 16.1 4.5 6.4 2.5 3,287 4,811 10 16 113 Denmark -32.5 36.1 4.8 -1.2 2,911 3,062 13 20 114 Canada 9.5 1.4 6.1 2.0 6,007 8,847 7 6 115 Sweden 2.8 5.6 4.5 0.4 4,162 5,821 12 22 116 Norway 6.0 162 5.4 26 4,650 8,087 11 8 117 UnitedStates 3.0 0.1 4.1 -0.4 6.586 7,030 8 30 118 Switzerland 3.1 4.3 6.2 0.8 2,501 3,794 8 13 East European nonmarket economies 4.3 w 3.5 w 4.6w 3.2w 2,523 w 4,279 w 119 Hungary 0.4 1.5 3.3 3.1 1.825 2,968 12 22 120 Albania 14.2 6.6 7.2 6.5 415 982 121 Bulgaria 0.8 4.7 7.7 4.3 1,788 4,390 122 Czechoslovakia 1.1 0.9 3.6 1.8 3,374 4,691 .. 30 123 German Oem. Rep. 0.6 1.8 2.5 2.0 3,762 5,370 124 Poland 4.5 1.0 4.8 2.5 2,027 3,133 24 125 Romania 5.6 2.0 78 3.8 1.536 3,305 126 USSR 4.7 4.0 4.7 3.4 2,603 4,505 a Figures in italics are for 1966-73, not 1965-73 b Figures in italics are for 1981 or 1982, not 1983. 189 Table 9. Growth of merchandise trade Merchandise trade Average annual growth rates (percent) (millions of dollars) Terms of trade Exports Imports Exports Imports (1980=100) 1983 1983b 1965-73 1 973_83c 1965-73 1973_83c 1981 1983 Low-income economies 45,991 57,333 1.5w 0.9w -20w 1.4w 95w 96w China and India 31,931 34,952 Other low-income 14,060 22,381 1.3w -0.8w 0.2w 0.6w 95w 96w Sub-Saharan Africa 7,827 11,501 2.4w -4.0w 2.3w -2.2w 88w 94w 1 Ethiopia 422 875 3.0 1.4 -0.2 2.7 68 86 2 Bangladesh 789 1,502 -6.5 1.7 -8.2 4.1 102 102 3 Mali 106 344 13.1 5.1 85 3.9 110 118 4 Nepal 94 464 . . .. .. 5 Zaire 1,459 953 6.5 -8.7 9.6 -13.7 87 92 6 Burkina 99 288 -1.0 1.7 72 4.2 109 114 7 Burma 382 270 -4.8 4.9 -67 -06 111 84 8 Malawi 220 312 3.8 2.8 6.4 -0.6 106 126 9 Uganda 354 340 02 -8.0 -2.5 19 75 79 10 Burundi 76 194 .. . . . . . 11 Niger 301 443 61 19.0 4.4 11 5 84 112 12 Tanzania 480 1,134 0.9 -4.6 7.1 -2,7 88 91 13 Somalia 163 422 6.7 7.3 1.4 0.0 109 118 14 India 9,705 13,562 2.3 4.9 -5.7 2.8 91 96 15 Rwanda 80 279 6.3 26 4.6 12.9 65 66 16 Central Atrican Rep 106 132 -0.4 3.8 -0.5 2.5 73 97 17 Togo 242 284 4.4 3.5 6.6 7.4 103 107 18 Benin 85 523 12.4 -1.4 13.2 4.5 95 89 19 China 22,226 21,390 .. .. 20 Guinea 390 279 . . .. .. 21 Haiti 412 620 .. . . .. 22 Ghana 895 719 3.5 -6.4 -3.3 -8.0 69 63 23 Madagascar 329 439 5.4 _4.3 1.5 -2.5 79 93 24 Sierra Leone 202 171 2.2 -5.3 0.9 -5.0 84 94 25 Sri Lanka 1,066 1,788 -4.7 2.6 -3.2 4.7 95 104 26 Kenya 876 1,274 3.8 -4.8 5.9 -4.6 87 89 27 Pakistan 3,075 5,341 3.7 8.1 -2.9 5.7 99 101 28 Sudan 624 1,354 3.8 -1.5 4.9 1.3 103 88 29 Afghanistan 391 798 5.9 68 -06 47 102 105 30 Bhutan , , .. . ,. , , 31 Chad 58 109 -3.5 -31 18.7 -8.6 105 112 32 Kampuchea, Dem. .. , .. .. . . 33 Lao PDR 26 96 .. .. , , .. 34 Mozambique 260 635 -7.9 -8.3 -8.9 -4.2 96 96 35 VietNam .. .. .. .. Middle-income economies 333,532 350,734 5.9w -0.4w 8.3 w 4.1 w 95w 94w Oil exporters 146,833 132,305 5,8w -5.1 w 5.9w 7.6w 110w 102w Oil importers 186,699 218,430 6.3 w 7.3 w 9.3w 1.90) 92w 90w Sub-Saharan Africa 27,201 25,961 6.9w -5,8w 6.5w 8.2 w 95w 99w Lower middle-income 91,138 t 110,575 t 4.8w 0.1 w 4.5w 1.4w 94w 94w 36 Senegal 585 984 -1.3 -0.9 5.4 -1.2 104 88 37 Lesothod . . . . . . . . . 38 Liberia 841 415 8.9 -2.3 3.6 -4.3 93 104 39 Mauritania 246 227 9.7 0.5 15.4 -0.8 95 102 40 Bolivia 766 424 5.1 -2.4 0.9 -0.9 84 84 41 Yemen, PDR 449 1,010 .. .. .. 42 Yemen, Arab Rep. 204 1,521 .. .. . 43 Indonesia 21,145 16,346 11.1 1.4 13.9 9.8 110 102 44 Zambia 866 690 -0.3 -0.8 30 -73 81 82 45 Honduras 660 823 4.2 0.6 31 -1.3 83 87 46 Egypt, Arab Rep. 4,531 10,274 3.8 2.3 -3.9 10.1 113 103 47 El Salvador 735 891 2.7 1.4 18 -2.2 73 72 48 Ivorycoast 2.068 1,814 7.1 -1 4 7.8 0.1 92 102 49 Zimbabwe 1,273 1,432 50 Morocco 2,062 3,599 6.0 0.5 6.2 0.8 108 100 51 Papua New Guinea 822 1,071 .. .. , , , 52 Philippines 4.932 7,980 4.2 7.5 3.1 1.3 88 92 53 Nigeria 17,509 17,600 89 -6.2 8.9 13.6 112 94 54 Cameroon 1.067 1,226 4.2 3.9 6.3 5.1 77 76 55 Thailand 6,368 10,279 6.9 90 4.4 3.3 96 89 56 Nicaragua 411 799 2.6 -04 20 -3.7 70 67 57 CostaRica 1,071 993 10.3 2.7 8.6 -2.4 90 95 58 Peru 3,015 2,688 -2 1 8.5 -20 -0.6 94 109 59 Guatemala 1,220 1.126 5.1 4.6 3.6 -0.1 76 83 60 Congo, People's Rep. 887 806 -2.2 4.4 -2.3 12.0 117 104 61 Turkey 5,671 8,548 .. 6.3 . -0.2 67 62 Tunisia 1,851 3,117 8.6 0.2 7.7 5.3 100 98 63 Jamaica 726 1,518 3.9 -3.0 6.6 -4.7 89 90 64 Dominican Rep. 648 1,279 11.0 2.2 13.3 -0.9 125 85 Note: For data comparability and coverage see the technical notes, 190 Merchandise trade Average annual growth ratea (millions of dollars) (percent) Terms of trade Exports Imports Exports Imports (1980=100) 1983 1965-73 1973-83° 1965-73 1973-83° 1981 1983 65 Paraguay 252 506 5.2 2.2 3.1 5.1 100 103 66 Ecuador 2,550 1,465 3.4 -3.4 8.5 4.0 97 114 67 Colombia 3,081 4,967 5.4 2.8 5.5 10.5 87 90 68 Angola 1,859 768 5.4 -13.3 8.3 3.3 110 99 69 Cuba 1.3 3.3 3.6 -0.6 70 Korea, Dem. Rep, 71 Lebanon 767 3,390 14.3 -3.4 6.5 3.2 98 93 72 Mongolia Upper middle-income 242,3941 240,159t 5.7w 0.5w 9.7w 4.0w 98m 97w 73 Jordan 739 3,217 5.0 17.8 3.8 13.3 109 101 74 SyrianArab Rep. 1,875 4,180 1.0 -3.3 8.8 9.1 112 105 75 Malaysia 14,130 13,234 8.0 4.9 4.4 7.3 91 87 76 Chile 3,836 2,754 -1.4 9.7 2.3 1.2 79 90 77 Brazil 25,127 16,844 10.1 8.2 18.4 -4.6 85 92 78 Korea, Rep. of 24,445 26,192 31.7 14.8 22.4 7.5 93 100 79 Argentina 7,910 4,666 2.4 8.6 5.4 -0.3 102 91 80 Panama 480 1,412 1.1 -6.6 6.5 -4.4 95 84 81 Portugal 4,602 8,257 2.8 .. 15.1 82 Mexico 21,168 8,201 1.0 14.4 5.7 55 110 105 83 Algeria 11,158 10,332 1.4 -1.1 12.1 6.5 116 102 84 SouthAfrica' 18,608 15,693 1.6 5.6 6.6 -0.3 71 85 Uruguay 1,008 787 -2.9 9.2 2.9 -1.5 91 81 86 Yugoslavia 9,914 12,154 7.7 .. 12.3 .. 101 87 Venezuela 15,040 6,667 0,2 -6.8 4.8 4.7 119 103 88 Greece 4,412 9,500 13.4 9.7 9.6 2.8 88 89 Israel 5,112 8,500 12.2 9.0 12.9 -0.2 93 100 90 HongKong 21,951 24,009 11.7 10.3 10.5 12.0 97 91 Singapore 21,833 28,158 11.0 .. 9.8 92 TrinidadandTobago 2,353 2,582 -1.0 -7.7 2.1 -5.1 99 93 93 Iran, Islamic Rep. 16,445 11,539 12.4 -17.2 12.6 3.6 113 91 94 Iraq 10,250 21,280 1.1 -8.5 4.6 21.2 125 110 High-income oil exporters 120,8321 68,8681 11.4w -5.8w 10.1w 18.7w 119m 105w 95 Oman 4,058 2,492 . . .. .. 96 Libya 13,252 9,500 10.1 -8.7 14.2 7.2 117 98 97 SaudiArabia 79,125 40,473 15.0 -4.5 10.4 27.6 120 115 98 Kuwait 10,447 8,283 5.5 -11.5 6.3 13.3 125 106 99 UnitedArabEmirates 13,950 8,120 19.6 -2.1 8.5 14.3 117 105 Industrial market economies 1,128,132 1 1,183,257 1 9.4w 4.2w 10.0w 3.0w 99 m 100 m 100 Spain 19,711 28,926 15.8 .. 7.0 .. 92 101 Ireland 8,609 9,169 8.4 8.1 7.8 5.2 97 139 102 Italy 72,670 78,323 10.2 4.7 10.7 2.4 91 97 103 NewZealand 5,270 5,327 6.0 4.4 4.0 0.1 99 96 104 Belgiume 51,676 53,654 10.3 3.1 10.9 2.5 95 94 105 UnitedKingdom 91,419 99,240 5.0 4.7 6.5 3.8 101 98 106 Austria 15,423 19,322 11.2 6.2 10.6 4.7 96 102 107 Netherlands 65,676 61,585 12.7 2.8 10.3 1.9 100 101 108 Japan 146,804 125,017 14.7 7.4 14.9 1.3 103 106 109 France 91,145 105,272 11.4 4.6 11.8 4.7 96 99 110 Finland 12,510 12,846 7.6 5.1 7.6 1.5 99 102 111 Germany, Fed. Rep. 168,748 152,011 10.7 4.4 11.3 4.1 93 98 112 Australia 20,651 19,420 9.3 2.7 6.8 .. 100 97 113 Denmark 15,601 16,179 6.6 4.7 7.1 0.8 97 100 114 Canada 72,420 60,477 9.5 3.6 9.4 1.5 95 97 115 Sweden 27,377 26,090 7.9 0.7 5.4 0.9 98 96 116 Norway 17,972 13,494 8.3 6.3 8.2 3.0 111 110 117 UnitedStates 199,144 267,971 6.8 2.8 9.4 3.1 103 112 118 Swlzerland 25,307 28,934 6.7 3.6 11.8 4.2 106 111 East European nonmarket economies 176,222 I 160,545 8.3w 5.9w 7.0w 2.4 w 119 Hungary 8,722 8,481 10.4 6.2 9.8 3.8 99 95 120 Albania . . . . . . . . . . . . . 121 Bulgaria 12,690 13,380 11.4 12.1 9.3 5.7 122 Czechoslovakia 16,477 16,324 6.8 5.7 6.7 2.5 96 123 German Oem. Rep. 23,793 21,524 9.5 6.5 10.1 3.8 124 Poland 11,572 10,590 -0.3 6.3 -1.6 -1.1 97 92 125 Romania 11,633 9,836 . . .. .. .. 126 USSR 91,336 80,410 9.7 .. 9.6 .. a. See the technical notes. b. Figures in italics are for 1982, not 1983. c. Figures in italics are for 1973-82, not 1973-83. d. Figures are for the South Al ri- can Customs Union comprising South Africa, Namibia, Lesotho, Botswana, and Swaziland. Trade between the component territories is excluded. e. Includes Luxembourg. 191 Table 10. Structure of merchandise exports Percentage share of merchandise exports Fuels, Other Machinery minerals, primary Textiles and transport Other and metals commodities and clothing equipment manufactures 1965 1982 1965 1982e 1965 1982 1965 1982 1965 1982a Low-income economies 11 w 20 w 65w 30w 16w 18w 1w 5w 7w 28w China and India 21w 23w 17w 6w 33w Other low-income 12w 15w 78w 55w 5w 20 w (.)w 2w 4w 8w Sub-Saharan Africa 20 w 22 w 75w 69w (.)w 1w (.)w 2w 4w Sw 1 Ethiopia (.) 8 99 91 (.) (.) (.) (.) (.) 1 2 Bangladesh 2 .. 36 .. 47 4 11 3Mah 1 .. 96 .. 1 .. 1 .. 1 4 Nepal (,) 72 10 .. (.) 17 5 Zaire 72 20 .. (.) (.) 8 6 Burkina 1 (.) 94 85 2 2 1 6 1 7 7 Burma 5 94 (.) .. (,) .. (.) 8 Malawi (.) (.) 99 88 (.) 6 (.) 3 1 3 9 Uganda 13 .. 86 .. (.) () 1 10 Burundi (.) 94 (.) (,) 5 11 Niger (.) 81 95 17 1 1 1 1 3 1 12 Tanzania 1 5 86 82 (.) 3 (.) 2 13 7 13 Somalia (.) (.) 86 99 (.) (.) 4 () 10 (.) 14 India 10 7 41 33 36 24 1 7 12 29 15 Awanda 40 60 (.) (,) .. 1 16 Central African Rep. 17 Togo 33 52 62 33 (.) 1 1 1 4 13 18 Benin 1 94 (.) 2 3 19 China .. 26 .. 20 .. 15 6 34 20 Guinea 21 Haiti .. .. 22 Ghana 13 85 (.) 1 2 23 Madagascar 4 12 90 81 1 4 1 1 4 2 24 Sierra Leone 25 Sri Lanka 2 14 97 59 (,) 17 (,) 2 1 8 26 Kenya 13 29 77 (,) o (.) 2 9 12 27 Pakistan 2 6 62 34 29 46 1 2 6 12 28 Sudan 1 5 98 93 () 1 1 1 (.) (.) 29 Afghanistan (.) 87 13 0 (.) 30 Bhutan 31 Chad 5 92 (.) (.) 3 32 Kampuchea, Oem. (.) .. 99 .. (.) (.) .. (.) 33 Lao PDR 62 32 .. (.) (.) 6 34 Mozambique 14 84 1 (.) .. 1 35 VietNam .. .. .. Middle-income economies 36w 37w 48w 21w 4w 8w 3w 11 w lOw 23w Oil exporters 60w 79w 34w 12w 2w 1w 1w 3w 3w 4w Oil importers 19w 13w 57w 27w 6w 12w 4w 15w 4w 33w Sub-Saharan Africa 40w 52w 1w 1w 5w Lower middle-income 26w 47w 66w 34w 2w 6w 1w 2w 5w 11w 36 Senegal 9 52 88 29 1 5 1 4 2 11 37 Lesothob . 38 Liberia 72 67 25 31 (.) (.) 1 1 2 1 39 Mauritania 94 . . 5 . . (.) . . 1 (.) 40 Bolivia 93 . . 3 (,) . (,) . 4 41 Yemen, PDR 79 15 2 .. 2 .. 2 42 Yemen Arab Rep. . .. 43 Indonesia 43 85 53 11 (,) 1 3 1 1 2 44 Zambia 97 . 3 . . (.) (.) . . (.) 45 Honduras 6 4 90 87 1 2 (.) (.) 3 7 46 Egypt, Arab Rep. 8 70 71 22 15 6 (.) (.) 5 2 47 El Salvador 2 5 81 55 6 15 1 3 10 22 48 IvoryCoast 2 13 93 76 1 2 1 3 3 6 49 Zimbabwe 24 . . 47 6 . . 6 . 17 50 Morocco 40 39 55 26 1 12 (.) 1 4 21 51 Papua New Guinea (.) 51 90 40 (.) (.) (.) 2 10 7 52 Philippines 11 12 84 38 1 7 (.) 3 5 39 53 Nigeria 32 .. 65 (.) .. 0 . . 2 54 Cameroon 17 49 77 44 (.) 2 3 1 2 4 55 Thailand 11 7 84 64 (.) 10 (.) 6 4 13 56 Nicaragua 4 1 90 91 (.) (.) (.) (.) 5 7 57 Costa Rica (.) 1 84 71 2 3 1 4 13 21 58 Peru 45 69 54 17 (.) 8 (.) 1 1 5 59 Guatemala (.) 2 86 69 4 5 1 2 9 22 60 Congo, People's Rep. .. .. . .. .. .. 61 Turkey 9 10 89 47 1 20 (.) 5 1 18 62 Tunis 31 57 51 10 2 15 (.) 2 16 16 63 Jamaica 28 22 41 18 4 3 (.) 4 27 54 64 Dominican Rep. 10 1 88 82 (.) (.) (.) 3 2 13 Note: For data comparability and coverage see the technical notes. 192 Percentage share of merchandise exports Fuels, Other Machinery minerals, primary Textiles and transport Other and metals commodities and clothing equipment manufactures 1965 1982a 1965 1982 1965 1982 1965 1982 1965 1982 65 Paraguay (.) 92 (.) (.) 8 66 Ecuador 2 64 96 33 1 (.) (.) 2 2 67 Colombia 18 8 75 68 2 7 (.) 4 15 68 Angola 6 76 (.) 1 17 69 Cuba 4 92 (.) S () 4 70 Korea, Oem. Rep. 71 Lebanon 14 52 i4 18 72 Mongolia Upper middle-rncome 41 w 34w 38w 17w 5w 9w 3w 14w 12w 26w 73 Jordan 27 23 54 27 1 4 11 17 6 29 74 Syrian Arab Rep. 1 .. 89 . . 7 .. 1 . . 2 75 Malaysia 35 35 59 42 (.) 3 2 15 4 5 76 Chile 89 65 7 27 (.) (.) 1 3 4 5 77 Brazil 9 18 83 43 1 3 2 17 6 19 78 Korea, Rep. of 15 1 25 7 27 21 3 28 29 43 79 Argentina 1 9 93 67 (.) 1 1 7 4 16 80 Panama .. 23 .. 64 .. 6 . (.) .. 7 81 Portugal 4 5 34 20 24 29 3 14 34 32 82 Mexico 22 78 62 10 3 1 1 4 13 7 83 Algeria 57 99 39 1 (.) (.) 2 (.) 2 1 84 South Africab 24 14 44 12 1 1 3 3 28 70 85 Uruguay (.) (.) 95 67 2 13 (.) 1 3 18 86 Yugoslavia 10 6 33 16 8 10 24 31 25 37 87 Venezuela 97 97 1 (.) (.) (,) (.) 1 2 2 88 Greece 8 18 78 31 3 21 2 5 8 25 89 Israel 6 2 28 17 9 6 2 18 54 56 90 Hong Kong 2 2 11 6 43 34 6 19 37 39 91 Singapore 21 30 44 13 6 4 10 26 18 28 92 Trinidad and Tobago 84 87 9 2 (.) (.) (.) 3 7 8 93 Iran, Islamic Rep. 88 . . 8 4 .. (.) . 1 94 Iraq 95 .. 4 .. (.) .. (.) .. High-income oil exporters 98w 96w 1w (.)w (.)w (.)w 1w 1w (.)w 2w 95 Oman .. 92 .. 1 . (.) .. 6 .. 1 96 Libya 98 99 1 () (.) (.) 1 (.) (.) (.) 97 Saudi Arabia 98 99 (.) (.) (.) (.) 1 1 1 (.) 98 Kuwait 98 84 1 1 (.) 1 1 5 (.) 9 99 United Arab Emirates 99 94 1 1 (.) 1 (.) 2 (.) 2 Industrial market economies 9w 12w 21w 14w 7w 4w 31w 37w 32w 32w 100 Spain 9 11 51 18 6 4 10 27 24 40 101 Ireland 3 3 63 32 7 7 5 25 22 34 102 Italy 8 8 14 8 15 11 30 31 33 41 103 New Zealand 1 5 94 71 (.) 2 (.) 8 5 14 104 Belgiumc 13 13 11 13 12 7 20 23 44 45 105 United Kingdom 7 24 10 9 7 4 41 33 35 31 106 Austria 8 5 17 10 12 10 20 28 43 47 107 Netherlands 12 26 32 24 9 4 21 16 26 29 108 Japan 2 1 7 2 17 4 31 56 43 36 109 France 8 7 21 19 10 5 26 35 35 35 110 Finland 3 7 40 16 2 6 12 26 43 45 111 Germany, Fed. Rep. 7 6 5 7 5 5 46 47 37 35 112 Australia 13 37 73 41 1 1 5 5 9 16 113 Denmark 2 4 55 40 4 5 22 24 17 27 114 Canada 28 24 35 22 1 1 15 32 21 21 115 Sweden 9 9 23 12 2 2 35 43 30 35 116 Norway 21 60 28 9 2 1 17 15 32 16 117 United States 8 9 27 21 3 2 37 44 26 24 118 Switzerland 3 3 7 4 10 7 30 35 50 52 East European nonmarket economies 119 Hungary 5 9 25 27 9 6 32 32 28 26 120 Albania .. . . .. .. 121 Bulgana . . S S S . . . . . . S 122 Czechoslovakia . . 6 .. 7 .. 6 .. 50 .. 32 123 German Dem. Rep, .. .. .. .. .. .. .. .. 124 Poland .. 17 .. 8 .. 7 ,. 47 .. 22 125 Romania . S S S .. .. ,. .. .. 126 USSR .. .. .. .. .. .. .. .. 55 55 a. Figures in italics are for 1981, not 1982. b. Figures are for the South African Customs Union comprising South Africa, Namibia, Lesotho, Botswana, and Swaziland. Trade between the component countries is excluded. c. Includes Luxembourg. 193 Table 11. Structure of merchandise imports Percentage share of merchandise imports Other Machinery primary and transport Other Food Fuels commodities equipment manufactures 1965 l982 1965 1982k 1965 1982 1965 1982 1965 1982a Low-income economies 21w 17w 5w 18w 8w 11w 32 w 20 w 34w 34w China and India 17w .. 15w .. 15w 17w 36w Other tow-income 20 w 16w 5w 24w 4w 4w 28 w 25 w 43w 30w Sub-Saharan Africa 17w 15w 6w 23w 4w 3w 28 w 28 w 45w 31w 1 Ethiopia 7 10 6 25 5 3 37 31 44 31 2 Bangladesh 26 .. 12 8 .. 22 32 3 Mali 21 . . 6 .. 3 23 . 47 4 Nepal .. 16 .. 13 . . 3 . 18 .. 50 5 Zaire 19 7 4 33 37 6 Burkina 25 25 4 16 12 3 19 24 40 32 7Burma 15 ., 4 .. 5 .. 18 .. 58 8 Malawi 16 11 5 17 2 2 21 24 57 46 9 Uganda . . 5 23 .. 1 . . 42 29 10 Burundi 18 6 . . 7 . . 15 . . 55 11 Niger 13 24 6 15 4 4 21 26 55 32 12 Tanzania 7 . 31 . . 2 . 35 . . 25 13 Somalia 33 20 5 2 5 6 24 50 33 21 14 India 22 9 5 35 14 10 37 18 22 28 15 IRwanda 12 .. 7 .. 4 . . 28 . 50 16 Central African Rep. 13 7 . . 2 . . 29 . 49 17 Togo 18 26 4 8 2 3 32 21 45 42 18 Benin 23 .. 6 . . 2 .. 17 .. 53 19 China . . 23 . . 1 . . 18 17 . . 41 20 Guinea S S . . . . . . . . 21 Haiti . . 26 . . 12 .. 4 . 21 . . 37 22 Ghana 13 . . 4 .. 2 . . 33 . . 48 23 Madagascar 20 16 5 24 2 3 25 30 48 27 24 Sierra Leone 19 24 9 14 1 1 29 18 41 42 25 Sri Lanka 41 13 8 31 4 3 12 24 34 30 26 Kenya . . 8 . . 37 .. 3 . . 27 .. 25 27 Pakistan 20 14 3 31 5 7 38 23 34 26 28 Sudan 24 19 5 19 3 3 21 22 47 37 29 Afghanistan 17 .. 4 .. 1 .. 8 . . 69 30 Bhutan 0 .. .. .. 31 Chad 13 .. 20 .. 3 . . 21 .. 42 32 Kampuchea, Oem. 6 . . 7 . . 2 . . 26 .. 58 33 La0PDR 32 . . 14 . 1 . . 19 .. 34 34 Mozambique 17 .. 8 . . 7 .. 24 .. 45 35 VietNam .. .. . . . ., .. .. Middle-income economies 16w 12w 8w 21w 9w 6w 29 w 30 w 38 w 31w Of I exporters 16w 15w 6w lOw 6w 4w 33 w 39 w 39 w 32 w Oil importers 17w lOw 8w 26 w 11w 6w 27 w 26 w 37 w 31w Sub-Saharan Africa 13w 20 w 5w 7w 3w 3w 32 w 35 w 47w 35 w Lower middle-income 17w 14w 7w 19w 5w 5w 29w 31w 41w 32w 36 Senegal 37 27 6 30 4 1 15 18 38 23 37 Lesothob . . S . . S S S S S S 38 Liberia 18 22 8 27 1 2 33 25 39 24 39 Mauritania 9 .. 4 . 1 .. 56 .. 30 40 Bolivia 20 12 1 2 2 1 34 45 42 40 41 Yemen, PDR 21 . . 39 . 3 ,. 10 . . 26 42 YemenArab Rep. .. 32 . . 8 .. 1 .. 25 .. 34 43 Indonesia 6 7 3 21 2 5 39 38 50 29 44 Zambia 10 9 10 19 2 1 33 34 45 37 45 Honduras 12 10 6 22 1 2 26 20 56 46 46 Egypt Arab Rep. 28 31 7 4 10 5 23 29 31 30 47 El Salvador 16 18 5 25 3 3 28 12 48 42 48 Ivory Coast 18 19 6 21 2 2 28 23 46 34 49 Zimbabwe 7 .. (.) . . 4 .. 41 .. 47 50 Morocco 36 16 5 27 9 10 18 24 31 23 51 PapuaNewGuinea 25 20 4 19 1 1 25 30 45 30 52 Philippines 20 10 10 26 7 4 33 22 30 38 53 Nigeria 9 21 6 3 3 3 34 38 48 35 54 Cameroon 12 10 5 4 3 2 28 35 51 49 55 Thailand 7 5 9 31 5 7 31 24 49 33 56 Nicaragua 13 12 5 23 1 1 30 23 51 40 57 Costa Rica 9 9 5 20 2 3 29 15 54 53 58 Peru 17 18 3 2 5 3 41 44 34 34 59 Guatemala 11 6 7 38 2 3 29 16 50 37 60 CongoPeoplesRep. 15 17 6 15 1 1 34 25 44 42 61 Turkey 6 3 10 44 10 6 37 26 37 22 62 Tunisia 16 14 6 21 6 8 31 27 41 30 63 Jamaica 22 19 9 29 4 4 23 18 42 30 64 Dominican Rep. 25 16 10 34 2 3 23 19 40 29 Note: For data comparability and coveraqe see the technical notes 194 Percentage share of merchandise imports Other Machinery primary and transport Other Food Fuels commodities equipment manufactures 1965 1982° 1965 1982° 1965 1982° 1965 1982° 1965 1982° 65 Paraguay 14 13 14 24 2 (.) 37 37 3326 66 Ecuador 10 5 9 2 4 5 33 43 44 45 67 Colombia 8 11 1 12 10 5 45 39 35 33 68 Angola 18 .. 2 . 2 24 54 69 Cuba 29 .. 10 . . 3 . 15 . . 43 70 Korea, Oem. Rep. .. .. . . .. .. .. .. 71 Lebanon 29 .. 9 .. 9 .. 17 . . 36 72 Mongolia .. .. . . . .. .. .. Upper middle-income 16w 11 w 8w 22 iv 11 w 6w 29w 30w 36w 31 iv 73 Jordan 30 18 6 21 5 2 18 28 42 30 74 SyrianArabRep. 22 . . 10 . 8 .. 16 . . 43 75 Malaysia 27 12 12 15 7 5 22 40 32 29 76 Chile 20 12 6 15 9 3 35 37 30 33 77 Brazil 20 8 21 54 9 4 22 17 28 17 78 Korea, Rep. of 15 12 7 30 26 15 13 23 38 20 79 Argentina 7 4 10 13 21 9 25 35 38 38 80 Panama . . 9 . . 27 . 1 . 26 37 81 Portugal 16 14 8 27 18 8 27 27 30 24 82 Mexico 5 10 2 12 10 2 50 45 33 31 83 Algeria 27 21 () 2 5 4 15 40 52 34 84 South Africab 5 3 5 (.) 10 4 42 43 37 50 85 Uruguay 10 7 17 32 14 5 24 32 36 25 86 Yugoslavia 16 6 6 26 19 12 28 28 32 28 87 Venezuela 12 17 1 1 5 4 . 44 43 39 35 88 Greece 16 13 8 29 11 6 35 26 30 27 89 Israel 16 11 6 23 11 5 28 27 38 33 90 Hong Kong 26 14 3 8 11 5 13 22 46 52 91 Singapore 24 8 13 34 18 4 14 28 30 26 92 Trinidadandlobago 12 12 49 25 2 3 16 32 21 27 93 Iran, Islamic Rep. 16 . . (.) .. 6 .. 36 42 94 Iraq 24 .. (.) .. 7 .. 25 .. 44 High-income oil exporters 24w 13 iv 2w 2w 3w 2w 32w 42w 40w 41 iv 95 Oman .. 13 .. 10 .. 2 . 42 .. 33 96 Libya 14 18 4 1 3 2 36 38 43 41 97 SaudiArabia 31 13 1 (.) 4 2 27 43 37 42 98 Kuwait 26 15 1 1 2 2 32 41 39 42 99 United Arab Emirates .. 10 . . 6 .. 2 .. 41 .. 42 Industrial market economies 20w 11w 11w 26w 19w 8w 19w 24w 31w 31w 100 Spain 20 12 10 40 14 9 27 19 28 20 101 Ireland 19 13 8 15 9 4 25 27 39 41 102 Italy 24 14 16 32 24 11 15 20 21 24 103 NewZealand 8 7 7 17 9 5 33 33 43 39 104 BeIgun1' 14 12 9 21 21 9 24 22 32 36 105 UnitedKingdom 32 14 11 13 24 9 11 29 23 36 106 Austria 15 7 7 16 12 9 31 28 35 40 107 Netherlands 16 16 10 26 12 6 25 19 37 34 108 Japan 23 13 20 50 38 16 9 6 11 15 109 France 20 11 15 27 18 7 20 24 27 32 110 Finland 10 7 10 27 11 7 35 28 34 30 111 Germany, Fed Rep 24 13 8 24 20 9 13 20 35 35 112 Australia 6 5 8 14 9 3 37 39 41 38 113 Denmark 15 12 11 23 10 6 25 21 39 38 114 Canada 10 8 7 10 9 5 40 48 34 29 115 Sweden 12 7 11 24 11 6 30 28 36 35 116 Norway 11 6 7 13 12 6 38 37 32 38 117 UnitedStates 20 8 10 27 20 6 14 29 36 31 118 Switzerland 17 9 6 12 9 5 24 26 43 47 East European nonmarket economies 119 Hungary 12 7 11 21 21 10 27 29 28 34 120 Albania . . . . .. .. .. .. . .. .. 121 Bulgaria . . . . . . . . . . . .. . . 122 Czechoslovakia .. 9 .. 28 .. 13 .. 31 .. 19 123 German Oem, Rep. .. .. .. .. .. .. .. 124 Poland .. 18 .. 20 .. 10 .. 31 .. 21 125 Romania .. .. .. .. .. .. 126 USSR ., .. .. .. .. .. .. a. Figures in italics are for 1981, not 1982. b. Figures are for the South African Customs Union comprising South Africa, Namibia, Lesotho, Botswana, and Swaziland. Trade between the component territories is excluded. c. Includes Luxembourg. 195 Table 12. Origin and destination of merchandise exports Destination of merchandise exports (percentage of total) Industrial East European market nonmarket High-income Developing economies economies oil exporters economies C rigin 1965 1983 1965 1983 1965 1983 1965 1983 Low-income economies 56w 48 w 10 w 7w 2w 5w 32 or 40 w China and India 51 w 46w 14w 7w 2w 3w 33w 44 w Other low-income 61 w 54w 6w 6w 2w 8w 31 w 32w Sub-Saharan Africa 71 w 63 w 5w 5w 1w 4w 23w 27w 1 Eth:opia 78 66 3 1 6 6 14 28 2 Bangladesh .. 43 .. 8 .. 1 47 3 Mali 7 72 4 2 0 89 26 4 Nepal 5 Zaire . 93 42 89 (.) (5) . (5) (.) (.) 7 58 10 (.) (.) 6 Burkina 17 48 0 (.) 0 (.) 83 51 7 Burma 29 34 8 3 1 2 62 61 8 Malawi 69 68 0 (.) (.) (.) 30 31 9 Uganda 69 84 2 (.) 1 (.) 28 15 10 Burundi 78 .. 4 0 19 11 Niger 61 (.) (.) 39 12 Tanzania 66 59 1 4 1 1 32 37 13 Somalia 40 16 (.) (.) 3 66 57 18 14 India 58 55 17 12 2 7 23 26 15 Rwanda 96 92 0 (.) 0 0 4 8 16 Central African Rep. 71 82 0 1 0 (.) 29 16 17 Togo 92 52 2 1 0 0 6 46 18 Benin 88 79 (.) (.) 0 0 12 20 19 China 47 42 12 5 2 2 40 52 20 Guinea .. 89 . . (.) .. (.) .. 11 21 Haiti 97 98 (.) (.) (.) (.) 3 2 22 Ghana 74 47 18 34 (.) (.) 9 20 23 Madagascar 85 72 1 3 (.) (.) 14 25 24 Sierra Leone 92 66 (.) (.) (.) (.) 8 34 25 Sri Lanka 56 46 9 5 3 6 33 44 26 Kenya 69 47 2 1 1 1 28 51 27 Pakistan 48 35 3 4 4 22 45 39 28 Sudan 56 36 13 7 4 28 27 29 29 Afghanistan 47 33 27 55 0 1 25 10 30 Bhutan . . . . .. . . 3lChad 64 72 0 0 2 (.) 34 28 32 Kampuchea, Dem. 36 .. 6 0 58 33La0PDR 9 .. 0 0 91 34 Mozambique 24 37 (.) (.) 76 62 35 Viet Nam Middle-income economies 69 w 62 w 7w 3w 1w 3w 23 w 32 w Oil exporters 70 w 69 w 5w 1w 1w (.)w 24w 30 w Oil importers 68 w 57 or 8w 5w 1w 4w 23 w 33 w Sub-Saharan Africa 81 w 73 w 2w 1w (.)w (.)w 17w 26 w Lower middle-income 70w 69w 9w 2w 1w 2w 20w 27w 36 Senegal 92 54 (.) 1 0 (.) 7 45 37 Lesothob 38 Liberia 00 0 0 . . . 39 Mauritania 96 94 (.) (.) 0 . 4 6 40 Bolivia 97 41 0 1 0 0 3 58 41 Yemen, PDR 38 56 (.) (.) 1 1 61 43 42 Yemen Arab Rep. .. 26 . . 6 .. 17 ., 50 43 Indonesia 72 73 5 1 (.) 1 23 26 44 Zambia 87 65 2 1 0 (.) 11 34 45 Honduras 80 81 0 2 0 2 20 15 46 Egypt, Arab Rep. 28 73 44 9 1 2 27 16 47 El Salvador 73 53 1 0 0 (.) 26 47 48 Ivory Coast 84 70 2 3 1 (.) 13 27 49 Zimbabwe 50 53 1 1 (.) (.) 48 46 50 Morocco 80 65 7 5 (.) 3 12 28 51 Papua New Guinea 98 85 0 1 0 (.) 2 14 52 Philippines 95 77 0 2 (.) 1 5 20 53 Nigeria 91 74 3 (.) (.) (5) 6 26 54 Cameroon 93 85 (5) (5) (5) (.) 7 15 55 Thailand 44 56 1 2 2 5 53 37 56 Nicaragua 81 74 () 2 0 (.) 19 24 57 Costa Rica 79 72 (.) 2 0 1 20 25 58 Peru 86 76 3 3 (.) () 12 21 59 Guatemala 75 53 0 2 (.) 4 25 41 60 Congo, People's Rep. 86 98 1 (.) 0 0 13 2 61 Turkey 71 47 15 4 (.) 12 14 37 62 Tunisia 61 80 5 1 3 3 31 16 63 Jamaica 93 78 1 1 (.) () 6 21 64 Dominican Rep. 99 84 0 7 0 (.) 1 9 Note: For data comparability and coverage see the technical notes. 196 Destination of merchandise exports (percentage of total) Industrial East European market nonmarket High-income Developing economies economies oil exporters economies Origin 1965 1983 1965 1983k 1965 1983 1965 1983 65 Paraguay 58 51 0 14 0 0 42 35 66 Ecuador 89 61 (.) 1 0 (.) 11 38 67 Colombia 86 78 2 4 (.) (.) 12 18 68 Angola 55 66 1 2 (.) (.) 45 32 69 Cuba 14 .. 62 () .. 24 70 Korea, Oem. Rep. . . . . .. 71 Lebanon 43 12 4 (.) 35 47 18 41 72 Mongolia .. .. .. .. .. Upper middle-income 68 w 60 w 6w 4w 1w 3w 25 w 33 w 73 Jordan 20 6 4 3 22 23 54 68 74 Syrian Arab Rep. 26 37 24 16 8 5 42 42 75 Malaysia 56 50 7 3 (.) 1 36 47 76 Chile 90 75 (.) 1 0 2 10 22 77 Brazil 77 66 6 7 (.) 2 18 26 78 Korea, Rep. of 75 65 0 (.) (.) 10 25 25 79 Argentina 67 40 8 23 (.) 8 26 30 80 Panama .. 69 .. (.) (,) .. 31 81 Portugal 65 82 1 2 (.) 1 34 16 82 Mexico 82 86 6 1 (.) (.) 13 14 83 Algeria 90 92 1 (.) (.) (.) 8 8 84 South Africab 96 45 0 (.) (.) 0 4 55 85 Uruguay 76 34 5 8 0 3 19 55 86 Yugoslavia 40 32 42 46 (.) 3 17 18 87 Venezuela 63 60 (.) (.) (.) (.) 37 39 88 Greece 64 63 23 7 2 11 12 18 89 Israel 72 71 4 1 0 0 24 28 90 Hong Kong 67 61 (.) (.) 1 3 32 35 91 Singapore 28 42 6 1 2 5 64 52 92 Trinidad and Tobago 92 74 0 0 0 (.) 8 26 93 iran, Islamic Rep. 67 66 3 1 2 (,) 28 34 94 Iraq 83 31 1 () (.) (.) 16 68 High-income oil exporters 70w 66w (.)w 1w 3w 4w 27w 30w 95 Oman .. 69 .. (.) .. 0 .. 31 96 Libya 97 74 (.) 3 (.) (.) 3 23 97 Saudi Arabia 71 66 0 (.) 8 5 21 30 98 Kuwait 56 40 (.). 1 1 6 44 53 99 United Arab Emirates 69 80 0 (.) 5 2 26 18 Industrial market economies 71w 69w 3w 3w 1w 4w 26w 24w 100 Spain 73 61 3 3 (.) 5 24 31 101 Ireland 91 88 1 1 (.) 2 8 10 102 Italy 71 65 5 4 2 9 23 22 103 New Zealand 88 64 1 5 (.) 2 11 30 104 Belgiumc 86 83 1 2 (.) 2 12 13 105 United Kingdom 63 73 2 2 2 6 33 19 106 Austria 71 70 15 12 (.) 3 13 15 107 Netherlands 83 84 2 2 1 2 14 13 108 Japan 49 50 3 2 2 8 47 39 109 France 68 68 3 4 (.) 4 28 25 110 Finland 71 61 21 28 (.) 1 9 10 111 Germany, Fed. Rep. 77 74 3 5 1 3 19 18 112 Australia 69 60 4 3 1 3 26 34 113 Denmark 85 80 4 1 1 3 11 16 114 Canada 87 86 3 2 (.) 1 10 11 115 Sweden 85 81 4 3 (.) 3 11 13 116 Norway 82 90 4 1 (.) (.) 13 8 117 United States 61 58 1 1 1 4 37 36 118 Switzerland 76 72 3 3 1 5 20 20 East European nonmarket economies 31w .. 51w 3w .. 14w 119 Hungary 22 25 66 49 (.) 2 12 23 120 Albania . . . . . . . . . . . 121 Bulgaria . . 11 . . 69 . . 8 . . 12 122 Czechoslovakia 18 15 72 68 1 2 9 15 123 German Dem. Rep .. .. .. .. .. .. 124 Poland .. 32 .. 51 .. 2 .. 16 125 Romania .. 25 .. 45 .. 2 .. 29 126 USSR .. 39 .. 46 .. 3 .. 12 a. Figures in italics are for 1982, not 1983. b. Figures are for the South African Customs Union comprising South Africa, Namibia, Lesotho, Botswana, and Swaziland. Trade between the component territories is excluded. c. Includes Luxembourg. 197 Table 13. Origin and destination of manufactured exports Destination of manufactured exports (percentage of total) Manufactured Industrial East European exports market nonmarket High-income Developing (millions economies economies oil exporters economies of dollars) Origin 1965 1982° 1965 1982° 1965 1982° 1965 1982° 1965 1982° Low-income economies 54 w 48 w 5w 2w lOw 35w 36w China and India Other low-income 51 w 48 w 1w 5w w low 46w 36w Sub-Saharan Africa 69 w 29 w 1w (.)w (.)w 3w 29 w 68 w 1 Ethiopia 67 76 (.) 9 20 2 13 13 (.) 3 2 Bangladesh 39 .. 9 1 .. 52 417 3 Mali 14 8 0 78 (.) 4 Nepal .. 50 (.) .. (.) 50 39 5 Zaire 93 . . 0 .. (.) .. 7 28 6 Burkina 2 19 0 0 0 0 98 81 1 11 7 Burma 73 . . 1 (.) 26 1 8 Malawi 3 6 0 0 0 0 97 94 (.) 31 9 Uganda 7 (.) 0 93 . 1 10 Burundi (.) 0 0 . 100 1 11 Niger 43 30 (.) (.) 0 (.) 57 70 1 10 12 Tanzania 93 65 (.) (.) (.) (.) 7 34 23 71 13 Somalia 21 54 (.) 0 2 6 77 39 4 1 14 India 55 .. 12 2 .. 31 . 828 4476 15 IRwanda 95 0 . 0 5 . (.) 16 Central African Rep. .. .. .. . . ,. . . . 17 Togo 37 9 (.) 1 0 0 62 90 1 32 18 Benin 15 .. 0 .. 0 .. 85 .. 1 19 China . . .. . . . ,. .. ,. . .. 12,225 20 Guinea . . S . . . . . . . . . 21 Haiti .. .. ., .. .. .. .. 22 Ghana 60 . . 10 .. (.) .. 29 .. 7 23 Madagascar 80 80 0 (.) 0 (.) 20 20 5 24 24 Sierra Leone 99 (.) (.) .. 1 .. 53 25 Sri Lanka 59 84 7 (.) (.) 1 34 16 5 277 26 Kenya 23 9 2 (.) 2 5 73 86 13 138 27 Pakistan 40 49 1 6 3 17 57 28 190 1,417 28 Sudan 79 62 (.) 8 2 19 20 11 2 10 29 Afghanistan 98 (.) .. 0 .. 2 .. 11 30 Bhutan .. .. .. .. .. 31 Chad 6 .. 0 .. 25 .. 69 . . 1 32 Kampuchea, Bern. 28 .. 1 .. 0 .. 71 .. 1 33 Lao PDR 13 0 .. 0 .. 37 .. (.) 34 Mozarnbique 27 .. (.) .. (.) .. 73 .. 3 35 VietNam .. .. .. .. .. ,. Middle-income economies 52w 48w 9w 5w 2w 5w 37w 42w Oil exporters 43 iv 60 w lOw 2w 4w 3w 44w 34w Oil importers 54w 47w 9w 5w 1w 5w 36w 43w Sub-Saharan Africa 23w (.)w .. (.)w 77w Lower middle-income 36w 52w lOw 2w 3w 5w 51w 41w 36 Senegal 48 24 1 1 0 (.) 52 75 4 110 37 Lesotho5 .. ,, .. .. .. .. ,. 38 Liberia 77 47 0 (.) 0 0 23 53 4 13 39 Mauritania 61 . . 0 .. 0 .. 39 .. 1 40 Bolivia 86 .. 0 .. 0 .. 14 .. 6 41 Yemen, PDR 32 .. (.) .. 6 . . 62 .. 11 42 Yemen Arab Rep. .. .. .. .. .. . . .. .. . 43 Indonesia 25 42 1 (,) (.) 7 74 51 27 868 44 Zambia 14 .. 0 .. 0 . . 86 1 45 Honduras 2 33 0 0 0 0 98 67 6 58 46 Egypt,ArabRep. 20 38 46 40 4 8 30 14 126 256 47 El Salvador 1 8 0 0 0 (.) 99 92 32 162 48 Ivory Coast 50 34 (.) (.) () (.) 50 66 15 247 49 Zimbabwe 12 . . (.) .. (.) .. 88 .. 116 50 Morocco 63 56 2 3 0 3 35 37 23 707 51 PapuaNewGuinea 100 85 0 0 0 0 () 15 5 72 52 Philippines 93 75 0 (.) (.) 1 7 23 43 2,492 53 Nigeria 85 .. (.) . . (.) .. 15 .. 17 90 54 Cameroon 46 39 0 0 (.) (.) 54 61 6 78 55 Thailand 39 56 (.) (.) (.) 7 61 36 30 2,014 56 Nicaragua 4 3 0 (.) 0 0 96 97 8 30 57 Costa Rica 6 15 (.) (.) 0 (.) 94 85 18 248 58 Peru 51 54 (.) 1 0 (.) 49 45 5 384 59 Guatemala 9 4 0 0 0 (.) 91 96 26 325 60 Congo, People's Rep, .. .. . . . . .. 61 Turkey 83 43 8 2 (.) 11 9 45 11 2,475 62 Tunisia 19 68 3 2 5 7 73 23 23 835 63 Jamaica 93 74 1 2 0 0 6 24 64 444 64 Dominican Rep. 95 77 0 0 0 0 5 23 3 102 Note: For data comparability and coverage see the technical notes. 198 Destination of manufactured exports (percentage of total) Manufactured Industrial East European exports market nonmarket High-income Developing (millions economies economies .' oil exporters economies of dollars) Origin 1965 1982 1965 1982 1965 1962 1965 1982e 1965 1982 65 Paraguay 93 0 .. 0 .. 7 .. 5 66 Ecuador 25 7 0 (.) 0 0 75 93 3 69 67 Colombia 43 31 0 (.) (.) (.) 57 69 35 751 68 Angola 3 .. .. 96 36 69 Cuba 27 . 70 1 .. (.) 0 3 . .. . 27 70 Korea, Bern, Rep. 71 Lebanon 19 1. 72 Mongolia Upper middle-income 55w 48w 9w 5w 1w 5w 34w 42w 73 Jordan 49 22 (.) (.) 23 25 28 53 5 367 74 Syrian Arab Rep. 5 .. 21 .. 25 . 50 .. 16 75 Malaysia 17 67 (.) (.) 2 2 81 31 75 2,781 76 Chile 38 27 (.) () 0 0 62 73 28 301 77 Brazil 40 50 1 1 (.) 2 59 47 134 7,971 78 Korea, Rep. of 68 62 0 0 (.) 11 32 27 104 19,237 79 Argentina 45 48 3 4 (.) (.) 52 47 84 1,849 80 Panama .. . .. .. .. .. .. .. 39 81 Portugal 59 83 (.) 2 (.) 1 41 14 355 3,138 82 Mexico 71 .. (.) . . (.) .. 29 . . 165 2,505 83 Algeria 50 59 1 18 1 (.) 48 23 24 89 84 South Africab 94 0 0 0 (.) 0 6 100 443 13,081 85 Uruguay 71 46 6 7 0 0 23 48 10 332 86 Yugoslavia 24 22 52 53 1 3 24 22 617 8,393 87 Venezuela 59 59 (.) (.) (.) (.) 41 41 51 417 88 Greece 56 56 8 5 9 16 27 23 44 2,154 89 Israel 67 63 4 1 0 0 29 37 281 4,246 90 Hong Kong 71 62 (.) (.) 1 .4 28 34 995 19,277 91 Singapore 9 49 (.) 1 3 6 88 44 338 11,834 92 Trinidad and Tobago 78 72 0 (.) 0 (.) 22 28 28 322 93 Iran, Islamic Rep. 61 .. 1 17 21 .. 58 94lraq 24 .. 1 16 60 .. 8 High-income oil exporters 30w 21w (.)w ()w 21w 29w 49w 49w 95 Oman .. 11 . . 0 .. 70 .. 18 303 96 Libya 57 64 (.) (.) (.) 1 43 35 7 62 97 SaudiArabia 31 10 0 (.) 18 16 52 73 19 824 98 Kuwait 99 United Arab Emirates ' 18 .. 28 13 (.) . . (.) (.) . 33 .. 21 55 49 .. 51 32 . ...... 17 2,453 777 Industrial market economies 67w 64w 3w 3w 1w 5w 29w 28w 100 Spain 57 53 1 2 (.) 5 42 39 382 14,525 101 Ireland 82 91 (.) (.) (.) 1 17 7 203 5,227 102 Italy 68 64 5 4 2 8 25 24 5,587 61,313 103 NewZealand 90 70 (.) 1 (.) 1 10 28 53 1,322 104 Belgiumc 86 83 1 2 1 2 13 13 4,823 38,261 105 United Kingdom 61 62 2 2 2 8 35 29 11,346 65,448 106 Austria 67 68 18 12 (.) 3 15 17 1,204 13,333 107 Netherlands 81 81 2 2 1 3 16 14 3,586 32,734 108 Japan 47 48 2 3 ' 2 8 49 41 7,704 134,209 109 France 64 63 3 3 1 4 33 30 7,139 68,618 110 Finland 63 56 26 33 (.) 2 11 9 815 10,066 111 Germany, Fed. Rep. 76 72 3 4 1 4 20 20 15,764 152,774 112 Australia 57 35 (.) (.) (.) 2 43 63 432 4,736 113 Denmark 79 75 4 2 (.) 3 16 20 967 8,458 114 Canada 88 88 (.) (.) (.) 1 12 10 2,973 36,065 115 Sweden 82 76 4 3 (.) 4 14 17 2,685 21,227 116 Norway 78 71 3 2 (.) 1 19 25 734 5,571 117 UnitedStates 58 53 (.) 1 1 6 40 40 17,833 147,831 118 Switzerland 75 68 3 3 1 5 21 23 2,646 23,770 East European nonmarket economies 119 Hungary 11 20 74 56 (.) 15 22 1,053 5,603 120 Albania . 121 Bulgaria , . , . . 122 Czechoslovakia . . 13 . . 70 16 .1 13,760 123 German Bern. Rep. .. 124 Poland .. 17 .. 56 26 .. 9,983 125 Rornania . . 126 USSR .. a. Figures in italics are for 1981, not 1982. b. Figures are for the South African Customs Union comprising South Africa, Namibia, Lesotho, Botswana and Swaziland. Trade between the component territories is excluded. c. Includes Luxembourg. 199 Table 14. Balance of payments and reserves Receipts Gross international reserves Current account of workers' Net direct In months balance remittances private investment Millions of of import (millions of dollars) (millions of dollars) (millions of dollars) dollars coverage 1970 1983 1970 1983k 1970 1983 1970 1983 1983 Low-income economies 6.4 w China and India 8.2 w Other low-income 3.0 w Sub-Saharan Africa 2.2 w 1 Ethiopia -32 -171 .. 4 .. 72 206 2.5 2 Bangladesh .. -77 .. 629 .. (.) .. 546 2.6 3 Mali -2 -103 6 36 .. 2 1 23 0.6 4 Nepal .. -143 .. .. .. 94 191 4.1 5 Zaire -64 -559 2 119 42 331 189 269 6 Burkina 9 18 .. (.) . . 36 89 7 Burma -63 -343 .. .. .. 98 185 2.6 8 Malawi -35 -72 .. 9 29 29 0.8 9 Uganda 20 -256 .. 4 .. 57 10 Burundi . . . . . . . . . 15 34 11 Niger (.) . . . . . . 1 . . 19 57 12 Tanzania -36 .. .. .. .. .. 65 19 13 Somalia -6 -150 .. 22 5 (.) 21 16 0.4 14 India -394 -2,780 113 2,617 6 . . 1,023 8,242 5.4 15 Rwanda 7 -49 1 2 (.) 11 8 111 4.1 16 Central African Rep. -12 -28 .. 1 4 1 51 2.4 17 logo 3 -32 .. .. 1 .. 35 178 7.1 18 Benin -1 . . 2 .. 7 .. 16 8 19 China .. 4,460 .. .. .. .. .. 19,698 10.5 20 Guinea .. .. .. .. .. 21 Haiti 2 -100 17 89 3 15 4 16 0.4 22 Ghana -68 -218 .. 1 68 -6 58 291 4.3 23 Madagascar 10 -369 .. .. 10 .. 37 29 24 SierraLeone -16 -33 .. .. 8 2 39 16 1.0 25 Sri Lanka -59 -472 3 294 0 38 43 321 1.7 26 Kenya -49 -174 . . .. 14 50 220 406 2.8 27 Pakistan -667 21 86 2,925 23 31 194 2,683 4.5 28 Sudan -42 -213 .. 275 .. 22 17 0.2 29 Afghanistan .. .. .. 49 582 30 Bhutan .. . . .. . . .. . 31 Chad 2 38 .. .. 1 (.) 2 32 2.2 32 Kampuchea, Dem. .. .. .. .. . 33 Lao PDR .. .. .. . . . . .. 6 34 Mozambique .. .. .. . 35 VietNam .. .. .. .. .. 243 Middle-income economies 2.8 w Oil exporters 3.3 w Oil importers 2.6 w Sub-Saharan Africa 1.0w Lower middle-income 2.2 w 36 Senegal -16 .. 3 .. 5 .. 22 23 37 Lesotho . . -14 .. .. 4 . . 67 1.4 38 Liberia . . -135 .. .. .. 3 . . 20 0.4 39 Mauritania -5 -196 1 1 1 1 3 110 2.1 40 Bolivia 4 -183 .. 1 -76 43 46 509 5.2 41 Yemen, PDR -4 -309 60 451 . . . . 59 297 3.6 42 Yemen Arab Rep. .. -558 .. 1,161 . . 8 .. 369 2.1 43 Indonesia -310 -6,294 .. .. 83 289 160 4,902 2.2 44 Zambia 108 -252 . . .. -297 .. 515 137 1.3 45 Honduras -64 -225 .. .. 8 21 20 120 1.3 46 Egypt, Arab Rep. -148 -785 29 3,293 .. 845 165 1,699 1.8 47 ElSalvador 9 -152 .. 41 4 -1 64 344 3.5 48 IvoryCoast -38 -743 .. .. 31 .. 119 37 0.2 49 Zimbabwe .. -459 .. . 2 .. -2 59 300 2.0 50 Morocco -124 -889 63 916 20 46 141 376 0.9 51 Papua New Guinea -372 137 .. 474 3.8 52 Philippines -48 -2,760 180 -29 104 255 896 0.9 53 Nigeria -368 -4,752 205 354 223 1,252 1.0 54 Cameroon -30 -289 23 16 156 81 170 1.1 55 Thailand -250 -2,886 847 43 348 912 2,556 2.5 56 Nicaragua -40 -451 .. .. 15 8 49 171 2.1 57 Costa Rica -74 -317 .. 26 50 16 345 2.7 58 Peru 202 -871 .. .. -70 37 339 1,898 4.6 59 Guatemala -8 -226 .. .. ' 29 45 79 409 3.4 60 Congo, People's Rep. . . -400 . . .. . . 56 9 12 0.1 61 Turkey -44 -1,880 273 1,514 58 72 440 2,710 2.8 62 Tunisia -53 -561 29 359 16 186 60 639 2.1 63 Jamaica -153 -355 29 42 161 -19 139 63 0.4 64 Dominican Rep. -102 -442 25 190 72 -1 32 171 1.1 Note: For data comparability and coverage see the technical notes. 200 Receipts Gross international reserves Current account of workers' Net direct In months balance remittances private investment Millions of of import (millions ot dollars) (millions of dollars) (millions of dollars) dollars coverage 1970 1983° 1970 1983° 1970 1983° 1970 1983° 1983° 65 Paraguay -16 -247 (.) 4 5 18 694 10.1 66 Ecuador -113 -104 89 50 76 802 3.4 67 Colombia -293 -2.738 39 285 207 3,512 5.9 68 Angola 69 Cuba 70 Korea, Dem. Rep. 71 Lebanon 405 5,421 72 Mongolia Upper middle-income 3.2 w 73 Jordan -20 -390 1,110 .. 30 258 1,240 3.7 74 Syrian Arab Rep. -69 -815 461 .. . 57 318 0.7 75 Malaysia 8 -3,350 94 1,370 667 4,673 2.9 76 Chile -91 -1.068 -79 152 392 2,620 5.3 77 Brazil -837 -6,799 2 407 1,374 1,190 4,561 1.8 78 Korea, Rep, of -623 -1,578 33 .. 66 -57 610 2,463 0.9 79 Argentina -163 -2,439 11 182 682 2,840 2.8 80 Panama -64 194 67 .. 33 49 16 207 0.4 81 Portugal -983 2,120 .. 123 1,565 8,179 9.8 82 Mexico -1,068 5,223 123 .. 323 490 756 4,794 2.5 83 Algeria -125 -86 211 383 45 -14 352 4,010 3.5 84 South Africa -1,215 291 318 349 1,057 3,795 2.1 85 Uruguay -45 -60 6 186 1,200 9.3 86 Yugoslavia -372 275 441 3,427 143 1,686 1.2 87 Venezuela -104 3,707 -23 -62 1,047 12,015 10.7 88 Greece -422 -1,868 333 914 50 439 318 2,381 2.6 89 Israel -562 -2,240 40 49 452 4,038 32 90 Hong Kong 21 91 Singapore -572 -956 93 1,389 1,012 9.264 3.5 92 Trinidad and Tobago -109 -909 83 341 43 3,105 9.6 93 Iran, Islamic Rep. -507 25 .. 217 94 Iraq 105 24 . . 472 High-income oil exporters 4.6w 95 Oman 572 44 .. 154 13 872 3.1 96 Libya 645 -1,682 139 -335 1,596 6,584 6.1 97 Saudi Arabia 71 -18,433 20 3,653 670 29,040 4.4 98 Kuwait 4,590 -241 209 6,161 6.5 99 United Arab Emirates 4.550 2,384 3.2 Industrial market economies 3.9w 100 Spain 79 -2,428 469 930 179 1,382 1,851 12,974 4.2 101 Ireland -198 -1,867 32 242 698 2,786 2.7 102 Italy 902 647 446 1,136 498 -943 5,547 45,540 5.6 103 New Zealand -232 -1,074 40 218 137 114 258 787 1.1 104 Belgium 717 -747 154 390 140 489 2,947 17,754 28 105 United Kingdom 1,975 3,429 -439 -167 2,919 18,592 1.7 106 Austria -75 161 13 188 104 106 1,806 12,575 55 107 Netherlands -483 3.747 -15 -862 3,362 26,934 4.1 108 Japan 1,980 20,942 -260 -3,196 4,877 33,845 2.5 109 France 50 -4,801 10 337 248 34 5,199 51,077 4.2 110 Finland -239 -949 -41 -243 455 1,722 1.3 111 Germany, Fed. Rep. 850 3,998 350 -290 -1,561 13,879 78,986 4.9 112 Australia -837 -5,774 785 2,235 1,709 11,895 4.8 113 Denmark -544 -1,177 75 -96 488 4,242 2.2 114 Canada 821 1,380 566 -3,480 4,733 11,160 1.5 115 Sweden -265 -929 -104 -1.006 775 6,349 2.1 116 Norway -242 2,221 10 32 -93 813 7,081 35 117 United States 2,320 -41,915 -6,130 6,382 15,237 123,110 4.0 118 Switzerland 72 3,526 23 81 -220 5,317 46,805 14.2 East European nonmarket economies 119 Hungary -25 46 2,148 2.5 120 Albania 121 Bulgaria 122 Czechoslovakia 123 German Dem. Rep. 124 Poland 125 Romania 1,ldd 1,906 2.0 126 USSR a. Figures in italics are for 1982, not 1983. 201 Table 15. Flow of public and publicly guaranteed external capital Public and publicly guaranteed medium- and long-term loans (millions of dollars) Repayment Gross inflow of principal Net inflowe 1970 1983 1970 1983 1970 1983 Low-income economies China and India Other low-income Sub-Saharan Africa 1 Ethiopia 27 242 15 42 13 200 2 Bangladesh .. 568 .. 80 . . 488 3 Mali 21 109 (.) 6 21 103 4NepaI 1 70 2 5 -2 66 5 Zaire 31 210 28 39 3 171 6 Burkina 2 89 2 7 (.) 83 7 Burma 16 333 18 86 -2 247 8 Malawi 38 66 3 29 36 38 9 Uganda 26 93 4 65 22 29 10 Burundi 1 98 (.) 4 1 93 11 Niger 12 127 1 36 10 91 12 Tanzania 50 303 10 30 40 274 13 Somalia 4 95 (.) 13 4 82 14 India 890 2765 307 770 583 1995 15 Rwanda (,) 38 (.) 2 (.) 37 16 Central African Rep. 2 32 2 11 -1 22 l7Togo 5 76 2 17 3 60 18 Benin 2 121 1 13 1 108 19 China . . . . . . 20 Guinea 90 79 10 48 79 31 21 Haiti 4 45 4 8 1 37 22 Ghana 40 72 12 42 28 30 23 Madagascar 10 216 5 77 5 139 24 Sierra Leone 8 21 10 7 -2 14 25 Sri Lanka 61 373 27 81 34 292 26 Kenya 32 258 16 178 17 80 27 Pakistan 485 985 114 759 371 226 28 Sudan 52 439 22 54 30 385 29 Afghanistan 34 . . 15 . . 19 30 Bhutan .. 3lChad 6 3 2 (.) 3 2 32 Kampuchea, Oem. ., .. .. . 33 Lao POR .. .. 34 Mozambique . . .. .. .. 35 Wet Nam .. .. . . Middle-income economies Oil exporters Oil importers Sub-Saharan Africa Lower middle-income 36 Senegal 15 429 5 17 10 412 37 Lesotho (.) 38 (.) 6 (.) 32 38 Liberia 7 66 12 10 -4 56 39 Mauritania 4 195 3 14 1 181 40 Bolivia 54 86 17 102 37 -16 41 Yemen, PDR 1 306 (.) 32 1 274 42 Yemen Arab Rep. . . 326 .. 29 . . 297 43 Indonesia 441 4,965 59 1,295 382 3,670 44 Zambia 351 176 33 48 318 128 45 Honduras 29 236 3 38 26 199 46 Egypt, Arab Rep. 394 2221 297 1,456 97 765 47 El Salvador 8 287 6 29 2 258 48 Ivory Coast 77 667 27 378 50 289 49 Zimbabwe (.) 710 5 330 -5 381 50 Morocco 163 840 36 610 127 229 51 PapuaNewGuinea 25 225 0 44 25 181 52 Philippines 128 2,224 72 602 56 1623 53 Nigeria 62 4845 36 1,066 26 3,779 54 Cameroon 28 162 4 112 24 50 55 Thailand 51 1,315 23 419 27 896 56 Nicaragua 44 322 17 46 28 276 57 Costa Rica 30 418 21 92 9 326 58 Peru 148 1,622 101 347 47 1,275 59 Guatemala 37 314 20 65 17 249 60 Congo, People's Rep. 21 244 6 161 15 83 61 Turkey 328 1,598 128 1,175 200 423 62 Tunisia 87 555 45 403 42 151 63 Jamaica 15 224 6 104 9 120 64 Dominican Rep. 45 248 7 121 38 127 Note: For data comparability and coverage see the technical notes. 202 Public and publicly guaranteed medium- and long-term loans (millions of dollars) Repayment Gross inflow of principal Net inflows 1970 1983 1970 1983 1970 1983 65 Paraguay 15 288 7 40 7 248 66 Ecuador 42 745 16 508 26 237 67 Colombia 252 1,357 78 388 174 970 68 Angola 69 Cuba 70 Korea, Oem. Rep. 71 Lebanon 12 22 35 9 13 72 Mongolia Upper middle-income 73 Jordan 14 450 3 125 12 325 74 Syrian Arab Rep. 59 325 30 232 30 94 75 Malaysia 43 3,026 45 286 1 2,741 76 Chile 397 1,808 163 328 234 1,480 77 Brazil 884 7,095 255 1,979 629 5,117 78 Korea, Rep. of 441 3,634 198 1,999 242 1,635 79 Argentina 487 2,390 342 1000 146 1,390 80 Panama 67 358 24 188 44 170 81 Portugal 18 2,238 63 1010 45 1,228 82 Mexico 772 6,908 476 3,104 297 3,804 83 Algeria 292 2,921 33 3,292 259 371 84 South Africa .. .. .. 85 Uruguay 86 Yugoslavia . 38 180 . 500 1,307 47 168 94 526 9 12 406 781 87 Venezuela 224 1,825 42 937 183 889 88 Greece 164 2255 61 562 102 1,692 89 Israel 410 1,236 25 840 385 396 90 Hong Kong .. 6 0 28 . . 22 91 Singapore 58 152 6 278 52 126 92 Trinidad and Tobago 8 256 10 123 2 132 93 Iran, Islamic Rep. 940 .. 235 . . 705 94lraq 63 .. 18 .. 46 High-income oil exporters 95 Oman 506 . 91 .. 416 96 Libya 97 Saudi Arabia 98 Kuwait 99 United Arab Emirates Industrial market economies 100 Spain 101 Ireland 102 Italy 103 New Zealand 104 Belgium 105 United Kingdom 106 Austria 107 Netherlands 108 Japan 109 France 110 Finland 111 Germany, Fed. Rep. 112 Australia 113 Denmark 114 Canada 115 Sweden 116 Norway 117 United States 118 Switzerland East European nonmarket economies 119 Hungary 1429 . . 1,272 156 120 Albania 121 Bulgaria 122 Czechoslovakia 123 German Oem. Rep. 124 Poland 125 Romania 1,345 1141 .. 204 126 USSR a. Gross inflow less repayment of principal may not equal net inflow because of rounding. 203 Table 16. External public debt and debt service ratios External public debt Interest payments outstanding and disbursed Debt service as percentage of: on external Millions of As percentage public debt Exports of dollars of GNP (millionsof dollars) GNP goodsandservices 1970 1983 1970 1983 1970 1983 1970 1983 1970 1983 Low-incomeeconomles 17.4w 22.5w 1.2w 1.4w 12.8w 14.4w China and India . .. .. Otherlow-income 21.3w 42.3w 1.5w 2.6w 8.9w 18.7w Sub-Saharan Africa 18.0 w 52.3 w 1.3w 2.5w 5.4w 14.5w 1 Ethiopia 169 1,223 9.5 25.9 6 24 1.2 1.4 11.4 11.5 2 Bangladesh 4,185 .. 37.7 . . 63 .. 1.3 .. 14.7 3 Mali 238 881 88.1 89.3 (.) 6 0.2 1.3 1.3 6.1 4 Nepal 3 346 0.3 14.1 (.) 4 0.3 0.3 .. 3.0 5 Zaire 311 4,022 17.6 91.5 9 87 2.1 2.9 4.4 6 Burkina 21 398 6.4 38.2 (.) 7 0.6 1.3 6.3 7 Burma 101 2,226 4.7 36.3 3 64 0.9 2.4 15.8 33.8 8 Malawi 122 719 43.2 55.2 3 30 2.1 4.5 7.1 20.3 9 Uganda 138 623 7.5 17.9 4 17 0.4 1.9 2.7 10 Burundi 7 284 3.1 26.2 (.) 3 0.3 0.7 11 Niger 32 631 8.7 48.7 1 36 0.6 5.6 3.8 12 Tanzania 250 2,584 19.5 58.9 6 36 1.2 1.5 4.9 13 Somalia 77 1,149 24.4 62.0 (.) 10 0.3 1.2 2.1 13.1 14 India 7,940 21,277 14.9 11.2 189 553 0.9 0.7 22.0 10.3 15 Rwanda 2 220 0.9 13.9 (.) 2 0.2 0.3 1.3 2.6 16 CentralAfricanRep. 24 215 13.3 33.1 1 7 1.6 2.7 4.8 11.3 17 Togo 40 805 16.0 113.9 1 28 0.9 6.3 2.9 16.8 18 Benin 41 615 16.0 59.2 (.) 13 0.7 2.5 2.3 19 China .. .. .. .. .. .. .. 20 Guinea 314 1,216 47.4 69.2 4 22 2.2 4.0 21 Haiti 40 433 10.3 26.8 (.) 7 1.0 0.9 7.7 5.0 22 Ghana 489 1,095 24.2 28.3 12 30 1.2 1.9 5.0 14.2 23 Madagascar 93 1,490 10.8 52.3 2 64 0.8 4.9 3.5 24 SierraLeone 59 359 14.3 34.5 2 3 2.9 0.9 9.9 7.2 25 Sri Lanka 317 2,205 16.1 43.7 12 86 2.0 3.3 10.3 11.9 26 Kenya 319 2,384 20.6 43.1 12 127 1.8 5.5 5.4 20.6 27 Pakistan 3,060 9,755 30.5 31.3 76 309 1.9 3.4 23.6 28.1 28 Sudan 306 5,726 15.2 77.8 13 37 1.7 1,2 10.7 11.2 29 Afghanistan 547 . . 58.1 .. 9 .. 2.5 30 Bhutan .. . . . . 31 Chad 32 129 11.9 43.5 (.) (.) 1.0 0.1 3.9 0.6 32 Kampuchea, Oem. .. .. .. .. .. .. .. .. 33 Lao PDR .. .. .. .. .. .. .. 34 Mozambique .. . . .. .. .. .. .. . 35 Viet Nam .. , , .. .. .. .. . Middle-income economies 12.7w 34.2 w 1.6w 4.5 w 10.5w 18.1 w Oil exporters 13.4w 34.1 w 1.8w 5.4w 10.7w 21.1 w Oil importers 12.3w 31.3w 1.5w 4.0w 10.4w 16.1 w Sub-Saharan Africa 12.4w 29.0w 1.2w 4.2w 19.7w Lowermiddle-income 15.3w 33.6w 1.6w 4.2w 9.9w 19.7w 36 Senegal 100 1,496 11.9 61.2 2 31 0.8 1.9 2.8 37 Lesotho 8 145 7.8 23.0 (.) 6 0.4 1.9 .. 2.5 38 Liberia 158 699 49.6 72.1 6 21 5.5 3.2 .. 6.6 39 Mauritania 27 1,171 13.9 158.2 (.) 23 1.7 5.0 3.2 10.0 40 Bolivia 479 2,969 33.8 77.7 6 165 1.6 7.0 11.3 30.5 41 Yemen, PDR 1 1,263 . . 118.5 .. 14 .. 4.3 .. 25.1 42 Yemen Arab Rep. .. 1,574 . . 38.4 .. 13 .. 1.0 .. 13.9 43 Indonesia 2,443 21,685 27.1 28.9 24 1,256 0.9 3.4 6.9 12.8 44 Zambia 623 2,638 37.0 83.9 26 78 3.5 4.0 5.9 12.6 45 Honduras 90 1,570 12.9 56.3 3 83 0.8 4.3 2.8 14.9 46 Egypt, Arab Rep. 1,750 15,229 23.2 49.4 54 540 4.6 6.5 36.4 27.5 47 El Salvador 88 1,065 8.6 29.2 4 37 0.9 1.8 3.6 6.4 48 IvoryCoast 256 4,824 18.3 78.8 11 413 2.7 12.9 6.8 31.0 49 Zimbabwe 233 1,497 15.7 27.9 5 105 0.6 8.1 .. 31.6 50 Morocco 711 9,445 18.0 69.6 23 510 1.5 8.3 8.4 38.2 51 PapuaNewGuinea 36 911 5.8 40.4 1 63 0.1 4.7 . . 11.2 52 Philippines 572 10,385 8.1 30.4 23 650 1.4 3.7 7.2 15.4 53 Nigeria 480 11,757 4.8 17.7 20 974 0.6 3.1 4.2 18.6 54 Cameroon 131 1,883 12.1 26.7 4 107 08 3.1 3.1 139 55 Thailand 324 7,060 4.9 18.0 16 531 0.6 2.4 3.4 11.3 56 Nicaragua 156 3,417 15.7 133.3 7 37 2.4 3.2 11.1 18.3 57 CostaRica 134 3,315 13.8 126.3 7 504 2.9 22.7 10.0 50.6 58 Peru 856 7,932 12.6 48.1 44 406 2.1 4.6 11.6 19.6 59 Guatermala 106 1,405 5.7 15.8 6 76 1.4 1.6 7.4 11.7 60 Congo, People's Rep. 144 1,487 53.9 76.1 3 77 3.3 12.2 .. 20.5 61 Turkey 1,854 15,396 14.4 30.2 42 1,169 1.3 4.6 22.0 28.9 62 Tunisia 541 3,427 38.2 42.4 18 195 4.5 7.4 19.0 22.3 63 Jamaica 160 1,950 11.8 65.2 9 101 1.1 6.9 2.7 15.4 64 DominicanRepublic 226 2,202 15.5 26.7 5 110 0.8 2.8 4.7 22.7 Note: For data comparabElity and coverage see the technical notes. 204 External public debt Interest payments outstanding and disbursed on external Debt service as percentage of: Millions of As percentage public debt Exports of dollars of GNP (millions of dollars) GNP goods and services 1970 1983 1970 1983 1970 1983 1970 1983 1970 1983 65 Paraguay 112 1,161 13.1 28.6 4 45 1.2 2.1 11.9 14.9 66 Ecuador 217 6,239 13.2 63.0 7 365 1.4 8.8 9.1 32.5 67 Colombia 1,293 6,899 18.4 18.3 44 516 1.7 2.4 12.0 21.3 68 Angola 69 Cuba 70 Korea, Oem. Rep. 71 Lebanon 64 182 4.2 72 Mongolia Upper middle-income 11.5 iv 31.7 iv 1.7w 4.7w 10.8w 17.4w 73 Jordan 118 1,940 23.5 47.9 2 88 0.9 5.2 .3.6 11.3 74 Syrian Arab Rep. 232 2,305 10.6 13.7 6 73 1.6 1.8 11.0 11.2 75 Malaysia 390 10,665 10.0 38.6 21 669 1.7 3.5 3.6 5.9 76 Chile 2,066 6,827 25.8 39.2 78 557 3.0 5.1 18.9 18.3 77 Brazil .3,234 58,068 7.7 29.3 133 5,004 0.9 3.5 12.5 28.7 78 Korea, Rep. of 1,797 21,472 . . . . 70 1,744 . . .. 19.4 12.3 79 Argentina 1,878 24,593 8.6 32.1 121 1,343 2.1 3.1 21.5 24.0 80 Panama 194 2,986 19.5 736 7 283 3.1 11.6 7.7 6.8 81 Portugal 485 9,951 7.8 50.8 29 843 1.5 9.5 .. 26.7 82 Mexico 3,206 66,732 9.1 49.1 216 6,850 2.0 7.3 23.6 35.9 83 Algeria 937 12,942 19.3 28.0 10 1,212 0.9 9.8 3.8 33.1 84 South Africa 85 Uruguay 269 2,523 11.1 48.4 16 198 2.6 5.6 21.6 19.8 86 Yugoslavia 1,198 9,077 8.8 19.9 72 483 1.8 2.2 9.9 7.6 87 Venezuela 728 12,911 6.6 19.8 40 1,658 0.7 4.0 2.9 15.0 88 Greece 905 8,193 8.9 23.5 41 755 1.0 3.8 9.3 18.3 89 Israel 2,274 15,149 41.3 70.4 13 1,109 0.7 9.1 2.7 19.6 90 Hong Kong 2 224 0.1 0.8 .. 18 .. 0.2 91 Singapore 152 1,244 7.9 7.6 6 116 06 2.4 0.6 1.3 92 Trinidad and Tobago 101 887 12.2 10.7 6 101 1.9 2.7 4.4 2.8 93 Iran, Islamic Rep. 2,193 .. 208 85 .. 3.0 .. 12.2 94 Iraq 274 .. 8.8 . . 9 .. 0.9 . 2.2 High.income oil exporters 95 Oman 1,125 16.1 52 2.1 3.2 96 Libya 97 Saudi Arabia 98 Kuwait 99 United Arab Emirates Industrial market economies 100 Spain 101 Ireland 102 Italy 103 New Zealand 104 Belgium 105 United Kingdom 106 Austria 107 Netherlands 108 Japan 109 France 110 Finland 111 Germany, Fed. Rep. 112 Australia 113 Denmark 114 Canada 115 Sweden 116 Norway 117 United States 118 Switzerland East European nonmarket economies 119 Hungary 6.573 30.1 655 9.3 18.5 120 Albania 121 Bulgaria 122 Czechoslovakia 123 German Bern. Rep. 124 Poland 125 Romania 7,576 473 9.0 126 USSR a. Figures in italics are for 1982, not for 1983. 205 Table 17. Terms of public borrowing Average interest Average Average Commitments rate maturity grace period (millions of dollars) (percent) (years) (years) 1970 1983 1970 1983 1970 1983 1970 1983 Low-income economies 3,035 7,978 2.8w 3.9 w 31w 30 w 9w 7w China and India Other low-income 2,102 6,093 3.0w 3.5w w 30 w 9w 7w Sub-Saharan Africa 963 3,036 3.1 w 3.4w 27 w 29 w 8w 7w 1 Ethiopia 21 505 4.3 2.1 32 25 7 6 2 Bangladesh 593 1.7 . . 39 9 3 Mali 30 72 0.3 31 27 26 11 7 4 Nepal 17 183 2.8 1.2 27 40 6 10 5 Zaire 257 144 6.5 1.6 13 42 4 9 6 Burkina 9 89 23 30 37 31 8 7 7 Burma 57 218 4.3 1.4 16 40 4 10 8 Malawi 13 103 38 24 30 28 6 9 9 Uganda 12 204 3.7 3.9 28 34 7 7 10 Burundi 1 69 29 4.3 5 26 2 7 11 Niger 18 107 1.2 5.4 40 28 8 7 12 Tanzania 283 307 1.2 3.9 40 24 11 5 13 Somalia 2 81 (.) 2.7 3 32 3 5 14 India 933 1,885 2.4 5.0 35 30 8 6 15 Rwanda 9 56 0.8 1.6 50 37 11 8 16 CentralAfricanRep. 7 75 2.0 1.9 36 29 8 8 17 Togo 3 152 4.6 2.7 17 36 4 8 18 Benin 7 71 1.8 2.3 32 38 7 9 19 China , .. .. ,. .. 20 Guinea 66 122 2.9 4.6 13 24 5 6 21 Haili 5 91 6.7 13 9 46 1 10 22 Ghana 50 72 24 07 39 50 10 10 23 Madagascar 23 283 2.3 37 40 27 9 7 24 Sierra Leone 24 22 3.5 0.8 27 47 6 10 25 Sri Lanka 79 281 3.0 1.9 27 40 5 10 26 Kenya 49 147 2.6 5.5 37 31 8 7 27 Pakistan 942 1,691 2.7 5.4 32 26 12 7 28 Sudan 95 349 1.8 5.5 17 21 9 5 29 Afghanistan 19 . 1.7 . . 33 8 30 Bhutan . . . . . . . . 31 Chad 4 6 4.8 3.0 7 23 2 7 32 Kampuchea, Oem. .. . 33 Lao PDR 34 Mozambique , 35 Viet Nam Middle-income economies 10,684 71,716 6.2 w 10.2w 17w 12w 4w 4w Oil exporters 4,232 I 33,867 6.3w 10.2w 16w 11w 4w 3w Oil importers 6,452 I 37,849 6.2 w 10.2 w 17w 12 w 5w 4w Sub-Saharan Africa 790 7,305 4.5 w 10.3w 25 w 10w 8w 3w Lower middle-income 3,768 I 31,1191 5.0w 8.9w 23w 15w 6w 4w 36 Senegal 6 271 3.7 5.3 25 22 7 6 37 Lesoiho (.) 33 5.1 5.9 25 24 2 6 38 Liberia 11 36 5.4 87 19 14 5 5 39 Mauritania 7 154 6.6 5.6 11 16 3 4 40 Bolivia 24 439 3,7 4.9 26 28 6 7 41 Yemen, PDR 62 287 (.) 2.5 21 22 11 5 42 YemenArabRep. 9 101 5.2 1.6 5 36 3 8 43 Indonesia 518 5,597 2.7 8.8 34 15 9 5 44 Zambia 555 120 42 4.8 27 26 9 7 45 Honduras 23 340 4.1 5,9 30 25 7 6 46 Egypt, Arab Rep. 448 2,698 7.7 8.8 17 22 2 4 47 ElSalvador 12 121 4.7 29 23 34 6 8 48 IvoryCoast 71 634 58 10.8 19 16 6 4 49 Zimbabwe , 477 97 .. 13 4 50 Morocco 182 1,786 4.6 7.4 20 16 4 5 51 PapuaNewGuinea 58 284 6.0 7.5 24 14 8 4 52 Philippines 158 1,814 7.4 9.1 11 16 2 5 53 Nigeria 65 4,994 6.0 11.0 14 7 4 2 54 Cameroon 41 201 4.7 8.9 29 18 8 5 55 Thailand 106 1,189 6.8 8.3 19 20 4 7 56 Nicaragua 23 371 7.1 6.8 18 14 4 4 57 Costa Rica 58 413 5.6 8.3 28 11 6 5 58 Peru 125 1,782 7.4 9,9 13 12 4 3 59 Guatemala 50 350 5.2 8.4 26 13 6 4 60 Congo, People's Rep. 33 386 2.6 100 18 10 7 3 61 Turkey 487 2,454 3.6 83 19 14 5 4 62 Tunisia 141 614 3.4 85 27 12 6 5 63 Jamaica 24 294 6.0 70 16 24 3 8 64 Dominican Rep 20 318 2.5 5.8 28 22 5 7 Note: For data comparability and coverage see the technical noles 206 Average interest Average Average Commitments rate maturity grace period (millions of dollars) (percent) (years) (years) 1970 1983 1970 1983 1970 1983 1970 1983 65 Paraguay 14 195 5.7 7.7 25 21 6 6 66 Ecuador 78 975 6.1 10.6 20 10 4 3 67 Colombia 362 1391 5.9 10.8 21 14 5 4 68 Angola .. . . . . .. 69 Cuba . .. 70 Korea, Oem. Rep. 71 Lebanon 7 . . 2.7 21 72 Mon goba Upper m;ddte-income 6,916! 40,598! 6.9w 11.0w 13w lOw 4w 3w 73 Jordan 33 532 3.9 7.3 12 14 5 3 74 Syrian Arab Rep. 14 443 4.4 6.0 9 20 2 2 75 Malaysia 83 3,101 6.1 9.5 19 11 5 6 76 Chile 343 2,132 69 11.9 12 9 3 4 77 Brazil 1,400 7,640 71 11.4 14 9 3 3 78 Korea, Rep. of 677 3,320 6.0 9.8 19 12 5 4 79 Argentina 489 1,854 7.4 12.5 12 5 3 2 80 Panama 111 689 6.9 11.3 15 10 4 3 81 Portugal 59 2,103 4.3 10.4 17 9 4 4 82 Mexico 826 7,517 80 11.9 12 9 3 3 83 Algeria 288 3,705 6.5 9.8 10 7 2 1 84 South Africa ,, , 85 Uruguay 72 501 7.9 12.0 12 7 3 2 86 Yugoslavia 198 1,953 7.1 10.9 17 11 6 3 87 Venezuela 198 1,600 82 11.6 8 7 2 3 88 Greece 242 2,169 72 10.2 9 9 4 4 89 Israel 439 1,000 7.3 128 13 29 5 10 90 Hong Kong (.) (.) (.) 7.5 (.) 13 (.) 4 91 Singapore 69 82 68 9.7 17 9 4 2 92 TrinidadandTobago 3 226 7.5 10.8 10 8 1 3 93 Iran, Islamic Rep. 1,342 .. 6.2 .. 12 . . 3 94 Iraq 28 . . 3.3 .. 11 . . 2 High-income oil exporters 95 Oman , . 415 . . 10.6 .. 8 .. 3 96 Libya 97 Saudi Arabia 98 Kuwait 99 United Arab Emirates Industrial market economies 100 Spain 101 Ireland 102 Italy 103 NewZealand 104 Belgium 105 United Kingdom 106 Austria 107 Netherlands 108 Japan 109 France 110 Finland 111 Germany, Fed. Rep. 11 2 Australia 113 Denmark 114 Canada 115 Sweden 116 Norway 117 United States 118 Switzerland East European nonmarket economies 119 Hungary . 1,434 . . 10.1 . . 7 . . 3 120 Albania 121 Bulgaria 122 Czechoslovakia 123 German Oem. Rep 124 Poland 125 Romania 750 126 USSR a. Includes only debt in convertible currencies. 207 Table 18. Official development assistance from OECD & OPEC members Amount 1965 1970 1975 1978 1979 1980 1981 1982 1983 1984a OECD Millions of US dollars 102 Italy 60 147 182 376 273 683 666 811 827 1105 103 NewZealand 14 66 55 68 72 68 65 61 59 104 Belgium 102 120 378 536 643 595 575 499 480 410 105 United Kingdom 472 500 904 1465 2,156 1,854 2192 1,800 1,605 1,432 106 Austria 10 11 79 154 131 178 220 236 158 181 107 Netherlands 70 196 608 1,074 1,472 1,630 1,510 1,472 1,195 1,268 108 Japan 244 458 1,148 2,215 2,685 3,353 3,171 3,023 3,761 4,319 109 France 752 971 2,093 2,705 3,449 4,162 4,177 4,034 3,815 3,790 110 Finland 2 7 48 55 90 111 135 144 153 178 111 Germany, Fed. Rep. 456 599 1,689 2,347 3,393 3,567 3,181 3,152 3,176 2,767 112 Australia 119 212 552 588 629 667 650 882 753 773 113 Denmark 13 59 205 388 461 481 403 415 395 449 114 Canada 96 337 880 1,060 1,056 1,075 1,189 1,197 1,429 1,535 115 Sweden 38 117 566 783 988 962 919 987 754 737 116 Norway 11 37 184 355 429 486 467 559 584 526 11 7 United States 4,023 3,153 4,161 5,663 4,684 7,138 5,782 8,202 7,992 8,698 118 Switzerland 12 30 104 173 213 253 237 252 320 286 Total 6,480 6,968 13,847 19,992 22,820 27,267 25,542 27,730 27,458 28,513 OECD As percentage of donor GNP 102 Italy .10 16 11 .14 .08 17 19 .24 .24 .32 103 New Zealand . .23 52 .34 .33 .33 .29 28 .28 .28 104 Belgium .60 .46 .59 .55 .57 .50 .59 .59 .59 .59 105 United Kingdom .47 .41 .39 .46 .52 .35 .43 .37 .35 .33 106 Austria .11 .07 .21 27 19 23 .33 .35 23 .28 107 Netherlands .36 .61 .75 .82 .98 1.03 1.08 1 08 91 1.02 108 Japan .27 .23 .23 .23 .27 .32 .28 28 .33 .35 109 France 76 66 62 57 .60 .64 73 75 74 .77 110 Finland .02 06 18 .16 22 .22 .28 30 .33 .36 111 Germany, Fed Rep 40 .32 40 .37 45 .44 .47 .48 49 45 112 Australia .53 59 65 .55 .53 48 .41 .57 .49 45 113 Denmark .13 .38 .58 .75 .77 .74 .73 .76 .73 .85 114 Canada 19 .41 54 52 48 43 .43 .41 .45 47 115 Sweden 19 .38 .82 .90 .97 .79 83 1.02 .85 .80 116 Norway 16 32 66 90 .93 85 82 99 1.06 99 117 United States .58 32 .27 .27 .20 .27 .20 27 .24 .23 118 Switzerland .09 .15 19 .20 .21 24 .24 .25 .32 30 OECD National currencies 102 Italy (billions of lire) 38 92 119 319 227 585 757 1,097 1,256 1,941 103 NewZealand(mrllionsof dollars) .. 13 54 53 66 74 78 86 91 102 104 Belgium(millionsoffrancs) 5,100 6000 13,902 16,880 18,852 17,400 21,350 22,800 24,543 23700 105 United Kingdom(millionsof pounds) 169 208 407 763 1,016 797 1,081 1,028 1,058 1,072 106 Austria(millionsofschillings) 260 286 1,376 2,236 1,751 2,303 3,504 4,026 2,838 3,622 107 Netherlands(millionsotguilders) 253 710 1,538 2,324 2,953 3,241 3,768 3,931 3,411 4,069 108 Japan(billionsotyen) 88 165 341 466 588 760 699 753 893 1,026 109 France(millionsof francs) 3,713 5,393 8,971 12,207 14,674 17,589 22,700 26,513 29,075 33,125 110 Finland(millionsotmarkkaa) 6 29 177 226 351 414 583 694 852 1,070 111 Germany, Fed. Rep. (millions ofdeutschemarks) 1,824 2,192 4,155 4,714 6,219 6,484 7,189 7,649 8,109 7,875 112 Australia(millionsotdollars) 106 189 421 514 563 585 566 867 834 879 113 Denmark(millionsotkroner) 90 443 1,178 2,140 2,425 2,711 2,871 3,458 3,612 4,650 114 Canada(millionsotdollars) 104 353 895 1,209 1,237 1,257 1,425 1,477 1,761 1,988 115 Sweden(millionsofkronor) 197 605 2,350 3,538 4,236 4,069 4,653 6,201 5,781 6,096 116 Norway(millionsofkroner) 79 264 962 1,861 2,172 2,400 2,680 3,608 4,261 4,293 117 United States (millions of dollars) 4,023 3,153 4,161 5,663 4,684 7,138 5,782 8,202 7,992 8,698 118 Switzerland (millions of francs) 52 131 268 309 354 424 466 512 672 672 OECD Summary ODA (billions of US dollars, nominal prices) 6.48 697 1385 19.99 22.82 2727 2554 2773 27.46 28.51 ODAaspercentageotGNP .48 34 .35 .35 .35 .38 .35 .38 36 36 ODA (billions ot US dollars, constant 1980 prices) 20.41 1821 21.73 24.11 2489 27.27 25.63 27.94 27.46 28.70 GNP(triflions of US dollars, nominal prices) 1.35 2.04 3.92 5.75 656 7.25 738 7.31 758 791 GDP deflatorb .32 .38 .64 .83 .92 1 00 1 00 99 1 00 99 Note: For data comparability and coverage see the technical notes, 208 Amount 1975 1976 1977 1978 1979 1980 1981 1982 1983C OPEC Millions of US dollars 53 Nigeria 14 83 50 26 29 33 141 58 35 83 Algeria 41 54 42 41 281 103 97 128 44 87 Venezuela 31 108 24 87 107 125 67 126 141 93 Iran, Islamic Rep. 593 753 169 240 -34 -83 -93 -121 139 94 Iraq 215 231 62 174 659 768 140 9 -3 96 Libya 259 94 101 131 140 382 293 43 85 97 Saudi Arabia 2,756 3,028 3,086 5,464 4,238 5,943 5,664 4,028 3,916 98 Kuwait 946 531 1,292 978 971 1,140 1,154 1,168 995 99 United Arab Emirates 1,046 1,021 1052 885 970 909 811 402 100 Qatar 338 195 189 105 291 270 250 50 22 Total OAPECd 5,601 5,154 5,824 7,778 7,550 9,515 8,409 5,828 5,159 Total OPEC 6,239 6,098 6,067 8,131 7,652 9,590 8,524 5,891 5,474 OPEC As percentage of donor GNP 53 Nigeria .04 .19 .10 .05 .04 .04 .18 .08 .05 83 Algeria .28 33 .21 .16 .88 .25 .23 .29 .09 87 Venezuela .11 .34 .07 .22 .22 .21 .10 .18 .20 93 Iran, Islamic Rep. 1.12 1.16 .22 .33 .. . . -- .. .13 94 Iraq 1,62 1.44 33 .77 1 97 209 47 .03 96 Libya 2.29 .63 .57 .77 58 118 1.11 .18 .35 97 Saudi Arabia 7.76 6.46 5.24 8.39 5.55 5.09 3.54 2.61 3.53 98 Kuwait 7.18 363 8.13 5.40 352 352 3.60 4.49 4.46 99 United Arab Emirates 11 68 8.88 7.23 6.23 5.09 3.30 2.72 1 46 .42 Qatar 1558 7.95 7.56 3.62 6.26 4.05 3.77 89 .42 Total OAPECd 5.73 4.23 3.95 4.69 3.49 3 73 2.82 2.02 2.10 Total OPEC 2.92 2.32 1.96 2.48 1 83 2.41 1 94 1.37 1.45 Net bilateral flow to low-income countries 1965 1970 1975 1978 1979 1980 1981 1982 1983 OECD As percentage of donor GNP 102 Italy .04 .06 .01 .01 .01 .01 .02 .04 .05 103 NewZealand . . .. .14 .01 .01 .01 .01 () (.) 104 Belgium .56 .30 .31 .23 .27 .24 .25 .21 .21 105 UnitedKingdom .23 .15 11 .14 .16 .11 .13 .07 .10 106 Austria 06 .05 .02 01 .03 03 03 01 02 107 Netherlands .08 .24 .24 .28 .26 .30 .37 .31 .26 108 Japan .13 .11 .08 05 .09 08 06 .11 09 109 France .12 .09 .10 .07 .07 .08 11 .10 .09 110 Finland . . .. 06 04 .06 .08 .09 .09 .12 111 Germany, Fed. Rep 14 .10 12 .09 .10 08 .11 .12 .13 112 Australia .08 .09 .10 .04 .06 04 06 .07 05 113 Denmark .02 .10 .20 .29 .28 28 .21 .26 .31 114 Canada .10 .22 .24 .17 .13 .11 .13 .14 .13 115 Sweden .07 .12 .41 .36 .41 .36 .32 .38 .33 116 Norway .04 .12 .25 .34 .37 .31 .28 37 .39 117 United States 26 14 .08 03 02 03 .03 .02 03 118 Switzerland 02 05 .10 .07 06 08 07 09 10 Total .20 .13 .11 .07 .08 .07 .08 .08 .08 a. Preliminary estimates b See the technical notes. c. Provisional. d. Organization of Arab Petroleum Exporting Countries 209 Table 19. Population growth and projedions Hypothetical Assumed Average annual growth size of year of of population Population stationary reaching net Population (percent) (millions) momentum population reproduction 1965-73 1973-83 1980-2000 1983 1990° 2000° (millions) rate of 1 1985 Low-income economies 2.6w 2.0w 1.8w 2,3421 2,663 t 3,154 China and India 2.5w 1.8 w 1.5 w 1,752 1 1,950 t 2,236 Other low-income 2.6w 2.6w 2.6w 590 t 713 t 9181 Sub-Saharan Africa 2.6w 2.8 w 3.0w 245 1 304 1 408 1 Ethiopia 2.6 2.7 2.6 41 48 64 181 2035 1.9 2 Bangladesh 2.6 2.4 2.3 95 114 141 310 2025 1.9 3 Mali 2.6 2.5 2.5 7 9 11 37 2035 1.9 4 Nepal 2.0 2.6 2.6 16 19 24 74 2040 1.8 5 Zaire 2.1 2.5 3.1 30 37 50 145 2030 1.9 6 Burkina 2.0 1.9 2.0 6 7 9 32 2040 1.8 7 Burma 2.3 2.0 2.3 35 43 53 115 2025 1.9 8 Malawi 2.8 3.0 3.1 7 8 11 38 2040 2.0 9 Uganda 3.4 2.8 3.3 14 18 25 83 2035 2.0 10 Burundi 1.4 2.2 2.9 4 5 7 24 2035 1.9 11 Niger 2.6 3.0 3.2 6 8 11 40 2040 2.0 12 Tanzania 3.1 3.3 3.4 21 27 37 125 2035 2.0 13 Somalia 3.5 2.8 3.0 5 6 8 31 2040 1.9 14 India 2.3 2.3 1.8 733 844 994 1,700 2010 1.8 15 Rwanda 3.1 3.4 3.4 6 7 10 40 2040 2.0 16 CentralAfricanRep. 1.6 2.3 2.7 2 3 4 12 2035 1.9 17 Togo 2.8 2.6 3.2 3 4 5 16 2035 2.0 18 Benin 2.6 2.8 3.1 4 5 6 21 2035 2.0 19 China 2.7 1.5 1.2 1,019 1,106 1,242 1,571 2010 1.6 20 Guinea 1.8 2.0 2.1 6 7 8 25 2045 1.8 21 Haiti 1.5 1.8 1.8 5 6 7 14 2025 1.9 22 Ghana 2.2 3.1 3.5 13 17 23 64 2025 2.0 23 Madagascar 2.4 2.6 3.1 9 12 16 55 2035 1.9 24 SierraLeone 1.7 2,1 2.3 4 4 5 17 2045 1.8 25 Sri Lanka 2.0 1.7 1.8 15 18 21 32 2005 1.7 26 Kenya 3.7 4.0 3.9 19 25 36 120 2030 2.1 27 Pakistan 3.1 3.0 2.4 90 106 133 330 2035 1.9 28 Sudan 2.6 3.2 2.8 21 25 33 102 2035 1.9 29 Afghanistan 2.3 2.6 2.3 17 20 25 76 2045 1.9 30 Bhutan 1.3 1.9 2.2 1 1 2 4 2035 1.8 31 Chad 1.8 2.1 2.4 5 6 7 22 2040 1.8 32 Kampuchea, Dam. 1.8 .. .. . . .. .. .. 33 Lao PDR 14 2.2 2.5 4 4 6 18 2040 1.9 34 Mozambique 2.3 2.6 2.9 13 16 22 70 2035 2.0 35 VietNam 3.1 2.7 2.4 59 70 88 170 2015 1.9 Middle-income economies 2.5w 2.4w 2.2w 1,1661 1,3741 1,6901 Oil exporters 2.6w 2.7w 2.5w 5431 6521 8301 Oil importers 2.4 w 2.2 w 1.9 w 623 1 722 1 860 Sub-Saharan Africa 2.6w 2.9w 3.1 w 148! 1781 2561 Lower middle-income 2.5 w 2.5 w 2.3w 665 1 7871 977 1 36 Senegal 2.4 2.8 2.9 6 8 10 30 2035 1.9 37 Lesotho 2.1 2.5 2.6 1 2 2 6 2030 1.8 38 Liberia 2.8 3.3 3.1 2 3 3 11 2035 1.9 39 Mauritania 2.3 2.2 2.6 2 2 3 8 2035 1.8 40 Bolivia 2.4 2.6 2.4 6 7 9 22 2030 1.9 41 Yemen, PDR 2.1 2.2 2.4 2 2 3 8 2035 2.0 42 Yemen Arab Rep. 2.6 2.9 2.8 8 9 12 40 2040 2.0 43 Indonesia 2.1 2.3 1.9 156 179 212 368 2010 1.8 44 Zambia 3.0 3.2 3.3 6 8 11 33 2030 2.0 45 Honduras 2.9 3.5 3.0 4 5 7 15 2020 2.0 46 Egypt,ArabRep. 2.3 2.5 2.0 45 52 63 113 2015 1.8 47 ElSalvador 3.4 3.0 2.6 , 5 6 8 17 2015 1.9 48 IvoryCoast 4.6 4.6 3.6 9 13 17 47 2030 2.0 49 Zimbabwe 3.4 3.2 3.6 8 10 14 39 2025 2.1 50 Morocco 2.4 2.6 2.4 21 25 31 70 2025 2.0 51 PapuaNewGuinea 2.5 2.1 2.1 3 4 5 9 2025 1.9 52 Philippines 2.9 2.7 2.1 52 61 73 126 2010 1.9 53 Nigeria 2.5 2.7 3.3 94 118 163 532 2035 2.0 54 Cameroon 2.4 3.1 3.2 10 12 17 52 2030 1.9 55 Thailand 2.9 2.3 1.7 49 56 65 100 2000 1.8 56 Nicaragua 2.9 3.9 3.0 3 4 5 12 2025 2.0 57 Costa Rica 3.0 2.4 2.1 2 3 3 5 2005 1.8 58 Peru 2.8 2.4 2.2 18 21 26 49 2020 19 59 Guatemala 3.0 3.1 2.6 8 10 12 25 2020 1.9 60 Congo, People's Rep. 26 3.1 3.7 2 2 3 9 2020 1.9 61 Turkey 2.5 2.2 1.9 47 55 65 111 2010 1.8 62 Tunisia 2.0 2.5 2.2 7 8 10 19 2015 1.9 63 Jamaica 1.5 1.3 1.4 2 2 3 5 2005 1.6 64 DominicanRep. 2.9 2.4 2.2 6 7 9 15 2010 1.9 Note: For data comparability and coverage see the technical notes 210 Hypothetical Assumed Average annual growth size of year of of population Population stationary reaching net Population (percent) (millions) population reproduction momentum 1965-73 1973-83 1980-2000 1983 1990a 2000a (millions) rateof 1 1985 65 Paraguay 2.7 2.5 2.2 3 4 5 8 2010 1.9 66 Ecuador 27 26 2.5 8 10 13 25 2015 1.9 67 Colombia 2.6 1.9 18 28 31 37 60 2010 1.8 68 Angola 2.2 2.6 2.8 8 10 13 44 2040 1.9 69 Cuba 1.8 0.8 1.0 10 11 12 15 2010 1.5 70 Korea, Oem. Rep. 2.8 25 21 19 22 27 46 2010 1.8 71 Lebanon 2,6 -0.3 1.2 3 3 3 6 2005 1.8 72 Mon go//a 31 2.8 2.4 2 2 3 5 2015 1.9 Upper middle-income 2.4w 2.3w 2.1 w 501 1 587 I 713 1 73 Jordan 3.0 2.7 38 3 4 6 17 2020 2.0 74 SyrianArabRep. 3.4 3.3 3.4 10 13 17 41 2020 2.0 75 Malays/a 26 2.4 2.0 15 17 21 33 2005 1.8 76 Chile 1.9 1.7 1.5 12 13 15 21 2005 1.6 77 Brazil 2.5 2.3 1.9 130 150 179 298 2010 1.8 78 Korea, Rep. of 2.2 1.6 1.4 40 45 50 70 2000 1.6 79 Argentina 1.5 1.6 1.3 30 33 37 54 2010 1.5 80 Panama 2.7 2.3 1.9 2 2 3 4 2005 1.8 81 Portugal -0.2 1.1 0.5 10 10 11 13 2010 1.3 82 Mexico 33 2.9 2.3 75 89 109 199 2010 19 83 Algeria 2.9 3.1 35 21 27 38 107 2025 2.0 84 SouthAfrica 2.6 2.4 2.7 32 39 49 104 2020 1.8 85 Uruguay 06 0.5 07 3 3 3 4 2005 1.3 86 Yugoslavia 0.9 0.8 06 23 24 25 30 2010 1.3 87 Venezuela 3.6 35 2.6 17 21 26 46 2010 1.9 88 Greece 0.5 1.1 04 10 10 10 12 2000 1.2 89 Israel 3.1 2.3 1.6 4 5 5 8 2005 1.6 90 Hongkong 2.0 2.5 1.3 5 6 7 7 2010 1.4 91 Singapore 1.8 1.3 1.0 3 3 3 3 2010 1.4 92 Trinidad and Tobago 0.9 0.6 17 1 1 2 2 2010 1.7 93 Iran, Islamic Rep. 3.3 3.1 3.0 43 53 71 166 2020 1.9 94 Iraq 33 3.6 34 15 19 26 73 2025 20 High-income oil exporters 4.5w 5.1 w 3.6w 18 t 241 33 95 Oman 2.9 4.8 2.9 1 1 2 4 2020 1.9 96 Libya 4.1 4.3 4.1 3 5 7 19 2025 2.0 97 Saudi Arabia 4.0 4.7 3.6 10 14 19 56 2030 1.9 98 Kuwait 8.3 6.4 35 2 2 3 5 2010 1.9 99 United Arab Emirates 11.8 11.3 37 1 2 2 4 2015 1.4 Industrial market economies 1.0w 0.7w 0.4 w 729 I 752 f 782 1 100 Spain 1.0 1.0 06 38 40 42 49 2010 1.3 101 Ireland 0.8 1.3 1.0 4 4 4 6 2000 1.5 102 Italy 0.6 0.3 0.1 57 57 58 56 2010 1.1 103 NewZealand 1.4 0.6 0.7 3 3 4 4 2010 1.3 104 Belgium 0.4 0.1 0.1 10 10 10 10 2010 1.1 105 United Kingdom 0.4 (.) (.) 56 56 57 58 2010 1.1 106 Austria 0.4 (.) 0.1 8 8 8 8 2010 1.1 107 Netherlands 1.1 0.7 0.4 14 15 15 15 2010 1.2 108 Japan 12 0.9 0.5 119 123 128 128 2010 1.2 109 France 0.8 0.4 0.4 55 56 59 63 2010 1.2 110 Finland 0.2 0.4 0.3 5 5 5 6 2010 1.2 111 Germany, Fed. Rep. 0.7 -0.1 -0.1 61 61 61 54 2010 1.0 112 Australia 2.1 1.3 1.0 15 17 18 21 2010 1.4 113 Denmark 0.7 0.2 (.) 5 5 5 5 2010 1.1 114 Canada 1.4 1.2 0.9 25 27 29 32 2010 1.4 115 Sweden 0.7 0.2 0.1 8 8 8 8 2010 1.1 116 Norway 0.8 0.4 03 4 4 4 4 2010 1.2 117 UnitedStates 1.1 1.0 0.7 234 247 261 289 2010 1.3 118 Switzerland 1.2 (.) (.) 6 6 6 6 2010 1.0 East European nonmarket economies 0.8w 0.8w 0.6w 386 I 407 1 429 119 Hungary 0.3 0.3 (.) 11 11 11 11 2010 1.1 120 Albania 2.6 2.1 1.8 3 3 4 6 2000 1.8 121 Bulgaria 0.6 0.1 0.2 9 9 9 10 2010 12 122 Czechoslovakia 03 0.6 0.4 15 16 16 19 2000 1.3 123 German Oem. Rep. (.) -0.1 0.1 17 17 17 18 2010 1.1 124 Poland 0.7 0.9 0.7 37 39 41 50 2000 1.3 125 Romania 1.2 0.8 06 23 24 25 30 2000 1.3 126 USSR 0.9 0.9 07 273 288 306 377 2000 1.3 Totalb 4,641 5,220 6,088 a. For the assumptions used in the projections see the technical notes. b. Excludes countries with populations of less than one million. 211 Table 20. Demographic and fertility-related indicators Crude Crude Percentage Percentage of birth death change in: married women of rate per rate per Crude Total childbearing age Crude thousand thousand birth fertility using Contra- death ceptivese population population rate rate rate 1965 1983 1965 1983 1965-83 1965-83 1983 2000 1970" 1982b Low-Income economies 43 w 30 w 17w 11w -30.3w -38.7w 4.0w '1 w China and India 42 w 25 w 16w 9w -39.3w -44.1 w 3.3w 2.4w Other low-income 46 w 43 w 21w 16w -7.3w -26.5w 6.0w 4.6w Sub-Saharan Africa 48 w 47 w 22 iv 18w -2.0w -20.2w 6.6w 5.6w 1 Ethiopia 44 41 19 20 -6.9 6,8 5.5 5.1 . . 2 2 Bangladesh 47 42 22 16 -11.9 -27.0 6.0 3.7 . . 25 3 Mali 50 48 27 21 -4.6 -22.2 6.5 5.9 .. 4 Nepal 46 42 24 18 -9.0 -25.5 6.3 5.4 .. 7 5 Zaire 48 46 23 16 -4.0 -32.6 6.3 5,3 .. 3 6 Burkina 46 47 24 21 3.3 -12.5 6.5 6.0 .. 1 7 Burma 42 38 19 13 -9.6 -33.5 5.3 3.6 .. 5 8 Malawi 56 54 29 23 -3.6 -20.1 7.6 6.4 . . 9 Uganda 49 50 19 17 2.2 -12.4 7.0 5.8 . . 10 Burundi 47 47 24 19 -1.1 -22.6 6.5 5.9 . . 11 Niger 48 52 25 20 7.3 -22.4 7.0 6.4 .. 1 12 Tanzania 49 50 22 16 2.5 -27.3 70 5.8 .. 1 13 Somalia 50 50 28 20 -0.4 -27.0 6.8 6.2 .. 1 14 India 45 34 21 13 -25.0 -39.6 4.8 2.9 12 32 15 Rwanda 52 52 17 19 0.8 11.8 8.0 6.7 . . 1 16 Central African Rep. 43 41 24 17 -4.7 -31.7 5.5 5.5 17 Togo 50 49 23 18 -1.2 -20.4 6.5 5.4 18 Benin 49 49 25 18 0.4 -26.8 6.5 5.4 .. 18 19 China 39 19 13 7 -51.2 -50.8 2.3 2.0 . . 71 20 Guinea 46 47 30 27 2.2 -9.8 6.0 5.6 . . 1 21 Haiti 38 32 18 13 -16.2 -26.8 4.6 3.4 . . 20 22 Ghana 50 49 16 10 -1.8 -35.9 7.0 4.8 .. 10 23 Madagascar 44 47 21 18 6.9 -17.0 6.5 5.9 24 Sierra Leone 48 49 33 27 2.3 -19.2 6.5 6.1 . . 4 25 Sri Lanka 33 27 8 6 -20.2 -26.8 3.4 2.3 . . 55 26 Kenya 51 55 17 12 7.3 -29.4 8.0 5.7 6 8 27 Pakistan 48 42 21 15 -12.7 -29.4 5.8 4.2 6 14 28 Sudan 47 46 24 17 -2.1 -27.2 6.6 5.5 .. 5 29 Afghanistan 54 54 29 29 0.6 -2.7 8.0 5.6 2 30 Bhutan 43 43 32 21 -0.2 -34.6 6.2 5.3 31 Chad 40 42 26 21 5.2 -19.2 5.5 5.6 . . 32 Kampuchea, Dem. 44 .. 20 .. . . .. .. 33 Lao PDR 45 42 23 20 -5.5 -14.1 6.4 5.5 34 Mozambique 49 46 27 19 -6.1 -29.6 6.5 5.9 . . 35 VietNam 45 35 17 8 -22.2 -53.5 4.9 3.1 . . 21 Middle-income economies 42 iv 34 w 15w lOw -17.8w -33.1 iv 4.6 w 3.4 w Oil exporters 46 iv 39 w 18w 12 a' -15.4w -36.1 iv 5.2w 3,9w Oil importers 38 iv 30 iv 13w 9 a' -20.7w -29.6w 4.0w 2.9 iv Sub-Saharan Africa 50 w 49 iv 22 w 16w -1.8w -26.1 w 6.8 w 5.6w Lower middle-income 45 iv 36 iv 18w 12w -18.4w -34,5w 4.9w 3.6w 36 Senegal 47 46 23 19 1.7 -19.2 6.6 5.6 .. 4 37 Lesotho 42 42 18 15 (.) -17.0 5.8 4.8 . . 5 38 Liberia 46 49 22 18 6.1 -18.2 6.9 5.7 39 Mauritania 44 43 25 19 -3.0 -26.2 6.0 5.9 . . 40 Bolivia 46 44 21 16 -4.8 -23.8 6.2 4.2 .. 24 41 Yemen, FOR 50 48 27 19 -4.0 -29.3 6.3 4.4 42 YemenArab Rep. 49 48 27 22 -1.6 -19.6 6.8 5.8 .. 1 43 Indonesia 43 34 20 13 -20.9 -37.3 4.3 2.8 . . 58 44 Zambia 49 50 20 16 1.7 -21.4 6.7 5.5 . , 1 45 Honduras 51 44 17 10 -12.8 -41.7 6.5 3.8 . . 27 46 Egypt,ArabRep. 42 34 19 11 -18.9 -42.6 4.6 3.0 .. 24 47 El Salvador 46 40 14 8 -14.3 -44.0 5.5 3.3 .. 34 48 Ivory Coast 44 46 22 14 5.1 -34.9 6.6 4.9 .. 3 49 Zimbabwe 55 53 14 13 -4.4 -9.3 7.0 4.8 . . 22 50 Morocco 49 40 19 14 -19.3 -22.7 5.8 3.8 .. 26 51 Papua New Guinea 43 35 20 14 -18.6 -30.7 5.0 3.5 .. 5 52 Philippines 46 31 12 7 -32.6 -43.7 42 2.7 15 48 53 Nigeria 51 50 23 17 -3.5 -26.8 6.9 5.7 .. 6 54 Cameroon 40 46 20 15 16.3 -25.0 6.5 5.6 . . 11 55 Thailand 43 27 12 8 -37.2 -35.5 34 2.2 15' 59 56 Nicaragua 49 45 16 11 -9.3 -32.1 6.3 4.0 .. 9 57 Costa Rica 45 30 8 4 -33.9 -50.0 3.5 2.3 .. 65 58 Peru 45 34 17 11 -25.6 -36.1 4.5 3.2 . . 41 59 Guatemala 46 38 16 9 -18.0 -44.4 5.2 3.4 . . 18 60 Congo, People's Rep. 41 43 14 8 5.6 -43.9 6.0 5.5 61 Turkey 41 31 14 9 -25.7 -40.3 4.1 2.7 32 38 62 Tunisia 46 33 18 9 -29.3 -48.6 4.9 3.1 .. 41 63 Jamaica 38 28 9 7 -26.6 -22.8 3.5 2.3 .. 51 64 Dominican Rep. 47 33 14 8 -29.2 -44.8 4.2 2.7 . . 46 Note: For data comparability and coverage see the technical notes. 212 Crude Crude Percentage Percentage of birth death change in: married women of rate per rate per Crude Crude Total childbearing age thousand thousand fertility using contra- birth death population population rate rate rate ceptives 1965 1983 1965 1983 1965-83 1965-83 1983 2000 1970b l982b 65 Paraguay 41 31 11 7 -25.9 -37.3 4.2 2.7 .. 35 66 Ecuador 45 37 15 8 -18.1 -45.3 5.4 3.2 .. 40 67 Colombia 43 28 12 7 -34.9 -37.6 3.5 2.5 .. 55 88 Angola 49 49 29 22 -1.6 -25.3 6.5 6.0 69 Cuba 34 17 8 6 -50.3 -26.3 2.0 2.0 .. 79 70 Korea, Oem. Rep. 39 30 12 7 -22.7 -38.5 4.0 2.6 71 Lebanon 41 29 13 9 -28.8 -28.3 3.8 2.4 53 72 Mongolia 42 34 12 7 -18.2 -43.1 4.8 3.1 Upper middle-income 38w 31 w 12w 8w -16.8w -29.9w 4.1w 3.1 w 73 Jordan 48 45 18 8 -6.7 -55.4 7.4 5.3 22 26 74 Syrian Arab Rep. 48 46 16 7 -3.4 -56,3 7.2 4.0 .. 23 75 Malaysia 41 29 12 6 -29.4 -46.8 3.7 2.4 33 42 76 Chile 32 24 11 6 -25.7 -44.4 2.9 2.2 . . 43 77 Brazil 39 30 12 8 -22.9 -28.7 3.8 2.6 .. 50 78 Korea, Rep. of 36 23 12 6 -36.3 -46.1 2.7 2.1 25 58 79 Argentina 22 24 9 9 12.0 1.1 3.4 2.5 . 80 Panama 40 28 9 5 -30.0 -43.2 3.5 2.3 . . 61 81 Portugal 23 15 10 9 -34.8 -13.5 2.0 2.0 . . 66 82 Mexico 45 34 11 7 -23.7 -36.1 4.6 2.8 . . 39 83 Algeria 50 47 18 13 -6.8 -32.1 7.0 5.4 . . 7 84 South Africa 40 40 13 9 (.) -30.8 5.1 3.5 . 85 Uruguay 21 18 10 9 -14.6 -4.2 2.6 2.2 86 Yugoslavia 21 17 9 10 -21.0 9.1 2.1 2.1 59 55 87 Venezuela 43 35 9 6 -19.7 -40.2 4.3 2.7 .. 49 88 Greece 18 14 8 9 -23.2 15.2 2.1 2.1 89 Israel 26 24 6, 7 -6.6 9.5 3.1 2.3 90 HongKong 28 17 6 5 -39.3 -13.8 1.8 2.0 42 80 91 Singapore 31 17 6 5 -44.6 -9.1 1.7 1.9 60 71 92 TrinidadandTobago 33 29 7 7 -10.8 -1.4 3.3 2.4 44 52 93 Iran, Islamic Rep. 50 40 17 10 -19.5 -39.9 5.6 4.3 . . 23 94 Iraq 49 45 18 11 -9.2 -38.9 6.7 5.2 14 High-income oil exporters 49w 42w 19w 11w -13.8w -45.0w 6.9w, 5.2w 95 Oman 50 47 24 15 -6.0 -37.5 7.1 4.0 96 Libya 49 45 18 11 -8.5 -39.8 7.2 5.5 97 Saudi Arabia 49 43 20 12 -11.1 -41.4 7.1 5.7 98 Kuwait 47 35 8 . 3 -25.5 -60.5 5.7 3.0 99 UnitedArabEmirates 41 27 15 4 -34.1 -73.3 5.9 4.1 Industrial market economies 19 w 14w lOw 9w -28.6w -7.3w 1.7w 1.9w 100 Spain 21 13 8 7 -38.1 -16.7 2.0 2.0 51 101 Ireland 22 20 12 9 -9.1 -20.9 3.0 2.1 102 Italy 19 11 10 10 -44.5 1.0 1.5 1.9 78 103 NewZealand 23 16 9 8 -31.0 -6.9 2.0 2.0 104 Belgium 17 12 12 11 -27.9 -7.4 1.6 1.9 105 United Kingdom 18 13 12 12 -29.3 2.6 1.8 1.9 69 77 106 Austria 18 12 13 12 -33.5 -5.4 1.6 1.9 107 Netherlands 20 12 8 8 -40.7 2.5 1.5 1.8 . 108 Japan 19 13 7 6 -30.5 -15.5 1.7 1.9 56 56 109 France 18 14 11 10 -23.0 -8.9 1.8 2.0 64 79 110 Finland 17 14 10 9 -18.1 -7.2 1.8 2.0 77 80 111 Germany, Fed. Rep. 18 10 12. 12 -45.2 1.7 1.4 1.8 112 Australia 20 16 9 7 -19.4 -17.0 2.0 2.0 113 Denmark 18 10 10 11 -45.0 10.9 1.4 1.8 67 114 Canada 21 15 8 7 -29.6 -7.9 1.7 1.9 115 Sweden 16 11 10 11 -30.8 7.9 1.7 1.9 .. 78 116 Norway 18 12 10 10 -32.6 7.4 1.7 1.9 . . 71 117 United States 19 16 9 9 -20.1 -8.5 1.8 2.0 65 76 118 Switzerland 19 11 10 9 -40.3 -2.1 1.9 2.0 . East European nonmarket economies 18 w 19 a' 8w 11 w 7.3w 32.9w 2.3 w 2.1 w 119 Hungary 13 12 11 14 -9.2 31.1 1.8 2.0 67 74 120 Albania 35 28 9 6 -21.0 -33.3 3.6 2.2 121 Bulgaria 15 14 8 11 -11.1 39.0 2.0 2.1 .. 76 122 Czechoslovakia 16 15 10 12 -9.8 200 2.1 2.1 .. 95 123 German Dam. Rep. 17 14 14 13 -15.2 -1.5 1.9 2.0 .. 124 Poland 17 20 7 10 139 29.7 2.4 2.1 60 75 125 Romania 15 15 9 10 2.7 12.8 2.4 2.1 .. 58 126 USSR 18 20 7 10 98 41.1 2.4 2.1 a. Figures include women whose husbands practice contraception. See the technical notes. b. Figures in italics are for years or periods other than those specified. See the technical notes. 213 Table 21. Labor force Percentage of population of Average annual growth working age Percentage of labor force in: of labor force (15-64 years) Agriculture Industry Services (percent) 1965 1983 1965 1981 1965 1981 1965 1981 1965-73 1973-83 1980-2000 Low-income economies 54 w 59 w 77w 73w 9w 13w 14w 15w 2.2 w 2.1 w 2.0w China and India 57 w 60 w 73w 13w 14w 2.2w 1.5w 1.8w Other low-income 48 w 53 w 81w 72w 7w 11w 12w 16w 2.1 w 4.1 w 2.8 w Sub-Saharan Africa 53 w 51w 84w 78w 7w lOw 9w 13w 2.2w 2.1 w 3.1 w 1 Ethiopia 53 52 86 80 6 7 8 13 2.2 1.4 2.2 2 Bangladesh 51 54 87 74 3 11 10 15 2.3 2.8 2.9 3 Mali 53 50 93 73 4 12 3 15 2.2 2.0 2.6 4 Nepal 56 54 95 93 2 2 3 5 1.6 2.3 2.5 5 Zaire 53 51 81 75 10 13 9 12 1.8 2.2 3.0 6 Burkina 54 52 90 82 6 13 4 5 1.6 1.5 2.1 7 Burma 57 55 67 . . 10 . 23 1.3 1.4 2.2 8 Malawi 51 49 91 86 4 5 5 9 2.4 2.8 2.8 9 Uganda 53 50 88 83 5 6 7 11 3.0 1.7 3.4 10 Burundi 54 53 89 84 4 5 7 11 1.2 1.6 2.5 11 Niger 51 51 94 91 1 3 5 6 2.4 3.0 3.1 12 Tanzania 53 50 88 83 4 6 8 11 2.5 2.5 3.1 13 Somalia 49 53 87 82 5 8 8 10 3.8 2.0 1.7 14 India 54 57 74 71 11 13 15 16 1.8 2.1 2.1 15 Rwanda 52 51 94 91 1 2 5 7 2.7 3.0 3.2 16 CentralAfricanRep. 57 55 93 88 3 4 4 8 1.1 1.6 2.4 17 Togo 53 50 81 67 10 15 9 18 2.2 1.9 2.9 18 Benin 53 50 52 46 10 16 38 38 2.1 2.0 2.7 19 China 55 63 .. 74 .. 13 .. 13 2.4 1.2 1.8 20 Guinea 55 53 87 82 7 11 6 7 1.2 1.3 2.4 21 Haiti 54 55 77 74 7 7 16 19 0.7 1.5 2.0 22 Ghana 52 49 61 53 16 20 23 27 1.6 2.0 3.8 23 Madagascar 54 50 92 87 3 4 5 9 1.9 1.7 3.0 24 SierraLeone 54 55 75 65 14 19 11 16 0.7 1.2 1.7 25 Sri Lanka 55 60 56 54 14 14 30 32 2.0 2.1 2.2 26 Kenya 49 46 84 78 6 10 10 12 3.2 2.9 4.0 27 Pakistan 50 53 60 57 19 20 21 23 2.3 3.2 2.7 28 Sudan 53 52 84 78 7 10 9 12 2.5 2.5 2.9 29 Afghanistan 55 53 84 79 7 8 9 13 1.9 2.3 2.4 30 Bhutan 56 56 95 93 2 2 3 5 1.0 1.9 21 31 Chad 56 56 93 85 3 7 4 8 1.6 2.3 2.3 32 Kampuchea, Dem. 52 .. 80 .. 4 . . 16 .. 1.3 33 Lao PDR 56 52 81 75 5 6 14 19 0.6 0.9 2.5 34 Mozambique 56 52 77 66 10 18 13 16 2.2 3.0 2.9 35 VietNam .. 55 79 71 6 10 15 19 . . .. 2.9 Middle-income economies 53w 56w 57w 44w 16w 22w 27w 35w 2.2w 2.6 w 2.5w Oil exporters 52w 54w 61w 48w 15w 21w 25w 32w 2.3 w 2.6 w 2.9 w Oil importers 55w 58w 53w 41w 18w 22w 29w 37w 2.1 w 2.6 w 2.2 w Sub-Saharan Africa 53w 50w 70w 60w 11w 16w 19w 24w 2.0w 2.1 w 3.2 w Lower middle-income 53w 55w 66 a' 54w 13w 17w 22w 29w 2.1 w 2.5w 2.5w 36 Senegal 54 53 82 77 6 10 12 13 1.7 2.2 2.6 37 Lesotho 56 54 92 60 3 15 5 25 1.7 1.9 2.5 38 Liberia 51 53 78 70 11 14 11 16 2.0 3.9 2.8 39 Mauritania 52 53 90 69 4 8 6 23 1.9 2.4 2.0 40 Bolivia 54 53 58 50 20 24 22 26 18 2.5 2.8 41 Yemen, PDR 52 52 68 45 16 15 16 40 1.1 1.8 3.3 42 YemenArabRep. 54 51 81 75 8 11 11 14 1.0 2.1 3.3 43 Indonesia 54 56 71 58 9 12 20 30 1.9 2.3 2.4 44 Zambia 52 49 76 67 8 11 16 22 2.3 2.1 3.3 45 Honduras 51 50 68 63 12 20 20 17 2.4 3.3 3.5 46 Egypt, Arab Rep. 55 57 56 50 15 30 29 20 2.2 2.4 2.3 47 El Salvador 51 52 59 50 18 22 23 28 3.2 2.8 3.4 48 IvoryCoast 55 53 87 79 3 4 10 17 4.2 3.8 3.3 49 Zimbabwe 51 46 67 60 12 15 21 25 2.7 1.4 4.4 50 Morocco 51 52 60 52 15 21 25 27 1.6 2.8 3.1 51 PapuaNewGuinea 56 54 88 82 5 8 7 10 1.9 1.4 2.2 52 Philippines 52 56 57 46 16 17 27 37 2.1 3.0 2.5 53 Nigeria 52 50 67 54 12 19 21 27 1.8 2.0 3.3 54 Cameroon 56 51 86 83 6 7 8 10 1.9 1.8 3.2 55 Thailand 51 59 82 76 5 9 13 15 2.4 3.1 2.1 56 Nicaragua 49 51 57 39 16 14 27 47 2.8 4,0 3.8 57 Costa Rica 49 59 47 29 20 23 33 48 3.6 3.6 2.8 58 Peru 52 56 50 40 19 19 31 41 2.4 2.9 3.0 59 Guatemala 51 54 64 55 16 21 20 24 2.9 3.0 2.9 60 Congo, People's Rep. 55 51 47 34 19 26 34 40 1.9 1.8 3.8 61 Turkey 54 58 74 54 11 13 15 33 1.8 2.0 2.1 62 Tunisia 50 56 53 35 20 32 27 33 1.4 2.9 2.9 63 Jamaica 51 56 34 35 25 18 41 47 0.7 2.6 2.6 64 Dominican Rep. 48 55 64 49 13 18 23 33 2.7 3.2 2.8 Note: For data comparability and coverage see the technical notes. 214 Percentage of population of Average annual growth working age Percentage of labor force in: of labor force (15-64 years) Agriculture Industry Services (percent) 1965 1983 1965 1981 1965 1981 1965 1981 1965-73 1973-83 1980-2000 65 Paraguay 50 55 55 49 19 19 26 32 2.6 3.3 3.0 66 Ecuador 51 53 54 52 21 17 25 31 2.6 2.6 3.3 67 Colombia 50 59 45 26 20 21 35 53 3.1 2.8 26 68 Angola 55 53 67 59 13 16 20 25 17 28 2.8 69 Cuba 59 64 35 23 24 31 41 46 1.0 2.1 1.7 70 Korea, Oem. Rep. 52 57 59 49 25 33 16 18 26 2.9 2,7 71 Lebanon 51 56 28 11 25 27 47 62 2.5 -0.1 2.1 72 Mongolia 54 55 66 55 15 22 19 23 22 2.6 2.9 Upper middle-income 54 w 58w 45 w 30w 21 w 28w 34 w 42 w 2.3w 2.7w 2.5 w 73 Jordan 51 48 41 20 16 20 43 60 2.6 1.4 4.6 74 SyrianArab Rep. 47 49 53 33 20 31 27 36 3.1 3.5 4.0 75 Malaysia 50 58 60 50 13 16 27 34 2.9 3.2 2.7 76 Chile 56 63 26 19 21 19 53 62 1.3 2.6 2.0 77 Brazil 54 59 49 30 17 24 34 46 2.5 3.1 2.4 78 Korea, Rep. of 54 64 58 34 13 29 29 37 29 2.7 19 79 Argentina 64 61 18 13 34 28 48 59 1.4 1.0 1.4 80 Panama 52 57 46 33 15 18 39 49 3.1 2.6 2.4 81 Portugal 63 64 39 28 31 35 30 37 0.1 0.9 0.6 82 Mexico 50 53 50 36 21 26 29 38 3.1 3.1 3.2 83 Algeria 50 50 59 25 14 25 27 50 1.6 3.6 4.5 84 South Africa 54 56 32 30 30 29 38 41 2.7 3.2 2.9 85 Uruguay 63 63 18 11 30 32 52 57 03 0.5 0.9 86 Yugoslavia 64 67 57 29 21 35 22 36 0.7 0.5 0.6 87 Venezuela 50 56 30 18 24 27 46 55 3.7 4.1 3.4 88 Greece 66 64 51 37 22 28 27 35 01 0.9 0.5 89 Israel 59 59 12 7 35 36 53 57 3.2 2.3 2.2 90 Hong Kong 56 69 6 3 54 57 40 40 3.6 41 1.3 91 Singapore 54 67 6 2 26 39 68 59 3.4 2.3 1.1 92 Trinidad and Tobago 54 61 23 10 35 39 42 51 1.8 1.2 2.3 93 Iran, Islamic Rep. 51 53 50 39 26 34 24 27 3.1 3.0 3.5 94 Iraq 51 51 50 42 20 26 30 32 2.9 31 3.7 High-income oil exporters 53w 55w 58w 46w 15w 19w 27w 35w 4.0w 5.7w 3.3w 95 Oman 53 53 .. .. ,. . . .. . . 96 Libya 53 52 42 19 20 28 38 53 3.6 43 4.3 97 Saudi Arabia 53 54 69 61 11 14 20 25 3.9 58 3.2 98 Kuwait 60 57 1 2 34 34 65 64 53 7.1 3.2 99 United Arab Emirates .. 68 . . . . .. . . Industrial market economies 63w 67w 14w 6w 39w 38w 48w 56w 1.2w 1.2w 0.5w 100 Spain 64 64 34 4 35 40 31 46 0.4 1.2 0.8 101 Ireland 58 59 31 18 28 37 41 45 0.5 1.5 1.5 102 Italy 66 66 24 11 42 45 34 44 0.0 0.6 0.2 103 NewZealand 59 65 13 10 . 36 35 51 55 2.0 1.2 1.0 104 Belgium 64 67 6 3 46 41 48 56 0.5 0.7 0.2 105 United Kingdom 65 65 3 2 46 42 51 56 0.2 0.4 0.2 106 Austria 64 66 19 9 45 37 36 54 -02 09 0.3 107 Netherlands 62 68 9 6 43 45 48 49 1.4 1.4 0.5 108 Japan 68 68 26 12 32 39 42 49 1.7 1.1 0.7 109 France 62 66 18 8 40 39 42 53 0.7 1.0 0.6 110 Finland 65 67 28 11 33 35 39 54 05 0.4 04 111 Germany, Fed. Rep. 66 69 10 4 48 46 42 50 0.3 0.8 -0.1 112 Australia 62 66 10 6 38 33 52 61 2.5 1.6 1.2 113 Denmark 65 66 14 7 37 35 49 58 08 0.6 0.4 114 Canada 59 68 11 5 33 29 56 66 27 20 1.1 115 Sweoen 66 65 11 5 43 34 46 61 0.7 0.4 0.4 116 Norway 63 64 15 7 37 37 48 56 06 0.7 0.6 117 United States 60 67 5 2 36 32 59 66 1.9 1.7 0.9 118 Switzerland 65 67 10 5 50 46 40 49 1.5 0.4 0.1 East European nonmarket economies 63 w 66 w 35 w 17w 34w 44w 32 w 39 w 0.9w 1.0w 0.5 w 119 Hungary 66 65 32 21 39 43 29 36 0.5 (.) 0.1 120 Albania 52 59 69 61 19 25 12 14 2.4 2.6 2.4 121 Bulgaria 67 66 52 37 28 39 20 24 0.6 0.1 0.2 122 Czechoslovakia 65 64 21 11 48 48 31 41 0.8 0.6 0.6 123 German Oem. Rep. 62 66 15 10 49 50 36 40 0.4 0.8 0.3 124 Poland 62 66 44 31 32 39 24 30 17 1.2 0.8 125 Romania 66 64 58 29 19 36 23 35 08 0.5 0.7 126 USSR 62 66 33 14 33 45 34 41 08 1.1 0.6 215 Table 22. Urbanization Urban population Percentage of urban population Number of As percentage Average annual In cities of cities of of total growth rate In largest over 500,000 over 500,000 population (percent) city persons persons i965 1983 1965-73 1973-83 1960 1980 1960 1980 1960 1980 Low-income economies 17w 22w 4.4w 4.5w lOw 16w 31w 55 w 55t 1461 China and India 18w 22 w 7w 6w 33w 59 w 491 1141 Other low-income 13w 21w 5.2w 5.0w 25 w 28 w 19w 40 w 6t 321 Sub-Saharan Africa 11 w 20 w 6.2w 6.0 w 33 w 41w 2w 35 w it 13t 1 Ethiopia 8 15 7.4 6.0 30 37 0 37 0 1 2 Bangladesh 6 17 6.6 7.6 20 30 20 51 1 3 3 Mali 13 19 5.4 4.4 32 24 0 0 0 0 4 Nepal 4 7 4.3 8.2 41 27 0 0 0 0 5 Zaire 19 38 5.9 6.9 14 28 14 38 1 2 6 Burkina 6 11 6.5 4.8 41 0 0 0 0 7 Burma 21 29 4.0 3.9 23 23 23 23 1 2 8 Malawi 5 11 8.2 7.3 19 0 0 0 0 9 Uganda 6 7 8.3 0.3 38 52 0 52 0 1 10 Burundi 2 2 1.4 3.2 0 0 0 0 11 Niger 7 14 7.0 7.0 31 0 0 0 0 12 Tanzania 6 14 8.1 8.6 34 50 0 50 0 1 13 Somalia 20 33 6.4 5.5 34 0 0 0 0 14 India 18 24 4.0 4.2 7 6 26 39 11 36 15 Rwanda 3 5 6.0 6.6 0 0 0 0 0 16 Central African Rep. 27 44 4.4 4.6 40 36 0 0 0 0 17 Togo 11 22 6.4 6.6 60 0 0 0 0 18 Benin 11 16 4.5 4.7 63 0 63 0 1 19 China 18 21 6 6 42 45 38 78 20 Guinea 12 26 5.0 613 37 80 0 80 0 1 21 Haiti 18 27 3.8 4.2 42 56 0 56 0 1 22 Ghana 26 38 4.5 5.3 25 35 0 48 0 2 23 Madagascar 12 20 5.3 5.5 44 36 0 36 0 1 24 Sierra Leone 15 23 5.0 3.3 37 47 0 0 0 0 25 Sri Lanka 20 26 3,4 29 28 16 0 16 o i 26 Kenya 9 17 7.3 8.0 40 57 0 57 0 1 27 Pakistan 24 29 4.3 4.3 20 21 33 51 2 7 28 Sudan 13 20 6.3 5.5 30 31 0 31 0 1 29 Afghanistan 10 17 5.6 6.2 33 17 0 17 0 1 30 Bhutan 4 4 -2.1 4.6 0 0 0 0 0 0 31 Chad 9 20 6.9 6.6 39 0 0 0 0 32 Kampuchea, Cern. 11 3.4 33 Lao PDR 8 15 4.6 5.7 69 48 0 0 0 '0 34 Mozambique 5 17 8.2 10.2 75 83 0' 83 0 1 35 VietNam 16 20 5.5 2.4 32 21 32 50 1 4 Middle-income 36 w 48 w 4.5 zr 3.9w 28 w 29 w 35w 48 u' 541 1271 Oil exporters 30 zr' 41 w 4.4 zr 4.4 w 27w 30 w 32 w 48 zr 151 42t Oil importers 41 w 54 w 4.5 w 3.6 w 28 w 28 w 36 w 48 w 391 85! Sub-Saharan Africa 16w 27 w 6.4w 5.9 w 21w 26 w 14w 51w 2! 151 Lower middle-income 26 zr 36 zz' 5.1 ii' 4.1 zr 27w 32w 28w 47w 221 571 36 Senegal 27 34 4.3 3.8 53 65 0 65 0 37 Lesotho 2 13 7.8 21.4 0 0 0 0 38 Liberia 23 38 5.3 6.1 0 0 0 0 39 Mauritania 7 25 16.0 46 39 0 0 0 0 40 Bolivia 26 43 8.9 3.3 47 44 0 44 0 41 Yemen, PDR 30 37 3.4 3.5 61 49 0 0 0 0 42 Yemen Arab Rep. 6 18 9.7 8.8 25 0 0 0 0 43 Indonesia 16 24 4.1 4.8 20 23 34 50 3 9 44 Zambia 24 47 7.6 6.5 35 0 35 0 45 Honduras 26 38 5.4 5.8 31 33 0 0 0 0 46 Egypt, Arab Rep. 41 45 3.0 2.9 38 39 53 53 2 2 47 El Salvador 39 42 3.6 3.6 26 22 0 0 0 0 48 Ivory Coast 23 44 8.2 8.5 27 34 0 34 0 49 Zimbabwe 14 24 6.8 6.0 40 50 0 50 0 50 Morocco 32 43 4.0 4.2 16 26 16 50 4 51 PapuaNewGuinea 5 14 14.3 5.1 25 0 0 0 52 Philippines 32 39 4.0 3.8 27 30 27 34 2 53 Nigeria 15 22 4.7 5.1 13 17 22 58 2 9 54 Cameroon 16 39 7.3 8.4 26 21 0 21 55 Thailand 13 18 4.8 3.6 65 69 65 69 56 Nicaragua 43 55 4.4 5.2 41 47 0 47 0 57 Costa Rica 38 45 3.8 3.2 67 64 0 64 0 58 Peru 52 67 4.7 3.6 38 39 38 44 2 59 Guatemala 34 40 3.8 4.1 41 36 41 36 60 Congo, People's Rep. 35 55 4.4 5.5 77 56 0 0 0 0 61 Turkey 31 45 4.9 3.7 18 24 32 42 4 62 Tunisia 40 54 4,1 3.7 40 30 40 30 63 Jamaica 36 52 4.3 2.7 77 66 0 66 0 64 Dominican Rep. 35 54 5.6 4.7 50 54 0 54 0 Note: For data comparability and coverage see the technical notes. 216 Urban population Percentage of urban population Number of As percentage Average annual In cities of cities of of total growth rate In largest over 500,000 over 500,000 population (percent) city persons - persons 1965a 1983 1965-73 1973-83 1960 1980 1960 1980 1960 1980 65 Paraguay 36 41 3.2 3.3 44 44 0 44 0 1 66 Ecuador 37 46 3.9 3.9 31 29 0 51 0 2 67 Colombia 54 66 4.4 2.9 17 26 28 51 3 4 68 Angola 13 23 5.9 6.0 44 64 0 64 0 1 69 Cuba 58 70 2.8 1.9 32 38 38 32 1 1 70 Korea, Cern. Rep. 45 62 4.9 4.2 15 12 15 19 1 2 71 Lebanon 50 78 6.2 1.6 64 79 64 79 1 1 72 Mongolia 42 54 4.6 4.2 53 52 0 0 0 0 Upper middle-income 49w 64w 4.0 w 3,8w 28 w 29w 38w 51 w 32 I 70 1 73 Jordan 47 72 4.7 4.8 31 37 0 37 0 1 74 Syrian Arab Rep. 40 48 4.8 4.2 35 33 35 55 1 2 75 Malaysia 26 31 3.3 3.5 19 27 0 27 0 1 76 Chile 72 82 28 2.4 38 44 38 44 1 1 77 Brazil 51 71 4.5 4.1 14 15 35 52 6 14 78 Korea, Rep. of 32 62 6.5 4.8 35 41 61 77 3 7 79 Argentina 76 84 2.1 2.1 46 45 54 60 3 5 80 Panama 44 50 4.1 3.0 61 66 0 66 0 1 81 Portugal 24 30 1.2 2.5 47 44 47 44 1 1 82 Mexico 55 69 4.8 4.1 28 32 36 48 3 7 83 Algeria 38 46 2.5 5.4 27 12 27 12 . 1 1 84 South Africa 47 55 2.6 3.9 16 13 44 53 4 7 85 Uruguay 81 85 0.8 0.8 56 52 56 52 1 1 86 Yugoslavia 31 45 3.1 2.8 11 10 11 23 1 3 87 Venezuela 72 85 4.8 4.3 26 26 26 44 1 4 88 Greece 48 64 2.5 2.6 51 57 51 70 1 2 89 Israel 81 90 3.8 2.7 . 46 35 46 35 1 1 90 Hong Kong 89 92 2.1 2.7 100 100 100 100 1 1 91 Singapore 100 100 1.8 1.3 100 100 100 100 1 1 92 Trinidad and Tobago 22 22 0.6 1.0 . . . . 0 0 0 0 93 Iran, Islamic Pep. 37 53 5.4 5.1 26 28 26 47 1 6 94 Iraq 50 69 57 53 35 55 35 70 High-income oil exporters 37w 68w 8.9 w 7.9 w 29w 28w Ow 34w 01 31 95 Oman 4 25 10.8 17.6 .. . . . . 96 Libya 29 61 8.9 8.1 57 64 0 64 0 1 97 SaudiArabia 39 71 8.4 7.4 15 18 0 33 0 2 98 Kuwait 75 92 9.3 7.8 75 30 0 0 0 0 99 UnitedArabEmirates 56 79 16.7 11.2 .. .. . Industrial market economies 71w 77w 1.7w 1.0w 18w 18w 48w 55w 1041 1521 100 Spain 61 76 2.5 2.0 13 17 37 44 5 6 101 Ireland 49 56 2.0 2.2 51 48 51 48 1 1 102 Italy 62 71 1.4 1.1 13 17 46 52 7 9 103 NewZealand 79 83 1.9 0.8 25 30 0 30 0 1 104 Belgium 68 89 0.9 1.3 17 14 28 24 2 2 105 United Kingdom 87 91 0.7 0.3 24 20 61 55 15 17 106 Austria 51 56 0.8 0.6 51 39 51 39 1 1 107 Netherlands 79 52 0.8 -1.1 9 9 27 24 3 3 108 Japan 67 76 2.4 1.3 18 22 35 42 5 9 109 France 67 80 2.0 1.2 25 23 34 34 4 6 110 Finland 44 60 2.8 1.9 28 27 0 27 0 1 111 Germany, Fed. Rep. 79 86 1.2 0.3 20 18 48 45 11 11 112 Australia 83 86 2.6 1.5 26 24 62 68 4 5 113 Denmark 77 85 1.3 0.7 40 32 40 32 1 1 114 Canada 73 75 1.9 1.2 14 18 31 62 2 9 115 Sweden 77 85 1.6 0.7 15 15 15 35 1 3 116 Norway 37 55 3.4 2.4 50 32 50 32 1 1 117 UnitedStates 72 74 1.6 1.2 13 12 61 77 40 65 118 Switzerland 53 59 1.9 0.7 19 22 19 22 1 1 East European nonmarket economies 51 w 64 w 48w -2.2w 9w 7w 23w 32w 361 6Sf 119 Hungary 43 55 2.2 1.4 45 37 45 37 1 1 120 Albania 32 38 3.5 3.2 27 25 0 0 0 0 121 Bulgaria 46 67 3.2 2.1 23 18 23 18 1 1 122 Czechoslovakia 51 65 1.8 1.8 17 12 17 12 1 1 123 German Oem. Rep. 73 76 0.2 0.2 9 9 14 17 2 3 124 Poland 50 59 1.5 1.9 17 15 41 47 5 8 125 Romania 34 51 4.2 3.1 22 17 22 17 1 1 126 USSR 52 65 5.9 -3.4 6 4 21 33 25 50 a. Figures in italics are for years other than those specified. 217 Table 23. Indicators related to life expectancy Life expectancy at Infant birth (years) mortality rate Child death rate Male Female (aged under 1) (aged 1-4) 1965 1983 1965 1983 1965 1983 1965 1983 Low-income economies 49 w 58 a 51w 60 w 122 w 75 iv 19w 9w China and India 51 iv 61w 53 w 63 w 115w 61 w 16w 6w Other low-income 44 w 50 w 45 w 52 w 147w 115w 27 w 18w Sub-Saharan Africa 42 w 46 w 45 w 49 w 156 w 119w 35 w 23 w 1 Ethiopia 43 47 166 37 2 Bangladesh 45 49 44 50 153 132 24 19 3 Mali 37 43 39 47 184 148 47 31 4 Nepal 40 47 39 45 184 143 30 21 5 Zaire 43 49 46 52 142 106 30 20 6 Burkina 40 43 42 46 193 148 52 31 7 Burma 45 53 48 57 143 93 21 11 8 Malawi 37 43 40 45 201 164 55 38 9 Uganda 46 48 49 50 126 108 26 21 10 Burundi 42 45 45 48 169 123 38 25 11 Niger 40 43 42 47 181 139 46 28 12 Tanzania 41 49 44 52 138 97 29 18 13 Somalia .. 43 . . 46 166 142 37 30 14 India 46 56 44 54 151 93 23 11 15 Rwanda 47 45 51 48 159 125 35 26 16 Central African Rep. 40 46 41 49 184 142 47 29 17 Togo 40 47 43 50 158 112 36 17 18 Benin 41 46 43 50 193 148 52 31 19 China 55 65 59 69 90 38 11 2 20 Guinea 34 37 36 38 197 158 53 36 21 Haiti 46 53 47 56 160 107 37 15 22 Ghana 49 57 52 61 132 97 25 12 23 Madagascar 41 49 44 50 99 66 18 10 24 Sierra Leone 32 37 33 38 230 198 69 54 25 Sri Lanka 63 67 64 71 63 37 6 2 26 Kenya 48 55 51 59 124 81 25 14 27 Pakistan 46 51 44 49 150 119 23 16 28 Sudan 39 47 41 49 161 117 37 19 29 Afghanistan 34 . . 35 .. 223 .. 39 30 Bhutan 34 44 32 42 184 162 30 26 31 Chad 39 42 41 45 184 142 47 29 32 Kampuchea, Oem. 43 . . 45 .. 135 19 33 La0PDR 39 42 42 45 196 159 34 25 34 Mozambique 36 44 39 47 148 109 31 16 35 VietNam 47 62 50 66 89 53 8 4 Middle-income economies 51 w 59 w 55 w 63 w 112w 75 w 18 iv 9w Oil exporters 47 w 55 w 49 w 58 a 129w 91w 23 w 12w Oil importers 55 w 62 w 59 w 66 w 98 w 61 w 15w 6w Sub-Saharan Africa 41w 48 w 44 w 51w 150 w 112w 32 w 17w Lower middle-income 47w 55 w 50w 59w 127w 87w 22w 11w 36 Senegal 40 44 42 47 172 140 42 28 37 Lesotho 47 51 50 55 138 109 20 14 38 Liberia 41 47 43 50 149 111 32 17 39 Mauritan:a 39 44 41 47 171 136 41 16 40 Bolivia 42 49 46 53 161 123 37 21 41 Yemen, PDR 38 45 39 47 194 137 52 27 42 Yemen Arab Rep. 37 43 38 45 200 152 55 33 43 Indonesia 43 52 45 55 138 101 20 13 44 Zambia 42 49 46 52 137 100 29 19 45 Honduras 48 58 51 62 131 81 24 8 46 Egypt, Arab Rep. 48 56 49 59 123 102 21 14 47 El Salvador 52 62 56 66 120 70 20 6 48 IvoryCoast 43 50 45 53 160 121 37 20 49 Zimbabwe 50 52 58 60 106 69 15 7 50 Morocco 48 51 51 54 149 98 32 12 51 PapuaNewGuinea 44 54 44 53 148 97 23 12 52 Philippines 55 63 58 66 90 49 11 4 53 Nigeria 40 47 43 50 152 113 33 17 54 Cameroon 44 52 47 55 155 116 34 19 55 Thailand 53 61 58 65 90 50 11 4 56 Nicaragua 49 56 51 60 129 84 24 9 57 Costa Rica 63 72 66 76 74 20 8 1 58 Peru 49 57 52 60 131 98 24 12 59 Guatemala 49 58 51 62 109 67 16 5 60 Congo, People's Rep. 52 62 56 65 116 82 19 8 61 Turkey 52 61 55 66 157 82 35 8 62 Tunisia 51 60 52 63 145 83 30 8 63 Jamaica 63 68 67 72 51 28 4 2 64 Dominican Rep. 52 61 56 65 103 63 14 5 Note: For data comparability and coverage see the technical notes. 218 Life expectancy at Intant birth (years) mortality rate Child death rate Male Female (aged under 1) (aged 1-4) 1965 1983 1965 1983 1965 1983 1965 1983 65 Paraguay 56 63 60 67 74 45 7 3 66 Ecuador 52 61 55 65 124 76 22 7 67 Colombia 53 62 59 66 80 53 8 3 68 Angola 34 42 37 44 193 148 52 31 69 Cuba 65 73 69 77 54 20 4 1 70 Korea, Oem. Rep. 55 63 58 67 64 32 6 2 71 Lebanon 60 63 64 67 57 48 4 3 72 Mongolia 55 63 58 67 89 49 11 4 Uppermiddle-income 57w 63w 60w 68w 92w 59w 13w 5w 73 Jordan 49 63 51 65 117 62 19 5 74 SyrianArab Rep. 52 66 54 69 116 56 19 4 75 Malaysia 56 65 59 69 57 29 5 2 76 Chile 56 68 62 72 103 40 14 2 77 Brazil 55 61 59 66 104 70 14 6 78 Korea, Rep. of 55 64 58 71 64 29 6 2 79 Argentina 63 66 69 73 59 36 4 1 80 Panama 62 69 65 73 59 26 4 1 81 Portugal 61 68 67 74 65 25 6 1 82 Mexico 58 64 61 68 82 52 9 3 83 Algeria 49 55 51 59 155 107 34 15 84 South Africa 54 62 57 65 124 91 22 10 85 Uruguay 66 71 72 75 47 38 3 2 86 Yugoslavia 64 66 68 72 72 32 7 2 87 Venezuela 58 65 63 71 71 38 6 2 88 Greece 69 73 72 77 34 15 2 1 89 Israel 70 72 74 76 27 14 2 1 90 Hong Kong 66 74 71 78 28 10 2 91 Singapore 63 70 68 75 26 11 1 92 Trinidad and Tobago 63 66 67 70 47 28 3 1 93 lran,lslam,c Rep. 52 60 52 60 150 100 32 13 94 Iraq 50 57 53 61 121 71 21 6 High-income oil exporters 46 w 57 w 49w 60w 153w 90w 34w 11w 95 Oman 40 51 42 54 175 121 43 21 96 Libya 48 56 51 59 143 91 29 10 97 SaudiArabia 45 55 47 58 164 101 38 13 98 Kuwait 61 69 65 74 66 29 5 1 99 United Arab Emirates 57 68 61 73 104 44 14 2 Industrial market economies 68w 72w 74w 79w 24w lOw 1w (.)w 100 Spain 68 73 73 78 38 10 3 101 Ireland 68 70 73 76 25 11 1 102 Italy 68 73 73 79 36 12 3 103 NewZealand 68 71 74 77 20 13 1 104 Belgium 68 70 '74 77 24 11 1 105 United Kingdom 68 71 74 77 20 10 1 106 Austria 66 70 73 77 28 12 2 107 Netherlands 71 73 76 80 14 8 1 108 Japan 68 74 73 79 18 7 1 109 France 68 72 75 79 22 9 1 110 Finland 66 69 73 78 17 7 1 111 Germany, Fed. Rep. 67 72 73 78 24 11 2 112 Australia 68 73 74 79 19 10 1 113 Denmark 71 72 75 78 19 8 1 114 Canada 69 73 75 79 24 9 1 115 Sweden 72 75 76 80 13 8 1 116 Norway 71 74 76 80 17 8 1 117 United States 67 72 74 79 25 11 1 118 Switzerland 69 77 75 81 18 8 1 East European nonmarket economies 66 w 66 73w 74w 31w 30w 2w 1w 119 Hungary 67 66 72 74 39 19 3 1 120 Albania 65 69 67 73 87 42 10 3 121 Bulgaria 66 67 73 73 31 17 2 1 122 Czechoslovakia 64 66 73 74 26 16 1 1 123 German Dam. Rep. 67 68 74 74 25 11 2 124 Poland 66 67 72 75 42 19 3 125 Romania 66 69 70 74 44 28 3 126 USSR 65 65 74 74 28 .. 2 219 Table 24. Health-related indicators Daily calorie supply per capita Population per: As percentage Physician Nursing person Total of requirement 1965a 1980a 1965 1980 1982 1982 Low-income economies 12419w 5,556w 6,762w 4,564 w 2,408 w 105 w China and India 1,858w 3,279w 2,503w 109 w Other low-income 26,097w 17,990w 7,296 w 8,697w 2,118w 93 w Sub-Saharan Africa 38,268 w 27,922 w 4,627w 3,148 w 2,098 w 91w 1 Ethiopia 70190 69,390 5,970 5,910 2,162 93 2 Bangladesh 7,810 22,570 1,922 83 3 Mali 49,010 22,130 3,200 2,380 1,731 74 4 Nepal 46,180 30,060 33,420 2,018 86 5 Zaire 39,050 13,940 1,810 2,169 98 6 Burkina 74,110 48,510 4,170 4,950 1,879 79 7 Burma 11,660 4,680 11,410 4,770 2,483 115 8 Malawi 46,900 41,460 12,670 3,830 2,242 97 9 Uganda 11,080 26,810 3,130 4,180 1,807 78 10 Burundi 54,930 45,020 7,310 . . 2,206 95 11 Niger 71,440 38,790 6,210 4,650 2,456 105 12 Tanzania 21,840 17,740 2,100 3,010 2,331 101 13 Somalia 35,060 15,630 3,630 2,550 2,102 91 14 India 4,860 3,690 6,500 5,460 2,047 93 15 Rwanda 74.170 31,340 7,450 9,790 2,202 95 16 Central African Rep. 44,490 26,750 3,000 1,740 2,194 97 17 Togo 24,980 18,100 4,990 1,430 2,167 94 18 Benin 28,790 16,980 2,540 1,660 2,154 101 19 China , . 1,740 1,710 2.562 109 20 Guinea 54,610 17,110 4,750 2,570 1.987 86 21 Haiti 12,580 8,200 3,460 2,490 1,903 84 22 Ghana 12,040 7,160 3,710 770 1,573 68 23 Madagascar 9,900 10,220 3,620 3,670 2,577 114 24 Sierra Leone 18,400 17,520 4,890 2,040 2,049 85 25 Sri Lanka 5,750 7,170 3,210 1,340 2.393 107 26 Kenya 12,840 7,890 1,780 550 2,056 88 27 Pakistan 3,160 3,480 9,900 5,820 2,277 99 28 Sudan 23,500 8,930 3,360 1,430 2,250 96 29 Afghanistan 15,770 16,730 24,450 26,000 2,285 94 30 Bhutan 3,310 18,160 . . 7,960 31 Chad 73,040 47,640 13,620 3,860 1,620 68 32 Kampuchea, Oem. 22,490 . . 3,670 . . 1,792 81 33 Lao POR 26,510 .. 5,320 ,. 1,992 90 34 Mozambique 18,700 39,140 4,720 5,610 1,844 79 35 VietNam 4,190 . . 2,930 2,017 93 Middle-income economies 11,388w 5,995 iv 3,651 w 1,945w 2,661 w 114 iv Oil exporters 20,016w 8,089 w 5,436 w 2,053w 2,612w 113w Oil importers 4,146w 3,870 w 2,162w 1,840w 2,703w 114w Sub-Saharan Africa 35,517w 11,929w 4,745 w 2,650 w 2,370w 101 w Lower middle-income 18,399 w 7,555 u.' 4,891 iv 2,292w 2,495w 109w 36 Senegal 21130 13,780 2,640 1,390 2,392 101 37 Lesotho 22930 18,640 4,700 2,285 100 38 Liberia 1 2,450 8,550 2,300 2,940 2,267 98 39 Mauritania 36,580 14,500 2,100 2,228 97 40 Bohvia 3,310 3,990 2,158 90 41 Yemen, PDR 12,870 7,120 1,850 820 2,329 97 42 Yemen Arab Rep. 58,240 11,670 4,580 2,346 97 43 Indonesia 31,820 11,530 9,500 2,300 2,393 111 44 Zambia 11,390 7,670 5,820 1,730 2,054 89 45 Honduras 5,450 3,120 15,40 700 2,156 95 46 Egypt,ArabRep. 2,260 970 2,030 1,500 3,210 128 47 El Salvador 4,630 3,220 1,300 910 2,060 90 48 Ivory Coast 20,690 . . 1,850 .. 2,652 115 49 Zimbabwe 5,190 5,900 990 940 2,119 89 50 Morocco 12,120 10,750 2,290 1,830 2,671 110 51 PapuaNewGuinea 12,520 13,590 620 960 2,109 79 52 Philippines 1,310 7,970 1,130 6,000 2,393 106 53 Nigeria 44,990 12,550 5,780 3,010 2.443 104 54 Cameroon 29,720 13,990 1,970 1,950 2,102 91 55 Thailand 7,230 7,100 5,020 2,400 2,296 103 56 Nicaragua 2,490 1,800 1,390 550 2,268 101 57 Costa Rica 2,040 1,460 630 450 2,635 118 58 Peru 1,620 1,390 880 970 2,114 90 59 Guatemala 3,830 8,610 8,250 1,620 2,115 97 60 Congo, People's Rep. 14,210 5,510 950 790 2,504 113 61 Turkey 2,860 1,630 6,340 1,130 3,077 122 62 Tunisia 8,040 3,690 1,150 890 2,656 111 63 Jamaica 1,930 2,830 340 630 2,489 111 64 DominicanRep. 1,720 2,410 1,640 . . 2,179 96 Note: For data comparability and coverage see the technical notes 220 Daily calorie supply per capita Population per: As percentage Physician Nursing person Total of requirement 1965a 1980 1965 1980 1982 1982 65 Paraguay 1840 310 1550 1700 2,820 122 66 Ecuador 3,020 760 2,320 570 2,072 91 67 Colombia 2,530 1,710 890 800 2,551 110 68 Angola 12,000 . 3,820 .. 2,041 87 69 Cuba 1,150 720 820 370 2,997 130 70 Korea, Dem. Rep. .. 430 .. ,. 3,051 130 71 Lebanon 1,240 540 2,500 730 3,000 121 72 Mongolia 710 450 310 240 2,798 115 Upper middle-income 2,507w 2,018w 2,076w 995 w 2,880w 119w 73 Jordan 4,670 900 1,810 1,990 2,882 117 74 SyrianArabRep. 4,050 2,240 11,760 1,390 3,040 123 75 Malaysia 6,220 . . 1,320 940 2,688 120 76 Chile 2,080 1,930 600 450 2,669 109 77 Brazil 2,180 . . 1,550 . . 2,623 110 78 Korea, Rep. of 2,740 1,440 2,990 350 2,936 125 79 Argentina 640 430 610 .. 3,363 127 80 Panama 2,170 980 680 420 2,498 108 81 Portugal 1,170 540 1,320 660 3,176 130 82 Mexico 2,060 . . 950 . . 2,976 128 83 Algeria 8,400 2,530 11,770 740 2,639 110 84 South Africa 2,140 . . 530 . . 2,840 116 85 Uruguay 870 540 590 190 2,754 103 86 Yugoslavia 1,190 550 850 280 3,642 143 87 Venezuela 1,270 990 560 380 2,557 104 88 Greece 710 430 790 600 3,554 142 89 Israel 410 370 300 130 3,059 119 90 Hong Kong 2,400 1,210 1,220 790 2,774 121 91 Singapore 1,910 1,150 600 320 2,954 128 92 Trinidad and Tobago 3,820 1,360 560 380 3,083 127 93 Iran, Islamic Rep. 3,770 6,090 4,170 2,520 2,855 119 94 Iraq 4,970 1,800 2,910 2,160 2,840 118 High-income oil exporters 8,774w 1,360w 4,582w 836w 3,271 w 95 Oman 23,790 1,900 6,380 500 96 Libya 3,970 730 850 400 3,581 152 97 SaudiArabia 9,400 1,670 6,060 1,170 3,111 129 98 Kuwait 830 570 270 180 3,423 99 United Arab Emirates .. 910 .. 340 3,591 industrial market economies 752w 554w 302w 180w 3,400w 133w 100 Spain 810 450 1,770 330 3,341 136 101 Ireland 960 780 170 120 4,054 162 102 Italy 590 340 .. .. 3,520 140 103 NewZealand 820 640 980 120 3,549 134 104 Belgium 690 400 590 120 3,743 142 105 United Kingdom 860 650 200 140 3,232 128 106 Austria 550 400 ,470 230 3,524 134 107 Netherlands 860 540 . . 130 3,563 133 108 Japan 930 780 240 240 2,891 124 109 France 810 580 300 120 3,572 142 110 Finland 1,280 530 160 100 3,098 114 111 Germany, Fed. Rep. 630 450 350 170 3,382 127 112 Australia 720 560 110 120 3,189 120 113 Denmark 740 480 190 210 4,023 150 114 Canada 770 550 130 90 3,428 129 115 Sweden 910 490 90 60 3,224 120 116 Norway 790 520 340 90 3,184 119 117 UnitedStates 670 520 120 140 3,616 137 118 Switzerland 750 410 340 160 3,451 128 East European nonmarket economies 564w 345w 300w 130w 3,419w 133w 119 Hungary 630 400 240 150 3,520 134 120 Albania 2,100 . . 550 2,907 121 121 Bulgaria 600 410 410 190 3,711 148 122 Czechoslovakia 540 360 200 130 3,613 146 123 German Dem. Rep. 870 520 3,787 145 124 Poland 800 570 410 240 3,288 126 125 Romania 740 680 400 270 3,348 126 126 USSR 480 270 280 100 3,400 132 a. Figures in italics are for years other than those specified. See the technical notes. 221 Table 25. Education Number Number enrolled in enrolled in secondary higher education Number enrolled in primary school as percentage school as as percentage of age group of population percentage of Total Male Female age group aged 20-24 1965 1982 1965 l982 1965 1982a 1965 1982 1965 1982a Low-income economies 62 w 85 w 77w 103 U' 47w 77w 20w 30w 3w 4w China and India 98 w 111w 83w -. 33w 4w Other low-income 45 w 70 w 59w 80w 31w 58w 9w 19w 1w 2w Sub-Saharan Africa 40w 69 w 52w 79w 28w 56w 4w 14w (.)w 1w 1 Ethiopia 11 46 16 60 6 33 2 12 (.) 1 2 Bangladesh 49 60 67 68 31 51 13 15 1 4 3 Mali 24 27 32 35 16 20 4 9 (.) () 4 Nepal 20 73 36 102 4 42 5 21 1 3 5 Zaire 70 90 95 104 45 75 5 23 (.) 6 Burkina 12 28 16 28 8 16 1 3 (.) 1 7 Burma 71 84 76 87 65 81 15 20 1 4 8 Malawi 44 62 55 73 32 51 2 4 (.) (.) 9 Uganda 67 60 83 69 50 51 4 8 (.) 1 10 Burundi 26 33 36 41 15 25 1 3 (.) I 11 Niger 11 23 15 29 7 17 1 5 (.) 12 Tanzania 32 98 40 101 25 95 2 3 (.) (.) 13 Somalia 10 30 16 38 4 21 2 11 (.) I 14 India 74 79 89 93 57 64 27 30 5 9 15 Rwanda 53 70 64 72 43 67 2 2 (.) (.) 16 Central African Rep. 56 70 84 92 28 50 2 14 1 17 Togo 55 106 78 129 32 84 5 27 (.) 2 18 Benin 34 65 48 87 21 42 3 21 (.) 2 19 China 110 123 97 35 1 20 Guinea 31 33 44 44 19 22 5 16 (.) 3 21 Haiti 50 69 56 74 44 64 5 13 (.) 22 Ghana 69 76 82 85 57 66 13 34 1 1 23 Madagascar 65 100 70 59 8 14 1 3 24 Sierra Leone 29 40 37 21 5 12 (.) 25 Sri Lanka 93 103 98 106 86 101 35 54 2 4 26 Kenya 54 104 69 114 40 94 4 20 (.) 1 27 Pakistan 40 44 59 57 20 31 12 14 2 2 28 Sudan 29 52 37 61 21 43 4 18 1 2 29 Afghanistan 16 35 26 56 5 13 1 12 (.) 1 30 Bhutan 7 23 13 30 1 76 3 (.) 31 Chad 34 .. 56 13 1 3 (.) 32 Kampuchea, Oem, 77 98 56 9 1 33 Lao PDR 40 97 50 105 30 89 2 18 (.) () 34 Mozambique 37 104 48 119 26 72 3 6 (.) (.) 35 VietNam 113 120 105 48 3 Middle-income economies 84w 102w 90w 109w 77 w 99 w 20 a' 42 w 4w 12w Oil exporters 70w 102w 79w 111w 60 w 103w 15w 36 U' 2w 8w Oil importers 95w 103w 99w 107w 91 w 96 u' 24 w 48 w 6w 15w Sub-Saharan Africa 44w 96u' 54w 99w 34 w 81 IL' 5w 17w (.)w 3w Lower middle-income 74w 103w 82w 109w 65 w 98 w 16w 35 w 4w lOw 36 Senegal 40 48 52 58 29 38 7 12 1 3 37 Lesotho 94 112 74 95 114 129 4 20 (.) 2 38 Liberia 41 66 59 82 23 50 5 20 1 2 39 Mauritania 13 33 19 43 6 23 1 10 40 Bolivia 73 86 86 93 60 78 18 34 5 16 41 YemenPDR 23 64 35 94 10 34 11 18 2 42 Yemen Arab Rep. 9 59 16 99 1 17 . 7 1 43 Indonesia 72 120 79 124 65 116 12 33 1 4 44 Zambia 53 96 59 102 46 90 7 16 . . 2 45 Honduras 80 99 81 100 79 98 10 32 1 10 46 EgyptArabRep. 75 78 90 90 60 65 26 54 7 15 47 ElSalvador 82 61 85 61 79 61 17 20 2 6 48 IvoryCoast 60 76 80 92 41 60 6 17 (.) 3 49 Zimbabwe 110 130 128 134 92 125 6 23 (.) 1 50 Morocco 57 80 78 98 35 62 11 28 1 6 51 PapuaNewGuinea 44 65 53 73 35 58 4 13 . 2 52 Philippines 113 106 115 107 111 105 41 64 19 27 53 Nigeria 32 98 39 24 . . 5 16 (.) 3 54 Cameroon 94 107 114 117 75 97 5 19 (.) 2 55 Thailand 78 96 82 98 74 94 14 29 2 22 56 Nicaragua 69 104 68 101 69 107 14 41 2 13 57 Costa Rica 106 106 107 105 105 108 24 48 6 27 58 Peru 99 114 108 119 90 109 25 59 8 21 59 Guatemala 50 73 55 78 45 67 8 16 2 7 60 Congo, People's Rep. 114 . 134 94 10 69 1 6 61 Turkey 101 102 118 110 83 95 16 39 4 6 62 Tunisia 91 111 116 123 65 98 16 32 2 5 63 Jamaica 109 99 112 99 106 100 51 58 3 6 64 Dominican Rep. 87 103 87 98 87 108 12 41 2 10 Note: For data comparability and coverage see the technical notes, 222 Number Number enrolled in enrolled in secondary higher education Number enrolled in primary school school as as percentage as percentage of age group percentage of of population Total Male Female age group aged 20-24 1965 1982 1965 1982 1965 1982 1965 1982k 1965 1982 65 Paraguay 102 103 109 107 96 99 13 36 4 7 66 Ecuador 91 114 94 116 88 112 17 56 3 35 67 Colombia 84 125 83 129 86 132 17 46 3 12 68 Angola 39 53 26 5 .. (.) () 69 Cuba 121 109 123 112 119 105 23 72 3 19 70 Korea, Dem. Rep. 71 Lebanon 106 118 118 122 93 114 26 58 14 28 72 Mongolia 98 106 98 105 97 108 66 89 8 26 Upper middle-income 96 w 102 iv 100w 108i 92w 100w 26w 51w 5w 14w 73 Jordan 95 103 105 105 83 100 38 77 2 32 74 SyrianArabRep. 78 101 103 111 52 90 28 51 8 16 75 Malaysia 90 92 96 93 84 91 28 49 2 5 76 Chile 124 112 125 113 122 100 34 59 6 10 77 Brazil 108 96 109 98 108 93 16 32 2 12 78 Korea, Rep. of 101 100 103 102 99 99 35 89 6 24 79 Argentina 101 119 101 120 102 119 28 59 14 25 80 Panama 102 110 104 112 99 108 34 63 7 23 81 Portugal 84 121 84 120 83 121 42 50 5 11 82 Mexico 92 121 94 123 90 119 17 54 4 15 83 Algena 68 93 81 105 53 81 7 36 1 5 84 South Africa 90 . 91 .. 88 .. 15 .. 4 85 Uruguay 106 122 106 124 106 120 44 63 8 20 86 Yugoslavia 106 101 108 100 103 100 65 82 13 21 87 Venezuela 94 105 93 105 94 104 27 40 7 22 88 Greece 110 106 111 106 109 105 49 81 10 17 89 Israel 95 95 95 96 95 96 48 74 20 30 90 Hong Kong 103 105 106 107 99 103 29 67 5 11 91 Singapore 105 108 110 111 100 105 45 66 10 11 92 Trinidad and Tobago 93 99 97 98 90 99 36 61 2 5 93/ran Islamic Rep. 63 97 85 112 40 81 18 40 2 4 94 Iraq 74 109 102 114 45 103 28 59 4 10 High-income oil exporters 43 w 76 w 60 w 86 a' 25 w 65 w 10 w 44 w 1w 9w 95 Oman .. 74 .. 90 . . 57 .. 22 96 Libya 78 .. 111 . . 44 .. 14 67 1 6 97 Saudi Arabia 24 67 36 79 11 54 4 32 1 9 98 Kuwait 116 91 129 92 103 91 52 77 . . 15 99 UnitedArabEmirates .. 132 .. 133 .. 131 .. 67 (.) 7 Industrial market economies 110w 102w 107w 102w 110w 102w 71w 87w 21w 37w 100 Spain 115 110 117 110 114 109 38 88 6 24 101 Ireland 108 100 107 100 108 100 51 95 12 22 102 Italy 112 101 113 101 110 101 47 74 11 25 103 NewZealand 106 101 107 102 104 100 75 81 15 26 104 Belgium 109 98 110 97 108 98 75 94 15 28 105 United Kingdom 92 102 92 102 92 103 66 83 12 19 106 Austria 106 99 106 99 105 98 52 74 9 24 107 Netherlands 104 98 104 97 104 99 61 98 17 31 108 Japan 100 100 100 100 100 100 82 92 13 30 109 France 134 111 135 112 133 111 56 87 18 27 110 Finland 92 98 95 99 89 98 76 98 11 32 111 Germany Fed Rep .. 100 . 100 .. 100 .. 50 9 30 112 Australia 99 108 99 109 99 108 62 90 16 26 113 Denmark 98 98 97 98 99 98 83 105 14 28 114 Canada 105 104 106 105 104 103 56 95 26 39 115 Sweden 95 99 94 98 96 99 62 85 13 38 116 Norway 97 99 97 99 98 100 64 95 11 27 117 UnitedStates 118 100 100 . . 100 86 97 40 58 118 Switzerland 87 100 87 100 87 100 37 8 19 East European nonmarket economies 103w 104w 103w 98 a' 103w 98w 66 iv 90w 26w 20w 119 Hungary 101 100 102 100 100 100 .. 73 13 14 120 Albania 92 102 97 105 87 99 33 66 8 6 121 Bulgaria 103 100 104 101 102 100 54 82 17 15 122 Czechoslovakia 99 89 100 88 97 90 29 46 14 17 123 German Oem. Rep. 109 94 107 93 111 96 60 88 19 30 124 Poland 104 100 106 101 102 100 58 75 18 18 125 Romania 101 100 102 101 100 99 39 71 10 11 126 USSR 103 106 103 . . 103 . . 72 97 30 21 a. Figures in italics are for years other than those specified See the technical notes. 223 Table 26. Central government expenditure Percentage of total expenditure Housing; Total amenities; expenditure Overall social security Economic (percent of surplus/deficit Defense Education Health and welfarea services Othera GNP) (percent of GNP) 1972 1982b 1972 1982b 1972 1982 1972 1982b 1972 1982b 1972 19$2 1972 1982b 1972 1982b Lowincomeeconomles 124u 185w152t 55w 61w 30w 36w 50w263u252w362w428u208w163w -40w -61w China and India .. .. .. .. .. .. .. .. .. .. .. .. .. .. Other low-income 12.8w 16.2w 15.2w 10.6w 6.1 w 4.0w 3.8w 6.0w 26.3w 26.6w 35.8w 36.6w 20.8w 7.3w -4.0w -5.4w Sub-Saharan Africa 12.6w 9.5w 15.5w 15.6w 6.2w 5.3w 3.9w 4.2w 25.2w 24.5w 36.6w 40.9w 21,7w 18.0w -4.3 a' -5.9w 1 Ethiopia 14.3 14.4 . 5.7. 4.4 .. 22.9 . . 38.3 13.8 . -1.4 . . . . . . . 2 Bangladesh .. .. .. . . .. .. . . .. . .. . . . 3 Mali . . 8.4 .. 10.4 .. 2.8 .. 5.0 . . 8.1 .. 65.3 . . 33.7 . . -9.3 4 Nepal 7.2 5.4 7.2 9.9 4.7 4.5 0.7 4.3 57.2 53.1 23.0 22.7 8.5 172 -1.2 -5.2 5 Zaire .. .. .. .. .. .. .. .. .. .. 38.6 35.6 -7.5 -10.6 6 Burkina . . 17.1 . . 15.7 .. 6.6 . . 5.9 .. 16.4 .. 38.2 .. 16.2 . . -1.6 7 Burma . . 19.0 . . 11.2 .. 7.0 . . 9.3 .. 35.2 .. 18.4 . . 17.1 . . 0.7 8 Malawi 3.1 7.7 15.8 14.3 5.5 5.2 5.8 2.3 33.1 33.5 36.8 37.1 22.1 27.0 -6.2 -7.1 9 Uganda 23.1 19.8 15.3 14.9 5.3 5.2 7.3 6.5 12.4 11.7 36.6 42.0 21.8 5.0 -8.1 -1.5 10 Burundi . . .. .. . . .. .. .. .. . . . . .. .. .. 23.9 . . -5.6 11 Niger 12 Tanzania 119 112 173 121 72 55 21 24 390 374 226 315 197 322 -50 13 Somalia 23.3 .. 5.5 .. 7.2 . 1.9 .. 21.6 .. 40.5 . . 13.5 .. 0.6 14 India 20.2 . . 1.9 2.2 . . 4.3 .. 24.3 . . 47.1 . . 15.1 .. -6.6 15 Rwanda 16 Central African Rep. 9.7 . . 17.6 . . 5.1 .. 6.3 .. 19.6 .. 41.7 . . 21.9 . . -3.5 17 Togo 7.1 . . 22.9 .. 6.1 . . 11.0 .. 22.2 .. 30.8 . . 32.8 . . -1.8 18 Benin 19 China 20 Guinea 21 Haiti .. .. .. .. . . . .. . . . . .. .. .. 14.5 18.5 . . -3.2 22 Ghana 8.0 6.2 20.1 18.7 6.2 5.8 4.1 6.8 15.0 19.2 46.6 43.4 19.5 10.8 -5.8 -5.5 23 Madagascar 3.6 .. 9.1 .. 4.2 .. 9.9 . . 40.5 . . 32.7 .. 20.8 . . -2.5 24 SierraLeone .. . . . . .. . . .. . . . . .. ,. .. .. . . 22.7 .. -10.7 25 Sri Lanka .. 1.4 . . 7.4 .. 3.3 . . 12.8 .. 13.1 .. 62.0 . . 34.4 .. -14.4 26 Kenya 6.0 13.2 21.9 19.9 79 7.3 3.9 0.8 30.1 26.9 30.2 31.7 21.0 29.7 -3.9 -8.4 27 Pakistan 33.5 . . 2.2 . . 1.1 .. 6.8 .. 31.0 .. 25.3 .. 16.1 .. -4.5 28 Sudan 24.1 9.5 9.3 6.1 5.4 1.3 1.4 2.3 15.8 23.5 44.1 57.3 19.2 16.9 -0.8 -4.6 29 Afghanistan 30 Bhutan 31 Chad 24.6 . . 14.8 .. 4.4 .. 1.7 .. 21.8 .. 32.7 .. 18.1 .. -3.2 32 Kampuchea, Dem. 33 Lao PDR 34 Mozambique 35 VietNam Middle-income economies 15.1 w 12.1 w 13.0w 11.6w 6.5w 4.7w 20.2w 17.7 w24.1 w 21.4 w21.1 w 32.5w 19.8w 25.8w -3.0w -6.2w Oil exporters 16.370 9.0w 15.5w 12.6w 5.7w 3.6w 11.2w 10.5w 29.0w 23.5w 22.3w 40.8w 17.5w 30.4w -2.8w -9.5w Oil importers 14.6w 15.0w 11.1 w 10.4w 7.0w 6.2zv24.3w 24.1 w 22.0w 19.1 w 21.0w 25.2w 21.0w 23.5w -3.2w -4.6w Sub-Saharan Africa 12.4w .. 16.2 to .. 5.8 a, .. 4.9w .. 20.7w .. 40.0w 13.3w 33.1 w -2.3w -10.2 a' Lower middle-income 16.9w 14.2w 17.9w 13.7w 4.5 u' 3.7w 4.9w 6.8w 28.8w 23.5 to 27.0w 38.1 w 16.5w 23.7w -2.4w -5.2w 36 Senegal .. 9.1 .. 15.8 3.6 .. 7.0 .. 20.4 .. .44.1 .17.4 30.9 -0.8 -9.8 37 Lesotho .. 19.5 .. . 8.0 . 6.5 24.5 .. 41.5 .. 16.6 -0.9 . . . . 38 Liberia .. 13.5 .. 15.3 .. 7.2 .. 0.7 29.9 .. 33.4 39.4 .. -12.4 . . . . 39 Mauritania , . . . . . . . . . . , . . . . . . . . . . . . . . . . 40 Bolivia 16.2 7.4 30.6 13.6 8.6 2.0 2.9 1.0 12.4 6.2 29.3 69.8 9.2 25.1 -1.4 -19.6 41 Yemen, PDR .. .. .. ... .. .. .. .. .. .. 42 Yemen Arab Rep. 35.5 . . 16.4 ... . 4.5 . . .. .. 8.8 .. 34.7 45.7 -29.1 43 Indonesia 13.9 . . 8.4 . . . . 2.5 . . 1.1 .. 31.3 .. 42.8 16.2 23.5 -2.6 -2.1 44 Zambia .. 19.0 15.2 . . 7.4 8.4 1.3 1.8 26.7 23.9 45.7 50.7 35.4 41.9 -14.4 -20.0 45 Honduras 12.4 22.3 . .. 10.2 . . . 8.7 . . 28.3 . . 18 1 .. 15.4 .. -2.7 46 Egypt, Arab Rep. 12.7 . . 9.2 ... . 2.4 .. 14.2 . . 6.6 . . 54.8 .. 48.2 .. -14.8 47 ElSalvador 6.6 11.9 21.4 16.9 10.9 7.1 7.6 5.0 14.4 21.1 39.0 38.1 12.8 19.1 -1.0 -7.5 48 Ivory Coast . .. . .. ... . .. .. .. . . .. .. .. .. . 49 Zimbabwe 17.3 . . . 21.9 .. . 6.4 . . 6.7 .. 23.3 . . 24.4 .. 39.0 . . -11.3 50 Morocco 12.3 16.5 19.2 16.2 4.8 2.8 8.4 6.9 25.6 305 29.7 27.0 22.4 38.7 -3.8 -12.0 51 PapuaNewGuinea .. 3.9 .. 17.9 .. 9.2 .. 2.7 .. 19.7 .. 46.6 . . 38.7 .. -6.2 52 Philippines 10.9 13.6 16.3 16.0 3.2 5.3 4.3 4.2 17.6 53.7 47.7 7.2 13.4 12.2 -2.0 -4.3 53 Nigeria 40.2 .. 4.5 . 3.6 . .. 0.8 . . 19.6 .. 31.4 . . 10.2 .. -0.9 54 Cameroon .. 5.1 .. 7.5 . . 2.7 . . 5.1 .. 10.0 .. 69.6 . . 21.9 . . -3.4 55 Thailand 20.2 20.6 19.9 20.7 3.7 5.0 7.0 4.9 25.7 22.2 23.5 26.5 17.2 19.9 -4.3 -5.9 56 Nicaragua 12.3 .. 16.6 4.0 . . . . 16.4 .. 27.1 .. 23.6 .. 15.5 49.2 -4.0 -20.2 57 CostaRica 2.8 2.9 28.3 22.6 3.8 32.8 26.7 14.1 21.8 14.9 167 12.6 18.9 21.6 -4.5 -1.0 58 Peru 14.8 .. 22.7 . 6.2 . .. 2.9 . . 30.3 .. 23.1 .. 17.1 18.0 -1.1 -1.2 59 Guatemala 11.0 .. 19.4 .. 9.5 . . 10.4 . . 23.8 . . 25.8 . . 9.9 14.8 -2.2 -4.8 60 Congo, People's Rep. .. .. .. .. .. .. .. .. .. . 61 Turkey 15.4 15.2 18.2 16.8 3.3 2.1 3.3 8.9 41.9 25.7 17.9 31.3 21.8 23.3 -2.1 -1.8 62 Tunisia 4.9 10.6 30.5 14.2 7.4 6.7 88 .. 233 .. 25.1 68.5 22.5 36.9 -0.9 -5.1 63 Jamaica 64 Dominican Rep. 98 159 107 143 299 195 185 141 -02 -32 Note: For data comparability and coverage see the technical notes. 224 Percentage of total expenditure Housing; Total amenities; expenditure Overall social security Economic (percent of surplus/deficit Detense Education Health and welfare° services Others GNP) (percent of GNP) 1972 1982b 1972 1982b 1972 1982b 1972 l982b 1972 1982b 1972 1982b 1972 l9S2 1972 l9B2 65 Paraguay 13.8 12.5 12.1 12.0 3.5 3.7 18.3 32.2 19.6 14.0 32.7 25.7 13.1 11.8 -1.7 0.4 66 Ecuador 10.7 . . 26.5 .. 7.7 . . 1.0 .. 17.7 .. 36.4 .. 16.7 -4.8 67 Colombia 13.0 14.0 -2.5 -3.0 68 Angola 69 Cuba 70 Korea, Dem. Rep. 71 Lebanon 72 Mongolia Uppermiddle-income 14.6w 11.5w 11.6w 10.9w 7.0w 5.1 w 24.2w 21.0w 22.9w 20.8w 19.7w 30.7w 21.0w 26.7w -3.3w -6.6w 73 Jordan .. 24.8 .. 10.4 3.8 .. 17.8 28.6. .. 14.7 . 46.8 .. -9.5 . . . . 74 SyrianArabRep. 37,2 37.7 11.3 7.1 1.4 1.1 3.6 11.4 39.9 30.9 6.7 11.8 28.1 37.8 -3.4 -6.2 75 Malaysia 18.5 15.1 23.4 15.9 6.8 4.4 4.4 10.5 14.2 29.0 32.7 25.2 27.7 41.0 -9.8 -15.9 76 Chile 6.1 11.5 14.3 14.7 8.2 6.8 39.8 45.1 15.3 9.0 16.3 12.9 42.3 37.6 -13.0 -1.1 77 Brazil 8.3 4.3 6.8 4.6 6.4 7.8 36.0 35.6 24.6 21.9 17.9 25.7 17.8 21.8 -0.4 -2.7 78 Korea, Rep. of 25.8 31.3 15.9 19.5 1.2 1.4 5.8 10.5 25.6 13.3 25.7 24.0 18.1 19.5 -3.9 -3.2 79 Argentina 8.8 11.0 8.8 6.2 2.9 1.1 23.5 29.4 14.7 17.5 41.2 34.8 16.5 21.6 -3.4 -7.5 80 Panama 11.0 .. 13.1 12.2 .. 13.5 .. 50.2 .. 39.7 .. -11.9 . . 81 Portugal 82 Mexico 4.2 1.6 16.6 13.1 5.1 1.3 24.9 12.9 34.3 24.9 15.0 46.2 12.1 31.7 -3.1 -16.3 83 Algena 84 South Atrica 21.9 23.5 -4.2 -3.9 85 Uruguay 5.6 13.6 9.5 7.7 1.6 3.3 52.3 54.3 9.8 9.4 21.2 11.8 25.0 30.1 -2.5 -9.2 86 Yugoslavia 20.5 50.4 .. .. 24.8 . . 35.6 7.2 12.0 16.6 7.0 25.8 21.1 8.5 -0.4 -0.1 87 Venezuela 10.3 5.8 18.6 15.7 11.7 7.6 9.2 9.4 25.4 24.0 24.8 37.4 21.3 29.6 -0.3 -5.4 88 Greece 14.9 10.8 9.0 9.6 7.3 10.5 30.2 33.1 26.4 17.1 12.3 18.8 27.5 392 -1.7 -10.7 89 Israel 39.8 30.3 9.0 8.3 3.5 4.3 7.8 21.1 16.3 6.3 23.5 29.9 44.0 79.0 -16.3 -22.3 90 Hong Kong .. .. .. .. .. .. .. .. .. .. .. .. .. 91 Singapore 35.3 22.9 15.7 19.2 7.8 6.4 3.9 8.2 9.9 14.2 27.3 29.1 16.8 22.6 1.3 2.7 92 TrinidadandTobago . . 2.0 . . 11.2 . . 5.9 .. 17.3 . . 31.1 . . 32.4 . . 31.0 .. 3.3 93 Iran, Is/amic Rep. 24.1 10.2 10.4 13.6 3.6 5.5 6.1 12.3 30.6 24.3 25.2 34.2 30.8 .. -4.6 94 Iraq High-income oil exporters 13.0w 24.8w 13.6w 8.2w 5.6w 5.5w 12.6w 9.1 w 17.7w 20.9w 37.5w 31.5w 36.611' 31.1 w 95 Oman 39.3 49.4 3.7 7.7 5.9 3.1 3.0 1.7 24.4 23.9 23.6 14.1 62.1 49.2 -15.3 -9.3 96 Libyan Arab Rep. .. . . .. .. .. .. . . . . .. .. .. .. .. 97 Saudi Arabia . . .. .. .. .. .. .. .. .. .. .. 98 Kuwait 8.4 10.9 150 8.8 5.5 5.4 14.2 14.3 16.6 27.2 40.1 33.5 34.4 40.7 17.4 7.6 99 UnitedArabEmirates 24.5 36.4 16.2 7.5 4.5 7.1 6.4 3.7 18.2 7.0 30.2 38.4 . . 18.4 Industrial market economies 23.3w 13.9 w 4.3w 4.8w 9.9w 11.7w 36.8w 40.4w 11.6 u, 9.7 w 14.1 u' 19.5 w 21.8w 30.1 w -1.0 w -4.5w 100 Spain 6.5 3.9 8.3 7.1 0.9 0.6 49.8 62.3 17.5 11.3 17.0 14.8 19.8 29.1 -0.5 -7.1 101 Ireland .. .. .. .. .. .. .. 33.0 61.1 -5.5 -17.3 , . . . 102 Italy .. 3.6 .. 8.9 .. 10.6 33.6 10.4 32.9 .. 49.8 .. . -11.7 . 103 NewZealand . 5.3 . 12.7 .. 13.5 . .. 30.4 . '15.4 22.7 .. 41.5 .. -7.7 . 104 Belgium 6.7 15.5 . . 1.5 .. 41.0 .. 18.9 . . 16.4 39.2 57.4 -4.3 -12.5 . . 105 UnitedKingdom 16.7 .. 2.6 12.2 .. 26.5 .. 11.1 . . 30.8 .. 32.7 42.4 -2.7 -4.4 . . 106 Austria 3.2 2.9 10.2 9.6 10.1 12.2 53.7 48.7 11.2 12.2 11.5 14.4 29.7 39.6 -0.1 -4.5 107 Netherlands . 5.4 . 11.9 .. 11.6 . .. 40.9 . 11.0 .. 19.1 .. 58.0 -7.7 . . . . 108 Japan . . . . . . . . . . . . . . . . . . . . . . . . 12.7 18.9 . 109 France .. 7.4 .. 8.3 .. 14.7 . . 47.1 .. 7.4 .. 15.0 32.5 42.1 0.7 -2.8 110 Finland 6.1 5.2 15.3 14.0 10.6 10.9 28.4 30.7 27.9 26.2 11.6 13.0 24.8 31.5 1.3 -2.2 111 Germany, Fed. Rep. 12.4 9.1 1.5 0.8 17.5 19.3 46.9 50.0 11.3 7.4 10.4 13.4 24.2 31.5 0.7 -1.9 112 Australia 14.1 9.8 44 8.2 8.2 10.0 21.0 29.8 13.1 7.8 39.2 34.4 19.5 25.9 -0.3 -0.3 113 Denmark 7.2 .. 15.9 .. 10.0 .. 41.3 . . 11.8 . . 13.8 .. 32.9 45.6 2.7 -8.5 114 Canada 7.8 . . 3.2 .. 5.2 .. 37.2 .. 18.3 .. 28.4 .. 26.0 .. -6.0 115 Sweden 12.5 7.3 14.8 10,1 3.6 2.1 44.3 50.4 10.6 10.5 14.3 19.6 28.0 44.9 -1.2 -9.7 116 Norway 9.7 8.5 9.9 8.6 123 10.6 39.9 35.7 20.2 21 3 8.0 15.3 35.0 39.7 -1.5 08 117 United States 32.2 23.1 3.2 2.1 8.6 10.8 35.3 36.1 10.6 9.0 10.1 18.9 19.4 25.0 -1.6 -4.1 118 Switzerland 15.1 10.4 4.2 3.1 10.0 12.8 39.5 50.2 18.4 12.4 12.8 11.0 13.3 19.3 0.9 -0.2 East European nonmarket economies 119 Hungary 120 Albania 121 Bulgaria 122 Czechoslovakia 123 German Dem. Rep. 124 Poland 125 Romania 62 49 32 32 05 08 165 203 543 735 165 126 USSR a. See the technical notes. b. Figures in italics are for 1981, not 1982. 225 Table 27. Central government current revenue Percentage of total current revenue Tax revenue Total Taxes on Domestic Taxes on current income, Social taxes international Current revenue profit, and security on goods trade and nontax (percent of capital gain contributions and services transactions Other taxes revenue GNP) 1972 1982b 1972 1982b 1972 1982b 1972 1982b 1972 1982b 1972 1982b 1972 1982b Low-income economies 21.5w 19.5w 23.8w 36.9w 38.9 u' 25.3w 3.6w 1.3w 12.2w 17.0w 16.4w 13.2w China and India Other low-income 21.5 w 20.8 w 23.8w 33.6w 38.9 w 28.1 w 3.6w 2.5w 12.2w 15.0w 16.4w 12.7w Sub-Saharan Africa 21.9 w 26.3 w 23.8w 33,2w 38.9w 25.9 w 3.2w 3.5w 12.2w 11.1 w 17.1 w 11.2w 1 Eth:opia 23.0 . . .. . . 29.8 .. 30.4 .. 5.6 .. 11.1 .. 10.5 2 Bangladesh . . . .. .. .. .. . .. . 3 Mali .. 15.4 .. 4.3 .. 38.9 .. 18.7 .. 14.5 .. 8.2 . . 15.5 4 Nepal 41 7.2 .. .. 26.5 38.5 36.7 31.3 19.0 7.1 13.7 15.9 5.2 8.7 5 Zaire 22.2 32.5 2.2 1.4 12.7 22.3 57.9 25.0 1.4 6.5 3.7 12.3 27.9 21.6 6 Burkina .. 15.9 .. 6.5 . . 17.1 . . 42.4 6.8 .. 11.3 . . 14.0 7 Burma .. 3.2 .. .. . . 39.5 . . 19.2 .. . . .. 38.2 . . 16.2 8 Malawi 31.4 34.3 .. .. 24.2 31.9 20.0 22.7 0.5 0.8 23.8 10.4 16.0 17.4 9 Uganda 22.1 9.7 .. .. 32.8 31.5 36.3 56.0 0.3 0.1 8.5 2.7 13.7 3.1 10 Burundi .. 22.4 .. 2.9 .. 28.7 .. 24.0 .. 11.2 .. 10.8 .. 13.4 11 Niger .. .. .. .. .. .. .. .. .. .. .. 12 Tanzania 29.9 31.1 .. .. 29.1 50.6 21.7 10.2 0.5 0.9 18.8 7.2 15.8 19.6 13 Somalia 10.7 .. .. .. 24.7 . . 45.3 . . 5.2 .. 14.0 . . 13.7 14 India .. 18.7 .. .. . . 39.0 . . 23.5 .. 0.6 . . 18.2 .. 13,6 15 Rwanda .. .. .. .. .. .. .. .. ,. .. 16 Central African Rep. 16.1 .. 6.4 .. 20.8 .. 39.8 .. 7.8 .. 9.1 .. 16.4 17 Togo 33.7 .. 6.4 .. 15.3 .. 33.0 .. -1.0 .. 12.7 .. 29.1 18 Benin 19 China 20 Guinea 21 Haiti 17.9 . . 0.3 . . 19.1 . . 26.2 . . 27.8 , . 8.7 , . 13.9 22 Ghana 18.2 28.7 . . . . 29.1 39.2 40.8 19.0 0.4 (.) 11.4 13.0 15.1 5.4 23 Madagascar 12.7 15.5 7.0 13.7 29.1 41.7 35.3 22.2 5.3 3.3 10.5 3.6 18.8 13.6 24 Sierra Leone 24.1 . . . . . . 23.5 .. 49.5 . . 1.1 .. 1.8 .. 11.6 25 Sri Lanka 17.4 . . . . .. 34.1 .. 39.8 . . 1.9 .. 6.8 .. 17.2 26 Kenya 35.6 26.8 .. .. 19.9 37.8 24.3 25.4 1.4 0.6 18.8 9.3 18.0 22.8 27 Pakistan 16.5 .. .. .. 33.4 .. 31.4 . . 0.3 .. 18.4 .. 14.6 28 Sudan 11.8 15.8 .. .. 30.4 14.1 40.5 49.7 1.5 0.7 15.7 19.7 18.0 11.8 29 Afghanistan 30 Bhutan 31 Chad 16.7 . . .. .. 12.3 .. 45.2 .. 20.5 .. 5.3 . . 13.1 32 Kampuchea, Oem. 33 Lao PDR 34 Mozambique 35 VietNam Middle-income economies 25.5w 28.8w . . 26.8w 23.8w 13.2w 11.3w 17.5w 13.7w 17.0w 22.4w 17.8w 22.2w Oil exporters 30.4 w 35.3w . . . . 19.8w 13.1 w 14.5w 16.1 w 8.2w 6.2w 27.1 w 29.3w 15.8w 22.9w Oil importers 23.1 w 24.2 w . . 29.8 w 32.0w 12.6 w 8.0w 21.9w 18.1 w 12.6 w 17.7w 18.8 w 21.8 w Sub-Saharan Africa 41.2 w 39.2w . . 25.3w 29.7w 18.6w 17.8w 2.3w 4.6w 12.6w 8.7w 13.3 w 24.3 w Lowermiddle-income 27.8w 39.5w 29.8w 22.2w 19.3w 14.7w 10.4w 8.2w 12.7w 15.4w 14,8w 19.8w 36 Senegal 17.6 22.8 .. 3.5 24.5 25.8 30.9 35.0 23.8 5.3 3.2 7.4 16.8 20.1 37 Lesotho 14.3 .. .. .. 2.0 . . 62.9 . . 9.5 . . 11.3 . . 11.7 38 Liberia . . 35.3 . . .. .. 29.6 .. 31.3 . . 1.9 .. 1.9 . . 25.2 39 Mauritania .. . . .. .. .. .. , , ,. .. .. .. . , 40 Bolivia 14.5 17.3 .. .. 28.4 40.8 46.0 25.3 5.3 5.7 5.7 11.0 7.8 5.6 41 Yemen, PDR .. .. .. .. .. .. .. .. .. .. .. 42 YemenArabRep. .. 11.7 .. .. .. 7.3 . . 49.8 .. 13.5 17.6 .. 20.4 43 Indonesia 45.5 76.9 .. .. 22.7 10.4 17.5 4.7 3.6 1.4 10.6 6.7 14.4 22.2 44 Zambia 49.7 32.9 .. .. 20.2 48.3 14.3 8.8 0.1 3.2 15.6 6.6 24.2 24.9 45 Honduras 19.2 24.2 3.0 . . 33.8 25.9 28.2 42.4 2.3 1.9 13.5 5.7 12.6 14.8 46 Egypt,ArabRep. .. 17.1 .. 11.5 . 10.8 . . 18.7 .. 6.9 .. 35.0 . . 37.9 47 ElSalvador 15.2 20.4 .. . . 25.6 35.7 36.1 25.7 17.2 6.0 6.0 12.1 11.6 12.0 48 Ivory Coast .. .. .. .. .. .. .. .. .. .. .. 49 Zimbabwe . . 46.7 .. .. .. 31.4 .. 11.1 .. 1.0 .. 9.8 . . 31.3 50 Morocco 16.4 15.7 5.9 5.2 45.7 32.9 13.2 20.4 6.1 7.0 12.6 18.8 18.1 26.5 51 PapuaNewGuinea .. 49.2 .. . . . . 13.9 .. 22.7 . . 1.2 .. 12.9 .. 21.8 52 Philippines 13.8 21.8 .. .. 24.3 40.9 23.0 23.9 29.7 3.1 9.3 10.4 12.4 11.2 53 Nigeria 43.0 . . .. .. 26.3 . . 17.5 . . 0.2 .. 13.0 . . 11.6 54 Cameroon .. 39.0 .. 6.2 .. 14.5 . . 26.0 .. 3.9 . . 10.3 . . 18.5 55 Thailand 12.1 21.4 . . . 46.3 47.7 28.7 18.9 1.8 1.9 11.2 10.1 12.9 13.9 56 Nicaragua 9.6 10.2 14.0 11.3 37.4 40.6 24.3 15.9 8.9 9.7 5.8 12.4 12.6 27.6 57 CostaRica 17.7 17.4 13.4 23.2 38.1 25.3 18.1 29.4 1.6 0.6 11.1 4.2 15.8 20.4 58 Peru 17.5 15.1 . .. . 32.2 45.9 15.7 25.7 22.1 4.3 12.4 9.0 16.0 16.8 .. 59 Guatemala 60 Congo, People's Rep. 12.7 19.3 11.8 . ... 11.7 .. 36.1 40.3 33.1 . . 26.2 26.5 15.0 . . 15.6 6.4 13.7 .7.4 9.4 14.8 . . 8.9 18.4 10.2 61 Turkey 30.8 51.7 .. . . 31.1 19.9 14.5 5.3 6.1 6.7 17.6 16.4 19.7 22.0 62 Tunisia 15.9 14.7 7.1 8.9 31.6 21.0 21.8 27.3 7.8 4.4 15.7 23.6 23.0 33.9 63 Jamaica .. .. .. .. .. .. .. .. .. .. .. .. 64 DominicanRep. 17.9 21.8 3.9 4.8 19.0 32.6 40.3 23.9 1.8 2.5 17.0 14.4 17.9 10.7 Note: For data comparability and coverage see the technical notes. 226 Percentage of total current revenue Tax revenue Total Taxes on Domestic Taxes on current income, Social taxes international Current revenue profit, and security on goods trade and nontax (percent of capital gain contributions and services transactions Other taxesa revenue GNP) 1972 1982b 1972 1982b 1972 1982b 1972 1982b 1972 1952b 1972 1982b 1972 1982b 65 Paraguay 88 154 104 129 262 214 248 146 170 219 128 139 115 117 66 Ecuador 55.7 .. .. .. 17.0 .. 21.2 .. 1.0 .. 5.0 .. 11.9 67 Colombia 37.2 23.1 13.9 11.6 16.0 25.8 20.3 17.8 7.2 6.8 5.5 14.9 10.6 11.7 68 Angola 69 Cuba 70 Korea, Oem. Rep. 71 Lebanon 72 Mongolia Uppermiddle-income 24.7w 25.2w 19.8w 14.6w 25.8w 24.4w 11.4w 10.2w (.)w 1.0w 18.3w 24.6w 19.0w 23.3w 73 Jordan .. 12.4 . . . . .. 8.8 . . 40.9 .. 10.7 .. 27.3 .. 25.4 74 SyrianArabRep. 6.8 12.5 .. . 10.4 6.2 17.3 14.6 12.1 6.1 53.4 60.7 24.5 22.1 75 Malaysia 25.2 36.9 0.1 0.5 24.2 15.4 27.9 28.3 1.4 1.8 21 2 17.0 21,2 29.2 76 Chile 12.9 19.6 27.1 87 286 43.8 10.0 3.6 4.3 3.8 17.1 20.5 30.2 320 77 Brazil 18.3 13.3 27.4 28.8 37.6 26.2 7.0 2.6 3.7 4.6 6.0 24.6 19.0 26.1 78 Korea, Rep. of 29.2 23.9 0.8 1.1 41.7 44.5 10.7 13.3 5.2 3.6 12.3 13.6 13.2 19.1 79 Argentina 7.4 5.5 25.9 13.6 14.8 44.7 18.5 11.9 -3.7 5.7 37.0 18.5 13.1 16.5 80 Panama . . 22.5 .. 21.8 .. 14.8 .. 10.0 3.5 .. 27.4 .. 29.7 81 Portugal .. .. .. .. .. .. .. .. .. .. .. 82 Mexico . 36.5 30.5 19.4 14.1 32.4 29.1 13.1 33.1 -9.9 -14.9 8.4 8.1 10.4 17.0 83 Algeria .. .. .. .. .. .. .. .. .. .. .. 84 SouthAfrica 54.8 53.3 1.2 1.2 21.5 26.1 4.6 4.5 5.0 3.0 12.9 11.9 21.3 22.3 85 Uruguay 4.7 5.8 30.0 26.2 24.5 43.2 6.1 10.3 22.0 5.8 12.6 8.7 22.7 21.6 86 Yugoslavia .. .. 52.3 .. 24.5 68.2 19.5 30.1 . .. .. 3.7 1.7 20.7 8.4 87 Venezuela 54.2 62.2 6.0 4.4 6.7 4.8 6.1 8.4 1.1 1.0 25.9 19.2 21.8 29.3 88 Greece 12.2 15.6 24.5 30.0 35.5 33.9 6.7 3.3 12.0 7.1 9.2 10.1 25.4 28.5 89 Israel 36.2 40.2 .. 9.2 23.0 26.4 21.6 5.2 6.8 6.6 12.4 12.4 31.8 58.8 90 Hong Kong .. .. .. .. .. .. .. .. .. .. .. 91 Singapore 24.4 37.6 .. 17.6 14.5 11.1 5.5 15.5 15.0 31.4 27.4 21.6 28.5 92 Trinidadandlobago .. 70.0 .. 2.0 .. 4.1 6.5 . . 0.6 .. 16.8 .. 44.1 93 Iran, Islamic Rep. 7.9 7.3 2.7 7.3 6.4 4.0 14.6 8.0 4.9 4.1 63.6 69.4 26.2 94 Iraq High-income oil exporters 95 Oman 71.1 27.9 . . . . . . 0.5 3.0 1.5 2.3 0.4 23.6 69.8 47.4 41.2 96 Libyan Arab Rep. 97 Saudi Arabia 98 Kuwait 688 21 197 06 15 20 02 03 99 950 552 574 99 United Arab Emirates 0.2 Industrial market economies 41.1 w 37.5 w 28.0 w 33.3 w 20.4w 18.3 w 1.9w 1.2 w 2.2 w 0.9w 6.4w 8.8w 22.7w 28.1 w 100 Spain 15.9 20.7 38.9 47.7 23.4 18.3 10.0 5.9 0.7 -0.3 11.1 7.8 20.0 25.4 101 Ireland 28.1 32.2 8.9 13.8 32.6 26.6 16.6 13.7 3.2 2.3 10.5 11.4 30.6 46.6 102 Italy .. 34.6 .. 34.4 .. 23.1 . . 0.2 .. 2.6 . . 5.2 .. 394 103 NewZealand . . 66.5 .. .. .. 19.2 .. 3.4 . . 1.2 .. 9.7 .. 36.1 104 Belgium 31.3 39.5 32.4 30.0 28.9 23.9 1.0 (.) 3.3 1.8 3.1 4.7 35.0 45.7 105 UnitedKingdom 39.4 38.7 15.1 16.6 27.1 28.0 1.7 (.) 5.6 5.0 11.2 11.7 33.5 38.4 106 Austria 20.6 20.2 30.3 359 28.2 25.3 5.3 1.3 10.1 86 5.5 8.7 29.8 35.4 107 Netherlands .. 27.5 . . 38.9 .. 18.4 . . ., .. 2.1 .. 13.1 . . 51.7 108 Japan .. .. .. .. .. .. .. .. .. .. .. .. 109 France 16.9 17.9 37.1 42.9 37.9 30.0 0.3 (.) 2.9 3.4 4.9 5.7 33.6 41.1 110 Finland 30.0 29.1 7.8 9.8 47.7 48.6 3.1 1.5 5.8 3.0 5.5 8.1 27.1 28.6 111 Germany, Fed. Rep. 19.7 17.1 46.6 55.4 28.1 21.4 0.8 (.) 0.8 0.1 4.0 6.0 25.2 29.7 112 Australia 58.3 63.6 .. .. 21.9 22.0 5.2 5.2 2.1 0.2 12.5 9.1 21.4 26.2 113 Denmark 40.0 35.4 5.1 3.6 42.0 45.7 3.1 0.8 3.0 2.3 6.8 12.2 35.5 35.9 114 Canada .. 48.4 . . 11.3 . . 21.9 .. 4.4 .. (.) .. 14.0 .. 20.6 115 Sweden 27.0 15.6 21.6 33.9 34.0 29.6 1.5 0.6 4.7 4.6 11.3 15.8 32.5 38.4 116 Norway 22.5 27.4 20.5 22.5 47.9 38.1 1.6. 0.6 1.0 1.1 6.6 10.4 37.0 43.8 117 United States 59.4 52.7 23.6 29.9 7.1 5.5 1.6 1.4 2.5 1.2 5.7 9.4 18.0 21.3 118 Switzerland 13.9 15.6 37.3 48.0 21.5 19.2 16.7 8.4 2.6 2.5 8.0 6.3 14.5 18.9 East European nonmarket economies 119 Hungary 120 Albania 121 Bulgaria 122 Czechoslovakia 123 German Dem. Rep. 124 Poland 125 Romania 63 79 167 116 858 717 126 USSR a. See the technical notes. b. Fi . ures in italics are for 1981 not 1982. 227 Table 28. Income distribution Percentage share of household income, by percentile groups of households Lowest Second Third Fourth Highest Highest Year 2opercent quintile quintile quintile 2Opercent lOpercent Low-income economies China and India Other low-income Sub-Saharan Africa 1 Ethiopia 2 Bangladesh 1976-77 6.2 10.9 150 210 469 320 3 Mali 4 Nepal 1976-77 4.6 8.0 11.7 16.5 59.2 46.5 5 Zaire 6 Burkina 7 Burma 8 Malawi 1967-68 10.4 111 13.1 14.8 50.6 40.1 9 Uganda 10 Burundi 11 Niger 12 Tanzania 1969 5.8 10.2 13.9 19.7 50.4 35.6 13 Somalia . . . .. . 14 India 1975-76 70 9.2 13.9 20.5 49.4 336 15 Rwanda . . . . 16 Central African Rep 17 logo 18 Benin 19 China 20 Guinea 21 Haiti . . . . 22 Ghana . . . . . . . 23 Madagascar . . . . 24 Sierra Leone 1967-69 5.6 9.5 12.8 19.6 52.5 37.8 25 Sri Lanka 1969-70 7.5 11.7 15.7 21 7 43.4 28.2 26 Kenya 1976 2.6 6.3 11.5 19.2 60.4 45.8 27 Pakistan . . . . . 28 Sudan 1967-68 4.0 89 166 207 49.8 346 29 Afghanistan . . . . . . . 30 Bhutan . . . . . 31 Chad 32 Kampuchea, Dem. 33 Lao PDR 34 Mozambique 35 Viet Nam Middle-income economies Oil exporters Oil importers Sub-Saharan Africa Lower middle-income 36 Senegal 37 Lesotho 38 Liberia 39 Mauritania 40 Bolivia 41 Yemen, PDR 42 Yemen Arab Rep. 43 Indonesia 1976 66 78 126 236 494 340 44 Zambia 1976 3.4 7,4 11.2 16.9 61.1 46.3 45 Honduras 46 Egypt, Arab Rep. 1974 5.8 107 147 20.8 48.0 332 47 El Salvador 1976-77 5.5 100 148 224 47.3 295 48 Ivory Coast 49 Zimbabwe 50 Morocco 51 Papua New Guinea . . . . 52 Philippines 1970-71 52 9.0 12.8 190 54.0 38.5 53 Nigeria .. . . . . .. 54 Cameroon . . .. . , , 55 Thailand 1975-76 5.6 9.6 13.9 211 498 34.1 56 Nicaragua . . . . . . . 57 CostaRica 1971 3.3 8.7 13.3 19.9 54.8 39.5 58 Peru 1972 1.9 5.1 11.0 21.0 61 0 429 59 Guatemala .. , , 60 Congo, Peoples Rep. , . . . . . 61 Turkey 1973 3.5 8.0 12.5 19.5 565 40 7 62 Tunisia ,, 63 Jamaica . . , , , . . 64 Dominican Rep . . . . . , Note: For data comparability and coverage see the technical notes. 228 Percentage share of household income, by percentile groups of househoidse Lowest Second Third Fourth Highest Highest Year 20 percent quintile quintile quintile 20 percent 10 percent 65 Paraguay 66 Ecuador 67 Colombia 68 Angola 69 Cuba 70 Korea, Gem. Rep. 71 Lebanon 72 Mongolia Upper middle-income 73 Jordan 74 Syrian Arab Rep. 75 Malaysia 1973 3.5 7.7 12.4 20.3 56.1 39.8 76 Chile 1968 44 9.0 13.8 21.4 51.4 34.8 77 Brazil 1972 2.0 5.0 9.4 17.0 66.6 50.6 78 Korea. Rep. of 1976 5.7 11.2 15,4 22.4 45.3 27.5 79 Argentina 1970 4.4 9.7 14.1 21.5 50.3 35.2 80 Panama 1970 2.0 5.2 11.0 20.0 61.8 44.2 81 Portugal 1973-74 5.2 10.0 14.4 21.3 49.1 33.4 82 Mexico 1977 2,9 7.0 12.0 20.4 57.7 40.6 83 Algeria 84 South Africa 85 Uruguay 86 Yugoslavia 1978 6.6 12.1 18.7 23.9 38 7 22.9 87 Venezuela 1970 3.0 7.3 12.9 22.8 54.0 35.7 88 Greece 89 Israel 1979-80 6.0 12.0 17.7 24.4 39.9 22.6 90 Hong Kong 1980 5.4 10.8 15.2 21.6 47.0 31.3 91 Singapore 92 Trinidad and Tobago 1975-76 4.2 9.1 139 22.8 sob 31.8 93 Iran, Islamic Rep. 94 Iraq High-income oil exporters 95 Oman 96 Libya 97 Saudi Arabia 98 Kuwait 99 United Arab Emirates Industrial market economies 100 Spain 1980-81 6.9 12.5 17.3 23.2 40.0 24.5 101 Ireland 1973 7.2 13.1 16.6 23.7 39.4 25.1 102 Italy 1977 6.2 11.3 15.9 22.7 43.9 28.1 103 NewZealand 1981-82 5.1 10.8 16.2 23.2 44.7 28.7 104 Belgium 1978-79 7.9 13.7 18.6 23.8 36.0 21.5 105 United Kingdom 1979 7.0 11.5 17.0 24.8 39.7 23.4 106 Austria . . . , . . . . . . 107 Netherlands 1981 8.3 14.1 18.2 23.2 36.2 21.5 108 Japan 1979 8.7 13.2 17.5 23.1 37.5 22.4 109 France 1975 5.3 11.1 16.0 21 8 45.8 30.5 110 Finland 1981 6.3 12.1 18.4 25.5 37 6 21.7 111 Germany, Fed. Rep. 1978 7.9 12.5 17.0 23.1 39.5 24.0 112 Australia 1975-76 5.4 10.0 15.0 22.5 47.1 30.5 113 Denmark 1981 5.4 12.0 18.4 25.6 38.6 22.3 114 Canada 1981 5.3 11.8 180 249 40 0 23.8 115 Sweden 1981 7.4 13.1 16.8 21.0 41.7 28.1 116 Norway 1982 6.0 12.9 18.3 24.6 38.2 22 8 117 United States 1980 5.3 11.9 17.9 25.0 39 9 23.3 118 Switzerland 1978 6.6 13.5 18.5 23.4 38.0 23.7 East European nonmarket economies 119 Hungary 1982 6.9 13.6 19.2 24.5 35.8 20.5 120 Albania ,. . . . . . . . 121 Bulgaria , . . . . . . . . . . 122 Czechoslovakia . . . . . . . . . . . 123 German Gem. Rep. .. .. .. .. .. 124 Poland 125 Romania 126 USSR a. These estimates should be treated with caution. Seethe technical notes. 229 Technical notes This eighth edition of the World Development Gross national product (GNP) measures the total Indicators provides economic indicators and social domestic and foreign output claimed by residents. indicators for periods of years or for selected years It comprises gross domestic product (see the note in a form suitable for comparing economies and for Table 2) adjusted by net factor income from groups of economies. The statistics and measures abroad. That income comprises the income resi- have been carefully chosen to give an extensive dents receive from abroad for factor services (labor, picture of development. Considerable effort has investment, and interest) less similar payments been made to standardize the data; nevertheless, made to nonresidents who contributed to the statistical methods, coverage, practices, and defi- domestic economy. It is calculated without making nitions differ widely. In addition, the statistical deductions for depreciation. systems in many developing economies are still The GNP per capita figures were calculated weak, and this affects the availability and reliability according to the newly revised World Bank Atlas of the data. Readers are urged to take these limita- method. The Bank recognizes that perfect cross- tions into account in interpreting the indicators, country comparability of GNP per capita estimates particularly when making comparisons across cannot be achieved. Beyond the classic, strictly economies. intractable "index number problem," two obsta- All growth rates shown are in constant prices cles stand in the way of adequate comparability. and, unless otherwise noted, have been computed One concerns GNP numbers themselves. There by using the least-squares method. The least- are differences in the national accounting systems squares growth rate, r, is estimated by fitting a of countries and in the coverage and reliability of least-squares linear trend line to the logarithmic underlying statistical information between various annual values of the variable in the relevant countries. The other relates to the conversion of period. More specifically, the regression equation GNP data, expressed in different national curren- takes the form of log X = a + bt + e, where this is cies, to a common numéraire, conventionally the equivalent to the logarithmic transformation of the US dollar, to compare them across countries. The compound growth rate equation, X = X,, (1 + r)t. Bank's procedure for converting GNP to US dol- In these equations, X is the variable, t is time, and lars is essentially based on the use of a three-year a = log X, and b = log (1 + r) are the parameters to average of the official exchange rate. For a few be estimated; e is the error term. If b* is the least- countries, however, the prevailing official squares estimate of b, then the annual average exchange rate does not fully reflect the rate effec- growth rate, r, is obtained as [antilog (b*)]_1. tively applied to actual foreign exchange transac- tions and in these cases an alternative conversion Table 1. Basic indicators factor is used. Recognizing that these shortcomings affect the The estimates of population for mid-1983 are pri- comparability of the GNP per capita estimates, the marily based on data from the UN Population Divi- World Bank has introduced several improvements sion. In many cases the data take into account the in the estimation procedures. Through its regular results of recent population censuses. Refugees review of national accounts of its member coun- not permanently settled in the country of asylum tries, the World Bank systematically evaluates the are generally considered to be part of the popula- GNP estimates, focusing on the coverage and con- tion of their country of origin. The data on area are cepts employed, and where appropriate makes from the computer tape for the FAO Production adjustments to improve comparability. The Bank Yearbook, 1983. also undertakes a systematic review to assess the 230 appropriateness of the exchange rates as conver- where: sion factors. For a very small number of countries, Yt = current GNP (local currency) for year an alternative conversion factor is used when the Pt = CNP deflator for year official exchange rate is judged to diverge by an = annual average exchange rate (local currency/US exceptionally large margin from the rate effectively dollars) for year = mid-year population for year applied to foreign transactions. P = US GNP deflator for year In an effort to achieve greater comparability, the UN International Comparison Project (ICP) has Because of problems associated with the avail- developed measures of GDP using purchasing- ability of data and the determination of exchange power parities rather than exchange rates. So far rates, information on GNP per capita is not shown the project covers only a limited set of countries, for most East European nonmarket economies. and some inherent methodological issues remain The average annual rate of inflation is the least- unresolved. Nevertheless, the Bank will publish squares growth rate of the implicit gross domestic summary findings of the fourth phase of the ICP, product (GDP) deflator, for each of the periods relating to the comparison of GDPs in 1980 when shown. The GDP deflator is first calculated by these data become available. Readers are referred dividing, for each year of the period, the value of to Irving Kravis, Alan Heston, and Robert Sum- GDP in current market prices by the value of GDP mers, World Product and Income: International Com- in constant market prices, both in national cur- parisons of Real Gross Product (Baltimore, Md.: rency. The least-squares method is then used to Johns Hopkins University Press, 1982), which calculate the growth rate of the GDP deflator for reported on phase three of the project. the period. This measure of inflation, like any The estimates of 1983 GNP and 1983 per capita other measure of inflation, has limitations. For GNP are calculated on the basis of the 1981-83 some purposes, however, it is used as an indicator base period. With this method, the first step is to of inflation because it is the most broadly based calculate the conversion factor. This is done by tak- deflator, showing annual price movements for all ing the simple arithmetic average of the actual goods and services produced in an economy. exchange rate for 1983 and of deflated exchange Life expectancy at birth indicates the number of rates for 1981 and 1982. To obtain the latter, the years a newborn infant would live if patterns of actual exchange rate for 1981 is multiplied by the mortality prevailing for all people at the time of its relative rate of inflation for the country and for the birth were to stay the same throughout its life. United States between 1981 and 1983; the actual Data are from the UN Population Division, supple- exchange rate for 1982 is multiplied by the relative mented by World Bank estimates. rate of inflation for the country and the United The summary measures for GNP per capita and States between 1982 and 1983. life expectancy in this table are weighted by popu- This average of the actual and the deflated lation. The summary measures for average annual exchange rates is intended to smooth the impact of rates of inflation are weighted by the share of fluctuations in prices and exchange rates. The sec- country GDP for the entire period in the particular ond step is to convert the GNP at current market income group. This method differs from previous prices and in national currencies of the year 1983 editions' averaging procedures for this indicator; by means of the conversion factor as derived previously median values were computed. above. Then the resulting GNP in 1983 US dollars The following table shows basic indicators for 35 is divided by the midyear population to derive the countries that have a population of less than a mil- 1983 per capita GNP in current US dollars. The lion and are members of the United Nations, the preliminary estimates of GNP per capita for 1983 World Bank, or both. are shown in this table. The following formulas describe the procedure Tables 2 and 3. Growth and structure of for computing the conversion factor for year t: production 1 - (-z) = 3 IP/P) e,_1 Pt_1 I p,1j + e] Most of the definitions used are those of the UN System of National Accounts. and for calculating per capita GNP in US dollars Gross domestic product (GDP) measures the total for year t: final output of goods and services produced by an economythat is, by residents and nonresidents 01) = Y / N regardless of the allocation to domestic and foreign 231 claims. It is calculated without making deductions transactions, an alternative conversion factor is for depreciation. For most countries, GDP by used. Note that this procedure does not use the industrial origin is measured at factor cost; for three-year averaging computation used for calcu- some countries without complete national lating GNP per capita in Table 1. accounts series at factor cost, market price series The agricultural sector comprises agriculture, for- were used. GDP at factor cost is equal to GDP at estry, hunting, and fishing. In developing coun- market prices, less indirect taxes net of subsidies. tries with high levels of subsistence farming, much The figures for GDP are dollar values converted of the agricultural production is either not from domestic currency by using the single-year exchanged or not exchanged for money. This official exchange rates. For a few countries where increases the difficulty of measuring the contribu- the official exchange rate does not fully reflect the tion of agriculture to GNP. The industrial sector rate effectively applied to actual foreign exchange comprises mining, manufacturing, construction, Basic indicators for UN/World Bank members with a population of less than 1 million GNP per capita' Life Area Average annual Average annual expectancy Population (thousands growth rate rate of inflation at birth (thousands) of square Dollars (percent) (percent) (years) UN/World Bank member mid-1983 kilometers) 1983 1965 83 1965-73 1973_83r 1983 Guinea-Bissau 863 36 180 6.9 38 Gambia, The 697 11 290 1.4 3.0 10.4 36 Sao Tome and Principe 103 1 310 -1.3 8.8 65 Cape Verde 315 4 320 11.9 64 Guyana 802 215 520 0.5 4.3 7.7 69 Solomon Islands 254 28 640 4.8 10.4 57 Grenada 92 (.) 840 0.9 . . . . 69 St. Vincent and the Grenadines 102 (.) 860 1.8 6.1 11.6 69 Swaziland 705 17 870 2.6 4.3 14.1 55 Botswana 998 600 920 8.5 4.4 9.8 61 St. Christopher and Nevis 46 (.) 950 2.4 6.4 10.0 63 Dominica 81 1 980 -0.4 6.1 15.1 St. Lucia 125 I 1,060 3.1 5.5 10.5 69 Belize 153 23 1,140 3.6 8.1 66 Mauritius 993 2 1,160 2.8 5.6 13.1 67 Antigua and Barbuda 78 (.) 1,710 -0.4 6.6 9.1 Fiji 670 18 1,790 3.4 5.6 9.2 68 Seychelles 65 (.) 2,400 3.4 Suriname 374 163 3,420 4.5 10.1 65 Malta 360 (.) 3,490 8.7 2.4 5.8 73 Cyprus 655 9 3,680 5.5 1.6 10.8 75 Gabon 695 268 3,950 3.2 5.8 18.5 50 Barbados 253 (.) 4,050 3.8 6.5 12.9 72 Bahamas 222 14 4,060 -1.8 . . . . 69 Iceland 237 103 10,260 2.6 15.1 45.2 77 Bahrain 391 10,510 69 Luxembourg 365 3 14,650 3.9 5.0 6.6 73 Brunei 209 6 21,140 Qatar 281 11 21,210 -7.0 72 Comoros 368 2 -0.6 48 Djibouti 399 22 -3.6 . . . . 50 Equatorial Guinea 359 28 3.6 44 Maldives 168 (.) 47 Vanuatu 127 15 55 Western Samoa 161 3 65 Note: Countries with italicized names are those for which no GNP per capita can be calculated. a. See the technical notes. b. Because data for the entire period are not always available, figures in italics are for periods other than specified. c. Figures in italics are for 1973-82, not 1973-83. 232 and electricity, water, and gas. All other branches The average annual growth rates for the sum- of economic activity are categorized as services. mary measures in Table 4 are weighted by GDP. National accounts series in domestic currency The new weighting procedure for Table 2 is used units were used to compute the indicators in these here also. The average expenditure component tables. The growth rates in Table 2 were calculated shares in Table 5 are weighted by GDP for the from constant price series; the sectoral shares of years in question. GDP in Table 3, from current price series. For each indicator, constant US dollar values are first calculated for the time periods covered. For each of the years covered by the period, the values Table 6. Agriculture and food are then aggregated. The least-squares growth rate procedure is then applied to compute the sum- The basic data for value added in agriculture are from mary measure. Note that this differs from previous the World Bank's national accounts series in editions when single-year weights were used. The national currencies. The 1980 value added in cur- average sectoral shares in Table 3 are weighted by rent prices in national currencies is converted to GDP for the years in question. US dollars by applying the single-year conversion procedure, as described in the technical notes for Tables 2 and 3. The growth rates of the constant price series in national currencies are applied to the Tables 4 and 5. Growth of consumption and 1980 value added in US dollars to derive the val- investment; Structure of demand ues, in 1980 US dollars, for 1970 and 1983. Cereal imports and food aid in cereals are measured GDP is defined in the note for Table 2. in grain equivalents and defined as comprising all Public consumption (or general government con- cereals under the Standard International Trade sumption) includes all current expenditure for pur- Classification (SITC), Revision 1, Groups 041-046. chases of goods and services by all levels of gov- The figures are not directly comparable since cereal ernment. Capital expenditure on national defense imports are based on calendar-year and recipient- and security is regarded as consumption expendi- country data, whereas food aid in cereals is based ture. on crop-year and donor-country data. Private consumption is the market value of all Fertilizer consumption is measured in relation to goods and services purchased or received as arable land, defined as comprising arable land and income in kind by households and nonprofit insti- land under permanent crops. This includes land tutions. It includes imputed rent for owner-occu- under temporary crops (double-cropped areas are pied dwellings. counted once), temporary meadows for mowing or Gross domestic investment consists of the outlays pastures, land under market and kitchen gardens, for additions to the fixed assets of the economy, land temporarily fallow or lying idle, as well as plus net changes in the value of inventories. land under permanent crops. Gross domestic savings are calculated by deducting The figures on food and fertilizer are from the total consumption from gross domestic product. Food and Agriculture Organization (FAQ). In Exports of goods and nonfactor services represent the some instances data are for 1974 because they pro- value of all goods and nonfactor services sold to vide the earliest available information. the rest of the world; they include merchandise, The index of food production per capita shows the freight, insurance, travel, and other nonfactor ser- average annual quantity of food produced per cap- vices. The value of factor services, such as invest- ita in 1981-83 in relation to that in 1974-76. The ment income, interest, and labor income, is estimates were derived from those of the FAQ, excluded. which are calculated by dividing indices of the The resource balance is the difference between quantity of food production by indices of total pop- exports of goods and nonfactor services and ulation. For this index, food is defined as compris- imports of goods and nonf actor services. ing cereals, starchy roots, sugar cane, sugar beet, National accounts series were used to compute pulses, edible oils, nuts, fruits, vegetables, live- the indicators in these tables. The growth rates in stock, and livestock products. Quantities of food Table 4 were calculated from constant price series; production are measured net of animal feed, seeds the shares of GDP in Table 5, from current price for use in agriculture, and food lost in processsing series. and distribution. 233 Table 7. Industry compute summary measures for the specified years. The percentage distribution of value added among Energy imports refer to the dollar value of energy manufacturing industries was calculated from data importsSection 3 in the Standard International obtained from the UN Industrial Development Trade Classification (SITC), Revision 1,and are Organization (UNIDO), with the base values expressed as a percentage of earnings from mer- expressed in 1975 dollars. chandise exports. The summary measures are The classification of manufacturing industries is weighted by merchandise exports in current dol- in accord with the UN International Standard lars. Industrial Classification of All Economic Activities Because data on energy imports do not permit a (ISIC). Food and agriculture comprise ISIC Major distinction between petroleum imports for fuel Groups 311, 313, and 314; textiles and clothing 321- and for use in the petrochemical industry, these 24; machinery and transport equipment 382-84; and percentages may overestimate the dependence on chemicals 351 and 352. Other manufacturing gener- imported energy. ally comprises ISIC Major Division 3, less all of the above; however, for some economies for which complete data are not available, other categories Table 9. Growth of merchandise trade are included as well. The basic data for value added in manufacturing are The statistics on merchandise trade, Tables 9 from the World Bank's national accounts series in through 13, are from UN publications and the UN national currencies. The 1975 value added in cur- trade data system, supplemented by statistics from rent prices in national currencies is converted to the UN Conference on Trade and Development US dollars by applying the conversion procedure (UNCTAD), the International Monetary Fund described in technical notes for Tables 2 and 3. The (IMF), and in a few cases World Bank country doc- growth rates of the constant price series in national umentation. Values in these tables are in current currencies are applied to the 1975 value added in US dollars converted at official exchange rates. US dollars to derive the values, in 1975 US dollars, Merchandise exports and imports cover, with some for 1970 and 1981. exceptions, all international changes in ownership of goods passing across the customs borders. Exports are valued f.o.b. (free on board), imports c.i.f. (cost, insurance, and freight), unless other- Table 8. Commercial energy wise specified in the foregoing sources. These val- ues are in current dollars. Note that these values The data on energy generally are from UN sources. do not include trade in services. They refer to commercial forms of primary energy: The growth rates of merchandise exports and imports petroleum and natural gas liquids, natural gas, are in real terms and calculated from quantum solid fuels (coal, lignite, and so on), and primary (volume) indices of exports and imports. Quantum electricity (nuclear, geothermal, and hydroelectric indices are the ratios of the export or import value power)all converted into oil equivalents. Figures index to the corresponding unit value index. For on liquid fuel consumption include petroleum most developing economies these indices are from derivatives that have been consumed in non- the UNCTAD Handbook of International Trade and energy uses. For converting primary electricity Development Statistics and supplementary data. For into oil equivalents, a notional thermal efficiency of industrial economies the indices are from the UN 34 percent has been assumed. The use of firewood Yearbook of International Trade Statistics and UN and other traditional fuels, though substantial in Monthly Bulletin of Statistics. The summary mea- some developing countries, is not taken into sures are calculated by aggregating the 1980 con- account because reliable and comprehensive data stant US dollar price series for each year, and then are not available. applying the least-squares growth rate procedure The summary measures of energy production and for the time periods shown. Note again that these consumption are computed by aggregating the values do not include trade in services. respective volumes for each of the years covered The terms of trade, or the net barter terms of by the time periods, and then applying the least- trade, measure the relative level of export prices squares growth rate procedure. For energy con- compared to import prices. Calculated as the ratio sumption per capita population weights are used to of a country's index of export unit value to the 234 import unit value index, this indicator shows Table 12. Origin and destination of changes over a base year in the level of export merchandise exports prices as a percentage of import prices. The terms- of-trade index numbers are shown for 1981 and Merchandise exports are defined in the note for Table 1983, with 1980 = 100. The unit value indices are 9. Trade shares in this table are based on statistics from the same sources cited above for the growth on the value of trade in current dollars from the rates of exports and imports. UN and the IMF. Industrial market economies also include Gibraltar, Iceland, and Luxembourg; high- income oil exporters also include Bahrain, Brunei, Tables 10 and 11. Structure of merchandise trade and Qatar. The summary measures are weighted by the value of merchandise exports in current dol- The shares in these tables are derived from trade lars. values in current dollars reported in the UN trade data system and the UN Yearbook of International Trade Statistics, supplemented by other regular sta- Table 13. Origin and destination of tistical publications of the UN and the IMF. manufactured exports Merchandise exports and imports are defined in the note for Table 9. The data in this table are from the UN and are The categorization of exports and imports fol- among those used to compute special Table B in lows the Standard International Trade Classifica- the UN Yearbook of International Trade Statistics. Man- tion (SITC), Revision 1. ufactured goods are the commodities in SITC, Revi- In Table 10, fuels, minerals, and metals are the com- sion 1, Sections 5 through 9 (chemicals and related modities in SITC Section 3, Divisions 27 and 28 products, basic manufactures, manufactured arti- (mineral fuels, minerals, crude fertilizers, and met- cles, machinery and transport equipment, and alliferous ores) and Division 68 (nonferrous other manufactured articles and goods not else- metals). Other primary commodities comprise SITC where classified) excluding Division 68 (nonfer- Sections 0, 1, 2, and 4 (food and live animals, bev- rous metals). erages and tobacco, inedible crude materials, oils, The country groups are the same as those in fats, and waxes) less Divisions 27 and 28. Textiles Table 12. The summary measures are weighted by and clothing represent SITC Divisions 65 and 84 manufactured exports in current dollars. (textiles, yarns, fabrics, and clothing). Machinery and transport equipment are the commodities in SITC Section 7. Other manufactures, calculated as Table 14. Balance of payments and reserves the residual from the total value of manufactured exports, represent SITC Sections 5 through 9 less Values in this table are in current US dollars con- Section 7 and Divisions 65, 68, and 84. verted at official exchange rates. In Table 11, food commodities are those in SITC The current account balance is the difference Sections 0, 1, and 4 and in Division 22 (food and between (1) exports of goods and services plus live animals, beverages and tobacco, oils and fats, inflows of unrequited official and private transfers and oilseeds and nuts). Fuels are the commodities and (2) imports of goods and services plus unre- in SITC Section 3 (mineral fuels, lubricants, and quited transfers to the rest of the world. The cur- related materials). Other primary commodities com- rent account estimates are primarily from IMF data prise SITC Section 2 (crude materials excluding files. fuels), less Division 22 (oilseeds and nuts), plus Workers' remittances cover remittances of income Division 68 (nonferrous metals). Machinery and by migrants who are employed or expected to be transport equipment are the commodities in SITC employed for more than a year in their new place Section 7. Other manufactures, calculated as the of residence. residual from the total value of manufactured Net direct private investment is the net amount imports, represent SITC Sections 5 through 9 less invested or reinvested by nonresidents in enter- Section 7 and Division 68. prises in which they or other nonresidents exercise The summary measures in Table 10 are weighted significant managerial control. Including equity by merchandise exports in current dollars; those in capital, reinvested earnings, and other capital, Table 11, by merchandise imports in current dol- these net figures also take into account the value of lars. (See note to Table 9.) direct investment abroad by residents of the 235 reporting country. These estimates were compiled equipment and it is therefore excluded from their primarily from IMF data files. data. Gross international reserves comprise holdings of monetary gold, special drawing rights (SDRs), the Table 16. External public debt and reserve position of IMF members in the Fund, and debt service ratio holdings of foreign exchange under the control of monetary authorities. The data on holdings of External public debt outstanding and disbursed repre- international reserves are from IMF data files. The sents the amount of public and publicly guaran- gold component of these reserves is valued teed loans that has been disbursed, net of repay- throughout at year-end London prices: that is, ments of principal and write-offs at year-end. For $37.37 an ounce in 1970 and $381.50 an ounce in estimating external public debt as a percentage of 1983. The reserve levels for 1970 and 1983 refer to GNP, the debt figures were converted into US dol- the end of the year indicated and are in current lars from currencies of repayment at end-of-year dollars at prevailing exchange rates. Due to differ- official exchange rates. However, GNP was con- ences in the definition of international reserves, in verted from national currencies to US dollars by the valuation of gold, and in reserve management applying the conversion procedure described in practices, the levels of reserve holdings published the technical notes for Tables 2 and 3. The sum- in national sources do not have strictly comparable mary measures are weighted by GNP in current significance. Reserve holdings at the end of 1983 dollars. are also expressed in terms of the number of Interest payments are those on the disbursed and months of imports of goods and services they outstanding public and publicly guaranteed debt could pay for, with imports at the average level for in foreign currencies, goods, or services; they 1982 or 1983. The summary measures are weighted include commitment charges on undisbursed debt by imports of goods and services in current dol- if information on those charges was available. lars. Debt service is the sum of interest payments and repayments of principal on external public and Table 15. Flow of public and publicly guaranteed publicly guaranteed debt. The ratio of debt service external capital to exports of goods and services is one of several The data on debt in this and successive tables are conventional measures used to assess the ability to from the World Bank Debtor Reporting System. service debt. The average ratios of debt service to That system is concerned solely with developing GNP for the economy groups are weighted by economies and does not collect data on external GNP in current dollars. (See above for the GNP debt for other groups of borrowers. Nor are com- conversion.) The average ratios of debt service to prehensive comparable data available from other exports of goods and services are weighted by sources. The dollar figures on debt shown in exports of goods and services in current dollars. Tables 15 through 17 are in US dollars converted at official exchange rates. Table 17. Terms of public borrowing Data on the gross inflow and repayment of principal (amortization) are for public and publicly guaran- Commitments refer to the public and publicly guar- teed medium- and long-term loans. The net inflow anteed loans for which contracts were signed in is the gross inflow less the repayment of principal. the year specified. They are reported in currencies Public loans are external obligations of public of repayment and converted into US dollars at debtors, including the national government, its average annual official exchange rates. agencies, and autonomous public bodies. Publicly Figures for interest rates, maturities, and grace guaranteed loans are external obligations of pri- periods are averages weighted by the amounts of vate debtors that are guaranteed for repayment by loans. Interest is the major charge levied on a loan a public entity. and is usually computed on the amount of princi- The data in this table and in successive tables on pal drawn and outstanding. The maturity of a loan debt do not cover nonguaranteed private debt is the interval between the agreement date, when a because comprehensive data are not available at loan agreement is signed or bonds are issued, and the country level, even though for some borrowers the date of final repayment of principal. The grace such debt is substantial. Some countries do not period is the interval between the agreement date report debt contracted for purchases of military and the date of the first repayment of principal. 236 The summary measures in this table are mary measures are weighted by population in weighted by the amounts of loans. 1970. The estimates of population for mid-1983 are pri- marily based on data from the UN Population Divi- Table 18. Official development assistance from sion and from World Bank sources. In many cases OECD and OPEC members the data take into account the results of recent pop- ulation censuses. Note again that refugees not per- Official development assistance (ODA) consists of net manently settled in the country of asylum are gen- disbursements of loans and grants made at conces- erally considered to be part of the population of sional financial terms by official agencies of the their country of origin. members of the Development Assistance Commit- The projections of population for 1990 and 2000, tee (DAC) of the Organisation for Economic Co- and to the year in which it will eventually become operation and Development (OECD) and members stationary, were made for each economy sepa- of the Organization of Petroleum Exporting Coun- rately. Starting with information on total popula- tries (OPEC) with the objective of promoting eco- tion by age and sex, fertility rates, mortality rates, nomic development and welfare. It includes the and international migration in the base year 1980, value of technical cooperation and assistance. All these parameters were projected at five-year inter- data shown were supplied by the OECD, and all vals on the basis of generalized assumptions until US dollar values converted at official exchange the population became stationary. The base-year rates. estimates are from updated computer printouts of Amounts shown are net disbursements to devel- the UN World Population Prospects as Assessed in oping countries and multilateral institutions. The 1982, from the most recent issues of the UN Popula- disbursements to multilateral institutions are now tion and Vital Statistics Report and International reported for all DAC members on the basis of the Migration: Levels and Trends, and from the World date of issue of notes; some DAC members previ- Bank, the Population Council, the US Bureau of ously reported on the basis of the date of encash- the Census, Demographic Statistics (Eurostat 1984), ment. Net bilateral flows to low-income countries and national censuses. exclude unallocated bilateral flows and all dis- The net reproduction rate (NRR) indicates the bursements to multilateral institutions. number of daughters a newborn girl will bear dur- The nominal values shown in the summary for ing her lifetime, assuming fixed age-specific fertil- ODA from OECD countries were converted into ity rates and a fixed set of mortality rates. The NRR 1980 prices using the dollar GNP deflator. This thus measures the extent to which a cohort of new- deflator is based on price increases in OECD coun- born girls will reproduce themselves under given tries (excluding Greece, Portugal, and Turkey) schedules of fertility and mortality. An NRR of 1 measured in dollars. It takes into account the par- indicates that fertility is at replacement level: at ity changes between the dollar and national cur- this rate childbearing women, on the average, bear rencies. For example, when the dollar appreciates, only enough daughters to replace themselves in price changes measured in national currencies the population. have to be adjusted downward by the amount of A stationary population is one in which age- and the appreciation to obtain price changes in dollars. sex-specific mortality rates have not changed over The table, in addition to showing totals for a long period, while age-specific fertilty rates have OPEC, shows totals for the Organization of Arab simultaneously remained at replacement level Petroleum Exporting Countries (OAPEC). The (NRR=1). In such a population, the birth rate is donor members of OAPEC are Algeria, Iraq, constant and equal to the death rate, the age struc- Kuwait, Libya, Qatar, Saudi Arabia, and United ture also is constant, and the growth rate is zero. Arab Emirates. ODA data for OPEC and OAPEC Population Momentum is the tendency for popula- were also obtained from the OECD. tion growth to continue beyond the time that replacement-level fertility has been achieved; that is, even after NRR has reached unity. The momen- Table 19. Population growth, past and projected, tum of a population in the year t is measured as a and population momentum ratio of the ultimate stationary population to the population in the year t, given the assumption that The growth rates of population are period averages fertility remains at replacement level from the year calculated from midyear populations. The sum- t onward. In India, for example, in 1985 the popu- 237 lation is 765 million, the ultimate stationary popu- its net reproduction rate is other than 1, it was lation assuming that NRR = 1 from 1985 onwards, assumed that fertility rates in these economies is 1,349 million, and the population momentum is would regain replacement levels in order to make 1.76. estimates of the stationary population for them. A population tends to grow even after fertility For the sake of consistency with the other esti- has declined to replacement level because past mates, the total fertility rates in the industrial econ- high growth rates will have produced an age distri- omies were assumed to remain constant until bution with a relatively high proportion of women 1985-90 and then to increase to replacement level in, or still to enter, the reproductive ages. Conse- by 2010. quently, the birth rate will remain higher than the International migration rates are based on past death rate and the growth rate will remain positive and present trends in migration flow. The esti- for several decades. A population takes 50-75 mates of future net migration are speculative. For years, depending on the initial conditions, before most economies the net migration rates were its age distribution fully adjusts to the changed assumed to be zero by 2000, but for a few they fertility rates. were assumed to be zero by 2025. To make the projections, assumptions about The estimates of the hypothetical size of the sta- future mortality rates were made in terms of tionary population and the assumed year of reach- female life expectancy at birth (that is, the number ing replacement-level fertility are speculative. They of years a newborn girl would live if subject to the should not be regarded as predictions. They are mortality risks prevailing for the cross-section of included to provide a summary indication of the population at the time of her birth). Economies long-run implications of recent fertility and mortal- were first divided according to whether their pri- ity trends on the basis of highly stylized assump- mary-school enrollment ratio for females was tions. A fuller description of the methods and above or below 70 percent. In each group a set of assumptions used to calculate the estimates is annual increments in female life expectancy was available from the Bank publication: World Popula- assumed, depending on the female life expectancy tion Projections 1984Short- and Long-term Estimates in 1980-85. For a given life expectancy at birth, the by Age and Sex with Related Demographic Statistics. annual increments during the projection period are larger in economies having a higher primary- Table 20. Demographic and fertility-related school enrollment ratio and a life expectancy of up indicators to 62.5 years. At higher life expectancies, the incre- ments are the same. The crude birth and death rates indicate the number To project fertility rates, the first step was to esti- of live births and deaths per thousand population mate the year in which fertility would reach in a year. They are from the same sources men- replacement level. These estimates are speculative tioned in the note for Table 19. Percentage changes and are based on information on trends in crude are computed from unrounded data. birth rates (defined in the note for Table 20), total The total fertility rate represents the number of fertility rates (also defined in the note for Table 20), children that would be born per woman, if she female life expectancy at birth, and the perfor- were to live to the end of her childbearing years mance of family planning programs. For most and bear children at each age in accord with pre- economies it was assumed that the total fertility vailing age-specific fertility rates. The rates given rate would decline between 1980 and the year of are from the same sources mentioned in the note reaching a net reproduction rate of 1, after which for Table 19. fertility would remain at replacement level. For The percentage of married women of childbearing age most countries in sub-Saharan Africa, and for a using contraception refers to women who are prac- few countries in Asia and the Middle East, total ticing, or whose husbands are practicing, any form fertility rates were assumed to remain constant for of contraception. These generally comprise male some time and then to decline until replacement and female sterilization, intrauterine device (IUD), level was reached; for a few they were assumed to condom, injectable and oral contraceptives, sper- increase until 1990-95 and then to decline. micides, diaphragm, rhythm, withdrawal, and In some countries, fertility is already below abstinence. Women of childbearing age are gener- replacement level or will decrease to below ally women aged 15-49, although for some coun- replacement level during the next 5 to 10 years. tries contraceptive usage is measured for other age Because a population will not remain stationary if groups. 238 Data are mainly derived from the World Fertility 1982 Assessment, 1985, supplemented by data from Survey, the Contraceptive Prevalence Survey, the the World Bank, the US Bureau of Census, and World Bank, and the UN report: Recent Levels and from various issues of the UN Demographic Year- Trends of Contraceptive Use as Assessed in 1983. For a book. few countries for which no survey data are avail- The growth rates of urban population were calcu- able, program statistics are used; these include lated from the World Bank's population estimates; India, Bangladesh, Indonesia, and several African the estimates of urban population shares were cal- countries. Program statistics may understate con- culated from the sources cited above. Data on traceptive prevalence because they do not measure urban agglomeration are from the UN Patterns of use of methods such as rhythm, withdrawal, or Urban and Rural Population Growth, 1980. abstinence, or of contraceptives not obtained Because the estimates in this table are based on through the official family planning program. The different national definitions of what is "urban," data refer to a variety of years, generally not more cross-country comparisons should be interpreted than two years distant from those specified. with caution. All summary measures are weighted by popula- The summary measures for urban population as tion. a percentage of total population are weighted by population; the other summary measures in this Table 21. Labor force table are weighted by urban population. The population of working age refers to the popula- tion aged 15-64. The estimates are based on the Table 23. Indicators related to life expectancy population estimates of the World Bank for 1983 and previous years. The summary measures are Life expectancy at birth is defined in the note for weighted by population. Table 1. The labor force comprises economically active per- The infant mortality rate is the number of infants sons aged 10 years and over, including the armed who die before reaching one year of age, per thou- forces and the unemployed, but excluding house- sand live births in a given year. The data are from a wives, students, and other economically inactive variety of sourcesincluding issues of UN Demo- groups. Agriculture, industry, and services are graphic Yearbook, and Population and Vital Statistics defined in the same manner as in Table 2. The esti- Report, and UN "Infant Mortality: World Estimates mates of the sectoral distribution of the labor force and Projections, 1950-2025" Population Bulletin of are from International Labour Organisation (ILO), the United Nations (1983), and from the World Labour Force Estimates and Projections, 1950-2000, Bank. and from the World Bank. The summary measures The child death rate is the number of deaths of are weighted by labor force. children aged 1-4 per thousand children in the The labor force growth rates were derived from the same age group in a given year. Estimates were Bank's population projections and from ILO data based on the data on infant mortality and on the on age-specific activity rates in the source cited relation between the infant mortality rate and the above. The summary measures for 1965-73 and child death rate implicit in the appropriate Coale- 1973-83 are weighted by labor force in 1973; those Demeny Model life tables; see Ansley J. Coale and for 1980-2000, by the labor force in 1980. Paul Demeny, Regional Model Life Tables and Stable The application of ILO activity rates to the Populations (Princeton, N.J.: Princeton University Bank's latest population estimates may be inap- Press, 1966). propriate for some economies in which there have The summary measures in this table are been important changes in unemployment and weighted by population. underemployment, in international and internal migration, or in both. The labor force projections for 1980-2000 should thus be treated with caution. Table 24. Health-related indicators Table 22. Urbanization The estimates of population per physician and nursing person were derived from World Health Organiza- The data on urban population as a percentage of total tion (WHO) data, some of which have been population are from the UN Estimates and Projections revised to reflect new information. They also take of Urban, Rural and City Populations 1950-2025: The into account revised estimates of population. 239 Nursing persons include graduate, practical, Table 26. Central government expenditure assistant, and auxiliary nurses; the inclusion of auxiliary nurses enables a better estimation of the The data on central government finance in Tables availability of nursing care. Because definitions of 26 and 27 are from the IMF Government Finance nursing personnel varyand because the data Statistics Yearbook, IMF data files, and World Bank shown are for a variety of years, generally not country documentation. The accounts of each more than two years distant from those specified country are reported using the system of common the data for these two indicators are not strictly definitions and classifications found in the IMF comparable across countries. Draft Manual on Government Finance Statistics. Due The daily calorie supply per capita was calculated by to differences in coverage of available data, the dividing the calorie equivalent of the food supplies individual components of central government in an economy by the population. Food supplies expenditure and current revenue shown in these comprise domestic production, imports less tables may not be strictly comparable across all exports, and changes in stocks; they exclude ani- economies. The shares of total expenditure and mal feed, seeds for use in agriculture, and food lost revenue by category are calculated from national in processing and distribution. The daily calorie currencies. requirement per capita refers to the calories needed The inadequate statistical coverage of state, pro- to sustain a person at normal levels of activity and vincial, and local governments has dictated the use health, taking into account age and sex distribu- of central government data only. This may seri- tions, average body weights, and environmental ously understate or distort the statistical portrayal temperatures. Both sets of estimates are from the of the allocation of resources for various purposes, Food and Agriculture Organization (FAQ). especially in large countries where lower levels of The summary measures in this table are government have considerable autonomy and are weighted by population. responsible for many social services. It must be emphasized that the data presented, especially those for education and health, are not comparable for a number of reasons. In many Table 25. Education economies private health and education services are substantial; in others public services represent The data in this table refer to a variety of years, the major component of total expenditure but may generally not more than two years distant from be financed by lower levels of government. Great those specified, and are mostly from Unesco. caution should therefore be exercised in using the The data on number enrolled in primary school refer data for cross-country comparisons. to estimates of total, male, and female enrollment Central government expenditure comprises the of students of all ages in primary school; they are expenditure by all government offices, depart- expressed as percentages of the total, male, or ments, establishments, and other bodies that are female populations of the primary school age to agencies or instruments of the central authority of give gross primary enrollment ratios. While many a country. It includes both current and capital countries consider primary-school age to be 6-11 (development) expenditure. years, others do not. The differences in country Defense comprises all expenditure, whether by practices in the ages and duration of schooling are defense or other departments, for the maintenance reflected in the ratios given. For some countries of military forces, including the purchase of mili- with universal primary education, the gross enroll- tary supplies and equipment, construction, ment ratios may exceed 100 percent because some recruiting, and training. Also falling into this cate- pupils are below or above the country's standard gory is expenditure for strengthening the public primary-school age. services to meet wartime emergencies, for training The data on number enrolled in secondary school civil defense personnel, and for foreign military were calculated in the same manner, with second- aid and contributions to military organizations and ary-school age considered to be 12-17 years. alliances. The data on number enrolled in higher education are Education comprises expenditure for the provi- from Unesco. sion, management, inspection, and support of pre- The summary measures in this table are primary, primary, and secondary schools; of uni- weighted by population. versities and colleges; and of vocational, technical, 240 and other training institutions by central govern- and for overall surplus/deficit as a percentage of ments. Also included is expenditure on the general GNP are weighted by GNP in current dollars. administration and regulation of the education system; on research into its objectives, organiza- Table 27. Central government current revenue tion, administration, and methods; and on such subsidiary services as transport, school meals, and Information on data sources and comparability is medical and dental services in schools. given in the note for Table 26. Current revenue by Health covers public expenditure on hospitals, source is expressed as a percentage of total current medical and dental centers, and clinics with a revenue, which is the sum of tax revenue and cur- major medical component; on national health and rent nontax revenue, and is calculated from medical insurance schemes; and on family plan- national currencies. ning and preventive care. Also included is expend- Tax revenue is defined as all government revenue iture on the general administration and regulation from compulsory, unrequited, nonrepayable of relevant government departments, hospitals receipts for public purposes, including interest col- and clinics, health and sanitation, and national lected on tax arrears and penalties collected on health and medical insurance schemes. nonpayment or late payment of taxes. Tax revenue Housing and community amenities and social security is shown net of refunds and other corrective trans- and welfare covers (1) public expenditure on hous- actions. Taxes on income, profit, and capital gain are ing, such as income-related schemes; on provision taxes levied on the actual or presumptive net and support of housing and slum clearance activi- income of individuals, on the profits of enter- ties; on community development; and on sanitary prises, and on capital gains, whether realized on services; and (2) public expenditure for compensa- land sales, securities, or other assets. Social Security tion to the sick and temporarily disabled for loss of contributions include employers' and employees' income; payments to the elderly, the permanently social security contributions as well as those of disabled, and the unemployed; and for family, self-employed and unemployed persons. Domestic maternity, and child allowances. The second cate- taxes on goods and services include general sales, gory also includes the cost of welfare services such turnover, or value added taxes, selective excises on as care of the aged, the disabled, and children, as goods, selective taxes on services, taxes on the use well as the cost of general administration, regula- of goods or property, and profits of fiscal monopo- tion, and research associated with social security lies. Taxes on international trade and transactions and welfare services. include import duties, export duties, profits of Economic services comprises public expenditure export or import marketing boards, transfers to associated with the regulation, support, and more government, exchange profits, and exchange efficient operation of business, economic develop- taxes. Other taxes include employers' payroll or ment, redress of regional imbalances, and creation manpower taxes, taxes on property, and other of employment opportunities. Research, trade pro- taxes not allocable to other categories. motion, geological surveys, and inspection and Current nontax revenue comprises all government regulation of particular industry groups are among revenue that is not a compulsory nonrepayable the activities included. The five major categories of payment for public purposes. Proceeds of grants economic services are fuel and energy, agriculture, and borrowing, funds arising from the repayment industry, transportation and communication, and of previous lending by governments, incurrence of other economic affairs and services. liabilities and proceeds from the sale of capital Other covers expenditure for the general admin- assets are not included. istration of government not included elsewhere; The summary measures for the components of for a few economies it also includes amounts that current revenue are weighted by total current reve- could not be allocated to other components. nue in current dollars; those for current revenue as Overall surplus/deficit is defined as current and a percentage of GNP are weighted by GNP in cur- capital revenue and grants received less total rent dollars. expenditure less lending minus repayments. The summary measures for the components of Table 28. Income distribution central government expenditure are weighted by central government expenditure in current dollars; The data in this table refer to the distribution of those for total expenditure as a percentage of GNP total disposable household income accruing to per- 241 centile groups of households ranked by total nationwide estimates of income distribution. household income. The distributions cover rural Thus, although the estimates shown are consid- and urban areas and refer to different years ered the best available, they do not avoid all these between 1967 and 1982. problems and should be interpreted with extreme The data for income distribution are drawn from caution. a variety of sources including Economic and Social The scope of the indicator is similarly limited. Commission for Asia and the Pacific (ESCAP), the Because households vary in size, a distribution in Economic Commission for Latin America and the which households are ranked according to per cap- Caribbean (ECLAC), International Labour Organi- ita household income, rather than according to sation (ILO), the Organisation for Economic Co- total household income is superior for many pur- operation and Development (OECD), the World poses. The distinction is important because house- Bank, national sources, the UN Survey of National holds with low per capita incomes frequently are Sources of Income Distribution Statistics, 1981, and large households, whose total income may be rela- more recent UN data. tively high. And conversely, many households Because the collection of data on income distri- with low household incomes may be small house- bution has not been systematically organized and holds with relatively high per capita incomes. integrated with the official statistical system in Information on the distribution of per capita many countries, estimates were typically derived household income exists, however, for only a few from surveys designed for other purposes, most countries. The World Bank's Living Standards often consumer expenditure surveys, which also Measurement Study is developing procedures and collect some information on income. These sur- applications that can assist countries to improve veys use a variety of income concepts and sample their collection and analysis of data on income dis- designs. Furthermore, the coverage of many of tribution. these surveys is too limited to provide reliable 242 Bibliography of data sources National International Monetary Fund. 1974. 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Report 1985 focuses on the contribution that international capital makes to economic development The financial links between industrial and developing countries have become as inte gral to the world economy as trade has hitherto been This growing interdependence is a development of profound significance The Report notes that recovery in industrial economies in 1983-84 policy adjustments by many developing countries and flexibility by commercial banks in dealing with debt- servicing difficulties have all helped to calm the atmosphere of crisis This does not mean however, that the world economy has regained its momentum of the 1960s or that development is again making rapid progress Growth has slowed in most developing countries that experienced debt-servicing difficulties and in many of those that did not Dozens of developing countries have lost a decade or more of development The experience of the past few years has raised many questions about the role of international capital in economic development The Report examines these questions from a broad and long-term perspective It emphasizes that international capital can promote global economic efficiency and can allow deficit countries to strike the right balance between reducing their deficits and financing them The availability of international capital also involves risks, however, that countries may borrow to delay making needed policy reforms or may borrow too much if they misjudge the future course of economic events The financial links between industrial and developing countries depend on three elements (a) the policies of industrial countries (b) the policies of developing countries, and (c) the financial mecha- nisins through which capital flows to developing countries The analysis of the Report includes all three elements In doing so, it reveals a wide range of country experience and addresses the question of why some countries have borrowed and encountered debt servicing difficulties while others have not In reviewing prospects for the next five years the Report concludes that there are policy choices available to governments that would contribute to faster and more stable growth for both industrial and developing countries and to improved creditworthiness for every group of developing countries For the industrial countries, the policy objectives are smaller budget deficits more flexible labor markets, and freer trade The developing countries must continue policy reforms designed to restruc- ture economies, ease debt-servicing burdens and restore economic growth These policies need to be complemented by collaboration between debtors and creditors, including multiyear debt restruc- turings, in the context of countries adjustment efforts The Report includes a statistical appendix and multicolor maps and graphics to supplement the text The final portioh of the Report World Development Indicators, presents 28 two page tables con- taining economic and social profiles of 126 countries World Development Report has been published annually by the World Bank since 1978 Each edition examms the current world economic situation and prospects as they relate to development and offers a detailed analysis of a particular topic or sector of importance in economic and sociral development ISEN Q-1 9-520482-4 Cover design by Joyce C. Eisen iSSI\O163-5085