A. INTRODUCTION

    This chapter discusses the position of developing countries in world financial markets. The majority of these countries buy finance abroad: for investment in fixed and working capital; for financing a part of current expenditures in some cases: and for meeting shortfalls in external receipts, which frequently occur for reasons beyond their control.

    The following section reviews the costs of international borrowing: after a period in the 1970s in which this costs was below the rate of price increases, leading to negative interest rates and excessive borrowing, it rose sharply in the 1980s to a level without precedent in the last hundred years. The increase affected particularly severely the debtor developing countries dependent heavily on export of primary products, whose prices fell simultaneously with the rise in the international rate of interest. The third section considers fluctuations in the volume of international market lending: this reached an unsustainable peak in the early 1980s, to be followed by a precipitous fall which pushed a large number of debtor countries into deflation and stagnation lasting a decade. This market failure affected both the countries which had borrowed excessively and some of those which had not. This section also reviews the emerging resumption of voluntary capital inflow into Latin America and the factors which are influencing it. The fourth section focuses on the activities of international financial institutions in meeting the needs of developing countries in the face of market fluctuations and collapse. These institutions filled a part of the needs in the early part of the debt crisis: but in the largest of them debt service reflows exceeded cash outflow as the 1980s progressed and they are now absorbing cash net from developing countries. This issue and the issue of loan conditionality are among the central in North-South economic relations. The fifth section examines the international management of the debt problem, particularly as it has affected the Sub-Saharan Africa and Latin America, the main debtor regions of the 1980s. Some recent proposals for handling the debt problem are also reviewed. The last section discusses foreign private investment in developing countries: direct investment which has only now recovered from the debt and commodity shocks of the 1980s and which is heavily concentrated in some ten developing countries, although it also plays a considerable role in some smaller economies in view of its relative size, particularly in mining development, but has almost completely bypassed the least developed countries: portfolio investment in share (stock) markets of a limited number of developing countries, which has risen sharply in recent years in the expectation of high profits form price appreciation; and the rates of return on private investment projects supported by International Finance Corporation, an affiliate of the World Bank. Questions are raised concerning sustainability of recent high returns in developing country stock markets and of interest rates currently charged in the international capital market on borrowings by developing countries.

    Financial markets are generally considered efficient: funds move quickly from one placement to another in response to small changes in interest rates and security prices. The U.S. Government securities market -- a very important segment of the aggregate world financial market in view of the size of U.S. Government debt and many foreign holders of portions of it -- has been widely considered as the single most efficient market in this generally efficient industry, as reflected in razor-thin "spreads" or gaps between bid and asked prices. Government officials have claimed for years that this market is simply too big to be easily manipulated by a single participant.1 And yet, the events of the summer 1991 have shown that this is not true even for this market, as a major investment firm managed to buy large quantities of U.S. Government obligations and then fix their prices, on a number of occasions.

    In the international financial market where developing countries have to borrow, inefficiencies abound, as shown in enormous price fluctuations over the short-term, in cycles of excessive lending and withdrawal from markets over the medium and long-term and in frequent arbitrary determination of prices and access to markets available to individual borrowers. This market can also be unfair, as shown in the recent experience: debt capital finance moved from the South to the North for years in the last decade, to reach a staggering cumulative sum of US $ 176 billion in 1984-90.2 The former President of the Bundesbank, Dr. Karl Otto Poehl, called it a "net resource transfer in the wrong direction."3.
 

B. INTERNATIONAL INTEREST RATES

Growing fluctuations and rising trend in real terms

    The following two charts show both the growing amplitude of fluctuations in interest rates over time and their upward trend in real terms. Chart 1. refers to the London Inter-Bank Offer Rate, a standard used as a basis for fixing international interest rates over the short term; for individual borrowers a margin is added to reflect a specific country risk; and in all cases interest rates differ depending on the length of maturities. Chart 2 shows the average real long-term government bond yield in the Group of Seven (U.S., Japan, Germany, U.K., France, Italy and Canada). Table I below gives the specific data on individual country long-term bond yields over the last 100 years.

Note: Long-term real interest rates are calculated by dividing long-term government bond yields by the GDP deflator.
a. Government stock, b. Consols., c. New England municipal bonds.
Source: World Bank data.

    Interest rates in real terms in the 1980s and early 1990s were more than double the level that prevailed in most of the period for which data are available. In the eloquent phrase of Chancellor Helmut Schmidt in 1983, interest rates had reached a point higher than at any time since Jesus Christ.
 

Impact on developing countries

    Increases in international interest rates are transmitted to the debtors in developing countries on an expanded scale as other related charges pile up, mainly on the ground of protection of the intermediary institutions against developing country risk. In Mauritius, a country with relative monetary stability, the effective domestic rate paid by the sugar industry on foreign borrowing, based on LIBOR of 10 percent per annum, worked out at 18.5 percent per annum in early 1983; with LIBOR at 14.5 percent, it amounted to 23.3. percent. The domestic interest cost went up on account of the "country (borrower) risk" of 2.5 percent above LIBOR, premium for expected currency depreciation of 6 percent, and banking charges. 4 In 1983 in Latin America, where devaluations were much larger, "the effect on the individual private sector, which in [some] cases had been encouraged by the policies of the authorities to borrow, has been devastating:....the amount needed in local currency to service external debt has increased three or four times" in one year. 5 In the estimates of the Institute of International Finance Inc., Washington, D.C., each one percentage point change in the international interest rate used to change the amount of interest payments of developing countries by US$ 3-4 billion per year in the late 1980s. The effect is now smaller as a part of the debt has been shifted from a floating rate to a fixed rate basis. Nonetheless, the effect is still formidable.

    The real interest rates shown in Charts 1 and 2 and Table I are calculated by deducting the increase in domestic prices of developed creditor countries from their nominal rate of interest. For developing debtor countries, the relevant real interest rate on their foreign debt is the nominal (money) interest rate adjusted by the rate of change in their dollar export prices. When these prices fall, more goods must be sold to pay the interest due which is fixed in money terms, i.e. the real rate of interest increases. As developing country export prices have been generally falling in the postwar period, the real interest rates they have been paying have been higher than the nominal rates stipulated in their debt contracts. During the commodity price slump in the first half of the 1980s, the average real rate these countries were paying amounted to close to 17 percent per year (Table II).

Note:Real rates are nominal (money) rates adjusted by the country's export price index.
Source: Dragoslav Avramovic, Developing Country Debts in the Mid-1980s: Facts, Theory and Policy, in Policies for Development, ed. by Sidney Dell, Macmillan Press, 1988.

    These rates are more than three times higher than the rates experienced by developed countries in the same period.
 

Prospects for future level of interest rates
 
 
    The World Bank, in a 1991 staff study, believes that "there is a significant probability that real interest rates will remain relatively high in the 1990s because of several new or continuing claims on the world's resources that will maintain upward pressure on interest rates. Among these are the costs of German reunification, the continuing claims of the U.S. budget deficit, the need to strengthen the capital base of the U.S. and Japanese bank, the social and physical needs of Eastern Europe, the postwar reconstruction of Kuwait and Iraq, and the creation of a single internal market in Europe by 1992." 6

    The record of interest rate forecasting has been generally poor. Nobody expected that interest rates in the U.S. today, on 8 October 1991, would amount to 5.12% (Federal Funds, short-term) and 7.7% (30 years U.S. Treasury bond), compared to 8% and 9.05% respectively, a year ago. It is the present recession in the U.S. which has driven down the interest rates and overwhelmed the forces discussed in the World Bank analysis. The benefits to developing countries of the decline in U.s. rates have been offset to a considerable degree through the renewed fall in commodity prices since mid-1989, and though interest rate increases in Germany and Japan.

    From the long-run viewpoint, the crucial question is whether the profitability of investment in the leading developed countries has increased to a degree that it has pulled up the demand for real capital and the real rate of interest, and whether these factors will continue to operate in the future. OECD has estimated rates of return on capital stock in major industrial countries for the period 1975-1990, and this indicates a moderate increase in profitability (Table III).

Note: The measure of return to capital is taken as the difference between value added at factor cost and compensation of employees (the gross operating surplus of enterprises). The capital stock is adjusted for inflation and covers only assets included in nonresidential gross fixed capital formation and hence excludes dwellings, inventories, monetary working capital, land, and natural resources.
Source: OECD (1990).

Note:(*) Includes both price appreciation and dividend yield, i.e. to an investor in the company's stock.
Source: U.S. Department of Commerce, Statistical Abstract 1990.

    Further work is needed in this area. If it is confirmed that an increase in profitability has taken place in developed countries, an important question is whether it is primarily due to productivity growth through accelerated technological advance or to reduction in real wages and in prices of inputs (energy and raw materials) many of which are imported; such reduction has taken place in wages in some countries and in inputs, and it is in principle reversible at least to some degree. If irreversible factors are at work, the implications would be far-reaching: further flight of capital from developing to developed countries and continuing and perhaps accelerated migration of both skilled and unskilled labour, unless massive public investment and a sharp and sustained increase in profitability takes place in developing countries on a broad scale.
 

Coping with fluctuations

    Fluctuations in interest rates can be moderated through policy actions of leading countries. This calls for international macro-economic coordination and for readiness to restore regulation of interest rates if necessary. An effective coordination in this field is unlikely to be possible without readiness of stabilize exchange rates; and restoration of regulation calls for a reversal of some elements of philosophy of economic policy which has been pursued by a number of developed country governments for a number of years. An alternative is a broad compensatory financing for debtor countries experiencing interest rate increases. At present, some financing can be obtained from the IMF through its Compensatory and Contingency Financing Facility, "provided to members pursuing economic policies supported by the Fund under stand-by or other arrangements." 7 This financing is both limited and conditional. It is paradoxical that conditionality is imposed on the victims of interest rate increases which frequently result from policies pursued by their creditors.
 

C. VOLUME OF LENDING

Lending cycles

    Professor F.W. Taussig, writing in 1927, described the cyclical nature of lending which has operated for a long time:

"Loans from the creditor country, far from being granted at an equal annual rate, begin in modest amounts, then increase, and reach a crescendo. Usually they are granted in exceptionally large sums when a culminating phase of activity and speculative fever approaches, and during this phase they become over larger from month to month for as long as the upswing continues. With the emergence of the crisis, loans suddenly fall off or even cease altogether. Payment of interest on old loans is not any more compensated by the granting of new ones; interest becomes the net burden for the debtor country. A sudden reversal takes place in the balance of payments of the debtor country; it feels the consequence suddenly in the form of immediate need to make remittances in favour of the creditor country, pressure on its banks, in a high discount rate, in falling commodity prices. And this sequence may occur not only once, but two or three times in a row. After the first crisis and recovery, it is possible that the debtor country will manage to get on its feet. After several years the loans from the creditor country will start flowing again, another period of activity and speculative investment takes place, the old round gets repeated, until finally another crisis comes and another sudden reversal in the debtor country's balance of payments." 8

    International lending, after a large expansion in the 1920s, stopped almost completely during the Depression of the 1930s and many defaults which accompanied it. It will always be a cause for wonderment how was it possible that the same sequence, to the Taussig's crescendo, occurred in the 1970s and 1980s again, despite the universally available knowledge, much better education and still vivid experience of inter-war speculation and tragedy. Moreover, it was in some leading international financial agencies that a doctrine of "debt-led growth" was proclaimed in the late 1970s, in pursuit of a broader view that markets could make no mistake and that commercial banks knew what they were doing.
 

Financial transfer and its reversal, 1972-1990

    Lending commitments to developing countries by the international capital market, mainly commercial banks, reached a peak of US $ 51 billion in 1981, on the eve of the eruption of the debt crisis in August 1992 when Mexico stopped paying. The market collapsed quickly thereafter. Table V sets forth the data on net transfer of funds (loan receipts minus debt service): the funds moved to developing countries until early 1980s and from developing countries to their creditors thereafter.

Notes: (a) From 1978, "severely indebted countries', (b) Revised, (c) Projected.
Sources: World Bank, World Debt Tables, 1982-83 Edition, First Supplement, for 1972, 1976 and 1977; WDT 1983-84, for 1973 and 1979; WDT 1984-85, for 1974 and 1978; WDT 1990-91, for 1980-89; and WDT 1991-92, for 1990 and 1991.

    The data refer to disbursements. The latter normally lag behind commitments and therefore it took some time for the collapse of lending to be fully felt. The peak reverse flow of resources was recorded in 1988.

    The collapse of capital inflow affected not only the countries which were experiencing debt servicing difficulties, but also others. According to an African Development Bank memorandum of 1988, in Africa "in particular, suppliers have become increasingly concerned about sovereign risk factors, especially the ability of governments and their central banks to make foreign exchange available to importers to meet their obligations. Furthermore, the world debt problem, associated mainly with Latin American countries, has caused the major international banks as a matter of policy, to sharply reduce their total cross border balance sheet exposure. This sharp reduction by commercial banks has hit Africa most. In several cases, e.g. Zimbabwe and Cote d'Ivoire, banks have cut credit lines which they were willing to extend previously, even though these lines were properly serviced." 9
 

Transfer cost

    The mechanism through which reverse transfers have been extracted has frequently included devaluation of debtor country currencies significantly in excess of domestic inflation. The resulting greater profitability of export industries has led to export volume expansion and to a declining tendency for dollar export prices. Export sales have been maintained in the face of heavy competition, insufficient foreign demand, particularly for primary products, and frequent trade obstacles; a large number of primary producing countries have devalued one after another in order to be able to compete at low world prices; as demand is frequently depressed and does not respond to price cuts, the main result of devaluations in these cases has been to reduce real wages all around and further depress world prices.

    During the great debate concerning payment of German reparations in the inter-war period, Keynes was of the view that debtors face the double burden: paying the debt service (budget burden) and experiencing a deterioration in their terms of trade (transfer burden). 10 This view was vindicated in the present debt crisis: the inelastic demand of the debtors for foreign exchange confronted the inelastic demand for the debtors' primary products, and the terms of trade gave in. The effect was a significant transfer of income of primary producers, which was additional to that reflected in the monetary amounts of debt service payments which they were making.

    The experience of the 1980s with the transfer problem confirmed the earlier experiences:

"When credits are no longer extended to the same degree as before, cash-hungry debtors begin to liquidate inventories. Prices of many commodities begin to fall, a phenomenon long described by economists. The fall in prices makes life much harder for the debtors, because the value of the dollars owed, in terms of those commodities they are producing, is rising. It may even happen, as Irving Fischer so magnificently put it in an article published in Econometrica, 1933, first quarter, that 'the liquidation of debts cannot keep up with the fall in prices which it causes. In that case, the liquidation defeats itself. While it diminishes the numbers of dollars owed, it may not do so as fast as it increases the value of each dollar owed... Then we have the great paradox which, I submit, is the chief secret of most, if not all, great depressions: the more debtors pay, the more they owe (Fischer's italics.)"11

    This does not mean that the depression in Latin America and Africa, the two main debtor regions, and in debtor countries elsewhere during the 1980s, was due exclusively to the debt problem or that the entire fall in commodity prices can be attributed to the transfer problem. There also were other factors at work. But the collapse of international credit, the debt problem and the terms of trade deterioration did play a major role. In the judgment of the United Nations Secretariat, "if commodity prices, including oil, had remained at their 1980 levels throughout the decade, it is likely that the debt crisis would have been averted."12 The World Bank index of real commodity prices other than oil declined 41% and oil declined 50%, between 1980 and 1990.
 

Human cost

    Stagnation and decline in the reversal phase affected the lower income groups with a particular force. Real wages fell drastically in many countries. In Africa, non-agricultural wages fell 29 percent in 1980-86, or at 5.5 percent per year; and agricultural wages fell at 6 percent per year in the early 1980s. These declines came on top of the declines which had occurred in the 1970s, thus making them even more difficult to bear. In Latin America, average non-agricultural wages fell 17% between 1981 and 1990, or at 1.5 percent per year, minimum non-agricultural wages fell as much as 41 percent in this period (5.5 percent p.a.), and agricultural wages at 4.5% p.a. on the average in the early 1980s. Unemployment and underemployment have increased almost everywhere. Adjustment programmes have not helped:

"There was very limited attention in the first group of structural adjustment loans to the social implications of adjustment..." 13 "As the decade [of the 1980s] progressed, the impact of stabilization and certain types of structural adjustment on the most vulnerable and disadvantaged socio-economic groups became an important concern." 14 "Adjustment-induced growth is proving to be a far-off achievement, and trickle-down has not reached the poor adequately. Because of the weight of human suffering we cannot simply sit back and wait for growth and adjustment to occur."15

    Considerable attention is now paid to poverty problems in adjustment programmes; but its effects inevitably will be limited unless there is resumption of economic growth, increase in employment, and fairness in income distribution. These things are yet to come.
 

    In a paper written in July 1987, I described the human situation in two key Latin American debtor countries at the peak of the debt crisis:

"Minimum wages in Brazil are now estimated to be the lowest in 37 years.16 Unemployment is increasing sharply -- the reported unemployed have almost doubled from January to March 1987.17 Real wages in Mexican manufacturing have been cut 50% in five years.18 The Mexican exports, oil and non-oil, are now in a very good shape and foreign exchange reserves are up sharply; but the internal social pressures are enormous. One outlet -- illegal emigration to the United States -- is now more difficult as U.S. legislation and controls have been tightened. Horrifying stories of labour trying to cross illegally from Mexico to Texas in closed railroad cars through July heat in the desert and dying when cars get switched around, are indications of a desperate search for jobs at good wages. A Swiss newspaper has called it a Maginot line on Rio Grande."19

"Despite the fragility still displayed by some stabilization processes, most of the economies of the region are now functioning on new foundations. They are characterized in general by the consolidation of an export-oriented approach, greater external openness, fiscal austerity, more prudent management of monetary policy, and greater reluctance to engage in public regulation of economic activity, while the international financial community, for its part, is showing some tolerance with regard to the need for leeway in economic policy. Without doubt, these new forms of operation are based on even greater inequalities in income distribution than in the past, greater precariousness of employment, tighter fiscal restrictions and even less leeway for economic policy management. All this means less capacity to make transfers between economic sectors or social strata..."20

Resumption of voluntary capital inflow into Latin America, 1991

    It has come as a surprise that a considerable inflow of private capital seems to be taking place in Latin America in 1991. It is occurring both in countries which have achieved macro-economic stability and in those which have only recently embarked on adjustment processes or are still only groping towards them. In Argentina and Mexico, these flows include foreign direct investment which is partly connected with the privatization of public enterprises, but there are also cases of substantial portfolio investments and even moderate sale of bonds. Further, in these and other countries, such as Chile, Colombia, Venezuela and Brazil, there have been considerable inflows of short-term capital.21

    The key factors responsible for the resumption of capital inflow seem to be three: first, large difference between high real domestic rates of interest in these countries (partly linked to stabilization policies) and declining U.S. rates; secondly, expectations of large gains in domestic stock markets from price appreciation; and thirdly, confidence that these countries will give priority to maintaining convertibility of currencies, particularly for claims of foreign lenders and investors. Interest rates offered by Brazil have ranged from 11.66% (five year bonds) to 13.5% (two-year maturity) and by Argentina 11.3% per year (two-year bonds). U.S. interest rates for similar maturities now range from 5 to 6 percent, or one-half the rates the Latin American countries are paying. Sustainability of Latin American capital inflow depends on the ability of these countries to continue to pay high interest rates and maintain convertibility of currencies in the face of slow economic growth, latent social tensions, uncertainty concerning returns on real investment and a likely level of commodity prices, and on the feasibility of continuing low U.S. interest rates.
 

Note on capital flight and repatriation

    It has been reported that a part of the present capital inflow into Latin America represents repatriation of capital held abroad by Latin American nationals. It is believed that capital flight was substantial, particularly from Mexico and Venezuela in Latin America, and the Philippines and some African countries, during several preceding decades. Many of the reasons for capital flight are domestic, but there is also an important reason of international nature. The upswing in interest rates in developed countries in the late 1970s and during the 1980s was a powerful stimulus for capital outflow from developing countries: for example, an interest rate in the U.S. for government securities or certificate of deposits guaranteed by the U.S. Government of 9% p.a., risk-free, was a very attractive financial proposition. Moreover, interest earnings on bank deposits, including CDs, held by non-residents were, and are, tax-free. In Switzerland, interest on investments in the Euro-market, i.e. outside Switzerland, made through Swiss banks, are also tax-free, these investments are normally more risky, in principle, than investments in Switzerland itself; but it appears that this risk can be avoided by investing in foreign affiliates of Swiss banks.

    If it is true, as it seems from the recent experience, that capital does come back when the interest rate differential is heavily in favour of the developing countries where the funds originated, repatriation can be stimulated by eliminating tax privileges on earnings from deposits owned by developing country nationals.
 

D. INTERNATIONAL FINANCIAL INSTITUTIONS

    The key international financial institutions, International Monetary Fund, the World Bank and its affiliates, and three regional development bodies -- Inter-American Development Bank Group, Asian Development Bank Group and African Development Bank Group -- have done two major things for the developing world. First, they continued and expanded their lending when the debt crisis struck in the early 1980s and thus helped absorb a part of the shock. Secondly, right from the start of their operations, in the late 1940s in the case of the Bretton Woods institutions and subsequently in the case of regional institutions as they were created, they transmitted, each in its own way, methods of analysis, implementation and monitoring of development activities important for economic advance. This included work on investment projects and sectors in the case of development finance agencies, and techniques of financial and monetary management in the case of the IMF and some of the other agencies.

    Two major disappointments concern the insufficient staying power of some of them in providing finance during the debt crisis, and imposition by some of a type of conditionality which many borrowers have found difficult to accept and bear.
 

Supply of international liquidity

    The sharp upswing in IMF assistance to developing countries took place in 1981-85, and their debt to the Fund shot up from SDRs 7,442 million (US $ 9,525 million) in 1980 to SDRs 34,776 (US $ 42,414) in 1986. This was the second fastest intervention of the Fund after lending to alleviate the consequences of the increase in oil prices in the 1970s. A sharp reversal occurred from 1986. In the five years 1986-90, net repayments to the Fund by developing countries amounted to SDRs 2,560 million per year; adding their payment of interest ("periodic charges"), the yearly net transfer from these countries worked out at SDRs 4,700 million per year, equivalent to US $6,300 million yearly -- a formidable figure on any reckoning. In the last year, ending 30 April 1991, the transfer was reduced sharply, to US $ 800 million (Table VI).

    A part of repayment was done by developing countries running surpluses, e.g. South Korea; but at the same time a group of developing countries in difficulty incurred arrears which, had they been paid, would have raised the aggregate outflow.

Note: Years shown are the IMF financial years, ending 30 April, i.e. 1980 is year ending 30 April 1980.
Source: IMF Annual reports.

    The fund has been extending the repayment terms of its loans through adding new facilities which have a longer repayment period than the original 3 to 5 years. The latter continues to apply to stand-by arrangements, still the single largest IMF lending window, as well as to the Compensatory and Contingency Financing Facility which is fairly important. Repayment of 4-10 years applies to the Extended Financing Facility, the second largest, and 5 to 10 years to Structural Adjustment Facility for low income countries. But this gradual adaptation to the debt crisis appears to have worked slowly in reducing the cash outflow from developing countries. The immediate issue is how to avoid that repayment of existing debts to the IMF does not exacerbate the debt problem of the present severely indebted debtors. The current developing country debt to the Fund is SDRs 25,550 million (US$ 33.8 billion). It would be necessary to examine the part owed by severely indebted countries and its repayment schedule, and consider the possibility of consolidation of the early and middle maturities into long-term low-interest debt.

    The liquidity situation of developing countries would have been less strained in the 1980s and would look brighter for the 1990s if issues of SDRs were resumed and significant amounts allocated to developing countries. This did not occur as several key developed countries did not find it possible to agree to such course of action. This issue, of major importance for the future of the international monetary system and for the supply of liquidity for developing countries in particular, remains on the international agenda.
 

Supply of development finance

    Loan commitments of multilateral development finance agencies doubled in the last ten years, from US$ 16.6 billion in 1980/81 to US $ 33.9 billion in 1990/91. In real terms the increase was probably between one-third and one-half. The World Bank-IDA continue to have a commanding position, although growth has been fastest in the African and Asian Development Bank Groups in recent years (Table VII).

    Disbursements, i.e. the actual flow of funds, have increased faster than commitments, perhaps as a result of deliberate measures to increase the share of fast-disbursing non-project loans in total lending so as to alleviate the cash shortage in debtor countries during the debt crisis. But the reverse flow, amortization and interest on existing debt, has been increasing at an even faster rate, leading to a decline in net transfer (Table VIII).

    Against disbursements of US$ 23.1 billion in 1990/91, the reverse flow amounted to US $ 22.5 billion, thus resulting in a net transfer to debtor countries of only US $ 0.6 billion. Disbursements vary greatly from year to year. The average for the last four years (1987/88-1990/91) works out at US$ 1.1 billion. This is only one-fifth of the preceding four-year average of US $ 5.1 billion. The peak transfer, above US $ 6 billion per year, took place in 1983/84 and 1984/85. It is crucial that a large and growing net transfer from multilateral development finance agencies be maintained. An urgent consultation with management of these agencies is needed concerning factors at work determining net transfer, a range of realistic projections which can be made, and the policy options for increasing net transfer. IMF management should be invited to attend also.

Note: 1980/81 (July 1-June 30) for the World Bank and IDA; calendar year 1990 for other agencies. The same periodization applies to all years.
Source: Annual reports of the agencies.

Note and sources: See Table VII, please.

Conditionality

    International financial institutions, particularly the IMF, are identified with conditionality, and particularly when providing finance for adjustment. A key facet of the social and economic problem during adjustment is the real wage, especially in urban area. Adjustment liberalizes interest rates and product prices: it thus increases incomes of owners of capital and, in the case of independent producers having saleable surpluses (e.g. in agriculture), their incomes as well. By the same token it reduces real wages, at least for as long as total output falls or remains stagnant. In contrast to owners of capital, labour cannot move across national borders or can do so only to a limited degree; therefore it must accept a wage reduction until it is bearable, and at that point riots and bloodshed may hit the street. International development banks in the main have managed to avoid getting involved in such disastrous events. IMF has not. The general point was made by Dr. Paul Fabra, the first winner of the Jacques Rueff prize on the role of money in the economy:

"It is illegitimate to see in the wage, and particularly in the wage of the poorest, a variable on which one can act at will in `adjustment' programmes. At the end of the 18th century and the dawn of the 19th, the founders of political economy recognized this and considered the wage as a datum prescribed by the mores of the society at any given time. In other words, the workers' standard of living, particularly when it is low, is not a thing one can play with. The Monetary Fund, too much influenced by neo-liberal economists, for whom wage is a price like any other, would be well advised to be a little more `Smithian' and a little more `Ricardian', and a little less `Friedmanite', in this matter." 22

 

    The President of Ecuador has recently set out the differences in programmes of adjustment as they affect income distribution, responding to a question as to whether he thinks that his gradual economic reform, as opposed to a short, sharp shock, is the best option for the Ecudorean people:

"There are two options in the measures we have to take to confront the economic crisis in our country. One, shock measures; two, gradual measures. We have rejected as socially unjust the first because the measures have a very severe impact on the poor levels of the population: unemployment, repressed wages, sharp price rises for gasoline and public services, and other similar measures that seriously affect the less fortunate. The second option is gradual measures that progressively produce changes and modifications and allow us to confront the economic crisis with, comparatively speaking, consequences that are less grave than in other Latin American countries. Brusque measures seriously affect small businesses, the middle-level companies, the micro-enterprises and people of low income while they favour large companies." 23

 

    There have been new developments in the theory and practice of conditionality in recent years. In the theory of conditionality, the Japanese officials have raised serious questions concerning the appropriateness of import liberalization as a major element of adjustment in developing countries, argued in favour of subsidized interest rates for priority projects, and, more generally, suggested a considerable role of the government in promoting specific economic activities and development generally -- positions considerably removed from the dominant donor view of conditionality so far. Also in the theory of conditionality, Dr. Mahbub ul Haq and professor Paul Streeten, working within UNDP, have proposed introduction of "social conditionality of aid", consisting of measures focused on human and social development; this conditionality would be additional, and possibly superior to, the present conditionality of international financial institutions, which is focused mainly on monetary, fiscal, exchange rate and trade policies.

    In the practice of conditionality, there has occurred a major emphasis by donors on privatization and, most recently, on internal political practices in borrowing countries. This emphasis has raised issues of social and political organization and policies which did not exist before. In addition, and cutting across both conditionality theory and policy, the issue of "shock" vs. gradual approaches to stabilization and adjustment has become acute, particularly stimulated by the events in Eastern Europe and the former USSR.
 

E. INTERNATIONAL MANAGEMENT OF THE DEBT PROBLEM
 
 

    Total external debt of developing countries was estimated at US $ 1,341 million at the end of 1990, compared to US $ 639 billion at the end of 1980. Of the present debt, 57 percent is owed by severely indebted countries, low income and middle income, in World Bank classification. 24 Most of the increase in debt was an increase in real terms, as commodity export prices of developing countries, oil and non-oil, fell both in money (current dollars) and in real terms (constant dollars); while prices of their manufactured exports rose negligibly (12%) in current dollars and fell in real terms. The debt situation continues very difficult in many African countries, and their debts continue to grow. Stabilization of debt has been achieved in most of Latin American countries, but the creditors continue to report debt servicing problems in the forms of accumulation of arrears in many cases.

Africa

    Sub-Saharan Africa's debt of about US $ 150 billion is equivalent to more than 100% of its GDP, compared to less than 50% in Latin America. The weight of Africa's debt burden is exacerbated by its lower per capita income, and its debt servicing is made more difficult than elsewhere due to its heavy dependence on primary product exports. Sub-Saharan African countries are now paying less than one half of the scheduled debt service (about 40%). The incidence of arrears falls severely on bilateral official creditor governments and their agencies in developed countries: they received only 20 percent of the debt service due to them in 1989. Multilateral official agencies received a preferred treatment (86% paid). Private creditors were paid almost one-third. However, short-term trade credits are fully serviced by most borrowers even when they are accumulating arrears on long-term debt to the same creditors.

    The major traditional form of debt reorganization -- debt rescheduling on conventional terms -- has proved ineffective. It has led to "steady accumulation of debt to bilateral creditor governments, resulting from repeated debt reschedulings and the resulting capitalization of interest, including arrears."25 The other form, debt forgiveness by official creditors, adopted at the Group of 7 meeting in Toronto in 1988, also proved of limited significance. "Nine donor countries in the OECD have so far announced plans to cancel or convert bilateral loans owed by various low-income countries into grants. The total amount of debt forgiven or converted up to the end of 1989 is almost US $ 6 billion."26 This reduction represents less than 10 percent of this class of debt aggregating US $ 64 billion; it compares with the reduction of 50 percent or more of Poland's official bilateral debt.

    The World Bank, which as a matter of policy has neither rescheduled its loans nor scaled them down so far, has individual country programmes of accelerating the quickly disbursing loans to Africa, so as to assure that there will be no net financial transfer to the Bank/IDA from severely indebted African countries. As a result, net transfers from the World Bank/IDA amounted to US $ 1 billion annually on the average during the latter half of the 1980s. 27 This does not mean, however, that each country individually obtained resources net from the Bank/IDA in these years. Such important debtors as Cote d'Ivoire and Nigeria were transferring resources net during 1987-89, and also, so did such important borrowers as Zimbabwe and Mauritius. IMF has been withdrawing resources from Sub-Saharan Africa for several years. Adverse net financial transfers averaged US $ 0.7 billion per year in the five years 1986-90, and the debt outstanding to the Funds was US $ 6.4 billion at the end of 1990. Withdrawal of resources has occurred despite the introduction by the Fund of special facilities on concessional terms (SAF - Structural Adjustment Facility and ESAF-Extended Structural Adjustment Facility).28

    No substantial remedy has yet been applied to Sub-Sahara's debt owed to private banks and other private parties. The proposal of the African Development Bank, prepared with the advice of Warburgs, the British investment bank, three years ago, which envisaged the retirement of these debts through a sinking fund on favourable terms, was not implemented. The World Bank established in 1989 the "IDA Debt Reduction Facility" which is to provide grants up to US $ 10 million per country to the poor countries with adjustment programmes to buy back or exchange commercial bank debt at a discount. Sixteen African countries have requested the use of this facility, with an aggregate debt to banks of about US $ 2 billion. Niger and Mozambique have been the only beneficiaries until 30 June 1991, with the additional assistance for debt purchasing given by France, Switzerland, Sweden and the Netherlands. The prices were 18% and 10% respectively, of face value. Much of the delay in drawing on the resources of this facility is due to the reluctance of banke to participate, in part to avoid setting precedents for other debtor countries where their exposure is larger. 29 Furthermore, this facility cannot be used to help countries such as Nigeria and Cote d'Ivoire, major debtors to private banks and suppliers in Africa, first because they are not classified as IDA-only (very poor), and secondly, they need much more than US $ 10 million to buy back any significant portion of their commercial debt: Nigeria's debt to private creditors amounted to US $ 16.8 billion at the end of 1989 and that of Cote d'Ivoire at least US $ 4 billion.

    The conclusion follows that, while some efforts have been imaginative and generous, the overall debt strategy has been weak, uncoordinated and of limited effectiveness. African debt continued to grow at 10 percent per year as the economies of many African countries were weakening.

    On 7 September 1990, the Netherlands Development Minister of Jan Pronk proposed that creditor countries collectively extend a complete forgiveness of bilateral official debt to the poorest developing countries facing severe debt problems. Forgiveness should be conditional on the debtor countries implementing sound economic policies. On 20 September, Mr. Major, then U.K. Chancellor of the Exchequer, proposed changes in the present "Toronto" terms for official debt and debt service reduction of the poorest countries, which call for a cancellation of two-thirds of the stock of eligible debt and a rescheduling of the remainder over twenty-five years with five years of grace; interest due during the first five years after rescheduling could be capitalized; later payments could be graduated and related to the debtor's ability to pay ("Trinidad proposal"). Prior to the London meeting of the Group of 7 in July 1991 it was believed that the "Trinidad proposal" would be adopted. However, it appears that no decision was made: it seems that the London meeting concentrated on the issue of possible assistance to the USSR and ended up not deciding either on Africa's debt or on Russian help. At the United Nations General Assembly, on 15 September 1991, "wealthy nations promised to help reduce Africa's staggering debt and pledged more foreign aid, but declined to commit themselves to specific targets." 30

Table IX. Composition of Debt Service Paid by Sub-Saharan Africa, by Creditor Source, 1990 (a) % Shares  

Creditor source	1990
Medium and long-term	86.0
Official	55.1
Multilateral (b)	32.5
World Bank	14.8
IMF	10.2
Others	7.7
Bilateral	22.6
Paris club	15.1
Arab	2.6
CMEA	2.0
Others	2.9
Private	30.9
Total commercial banks	22.9
Suppliers and others	8.1
Short-term	14.0
Total external debt	100.0

 
Notes: (a) Preliminary, (b) Includes IMF.
Sources: World Bank, World Debt Tables, op.cit., page 91
 

    If the Pronk-Major proposals were adopted, they would provide cash relief to those poorest debtors which are still servicing their bilateral official debts, and would regularize the situation of those debtors which are not paying now. However, not all problems would be resolved by these proposals. Paid debt service on official bilateral debt now accounts for only 23 percent of total debt service of Sub-Saharan Africa, and within this the Paris club creditors account for only 15 percent. (The remaining 8 percent is owed to governments of Arab and CMEA countries, and to "others.") In contrast, debt service paid to multilateral institutions accounts for 33% of total debt service (1990), having risen from a 15% share in 1980. It follows that alleviation of the position of Sub-Saharan debtors and the solution of the Sub-Saharan debt problem are very difficult to envisage without new actions of these institutions. With respect to private creditors which still absorb as much as 31 percent of Sub-Saharan debt service (and 45 percent if service on short-term debt is included, see Table IX), the World Bank makes the following suggestion:

"Commercial banks also must expect to share debt relief burden. If comprehensive settlements through discounted purchases are blocked, debtor countries may want to use concessional aid available for this purpose to buy out those creditors willing to settle. The resolution of the bond crisis of the 1930s followed that pattern: debtor countries repurchased bonds at a deep discount on the secondary market, followed, often after many years, by settlements at less than par with the remaining bond holders."31

 

    But in order to buy their debts in the secondary market, debtor countries need funds. Some, perhaps most, aid funds are not available for his purpose; and those that are need to be diverted from other uses in meeting the frequently vital current expenditures and essential investment needs. Debtor countries normally need additional resources to be able to buy their debts, even at a deep discount. Strapped for cash, they need to borrow. Again the main prospective lenders are international financial institutions, from their existing resources or from additional resources they might be able to mobilize; unless a special institution for repurchase of Sub-Saharan Africa's debts is created, which will need resources also.
 

Severely indebted middle income countries

    The statistical debt position of twenty severely indebted middle income countries has improved on the average since the peak of their debt crisis in the mid-1980s. As their debt outstanding has stabilized and their exports have increased, the ratio of debt to exports has declined; and this factor, and the fall in the dollar interest rates in 1991, have brought down the proportion of their exports absorbed by debt service also. However, these ratios are still at a level which the UN Latin American experts believe the capital market would consider too high.32 "The fall in accrued interest on the debt, coupled with the expected slight rise in the region's export earnings, will mean that Latin America's (excluding Panama) interest payments/export ratio should decline to 23%, from the 25% recorded last year. This would be the fifth consecutive year that the coefficient has fallen and would bring it down to a level which is nearly half of the peak of 41% recorded in 1982. Nevertheless, the region's interest/export ratio remains very troublesome and above the 20% that is often considered a threshold for financial crisis. As for the relation between the region's debt and exports, the similar rates of growth expected for these two variables will mean that the coefficient should be similar to last year's 285%. While this ratio is well below the peak level of 416% registered in 1986, it still remains considerably above the 200% which is often used as a ceiling for creditworthiness."33

    A factor in stabilizing the debt level has been the debt reduction programme with respect to commercial bank loans, carried out with the assistance of the World Bank, IMF and Japan (Brady plan). Five countries have benefited from this programme: Mexico, Costa Rica, Venezuela, Uruguay and the Philippines. The net effect of these operations is not clear-cut, in the view of UN ECLAC: "With regard to the Brady plan, its [debt] contractionary impact in 1991 is still uncertain. On the one hand, it is still not clear whether negotiations will advance quickly enough in Brazil and Argentina to finalize accords this year. 34 On the other, while Brady accords have reduced the present value of the debt owed to banks, they have also often generated enough new debt-related collateral requirements and refinancing to result in little or no reduction in overall gross external obligations." In the 1991 assessment of the World Bank, "the results have been very positive for Mexico, in terms of both growth and improved financial conditions, through return of flight capital, increased foreign direct investment, and access to external capital, albeit at higher spreads... In the case of other countries, the impact of the Brady-initiative operations is not yet clear."35

    When this initiative was launched, in March 1989, it was estimated that there would be 39 beneficiaries over three years. It is now clear that implementation will be very much smaller. In its progress report of March 1991, the World Bank states: "Certain challenges to the program remain. Most importantly, arrears have become both larger and more widespread. This makes it more difficult to reach further agreements, and it increases the requirement for the Bank to exercise careful judgment when providing support for debt and debt service reduction operations."36 In mid-1991, accumulations of interest arrears were still running in the majority of Latin American countries, and the UN Latin American experts estimated the end-1991 arrears at about US $ 25 billion.37 For developing countries as a whole, arrears on debts both to private and official creditors, and including both interest and principal, amounted to US $ 112 billion at the end of 1990, compared to 69 billion at end-1989 and 40 billion at end-1988, according to World Bank data (World Debt Tables 1991-92, page 15).

    Accumulation of arrears at the time of improvement of the statistical debt position shows the limitation of the latter in portraying the debt problem. Debt servicing capacity primarily depends on whether sufficient income growth takes place so that a surplus can be generated which can be used for debt service while simultaneously leaving a margin needed for a satisfactory increase in domestic consumption and investment; whether income increments are fairly distributed so that social stability is sustained; whether the fiscal system is sufficiently efficient so as to capture the needed flow of public savings out of income; whether the balance of payments structure and the foreign exchange system permit a smooth transfer of savings abroad; and whether the domestic returns on investment are higher than the international rate of interest. While debt ratios are important in indicating the initial debt burden position, it is these other relationships and their dynamics over time which are determining factors for debt servicing capacity.
 

Flaws in the analytical framework

    Two flaws in the analytical framework used in the formulation of international debt policy of the 1980s were identified by an international group of experts in June 1990:

1. No detailed estimates appear to have been made, on a country-by-country basis, of the capital requirements for overcoming the crisis and restoring a satisfactory rate of growth over the medium term; or if such estimates were made, they do not appear to have been used in putting forward the past overall debt policies.
2. No attempt seems to have been made to examine the prospects for long-term debt servicing capacity, on a country-by-country basis, and determine the extent of debt relief or of cash-flow rearrangement accordingly.38
    Several prominent economists have drawn attention to the analytical empty space concerning estimates of capital requirements for resumption of economic growth. According to Sidney Dell: "The Bank and the Fund have not received a mandate to work out the implications for the debtor countries of resuming the growth process which North and South both agree is an indispensable objective for growing out of the debt crisis. This in turn means that the capital requirements for adjustment with growth in the debtor countries as a whole have not been studied by the Bretton Woods institutions, let alone agreed upon by the international community. The rate of growth of the debtor countries emerges as a residual, a by-product of the feasible rate of borrowing... The figures for debt relieve or debt reduction currently discussed are based more on some kind of guess as to political feasibility than on any scientific analysis of the data. In the absence of such an investigation, the debt strategy will continue to be an improvised affair in which the solutions proposed tend to amount to the minimum steps necessary to keep things going instead of being reasonable approximation to growth requirements... The capital exporters obviously have the right to take their own positions on the capital to be provided both overall and to individual countries. But they should at least be in possession of independently determined facts and analyses."39

    Concerning the second analytical gap, missing estimates of debt servicing capacity, the Report of experts stresses that in the absence of such estimates, the extent of debt relief and cash-flow rearrangement is now determined by unequal bargaining between the banks as a group and individual debtors in the case of debts to banks: and by decisions of creditor governments in the case of official loans.40 A comment on present practice suggests "injection of much-needed economics into the negotiations and use of such [analytical derived] estimates as a starting point for guided bargaining on the extent and form of debt reduction."41
 

Proposals for procedural and interim arrangements

    In order to remedy this situation, one of the recommendations of the 1990 Report called for the establishment of independent teams of experts for each debtor country and wants them, headed by a prominent person in finance, economics or political life, to work out proposals for restoration of economic growth, suitable debt reorganization, and domestic measures to support them. These teams would draw on all sources of information and advice: from debtors, bilateral official creditors, creditor banks and international financial and development institutions. The responsibility for the proposals would rest with the teams.42 It would be up to the debtors and the creditors whether to accept the proposals. Past successful precedents for this procedure are the German and Indonesian debt settlements of 1953 and 1970, respectively; both were prepared and negotiated by a well known German banker, Hermann Abs. The German settlement reduced its obligations by some 74%. Reduction in Indonesia is quoted at 57%, but it is not clear whether this estimate includes all forms of debt relief.43 The aim of the Indonesian settlement was to restore Indonesia to international creditworthiness with access to normal credit facilities, to make it eligible for loans from the international financial institutions and from private sources, to restore the country as an important partner in world trade with a view to reducing dependence on foreign aid, and "to give the Indonesian government freedom and independence in its decisions on fundamental economic questions."44

    In view of the possible extra demand in financial markets resulting from requirements of Eastern Europe, and the time it would take to prepare and agree on a lasting solution of the debt and resource flow problems, the Report of experts suggested that consideration be given to an interim bridging arrangement which would include postponement of amortization and fractional payments of interest in foreign exchange, in local currency of the debtor, and through capitalization into new loans. Such an interim arrangement would provide relief to debtors immediately, without prejudging the final outcome. The interim arrangement would apply to both private and official loans. The danger of rapid accumulation of debt through interest capitalization would be reduced as it would affect only a fraction of interest, and it would be eliminated if a concessional rate of interest could be agreed. The size of the fractions would depend on the economic position of the debtor country. The lowest income countries would be required to make the lowest payment in foreign exchange. The scheme would not apply to concessionary debts and to trade credits. Also exempted would be those creditors whose disbursements exceed a country's debt service. Appropriate adjustments would be made in cases of partial coverage of debt service by disbursements.45

F. FOREIGN PRIVATE INVESTMENT

Geographic distribution of foreign direct investment

    In the estimate of the International Finance Corporation, a World Bank affiliate, foreign direct investment in developing countries reached a peak in 1990, double the low point of the 1980s, recorded in 1983.46 From the previous peak, in 1981, the increase in U.S. dollar terms was 43 percent; in real terms, there probably was no increase. The World Bank series shows an increase in U.S. dollar terms of 69 percent from peak to peak; this is probably no more than one-fifth in real terms over 9 years.47 This is a modest advance, but it is better than what happened to international private lending.

    Table X shows a declining share of developing countries in total inflow of foreign direct investment, from 25% in 1980/84 to 17% in 1988-89. In the judgment of the UN Centre on Transnational Corporations, "although current trends indicate a strengthening of the position of certain developing countries and regions, especially in light of the emerging regional core network strategies of transnational corporations, it is unlikely that the declining share of world-wide foreign-direct-investment flows to developing countries will be reversed in the near future, despite efforts by nearly all these countries to open up their economies to foreign direct investment and liberalize their policy regimes."48
 

---

Footnotes:
1: The Wall Street Journal, 12 August 1991

2: World Bank, World Debt Tables 1990-91, Table 4, page 17.

3: Deutsche Bundesbank, 28 January 1985.

4: Mauritius Sugar Producers Association, An Analytical Review of the Financial Situation of Sugar Estates with Factories, Port Louis, February 1983.

5: Pedero-Pablo Kuczynski, Latin American Debt: Act Two, Foreign Affairs, Fall 1983, page 22.

6: World Bank, Global Economic Prospects and the Developing Countries, 1991, page 34.

7: International Monetary Fund, Annual Report 1991, page 53.

8: Frank W. Taussig, Harvard University, International Table, 1927

9: African Development Bank, Memorandum to the Board of Directors, Proposal for intervention in trade financing, 1 April 1988.

10: For the debate, see J.M. Keynes, "The German Transfer Problem" and "Views on the Transfer Problem", in Economic Journal, March 1929, June 1929 and September 1929; Bertil Ohlin, "The Reparations Problem". Index, Svenska Hendelsbanken, April 1928; Bertil Ohlin, "Transfer Difficulties, Real and Imagined", Economic Journal, June 1929; and Bertil Ohlin, Inter-regional and International Trade, Cambridge, Mass., Harvard University Press, 1935.

11: Paul Fabra, in The Wall Street Journal, 15 December 1983.

12: United Nations, The state of international economic cooperation and effective ways and measures of revitalizing the economic growth and development of developing countries, 30 January 1990, page 9.

13: Operations Evaluation Department of the World Bank, Structural Adjustment Lending, 24 September 1986, page 57.

14: World Bank, Report on Adjustment Lending, 8 August 1988, page 25.

15: Statement by Elaine Zuckerman, former World Bank staff member specializing in poverty issues, in SID, Development Connections, Washington D.C., March 1989, pages 5 and 7.

16: Neue ZŸrcher Zeitung, 3 July 1987.

17: Financial Times, 1 July 1987.

18: The Economist, 4 July 1987.

19: Journal de Geneva. 17 June 1987.

20: UN ECLAC, Economic Panorama of Latin America 1991, page 5, Santiago, Chile, September 1991.

21: Ibid., page 8.

22: Paul Fabra, La politique d'austerite en accusation, Le Monde, 29 January 1984.

23: Interview with President Borja, International Herald Tribune, 25 February 1991.

24: World Bank, World Debt Tables 1990-91, Tables 1 and 5, pages 12 and 18.

25: Ibid.

26: Ibid., page 93.

27: Ibid., page 92. In another programme, introduced in 1988, the World Bank approved an allocation of 10 percent of IDA repayments and interest income to eligible countries in proportion to their IBRD interest payments so as to help these countries to pay interest due. Norway and Sweden also made grants to help meet IBRD debt service.

28: Percey S. Mistry, African Debt Revisited, July 1991, page 21 (mimeo).

29: World Bank, World Debt Tables 1990-91, page 94.

30: The New York Times, 17 September 1991.

31: World Bank, world Debt Tables, op.cit., pages 29-30.

32: Twelve of the twenty countries are Latin American, including the three largest debtors (Brazil, Mexico and Argentina).

33: UN ECLAC, Economic Panorama 1991. op.cit., page 10.

34: Debt accord between Argentina and commercial banks was reached on 7 April 1992, with details to be worked out in the following two months. Debt agreement with Brazil was not yet reached as of 20 May 1992.

35: The World Bank, Annual Report, 1991, page 35.

36: The World Bank, Review of Progress under the Program to Support Debt and Debt Service Reduction, 1 March 1991, page 2.

37: UN ECLAC, op.cit., page 3.

38: Debt and Development in the 1990s, Report of the International Group of Independent Experts, Belgrade, World Scientific Banking Meeting, 25 June 1990.

39: Sidney Dall, Reforming the World Bank for the Tasks of the 1990s, lecture at the Exim Bank of India, 5 March 1990, Bombay, pages 7-8.

40: Report of experts, op.cit., page 17.

41: Shafiqul Islam, The Mexican Debt Accord: Lessons for the Brady Plan, 7 February 1990, page 19.

42: Professor Gustav Ranis, Yale, and former Administrator of AID, U.S. Government, has argued for the establishment, at the request of the debtor country, of "self-destructing, quasi-independent teams' to do the assessment of policy changes Debt. Adjustment and Development: The Lingering Crisis, in Khadija Haq ed., Lingering Debt Crisis, North South Roundtable, 1985, Islamabad, and his study Adjustment, Growth and Debt Fatigue: Can the Case-by-Case and Global Approaches be Combined?, International Center for Economic Growth, Panama and San Francisco, Occasional paper No. 17, 1989.

43: Thomas Kampffmeyer, Towards a Solution of the Debt Crisis, German Development Institute, Berlin, 1987.


44: Mike Faber, Renegotiating Official Debts, Finance and Development, December 1990, page 21.

45: For further details, see Dragoslav Avramovic, Debt at mid-1989, Third World Scientific Banking Meeting, June 1989, Dubrovnik, Proceedings, Belgrade, 1991.

46: International Finance Corporation, Annual Report 1991, page 9.

47: World Bank, Annual Report 1991, page 33.

48: UN Centre on Transnational Corporations, World Investment Report 1991, page 83.