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Recent International Borrowing by Developing Countries

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
March 1987
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The net increase in bank claims on developing countries continued to slow during 1985, and net repayments to banks occurred during the first half of 1986. All references to developing countries exclude major off-shore banking centers (The Bahamas, Bahrain, the Cayman Islands, the Netherlands Antilles, Hong Kong, Panama, and Singapore.) Bank lending to developing countries was only $9 billion during 1985 (a growth rate of less than 2 percent, based on banks’ total claims on developing countries of $555 billion at the end of 1984). During the first half of 1986, there were net repayments of $7 billion, spread across all regions of developing countries except Europe. The 15 heavily indebted countries repaid banks $3 billion net during the first half of 1986 after net repayments of $2 billion in 1985.

These data on claims understate actual bank flows to developing countries because of, inter alia, unrecorded bank purchases of bonds, the exercise of guarantees, and writeoffs of bank claims. However, the provision of new official export credit guarantees covered a significant part of the increase in bank claims on developing countries in 1985; data for 1986 are not yet available. After allowing for these offsetting factors, banks’ underlying risk exposure to developing countries is estimated to have increased in 1985 by 1.5 to 2.5 percent, relative to banks’ unguaranteed claims. In the first half of 1986, it appears likely that underlying bank exposure declined, after allowing for risk transfers. Because reliable regional information is not available, flow figures in the remainder of this study have not been adjusted for write-offs, unidentified bond purchases, or guarantees.

The text and tables are based on International Capital Markets: Developments and Prospects, December 1986, by Maxwell Watson, Russell Kin-caid, Caroline Atkinson, Eliot Kalter, and David Folkerts-Landau, IMF, Washington, DC. Copies are available from the Publications Unit, IMF, Washington, DC 20431. The cost is $15; for libraries, faculty, and students, $11.

The regional pattern of bank lending to developing countries became still more differentiated during 1985-86, regarding both sources and uses of funds. Spontaneous bank lending to developing countries was mainly accounted for by lending to countries in Asia and Europe that had not restructured their debt. The small decrease in claims on developing countries in the Western Hemisphere occurred notwithstanding concerted lending. Africa received little net bank financing, and there was a continued withdrawal from the Middle East.

Disbursements under concerted lending packages declined sharply in 1985 and 1986; concerted lending or “new money” refers to equiproportional increases in exposure coordinated by a bank advisory committee during 1986, such disbursements totaled $3.1 billion, compared with $5.4 billion in 1985 and $10.4 billion in 1984. Almost 90 percent, or $7.5 billion, of these disbursements during 1985-86 went to seven countries in the Western Hemisphere (Argentina, Chile, Colombia, Costa Rica, Ecuador, Mexico, and Panama); the remainder was directed to Côte d’Ivoire and the Philippines.

Total publicized long-term bank credit commitments to developing countries (including an agreement in principle of $7.7 billion with Mexico in late September 1986) increased to $20 billion during the first three quarters of 1986 from $18 billion in 1985 according to OECD data. An encouraging feature of developments in 1985-86 was the resumption of spontaneous bank commitments for certain countries that had previously raised financing on a concerted basis. A lending package, cofinanced with the World Bank, was arranged by a limited group of banks for Côte d’Ivoire in 1985, while similar packages were agreed in 1986 for Uruguay (also including a cofinancing) and Ecuador. However, commitments under concerted packages continued to account for a sizable proportion of new commitments. Concerted packages totaled $10.5 billion in 1985 and 1986, compared with $16.5 billion in 1984. In 1985, such packages were arranged for Chile, Colombia, Costa Rica, and Panama, and in 1986 for Congo, Mexico, and Nigeria. Mexico’s package involved a substantial new commitment and certain innovative features.

In September 1986, the bank advisory committee for Mexico reached agreement in principle on a financial package, covering 1986-87, consisting of new money facilities and a restructuring of existing external bank debt. In a departure from previous concerted packages, three elements were incorporated in the new money facility: a loan for $6 billion, of which $1 billion would be cofinanced with the World Bank and half of the cofinancing would have a World Bank guarantee; a contingent loan of $1.2 billion to support public and private sector investment; and a contingent loan of $0.5 billion to support economic growth—this loan would also be cofinanced with the World Bank and half of the loan would be guaranteed by the World Bank. In addition, amortization payments on about $44 billion of previously restructured debt would be stretched out to 20 years with a grace period of 7 years. The spread on all elements of this financial package would be 1316 of a percentage point over LIBOR or domestic cost of funds. By November 1986, banks holding more than 90 percent of the relevant claims agreed to participate in this financial package.

The trend toward lower spreads on bank loans to developing countries continued in 1985 and 1986, while the decline in international interest rates also helped to reduce borrowing costs. A further lowering of spreads and lengthening of maturities was evident in bank debt restructuring agreements, and banks negotiated additional multiyear restructuring agreements (MYRAs), including the first MYRA in Africa (for Côte d’Ivoire). The amounts of bank debt restructured in agreements signed or reached in principle, excluding short-term debt rolled over, are estimated at $13 billion for nine developing countries in 1985. During 1986, additional restructuring agreements were reached with nine countries for a total of $62 billion.

Table 1Bank landing to developing countries, 1983—first half 1986(In billions of dollars)
19851986
196319641965First

half
First

half
Developing countries135.315.09.12.3-7.1
Growth rate (In percent)732-1
Africa5.0-0.31.40.8-1.2
Asia8.78.26.92.0-1.3
Europe3.32.13.22.50.5
Middle East3.5-1.2-2.2-2.31.0
Western Hemisphere14.96.0-0.1-0.6-4.1
Memorandum items
Fifteen heavily indebted countries11.15.4-1.9-1.2-3.4
Total. BIS-based26.411.313.63.3-9.6
Growth rate (In percent)7231-2
Gross bond issues3.35.310.24.93.3
Sources: Bank (or inter national Settlements (BIS). Organization for Economic Cooperation and Development International Monetary Fund, International Financial Statistics, and Fund staff estimates.
Table 2Long-term bank credit commitments to developing countries, 1981-third quarter 1986(In billions of dollars)
1965319864
1961198219831984119652First-third qrtFirst-third qrt
Developing countries48.144.634.931.017.914.020.1
Capital importing47.042.632.629916.113.218.7
Africa4.12.72.70.51.41.31.1
Spontaneous lending4.12.72.70.51.31.21.1
Concerted lending0.10.1
Asia12812.610.410.27.56.35.9
Spontaneous lending12.812610.49.37.56.35.9
Concerted lending0.9
Europe4.73.73.53.44.42.93.7
Spontaneous lending4.73.7293.44.42.93.7
Concerted lending0.6
Middle East0.20.60.70.40.30.30.1
Western Hemisphere25.223.015.315.42.52.47.9
Spontaneous lending25.223.02.00.60.10.10.2
Concerted lending13.3514.82.42.37.7
Sources: Organization for Economic Cooperation and Development. Financial Statistics Monthly, and Fund staff estimates.Note: Concerted lending reforms to bank credit commitments obtained during 1983-86 and coordinated by a bank advisory committee (i.e.. for Argentina. Brazil, Chile, Colombia, Costa Rica, Côte d’voire. Ecuador, Mexico, Panama, Peru the Philippines, Uruguay, and Yugoslavia)

Gross international bond issues by developing countries during the first three quarters of 1986 declined to $6 billion at an annualized rate after having doubled in 1985 to $10 billion. The number of developing countries borrowing in international bond markets fell to 18 during the first three quarters of 1986 from 22 in 1985. Several developing countries (e.g., Algeria, Malaysia, South Africa, and Thailand) sharply reduced, or eliminated, their bond issues during 1986. These countries issued only $0.1 billion worth of bonds during the first three quarters of 1986, compared with $4.1 billion in 1985. Bond issues by developing countries were highly concentrated during 1985-86, with eight developing countries from Asia and Europe accounting for 80 percent of the total value of such issues. Over 60 percent of the bonds issued by developing countries were in the form of floating rate notes: these bonds may have largely been purchased by banks and, in many cases, may not have been reported as bank lending to developing countries. During the first three quarters of 1986, developing country borrowers also arranged note issuance facilities at an annualized rate of $1.3 billion, compared with a total of $1.5 billion in 1985. Purchases of notes under these facilities by banks may also have been omitted from reports of some banks’ exposure to developing countries.

Developments in bank exposure

Lending to developing countries also varied significantly among banks of different nationalities. During the first six months of 1986, US banks’ claims on developing countries fell by 13 percent (at an annualized rate) after a decline of 8.5 percent in 1985, although nearly 2 percentage points of the decline in 1985 were due to a sale of claims by one US bank to a bank in the United Kingdom. US banks have reduced their claims on developing countries in all regions since the end of 1984. UK banks’ claims on developing countries also declined in US dollar terms in 1985, but this decline was wholly due to a statistical break in the data for South Africa. Excluding UK banks’ claims on South Africa, UK banks’ claims on developing countries rose by about 1 percent in US dollar terms. UK banks increased their claims on developing countries in all regions, except for the Western Hemisphere.

Although detailed geographical data are not available on other countries, it can be inferred that the rise in total lending stemmed principally from Japanese banks, whose lending offset the drop in US bank claims, especially in Asia. German banks may also have increased modestly their claims on developing countries in Europe and Asia in 1985, while in the first half of 1986 lending was recorded only to developing countries in Europe.

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