III: Financing for Developing Countries
Author: International Monetary Fund
Language:
English
Keywords:
WEFS; country classification; fixed interest rate bond; interest rate debt; U.S. dollar bond; market borrower; new money; development bank; bank supervisor; bank lending; bank debt; Commercial banks; Bank credit; Capital outflows; Foreign direct investment; Western Hemisphere; Africa; Asia and Pacific; Middle East; Europe
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Abstract

Total lending to developing countries through bank and bond markets (net of loan repayments, redemptions, and bank purchases of bonds) amounted to only about $15 billion in 1985, and net repayments of $3 billion were made by developing countries during the first half of 1986. This reversal in private lending to developing countries occurred even though the current account deficits of developing countries are estimated to have increased by $14 billion in 1986 to $54 billion. The slowdown in private lending during 1985–86 was primarily due to a decline in bank lending, although during 1986 new gross bond issues by these countries also dropped sharply.

Distribution and Terms

Overview

Total lending to developing countries through bank and bond markets (net of loan repayments, redemptions, and bank purchases of bonds) amounted to only about $15 billion in 1985, and net repayments of $3 billion were made by developing countries during the first half of 1986. This reversal in private lending to developing countries occurred even though the current account deficits of developing countries are estimated to have increased by $14 billion in 1986 to $54 billion. The slowdown in private lending during 1985–86 was primarily due to a decline in bank lending, although during 1986 new gross bond issues by these countries also dropped sharply.

International bank lending to developing countries continued to slow during 1985–86. During the first half of 1986, developing countries repaid net $7 billion to international banks, while they had borrowed $9 billion in 1985. 1 Thus, bank claims declined by more than 2 percent (at an annualized rate) during the first half of 1986, compared with an increase of 2 percent in 1985 (Chart 2 and Table 7). 2 The continued slowdown in bank lending to developing countries since 1982, combined with the resurgence in lending to industrial countries, has diminished the share of lending to developing countries in total international lending to 1 percent during 1985–86 from 27 percent in 1982. The ratio of claims on developing countries in total international claims dropped to 20 percent in mid-1986 from 25 percent in 1983 (Chart 10). Bank lending to the 15 heavily indebted developing countries has also steadily declined. While these countries had borrowed $6 billion in 1984, they repaid net $2 billion in 1985 and an additional $3 billion during the first half of 1986.

Table 7.

Bank Lending to Developing Countries, 1983-First Half 19861, 2

(In billions of U.S. dollars; or in percent)

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Sources: Bank for International Settlements (BIS); Organization for Economic Cooperation and Development; International Monetary Fund, International Financial Statistics; and Fund staff estimates.

IMF-based data on cross-border lending by banks are derived from the Fund’s international banking statistics (IBS) (cross-border interbank accounts by residence of borrowing bank plus international bank credits to nonbanks by residence of borrower), excluding changes attributed to exchange rate movements. BIS-based data are derived from quarterly statistics contained in the BIS’s International Banking and Financial Market Developments’, the figures shown are adjusted for the effects of exchange rate movements. Differences between the IMF data and the BIS data are mainly accounted for by the different coverages. The BIS data are derived from geographical analyses provided by banks in the BIS reporting area. The IMF data derive cross-border interbank positions from the regular money and banking data supplied by member countries, while the IMF analysis of transactions with nonbanks is based on data from geographical breakdowns provided by the BIS reporting countries and additional banking centers. Neither the IBS series nor the BIS series are fully comparable over time because of expansion of coverage.

Excluding the seven offshore centers (The Bahamas, Bahrain, the Cayman Islands, Hong Kong, the Netherlands Antilles, Panama, and Singapore).

Chart 10.
Chart 10.

Concentration of Cross-Border Claims, 1976–85

(In percent)

Sources: Bank for International Settlements, International Banking and Financial Market Developments; International Monetary Fund, International Financial Statistics; and Fund staff estimates.1Owing to a change in the coverage of the BIS reporting area, there is a break in the series.2Argentina, Brazil, Indonesia, Korea, Mexico, the Philippines, and Venezuela.

These data for bank lending to developing countries, however, underrecord actual flows. One reason for this underestimation is that official statistics record only partially banks’ holdings of bonds. Other factors, inter alia, are loan write-offs, which reduce recorded claims without a repayment, the sale of claims by banks to nonbank investors, and the exercising of guarantees. In light of these factors, actual bank lending to developing countries in 1985 is estimated to have been larger than $9 billion, and was probably in the range of $11-15 billion.

This adjusted flow of $11-15 billion does not coincide with the change in banks’ risk exposure to developing countries because a significant part of bank lending has been officially guaranteed. A joint publication of the BIS and the Organization for Economic Cooperation and Development (OECD) 3 gives information on the stock of banks’ officially guaranteed claims on developing countries relative to their nonguaranteed claims, although it does not give an exchange rate adjusted flow. 4 Allowing for this factor, growth in banks’ risk exposure to developing countries in 1985 is estimated to have been 1½ to 2½ percent (based on a stock of nonguaranteed bank claims of about $515 billion). Since reliable regional estimates are not available for all these factors, the discussion of bank lending that follows does not incorporate any estimate based on underrecording of claims or increases in official guarantees.

One reason for the slowdown in bank lending has been the decline in spontaneous lending. Such lending reached $4 billion in 1985, but turned to net repayments of $9 billion during the first half of 1986. Bank lending to most developing countries in Asia and Europe remained spontaneous in 1985 and accounted for more than the total lending to developing countries in that year. There was also a modest increase in 1985 in bank claims on African countries, while bank claims on developing countries in the Western Hemisphere were virtually unchanged, despite concerted lending of almost $5 billion. Developing countries in the Middle East made net repayments of international bank loans in 1985 of $2 billion. During the first half of 1986, net repayments to banks were recorded by developing countries in all regions except Europe, with the largest repayments experienced by developing countries in the Western Hemisphere. Bank lending to the U.S.S.R. and non-Fund members in Eastern Europe fell to less than $1 billion during the first half of 1986, from $4 billion in 1985.

A second reason for the slowdown in bank lending has been the lower level of disbursements under concerted lending packages during 1985 and the first three quarters of 1986 (Table 45). Such disbursements fell by half in 1985 to $5 billion and amounted to only $1.7 billion during the first three quarters of 1986. During 1985–86, over 90 percent, or about $6.5 billion of these disbursements, went to six countries in the Western Hemisphere (Argentina, Chile, Costa Rica, Ecuador, Mexico, and Panama); the remainder was directed to Côte d’Ivoire and the Philippines.

New long-term bank credit commitments to developing countries, including the agreement in principle with Mexico, amounted to $20 billion during the first three quarters of 1986, compared with $18 billion in 1985 and $31 billion in 1984. This pattern in bank credit commitments can be entirely explained by changes in the level of bank commitments for concerted lending as spontaneous commitments reached about $15 billion in 1984 and 1985 and remained virtually unchanged at $16 billion (at an annualized rate) during the first three quarters of 1986 (Table 8).

Table 8.

Long-Term Bank Credit Commitments to Developing Countries, 1981-Third Quarter 1986

(In billions of U.S. dollars)

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Sources: Organization for Economic Cooperation and Development, Financial Statistics Monthly; and Fund staff estimates.

Includes agreements in principle with Argentina and the Philippines and excludes the short-term trade deposit facility for Argentina of $0.5 billion.

Includes $0.1 billion for Costa Rica.

Includes agreements in principle with Chile and Colombia.

Includes agreement in principle with Mexico.

Concerted lending refers 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’Ivoire, Ecuador, Mexico, Panama, Peru, the Philippines, Uruguay, and Yugoslavia).

Excludes the extension of a bridging loan of $1.3 billion to Argentina.

New concerted packages were arranged for six countries in 1985 (Chile, Colombia, Costa Rica, Côte d’Ivoire, Ecuador, and Panama). The only new concerted lending commitment during the first three quarters of 1986 was an agreement in principle in late September 1986 between Mexico and its bank advisory committee on a new money package for 1986–87 consisting of three parts: (1) a concerted loan of $6 billion net, of which $1 billion would be cofinanced with the World Bank and half of that cofinanced loan would receive a World Bank guarantee; (2) a contingent loan of $1.2 billion to support public and private sector investment; and (3) a contingent loan of $0.5 billion to support economic growth; this loan would be entirely cofinanced with the World Bank and half of the loan would have a World Bank guarantee.

Restructuring agreements were reached in principle with six developing countries during the first three quarters of 1986 covering their medium-term bank debt amounting to $56 billion, compared with nine agreements in 1985 for a total of $13 billion. MYRAs were agreed with five countries between January 1985 and September 1986 to restructure $51 billion in medium-term debt falling due. The MYRAs in 1985 and the first three quarters of 1986 included those for Côte d’Ivoire (the first for an African country), the Dominican Republic, Mexico, Uruguay, and Yugoslavia. Data on bank debt restructurings are given in Tables 46 through 49.

Gross international bond issues by developing countries (including offshore centers) during the first three quarters of 1986 (at an annualized rate) were about $6 billion, or 60 percent of the amount issued during 1985 ($10 billion). Nevertheless, gross international issues by these countries during the first three quarters of 1986 (at an annualized rate) were nearly 40 percent above the average level in 1983–84. Eighteen developing countries utilized the international bond market during the first three quarters of 1986, compared with 22 countries in 1985 (Table 9).

Table 9.

International Bond Issues by Developing Countries, 1981-Third Quarter 19861

(In millions of U.S. dollars)

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Source: Organization for Economic Cooperation and Development, Financial Statistics Monthly.

Foreign bonds and Eurobonds.

Developing countries from Asia and Europe continued to dominate this market, accounting for 75 percent of the total during 1985 and the first three quarters of 1986. Several developing countries (e.g., Algeria, Malaysia, South Africa, and Thailand) did not issue bonds, or issued only a fraction of the amount, during the first three quarters of 1986 ($0.1 billion) that they issued in 1985 ($4.1 billion). Of the $15 billion issued during 1985 and the first three quarters of 1986, about 60 percent was in the form of U.S. dollar floating rate notes and may have been purchased by banks to a large extent. Certain banks did not report them as part of their international banking claims (e.g., banks in the United Kingdom, the United States, and Switzerland).

Since the end of December 1985, banks in the United Kingdom have reported a country breakdown of their holdings of bonds. Data on the outstanding stock of U.K. banks’ holdings of bonds at the end of December 1985 indicate that about 85½ percent of bonds held by U.K. banks were issued by industrial countries and about 6½ percent by developing countries (Table 10). This distribution is roughly the same proportion as average gross bond issues during 1978–86, implying that U.K. banks have not purchased a disporportionately larger share of bonds issued by developing countries than bonds issued by industrial countries. Total holdings by U.K. banks of bonds issued by developing countries amounted to $2.3 billion, or slightly more than 2 percent of U.K. banks’ credit claims on developing countries at the end of 1985 (Table 50). Considerable variation exists in U.K. banks’ holdings of bonds issued by developing countries, with bonds issued by Asian developing countries accounting for about 42 percent of the total.

Table 10.

Bond Holdings of U.K. Banks, December 1985

(In millions of U.S. dollars, unless otherwise indicated)

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Source: Bank of England, Quarterly Bulletin, March 1986.

Including “other oil exporters.”

During the first three quarters of 1986, developing countries also arranged $5 billion (annualized) in other long-term external bank facilities, compared with $4 billion during all of 1985. Developing countries also improved their access to these facilities during 1986; such countries in all regions except Africa obtained long-term bank facilities during the first three quarters of 1986, while in 1985 commitments were limited to developing countries in Asia and Europe. In 1985, 13 developing country borrowers arranged note issuance facilities amounting to $3 billion, while 10 developing countries arranged such facilities for a total amount of $1 billion in 1984. During the first three quarters of 1986, 12 developing countries arranged note issuance facilities for $4 billion.

Developing countries withdrew $18 billion in deposits with the international banking system during the first half of 1986, compared with depositing of $24 billion in 1985 and $23 billion in 1984 (Table 42). This turnaround reflects the more difficult external financing situation of developing countries, especially the fuel exporting countries. There was also a large shift in the composition of depositing during 1985 and the first half of 1986. Interbank deposits were drawn down during the first half of 1986, after a small increase in 1985, reflecting the sharp deterioration in the gross official reserves position of these countries. During the first half of 1986, nonbanks from developing countries reduced their deposits by $3 billion, after having increased them by $21 billion in 1985.

Regional Pattern of Private Flows

The regional pattern of banking flows to developing countries became more pronounced during 1985 and the first half of 1986. This development was evidenced on both the debtor and creditor side. 5

Western Hemisphere

Countries in the Western Hemisphere repaid $4 billion to private creditors during the first half of 1986, compared with borrowings of $0.1 billion from international bank and bond markets in 1985. International banks were repaid $4.1 billion net by developing countries in the Western Hemisphere, compared with net repayments of only $0.1 billion during 1985. Disbursements under concerted lending packages fell to $1.5 billion during the first three quarters of 1986 from $4.9 billion in 1985 (including $0.5 billion in a trade deposit facility to Argentina). In Argentina, Chile, and Mexico, the increases in bank claims during the first nine months of 1986 were less than the disbursements of concerted loans.

U.S. banks reduced their consolidated claims on countries in the Western Hemisphere by $6.9 billion (annualized rate), or 7.5 percent, during the first half of 1986 and by $4.5 billion, or 4.7 percent, in 1985 (Tables 11 and 12). 6 Nearly half of the decline in 1985, however, represented the sale of international loans by one U.S. bank (see below). Large declines in U.S. bank claims were recorded on Brazil and Mexico, while Argentina was the only developing country for which U.S. banks significantly increased their claims. The consolidated claims of U.K. banks on developing countries in the Western Hemisphere fell by $0.1 billion (½ percent) on an unadjusted exchange rate basis during 1985.

Table 11.

Changes in Bank Claims on Developing Countries, 1982–851

(In billions of U.S. dollars and in percent; unadjusted for exchange rate changes)

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Sources: Bank for International Settlements, The Maturity Distribution of International Bank Lending; Federal Financial Institutions Examination Council, Country Exposure Lending Survey; and Bank of England, Quarterly Bulletin.

These data are not adjusted for the impact of exchange rate movements and are based on consolidated reports of banks. Further, data for individual years are not strictly comparable because of changes in statistical coverage.

There is a discontinuity in the figures for claims on South Africa between the end of December 1984 and the end of December 1985. Over this period claims on South Africa fell by $1.1 billion.

Table 12.

Changes in Claims of U.S. Banks on Developing Countries, 1982–861

(In billions of U.S. dollars; and in percent)

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Source: Federal Financial Institutions Examination Council, Country Exposure Lending Survey.

These data are based on consolidated reports of banks.

First half of 1986 on an annualized basis.

During the first three quarters of 1986, new long-term bank commitments to developing countries in the Western Hemisphere, apart from the concerted lending commitment to Mexico, amounted to only $0.1 billion, reflecting a commitment to The Bahamas; such commitments totaled $2.5 billion in 1985, of which $2.4 billion was on a concerted basis.

Developing countries in the Western Hemisphere did not have significant access to the international bond market during 1985–86. In 1985, bond issues totaling $202 million were made by Barbados, Mexico, and Trinidad and Tobago. The bond placement by Mexico (a foreign yen placement) was its first since the debt crisis of 1982. Mexico also arranged $0.1 billion in a note issuance facility, reportedly the first of a series designed to transform interbank lines into marketable securities. During 1986, Brazilian banks also arranged a note issuance facility for their interbank lines. There were bond issues of $0.5 billion during the first three quarters of 1986 by Barbados, Bermuda, Colombia, and Mexico.

Residents from countries in the Western Hemisphere withdrew $4.8 billion in deposits with international banks during the first half of 1986, after they had deposited abroad $5.6 billion in 1985. Interbank deposits, on the one hand, fell by $8.2 billion during 1985 and the first half of 1986, in line with a decline in gross official reserves; reductions in interbank deposits by banks in Brazil and Mexico were particularly large (Table 43). Nonbanks in the Western Hemisphere, on the other hand, deposited $8.5 billion in 1985, but increased their deposits with international banks by only $0.5 billion during the first half of 1986. New deposits of nonbanks in 1985 were again particularly large for residents of Mexico; during the first half of 1986, for the first time in more than two years, nonbanks from Mexico drew down their international deposits. In 1985, depositing by nonbanks from Venezuela were 50 percent above the 1984 level, but these deposits were also reduced during the first half of 1986 (Table 44).

Asia

International lending through bank and bond markets to developing countries in Asia declined to only $1 billion during the first half of 1986 from $12.8 billion in 1985, as a result of reduced borrowing in the bond market and net repayments to international banks. Bank lending to developing countries in Asia declined to $6.9 billion in 1985 from $8.2 billion in 1984, partly because of increased borrowing in the bond market. During the first half of 1986, however, bond issues decreased to $2.3 billion and banks were repaid net $1.3 billion.

The largest bank borrowers during 1985 were China, Korea, and India, while China and Malaysia recorded the largest net repayments to banks during the first half of 1986. The Philippines experienced a net outflow because of net repayments to banks of $0.5 billion in 1985, despite having received $0.4 billion in concerted lending, partly because the branches of Philippine banks abroad (which were not covered in the restructuring agreements) reduced their claims on the Philippines; during the first half of 1986, liabilities of the Philippines vis-à-vis international banks remained unchanged, notwithstanding concerted lending disbursements of $0.2 billion. Malaysia repaid $1.4 billion in bank debt in 1985, while issuing $2.0 billion in international bonds, of which 65 percent were in the form of U.S. dollar floating rate notes. During the first half of 1986, Malaysia continued to repay bank debt, but did not issue any international bonds.

The consolidated claims of U.S. banks on developing countries in Asia fell by $3.4 billion (12 percent) in 1985, while those of U.K. banks rose by $0.2 billion (2 percent). During the first half of 1986, the consolidated claims of U.S. banks on developing countries in Asia continued to decline, falling at an annualized rate of $6.6 billion, or 26 percent.

New long-term international bank credit commitments to developing countries in Asia were $7.9 billion (at an annual rate) during the first three quarters of 1986, slightly above their level in 1985; all of these commitments were spontaneous. During 1983–86, the composition of bank commitments changed, with a decline in credit commitments to about $7.5 billion during 1985–86 from an average of $10.3 billion in 1983–84 and a tripling of the use of other bank credit facilities to $3 billion during 1985–86. The major borrower in the credit market continued to be Korea; however, credits of $3.4 billion were arranged for China during 1985–86. Hong Kong was the most active user of other bank credit facilities, arranging commitments of $1.8 billion during 1985–86. Korea also arranged $1.3 billion in various other bank credit facilities during 1985–86.

Asian developing countries reduced their reliance on international bond markets during the first three quarters of 1986 from the peak level experienced in 1985, but nevertheless international bond issues by these countries remained about 50 percent above the average level of 1982–84. Bond issues by these developing countries totaled almost $3 billion at an annual rate during the first three quarters of 1986, compared with $6 billion in 1985 and $3 billion in 1984. In 1985, Malaysia borrowed $2.0 billion, Korea $1.7 billion, and China almost $1 billion. During the first three quarters of 1986, China, Korea, and Indonesia were the principal borrowers in international bond markets, while Thailand, which was a large issuer in 1985, did not issue any international bonds during the first three quarters of 1986 and Malaysia—another large issuer in 1985—issued less than $0.1 billion during the first three quarters of 1986.

Countries in Asia deposited $8.5 billion in international banks in 1985 (mainly interbank transactions), somewhat less than in 1984; during the first half of 1986, deposits by these countries were reduced slightly. Deposits held by residents in China fell by about $5.6 billion in 1985 and continued to decline by $1.3 billion during the first half of 1986.

Europe

International lending through bank and bond markets to developing countries in Europe amounted to about $4.7 billion in 1985 and $1.1 billion during the first half of 1986. Bank lending was $3.2 billion in 1985 and $0.5 billion during the first half of 1986. During 1985, bank lending was mostly directed to Greece, Hungary, and Turkey, while banks further reduced their claims on Romania. During the first half of 1986, only Hungary and Turkey experienced net lending from international banks, while all other developing countries in Europe made net repayments to banks.

During 1985 and the first three quarters of 1986, all new long-term international bank credit commitments to developing countries in Europe were on a spontaneous basis. These bank commitments rose from $4.4 billion in 1985 to $4.9 billion at an annualized rate during the first three quarters of 1986. The major borrowers were Greece, Hungary, Portugal, and Turkey. Just as in the Asian region, developing country borrowers in Europe have increased their issuance of other bank facilities. In 1985, other facilities totaled $0.9 billion, while during the first three quarters of 1986, commitments under these other facilities reached $1.9 billion at an annualized rate.

During the first three quarters of 1986, developing countries in Europe issued $0.9 billion in international bonds, with Portugal the principal issuer. These countries issued $1.6 billion in international bonds in 1985. Almost all of this decrease was accounted for by Greece and Hungary; bond issues by Greece declined to $205 million in 1986 from $745 million in 1985, while Hungary issued $236 million during the first three quarters of 1986, compared with $447 million in 1985. International bank depositing by developing countries in Europe dropped to $2.0 billion in 1985 from $3.6 billion in 1984, largely attributable to a withdrawal of deposits by Romania and Turkey. This trend continued during the first half of 1986, as deposits increased by only $0.2 billion, with Yugoslavia recording a substantial drawdown.

Africa

International lending through bank and bond markets to developing countries in Africa was $2.7 billion in 1985, but during the first half of 1986, $1.1 billion was repaid net. Banks lent $1.4 billion to African countries in 1985 and received net repayments of about $1.2 billion during the first half of 1986. Excluding loan repayments by Nigeria and South Africa, bank lending to African developing countries was $2.3 billion in 1985 and zero during the first half of 1986. New long-term international bank credit commitments to developing countries in Africa declined to $1.1 billion during the first three quarters of 1986 after having increased to $1.4 billion in 1985 from $0.5 billion in 1984.

Bond issues by developing countries in Africa were only $0.1 billion during the first three quarters of 1986, down from $1.3 billion in 1985. South Africa and Algeria issued $0.8 billion and $0.5 billion in bonds, respectively, in 1985, but issued zero and $0.1 billion, respectively, during the first three quarters of 1986. Depositing by residents of Algeria and South Africa in 1985 accounted for almost half of the $3.8 billion increase in bank deposits from African countries in 1985; deposits were reduced by $0.8 billion during the first half of 1986.

Middle East

International lending through bank and bond markets to developing countries in the Middle East totaled $1.0 billion in net repayments during the first half of 1986, compared with net repayments of $2.1 billion for all of 1985. Bank claims on these developing countries dropped by $2.2 billion in 1985 and by a further $1.0 billion during the first half of 1986. The cumulative decline was due to repayments of bank debt by Egypt, Israel, and Kuwait. New bank commitments amounted to $0.4 billion in 1985, about the same as in 1984, but fell to $0.1 billion during the first three quarters of 1986. Developing countries in the Middle East also issued $0.1 billion in international bonds in 1985, but did not issue any international bonds during the first three quarters of 1986. Banks received $4.0 billion in deposits from residents in the Middle East in 1985, as depositing by nonbanks in the region rose to $6.2 billion in 1985 from virtually zero in 1984. During the first half of 1986, residents from this region withdrew $11.6 billion in deposits from international banks. This reduction in deposits was to a large extent attributable to a fall in international reserves of Kuwait and Saudi Arabia.

Distribution of Lending

As regards the regional distribution of lending by different nationalities of banks, there was a sharp decline in U.S. banks’ consolidated claims on developing countries during 1985 and the first half of 1986. These claims fell by 8½ percent in 1985 and by 13 percent at an annual rate during the first six months of 1986 (Table 12). However, the decline in 1985 may be overstated; U.S. claims for the end of 1985 were reduced as the result of the sale by Crocker National Bank of $3.1 billion of its international loans to Midland Bank. 7 In 1985, Crocker’s claims on Latin America fell by $2.2 billion, amounting to nearly one half of the total reduction of U.S banks’ claims on that region. 8 U.S. banks’ claims fell on all developing country regions during 1985–86, with the largest percentage declines for developing countries in Africa, the Middle East, and Asia. After adjustment for guarantees and other risk transfers, the decline in U.S. banks’ risk exposure to developing countries was 6½ percent in 1985 and 11 percent at an annual rate during the first half of 1986.

Consolidated claims of U.K. banks expressed in U.S. dollars declined by $0.4 billion (0.6 percent) in 1985 with the fall in these claims concentrated on countries in Africa (6.4 percent); however, this decline was wholly due to a statistical discontinuity in the data for South Africa. Excluding U.K. banks’ claims on South Africa, U.K. banks’ claims on developing countries rose by $0.5 billion in U.S. dollar terms (1 percent). U.K. banks’ claims on countries in Asia, Europe, and the Middle East increased by 2–3 percent in 1985. In the Western Hemisphere, U.K. banks’ claims expressed in U.S. dollars declined by $0.1 billion, or nearly 1 percent; this recorded decline was not affected by the transfer of claims from the Crocker National Bank. These data probably understate the decline in U.K. banks’ claims during 1985, due to exchange rate movements. Guarantees of U.K. bank claims declined slightly in 1985.

German domestic banks showed an increase in claims on developing countries of $1.2 billion (4 percent) during the first half of 1986, after an increase of $2.7 billion (12 percent) in 1985 (allowing for an approximate adjustment for exchange rate changes). The increase in 1985 may largely reflect a transfer of claims to domestic banks from their branches and subsidiaries abroad, whose claims on developing countries fell by $0.5 billion (7 percent) and $1.9 billion (16 percent), respectively. Overall, German banks may have increased modestly their claims on developing countries from Asia during 1985 and on developing countries in Europe during 1985 and the first half of 1986. No geographical analysis of Japanese banks’ claims is published. However, a comparison of lending by other major groups of banks indicates a substantial increase in Japanese banks’ claims on Asian countries, including purchases of bonds. A modest increase may have occurred in Japanese banks’ claims on developing countries in the Western Hemisphere.

Terms of Lending and Restructuring

Terms on new bank credit commitments and bank debt restructuring have generally improved during 1985–86. Terms data on new bank credit commitments supplied by the OECD do not include restructuring terms. Average spreads on new bank credit commitments to developing countries continued to decline during 1985 and the first three quarters of 1986. Spreads for these countries fell to 62 basis points during the first three quarters of 1986 from 94 basis points in 1985. These spreads represent a significant drop from 135 basis points in 1984 and from a peak of 151 basis points in 1983. The difference between spreads on developing countries and industrial countries narrowed to about 28 basis points during the first three quarters of 1986, from 53 basis points in 1985 and 81 basis points in 1984. The average maturity of new bank credit commitments remained unchanged during 1985 at eight and three-fourths years but shortened to eight years during the first three quarters of 1986. Nevertheless, average maturity for bank credit commitments to developing countries remained almost one year longer than similar commitments to borrowers from industrial countries.

The improvement in spreads for developing countries during 1983–86 has been mainly due to lower spreads for concerted lending packages. OECD data on the spreads on spontaneous bank loans to developing countries indicate that, after having dropped by 31 basis points in 1983, they declined by only a further 9 basis points between 1983 and 1985 and by another 6 basis points during the first half of 1986. By contrast, the average spread on concerted lending packages has dropped from 200 basis points in 1983 to 99 basis points in 1985; there were no concerted lending packages recorded by the OECD in the first three quarters of 1986.

In September 1986, the bank advisory committee for Mexico reached an agreement in principle on a concerted loan with a spread of 13/16 of a percentage point (81 basis points) over LIBOR or domestic cost of funds. The difference between average spreads on spontaneous bank and concerted lending to developing countries decreased to 31 basis points in 1985 from 122 basis points in 1983. The spread on the concerted loan for Mexico would be about 20 basis points above the average spread for spontaneous bank loans during the first three quarters of 1986. Maturities of concerted loans have lengthened by 3–4 years between 1983 and 1985 (Table 13). The concerted loan agreed in principle for Mexico in September 1986 represents a further lengthening of maturities; it has a term of 12 years.

Table 13.

Terms of Selected Bank Debt Restructurings and Financial Packages, 1983-Third Quarter 19861

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Sources: Restructuring agreements; and press reports.

Classified by year of agreement in principle.

First principal payment due 30 months after rescheduling.

The spreads over LIBOR/U.S. prime rate are 2⅛ percent/1⅞ percent for amounts on deposit with the Central Bank or—as generally acceptable maximums—for loans to public sector borrowers with official guarantee, Petrobras, and Companhia Vale do Rio Doce (CVRD). For loans to other borrowers, the spreads must be acceptable to the Central Bank (see Table 49 for details).

The Central Bank stands ready to borrow the committed funds at either 2⅛ percent over LIBOR or 1⅞ percent over U.S. prime rate. For loans to other borrowers, the spreads agreed must be acceptable to the Central Bank (see Table 49 for details).

1⅝ percent over “domestic reference rate,” equal to: U.S. dollar certificate of deposit rate adjusted to reserves and insurance; or a comparable yield for loans denominated in other currencies.

Debt due in December 1983 and in 1984.

Debt due in 1985.

Multiyear debt restructuring agreement.

Growth contingency cofinancing with the World Bank.

Contingent investment support facility.

Debt not previously restructured.

Debt previously restructured and restructuring of new financing of 1983.