Abstract

Experience with multilateral debt restructurings with official creditors and with international banks in the second half of the 1970s was described in External Indebtedness of Developing Countries, issued in 1981.1 The present paper reviews recent developments, covering the period through early October 1983. It discusses the external debt problems that countries have experienced and the arrangements made for restructuring official and commercial bank debt. The paper does not deal with the broad economic conditions that are essential if debtor countries are to be successful in their adjustment efforts over the medium term. These conditions will include, inter alia, adequate flows of official and private capital on reasonable terms, economic policies in the industrial countries that will promote a noninflationary recovery and a resurgence of world trade, and greater access to markets for developing countries.

Experience with multilateral debt restructurings with official creditors and with international banks in the second half of the 1970s was described in External Indebtedness of Developing Countries, issued in 1981.1 The present paper reviews recent developments, covering the period through early October 1983. It discusses the external debt problems that countries have experienced and the arrangements made for restructuring official and commercial bank debt. The paper does not deal with the broad economic conditions that are essential if debtor countries are to be successful in their adjustment efforts over the medium term. These conditions will include, inter alia, adequate flows of official and private capital on reasonable terms, economic policies in the industrial countries that will promote a noninflationary recovery and a resurgence of world trade, and greater access to markets for developing countries.

The balance of payments and external debt situations of many developing countries have come under increasing strain in recent years. While most of the countries experiencing such difficulties have been “non-oil developing countries,”2 debt servicing problems have also been encountered by several oil exporting countries and by certain centrally planned economies that are not Fund members. The growing severity of debt servicing difficulties has been manifest in two notable developments. First, external payments arrears rose to US$18 billion at the end of 1982, compared with an average of about US$5–6 billion over the preceding five years. The increase in arrears is all the more striking since, during 1982, a substantial amount of arrears was formally rescheduled by various creditor groups. Second, there have been significant increases in both the number of countries seeking debt relief and the frequency of their requests.

While in the second half of the 1970s on average only 4 countries a year undertook multilateral debt renegotiations, 12 countries completed such negotiations in 1981. In 1982, 10 countries completed multilateral debt renegotiations and many others approached their creditors seeking to restructure their external debt. In 1983, through early October, 29 official and bank debt restructurings were completed—involving 22 countries—while others remained under negotiation. Increasingly, debt servicing problems have affected large borrowers. The amount of bank debt of Fund member countries that was restructured increased from an annual average of US$1.5 billion during the years 1978–81 to about US$5 billion in 1982 and US$60 billion through early October 1983. As regards official debt reschedulings, the yearly amount restructured averaged US$2.2 billion during the years 1978 to 1981. In 1982, US$0.5 billion was restructured and in 1983 to early October, a further US$4.8 billion. During 1982 and until early October 1983, 9 of the 20 largest non-oil developing country borrowers, as measured by their bank debt outstanding, either completed or were in the process of negotiating the rescheduling or refinancing of their external debts. Several countries have also restructured debt with nonbank private creditors, mainly nonguaranteed suppliers’ credits. While such restructurings were often parallel to restructurings with official creditors and commercial banks, information is limited and this paper does not cover such debt renegotiations.

Section II of the present study provides a background to the current difficulties. Following a description of trends in the growth of external indebtedness and debt service of developing countries, with particular emphasis on debt to commercial banks, the major sources of recent debt servicing difficulties are discussed. Section III then provides an overview of recent experience with multilateral debt restructurings, including a comparison of recent developments in commercial debt restructurings with the findings of the earlier study. Section IV describes in detail experience with official multilateral debt reschedulings (which were most usually conducted under the auspices of the Paris Club). The section reviews the institutional arrangements adopted, the framework of renegotiations, the terms of rescheduling, the linkage between the rescheduling exercise and the adoption of economic adjustment programs, and, finally, the balance of payments impact of the debt relief obtained. Section V contains a similar, detailed review of recent experience with commercial bank debt restructurings. The terms of bank debt reschedulings and the relationship to economic adjustment programs are described. A country-by-country summary of the coverage and terms of individual bank debt reschedulings is provided in Tables 11 and 12.