8:52 AM Mar 12, 1996


Geneva 12 Mar (Chakravarthi Raghavan) -- The external debt of Third World countries rose by about $207 billion to reach over two trillion dollars debt stock in 1995, with developing countries showing varying capacities to service it, according to the just published World Bank's Debt Tables (WDT) 1996.

The total debt stock has more than doubled over the last decade.

Bilateral debt accounts for 63% of total debt stock in 1995, and multilateral debt for 21%. But multilateral debt accounted for more than half of the total debt of the poorer countries of sub-Saharan Africa.

The report notes the declining trend in ODA to low-income countries and cautions that if these trends persist, low-income countries would be most vulnerable as they would continue to lack access to private capital markets.

On the multilateral debt, despite considerable public agitation and pressures from some countries, the WDT does not indicate any credible plans for debt forgiveness by the two Bretton Woods Institutions.

Commenting on the WDT 1996, the European Network on Debt and Development (EURODAD) says that while the past year has seen progress on analysis and discussion of the problems of multilateral debt, the "range of actions" needed to resolve them are still to be taken and pressures must be applied on the IMF and the World Bank.

Eurodad's critical comments are also shared by reactions from related organizations in Africa, Asia and Latin America.

Eurodad's Ted van Hees said that in this year's tables the Bank has said that key debt indicators of many poorest countries continued to deteriorate -- blaming them on poor past policies, very low growth rates and debt strategies that have proved inadequate to address their problems. Yet the Bank continues to say that "the multilateral institutions have taken a range of actions to address their growing debt problems".

But this "promising phrase", Ted van Hees comments, reminds one of the press conference presentations by the Bank last year which hailed the Paris Club Naples Terms on bilateral debt as the solution of the problem for the majority of the heavily indebted countries.

In its report last year, the Bank said "Recent initiatives and existing institutional arrangements provide a good foundation for a concerted approach in dealing with the debt overhang of the SILICs". And at press briefings the Bank presented the Naples Terms (50-67% debt service or stock relief) as the definitive breakthrough, overstating then reach of the Naples terms and ignoring the need to address the multilateral debt problem.

But in 1995, the first year of implementation, the Naples terms appeared to fall short as such, as well as in the disappointing way they were applied in addressing the problems of the poorest countries.

1995 has shown progress on analysis and discussion of the problem of multilateral debt, but "the range of actions" still have to be taken. The Bank statement that the multilateral debt problem is addressed "suggests that people can sit back, wait and see and leave things further to the international financial community," van Hees comments.

"Instead, Eurodad believes that pressure on the IMF and the World Bank must be stepped up to make them take the problem seriously, and come up with real solutions, like provision of additional finance by sale of IMF gold and a substantial contribution from the World Bank's net income."

The Fund-Bank paper finalised early March on solutions to the debt problem is proposing to establish a trust fund on multilateral debt, but enables the IMF to opt out. The paper does not mention any concrete measures from the IMF. The IMF staff is preparing a separate paper that probably at best soften their Extended Structural Adjustment lending (ESAF). But the major question is that if the only really additional financial injection is the proposed trust fund, from the sale of IMF gold or the proceeds of its investment will be realised.

Also, while later this month the IMF is to organise a seminar on the issue of Special Drawing Rights with its staff, experts and policy-makers, the use of the extra-allocated SDRs to finance debt relief is politically even less accepted, Van Hees notes.

Moreover, in 1994, the ODA from OECD governments continued to fall, with 6% fall on an average of 0.2% of GNP of all OECD countries.

The World Debt Tables 1996 is identifying "budgetary pressures facing donor governments" as one explanatory factor. But the other is less need on the part of the OECD-based corporations, van Hees says.

It would be interesting, EURODAD says, to research the correlation between increases in net private capital flows to developing countries and the levels of ODA. The probably outcome would be a surprisingly negative correlation, proving that aid for industrial countries is primarily an economic and political business. Eastern Europe and the former Soviet Union are cases in point.

Mr. Opa Kapijimpanga of the Harare-based African Forum and network on Debt and Development (AFRODAD) says that while the Bank has acknowledged that debt strategies until now have not been able to address the problems, especially of sub-Saharan African countries and that this poses a challenge to international financial institutions.

But the IFIs and the governments must take up this challenge now, Kapijimpanga says.

"It is a real shame," he adds, "that the World Bank fails miserably to make any sensible comment on the increasing debt stock of African countries. The problem is shown to exist and that seems enough for the Bank."

Referring to the Bank's statement in the WDT that a sum of $2.8 billion went to sub-Saharan Africa in 1995 and of which 92% was from the soft-lending affiliate, IDA, Kapijimpanga complains that the WDT note does not say how much of this amount went back for refinancing the IBRD loans, and how much of IDA loans went to non-social sectors for creating economic capacity to mitigate the debt crisis.

The Bank, he adds, should be more analytical and just not put out figures which seem to sound nice".

Marcos Arruda of the Brazilian Institute of Alternative Policies for the Southern Cone of Latin America (PACs) says that while the bank seems to attach importance to the debt-export and debt service- export rations as parameters to measure the health of the external sectors of the developing countries, it does not carry out any substantive comparison in terms of the trade balances of countries.

Unless one takes into account the amount spent by developing countries on their essential imports, there will be no correct idea on what amounts of foreign currency is left, or missing, to service the debt.

Arruda cites Brazil's example where he says its traditional trade surplus has been reversed since the introduction of the "real" (Brazilian currency). Although Brazil's exports reached $45 billion in 1995, its imports were between 44-45 billion dollars, thus reducing Brazil's capacity to service the foreign debt.

Arruda also challenges the uncritical way the Bank looks at FDI and its view that the factors propelling FDI have been the "rapid globalization of production, the increasing integration of developing countries into the world trade and improved economic policies of recipients". The assumptions behind these are the adjustment policies, including emphasis on exports, massive privatisation, deregulation etc. One wonders whether these policies are improvements?

"They have been improvements of foreign investors and for national elites, but not necessarily for the majority of the population," he comments.

Even the treatment of the Mexican crisis, he says, is superficial, with the rescue package presented as a "naturally" successful solution. The intervention may have generated investor confidence in the developing countries where foreign investment is concentrated, but it has been at high costs for the Mexican economy and the people, and weakening Mexico's sovereignty in most developing countries.

From Asia, Biswajit Dhar of the Research and Information System for Non-Aligned and other Developing Countries (RIS) points to other disquieting features of the Bank's debt analysis.

In East Asia, he says, two of the more successful economies, Malaysia and Thailand, have been borrowing at phenomenal rates, with their debt stock increasing respectively by a fourth and a third and, in Thailand's case, with an increase in short-term debt by nearly 50%.

This, he warns, would lead to further vulnerability.

As for South Asia, the debt tables do not provide any reflection of the problems arising from the accumulated external debt these countries may face. The large volumes of debt they are building up point to difficulties they will encounter in maintaining repayment schedules, particularly given their low levels of export earnings and the tendencies towards increasing current account deficits.

Dhar sees India as being closest to such a situation -- with its debt stock reaching almost $100 billion in 1995 and a volume of repayment on outstanding debt close to $11 billion a year. Compounding India's problem is the fact that the concessional component of its debt is decreasing at a steady rate as a result of which servicing of debt would become a major strain on the economy over the next few years.