United Nations

A/50/379


General Assembly

Distr. GENERAL  

31 August 1995

ORIGINAL:
ENGLISH


Fiftieth session
Item 96 (c) of the provisional agenda*


MACROECONOMIC POLICY QUESTIONS:  EXTERNAL DEBT CRISIS
AND DEVELOPMENT

The developing country debt situation as of mid-1995

Report of the Secretary-General

EXECUTIVE SUMMARY

  Owing  to  the important  political,  economic  and  social dimensions  of
foreign debt  crises of developing countries,  the General  Assembly has for
many years closely monitored  the debt situation of these countries and  its
treatment  by the international community.  In its resolution 49/94 dated 19
December 1994, the  Assembly requested  the Secretary-General  to report  to
the Assembly's  fiftieth session on the  major developments  that took place
in the  international treatment of the  debt of  developing countries during
the past  year.   The  present report  responds  to  that request  and  also
identifies weaker  areas within  the  international debt  strategy that  the
Assembly may wish to address in its deliberations.

  The  report is  organized as  follows.    Following a  brief introduction,
section II updates the  current strategy in terms  of new measures  launched
and the  restructuring agreements  concluded from  July 1994  to June  1995.
Improvements in  the international debt situation  should be  visible in the
conventional debt  indicators  and the  most  recent  data are  analysed  in
section  III.    It  is  argued,  however,  that  such indicators  offer  an
incomplete picture of the  debt situation, as they  do not take into account
problems such  as arrears, let alone  slow economic  growth and deteriorated
social conditions in debtor  countries.  Section IV thus takes the  analysis
further by  looking  at countries  that  are  still classified  as  severely
indebted despite the
________________________

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95-26795 (E)   200995/...
*9526795*
 initiatives adopted  so far.   By  identifying the  types of debt  held and
restructuring arrangements  applied, this assessment  attempts to  highlight
the weaker elements of the current debt strategy.

  The conclusion of the present report  is that although significant  relief
has been  accorded to some countries  and for certain  classes of debt,  the
international strategy has not comprehensively  addressed the full  stock of
debt,   leaving   a  vulnerability   for   countries  whose   debt-servicing
obligations still exceed their "capacity to  pay".  Certainly, removing  the
"debt overhand" by  itself would not  solve the development problems  of the
debt-crisis countries.   But while  a debt  overhand remains, even  the most
rigorous and  effective programmes  of domestic  economic stabilization  and
structural  adjustment  leave   the  countries  in  question  with   serious
obstacles to moving  to a sustained and  sustainable development path.   For
them, escape from debt overhand is a race against time.
CONTENTS

  Paragraphs  Page

EXECUTIVE SUMMARY ......................................................1

  I.  INTRODUCTION ........................................  1 - 44

 II.  THE INTERNATIONAL DEBT STRATEGY:  AN UPDATE .........  5 - 195

  A.  Private creditors ...............................  8 - 117

  B.  Bilateral official creditors ....................  12 - 168

  C.  Multilateral creditors ..........................  17 - 1910

III.  DEBT INDICATORS AT THE GLOBAL AND REGIONAL LEVEL:
  MIXED MESSAGES .......................................20 - 3610

  A.  Aggregate measures of debt burden ................  23 - 3013

  B.  Looking beyond debt indicators ...................  31 - 3617

 IV.  OUTSTANDING ISSUES ...................................37 - 5518

  A.  Middle-income countries ..........................  39 - 4418

  B.  Low-income countries .............................  45 - 5520

  V.  CONCLUSIONS FOR POLICY ...............................56 - 6522

Figures

  1.  Foreign debt of the capital-importing developing countries,
  1984-1994 ........................................................11

  2.  Composition of the long-term external debt of capital-importing
  developing countries, by type of creditor, 1984, 1989 and 1994 ...12

Tables

  1.  Debt and debt-service reduction in the international debt strategy  6

  2.  Major features of current Paris Club rescheduling terms ..........9

  3.  Debt indicators for capital-importing developing countries,
  1984-1994 ........................................................14

  4.  Developing countries classified as severely indebted by the World
  Bank .............................................................16
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I.  INTRODUCTION


1.  The report  of the Secretary-General  on the external debt situation  of
developing countries, presented to the General  Assembly at its  forty-ninth
session  (A/49/338), noted  that  an increasing  differentiation  had  taken
place among countries  affected by the 1980s  debt crisis.  Some  countries,
particularly  middle-income  countries  of  Latin  America  that  had   owed
considerable amounts to  international commercial  banks, were  experiencing
an improvement  in their economic conditions  and regaining  access - albeit
at a high  financial cost - to international  capital markets.  This  seemed
to  suggest  that  their debt  crisis  was  finally  behind  them.   It  was
certainly over for their  commercial bank creditors.  On the other hand, the
majority of low-income countries - and  some lower middle-income countries -
continued to suffer  debt-servicing difficulties. They also experienced  low
rates of economic growth and their borrowing  was restricted to the official
sources of  largely concessional financial  resources. For these  countries,
the external debt crisis was very much alive.

2.   One year  later the  situation in  the low-income  countries with  debt
crises is little changed, although certain  initiatives may begin to  change
that.   There  is  a  new appreciation,  however,  of the  fragility of  the
situation  in some  of the  middle-income  countries  that the  markets once
seemed to judge as past their debt crises.

3.  The General  Assembly has closely followed the external debt problem  of
developing countries since the debt crisis erupted  in the early 1980s,  and
"External  debt crisis and  development" has  been on  the Assembly's agenda
annually since its  forty-first session.  The Assembly discussions  embodied
a series  of resolutions  that reflected  the concern  of the  international
community about the severity of the  debt problems of developing  countries,
as well as the  evolving consensus over the measures required to reduce  the
debt burden of these countries.  These resolutions  have also emphasized the
need to  further strengthen  the international  strategy so  that a  durable
solution to the debt problems could be reached.

4.  In its resolution 49/94,  adopted by consensus on 19  December 1994, the
General  Assembly,   inter  alia,  welcomed  the   measures  taken  by   the
international community  in  reducing the  debt burden  of heavily  indebted
developing  countries and  the  economic adjustment  efforts  undertaken  by
these countries.  The Assembly called  upon official and private  creditors,
however, to  consider appropriate new measures  to extend  further relief to
debt-distressed  countries.   It  also requested  the  Secretary-General  to
report  at its fiftieth  session on  the implementation  of that resolution.
The present  report responds to  that request. 1/   As  in previous reports,
the  present  one draws  heavily on  information and  analysis of  the World
Bank,  the  International  Monetary  Fund  (IMF)  and  the  United   Nations
Conference on Trade and Development (UNCTAD).






  II.  THE INTERNATIONAL DEBT STRATEGY:  AN UPDATE

5.  Since the emergence of the debt  crisis, the international community has
devised a  series  of measures  to  deal  with the  persistent  difficulties
developing countries faced in servicing their  external debt obligations. 2/
These  measures  evolved  into  what  is  called  the  "international   debt
strategy",  which has  two fundamental  parts.    First, the  debtor country
addresses its  domestic adjustment  requirements, generally  in a  programme
supported by the  multilateral financial  institutions.   Second, the  debt-

servicing obligations  are  modified  under negotiated  arrangements,  whose
major elements are reviewed below.

6.    The approach  to  debt  restructuring  of  the international  strategy
started  to  acquire its  present structure  in the  mid-1980s, when  it was
recognized that  the existing  treatments of  debt servicing only  postponed
the  payments,  leaving  the  debt  overhang  unchanged,  which  discouraged
investment  and   undermined  the  economic   growth  prospects  of   debtor
countries.    Increasing   arrears  in  interest  and  principal   payments,
moreover, signalled  the debtors'  inability to pay  and that  the stock  of
debt needed to be made more manageable.   At the same time, the emergence of
a market where commercial bank loans of the  countries affected by the  debt
crisis   were  traded  at  a  growing  discount   indicated  the  creditors'
increasing perception  that debt  would not  be serviced  in full.   By  the
early  1990s,  however,  debt and  debt-service  reduction  became a  common
component of debt-restructuring agreements that debtor countries  negotiated
with their bilateral official and private creditors.

7.   The amount of  relief extended  has not been uniform,  and its modality
has  reflected  the  particular  situation  of  the  creditors  and  debtors
involved in each case.   For both private and official bilateral  creditors,
the  particular debt restructuring results from choices  made from different
but more or less standard "menus of options".  Table 1 identifies the  major
components of  the international  debt strategy  in  its current  form.   As
shown,  only  some  types  of  debt   are  subject  to  restructuring,   but
considerable relief may be granted on the restructured debt. 3/

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Table 1.  Debt and debt-service reduction inthe international debt strategy

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A.  Private creditors

8.   Restructuring agreements involving  the reduction of  the stock or  the
servicing  of commercial  bank debt allow  the debtor countries  to buy back
part of their outstanding  debt at a discount or convert it into  securities
that entail either lower interest obligations or a  reduced face value.  The
securitization approach  is a  common feature  of "Brady  Plan" arrangements
that  were first applied in 1990.   Many of  these new debt instruments have
the repayment of  principal collateralized with zero-coupon bonds issued  by
the  United States  Treasury (or  other  Treasury  obligations).   A partial
guarantee  is also  sometimes offered  on  interest  payments for  a certain
period of  time.  Under the  Brady Plan, multilateral  and bilateral credits
have also been extended  to the debtor country  to meet up-front costs, such
as purchasing the United States securities that serve as collateral.

9.   This approach  has mainly  been applied  to the renegotiations  of bank
debt owed  by middle-income countries.   The  standard procedure is  for the
debtor country  Government to  negotiate with a  "steering committee"  drawn
from  its bank  creditors  a  menu of  alternatives from  which each  of the
creditor banks would  then choose.  The bankers'  concern is that all  banks
make  comparable  concessions in  according  relief  to the  debtor country.

During  the period under  review, two additional developing countries closed
debt  and  debt-service reduction  agreements  with  their  commercial  bank
creditors:   the  Dominican Republic  and  Ecuador.   Treatment  of past-due
interest was part of  the agreement in  both cases.  The Dominican  Republic
was  fully  able  to meet  up-front  costs  from its  own  resources,  while
additional  borrowing from official  creditors was  required in  the case of
Ecuador.   The  closing  of  these agreements  brought to  13 the  number of
countries that have negotiated Brady agreements  with their creditors.  Debt
reduction obtained  through these  operations amounted on  average to  about
one third of outstanding commercial bank  claims on the countries concerned.
4/ Other countries  currently negotiating Brady  packages include Panama and
Peru.

10.   Buy-back operations have also  been conducted  by low-income countries
with  the assistance  of official  creditors  and  donors.   Qualifying low-
income countries  have benefited  from the  Debt Reduction  Facility of  the
International Development  Association (IDA),  the concessional  lending arm
of the World  Bank. The IDA  facility is  financed by  bilateral donors  and
transfers  from  net  income  of  the  World  Bank  on  its  regular lending
operations.  It  provides grants of up  to $10 million  per country  for the
reduction of  their commercial bank debt  through buy-backs.   However, only
seven  countries  have  concluded  buy-back  agreements  supported  by   the
facility since it was  created in 1989.  Recent agreements include those  of
Sao Tome and Principe and Zambia.

11.   Debt  reduction  is not  a  universal feature  of  all  restructuring.
Traditional rescheduling  of debt  servicing with  commercial and  bilateral
official creditors  still takes  place.   In May  1995, for example,  it was
announced that  Algeria had reached an  agreement with  a steering committee
of creditor banks on rescheduling $3.2 billion  of its commercial bank debt.
Algeria had  been in  arrears on  its bank debt  since March  1994, and  the
accord  will help  the country  to regularize  its situation  with its  bank
creditors.


 B.  Bilateral official creditors

12.  Creditor Governments generally restructure  debt servicing owed to them
through a multilateral forum  known as the Paris  Club.   As in the case  of
commercial  bank steering  committees, the  Paris Club  agrees to  a menu of
comparable  treatments  to  be  applied  to  a  particular  debtor  and each
creditor  is then  to  choose from  among the  alternatives  in  a bilateral
implementing agreement.  Since  the 1980s, official bilateral creditors have
been   gradually  extending   the  degree   of  concessionality   in   their
restructuring of developing countries' external debt.   The extent of relief
provided depends, inter alia,  on the per capita income level of the country
concerned, as  well  as on  the amount  of  debt  subject to  restructuring.
Rescheduling only affects payments falling due in a certain period (the  so-
called "consolidation period") on debt that  was contracted before a certain
date (the  "cut-off date"),  although with  the introduction  of the  Naples
terms, discussed  below,  the possibility  of  treating  the full  stock  of
relevant debt at one time was introduced.

13.  The Paris Club has a set of standard terms  and special treatments.  In
particular,  the "Houston  terms", which  entail long-term  rescheduling  of
payments,  are  applied to  lower  middle-income  countries,  while  "Naples
terms" are now available to eligible  low-income countries.  The latter were
adopted by the Paris Club  in December 1994 and are actually an extension of
the earlier "enhanced Toronto terms".  That is, in cases  in which the Paris
Club would have offered the option of debt-service  reduction of 50 per cent
on  affected debt, the  Naples terms  raised the percentage to  67 per cent.
Relief on the entire stock of  debt (50 or  67 per cent) may be obtained  in
exceptional circumstances and  is considered an "exit option", meaning  that
the  debtor country will not  ask for further rescheduling  of its remaining
debt.

14.    Middle-income countries  usually  reschedule  under  standard  terms.
Lately, some  flexibility has been introduced  in the standard  terms in the
form of  extended maturities and graduated  payments that  allow for smaller
principal repayments to be made at the beginning of the repayment  schedule.
Table  2 highlights the  major features  of current  Paris Club rescheduling
terms.

15.  In  the year  ending in June  1995, the  Paris Club  granted Croatia  a
graduated  repayment   schedule.    Houston  terms   were  applied  to   the
Philippines, enhanced Toronto terms  to Sierra Leone 5/ and Naples terms  to
Bolivia,  Cambodia, Guinea,  Guinea-Bissau, Haiti, Nicaragua,  Senegal, Togo
and Uganda.   Among the countries  receiving Naples  terms, all  - with  the
exception of Guinea -  received a 67 per  cent reduction on the consolidated
eligible  maturities.   As  of mid-1995,  Uganda  was  the  only country  to
receive a 67 per cent reduction on the eligible stock of debt.

16.   Debt  forgiveness and  debt conversions  have also been  undertaken by
individual creditor countries outside the multilateral framework.   Creditor
Governments that have not participated in  the Paris Club rescheduling (some
Arab creditors,  China,  some  Latin American  creditors and  others),  have
conducted bilateral restructuring through which a  great deal of relief  has
been  extended in some cases, particularly when  low-income debtor countries
were involved.

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Table 2.  Major features of current Paris Club rescheduling terms
Countries, 1994.
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C.  Multilateral creditors

17.   Debt owed to the  multilateral financial  institutions cannot formally
be  restructured and  is  not subject  to  cancellation  or  reduction.   In
practice, however,  there has  been a series  of initiatives  to tackle  the
difficulties  developing  countries  have  encountered  in  servicing  their
multilateral debt.  One indirect approach  used for low-income countries  is
to offer new lending on concessional  terms, which provides foreign exchange
that can be used to service older debt.

18.  Some  interest-payment relief is extended  by the World Bank,  however,
through  its  Fifth Dimension  facility.   Heavily  indebted countries  that
already  have IDA  borrowing programmes  can receive  additional IDA credits
(which  are  on  concessional  terms)  to  help  finance  payment  of  their
outstanding non-concessional loans from the World Bank.

19.  IMF has  no programme comparable to  the Fifth Dimension  facility, but
it operates  the  Rights  Accumulation  Programme for  countries  that  have
fallen  into  arrears and  wish  assistance  in  working  back into  regular
status.   The  programme allows  countries  to accumulate  "rights"  towards
future  drawings  of Fund  resources  while  they establish  a  satisfactory
record  of policy  adjustment and  meet payment  schedules.   The latter  is
generally  accomplished with  the help  of  resources provided  by bilateral

donors.   The Programme,  as established,  was limited  to the 11  countries
that were in protracted arrears to the Fund at the end of 1989. 6/


III.  DEBT INDICATORS AT THE GLOBAL AND REGIONAL LEVEL:
      MIXED MESSAGES                                  

20.   The  gross external  debt  of  capital-importing developing  countries
reached  an estimated  $1.6 trillion  by the  end  of  1994, a  $100 billion
increase over  1993. 7/   As  a result  of improved  economic conditions  in
debtor  countries  as  well  as developments  in  the  international capital
markets,  the  growth  in  longterm  lending  to  developing  countries  was
dominated  by private  creditors  in  1994.  Although  the  indebtedness  of
developing countries  to private creditors has  been increasing since  1991,
this  was the  first time  in a  decade that  the increase  in  private debt
exceeded that  observed in  official debt.   Private  lending, however,  was
directed mainly to  countries that  have not had  to restructure their  debt
and to the  major borrowers in Latin America.   As a  result, Asia has built
up  the largest  debt of  the main  geographical  regions of  the developing
world, holding  about 37 per cent of the external  debt of capital-importing
developing countries in 1994, up from 25 per cent in 1984 (see figure 1).

21.  Another trend that has been accentuated lately refers to the change  in
the composition  of long-term  debt of  developing countries.   As  figure 2
shows, Latin American external debt is still dominated  by private debt, but
the composition of its private debt changed significantly after 1989.   Most
of its debt owed to private creditors is  now in the form of bonds.   By the
end of  1994, 38  per cent of  Latin American  long-term debt  was in  bonds
compared  with  5  per  cent   in  1989.  This  change   reflects  both  the
restructuring   operations  conducted   under  the   Brady  initiative   and
successful  new borrowing  in the  international capital  markets.   Lending
through  bonds  has  been  favoured  by   private  investors  owing  to  the
relatively high  returns and short  maturities of the bonds.   Moreover, the
fact that the debtor  countries on the whole continued to service their bond
obligations, even during the worst days  of their external debt  crisis, may
have given foreign creditors a sense that the  debt servicing of bonds would
have  seniority  over other  debt  instruments.  8/   Certainly,  negotiated
rescheduling  of  bonds  held  by  thousands  of  investors  would  be  more
complicated than rescheduling payments to hundreds of banks.

22.    Asian  and  African  external  debts  are  largely  owed  to official
creditors,  but while  in the  former the  share  of  private debt  has been
increasing recently,  in  the latter  it  has  persistently declined.    The
shrinking participation  of foreign  private creditors  in African  external
debt  is most striking  in sub-Saharan  Africa (excluding  Nigeria and South
Africa).   As  shown in figure  2, it  represented only  15 per  cent of the
subregion's long-term  external debt in 1994.   The  remaining external debt
of sub-Saharan Africa is  owed to official creditors and consists mostly  of
concessional loans  (58 per  cent of  total long-term  debt).  In  a curious
way, Latin America and sub-Saharan Africa  share a common characteristic  as
far as  the structure of their  debt is concerned:   both  regions have been
accumulating increasing  amounts of debt that  is in  principle difficult to
restructure.


Figure 1.  Foreign debt of the capital-importing
           developing countries, 1984-1994  

Source:  United Nations, World Economic and Social Survey, 1995.
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Figure 2.  Composition of the  long-term external debt of  capital-importing
developing countries,
           by type of creditor, 1984, 1989 and 1994                         
                           
(Percentages)

  Source:  World Economic and Social Survey, 1995.

  a/  Excluding Nigeria and South Africa.  Sub-Saharan Africa a/
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A.  Aggregate measures of debt burden

23.  One  way of assessing  the effectiveness of  the current  international
debt strategy  is to  look at indicators of  the debt burden (see  table 3).
The most commonly used indicators are:   (a) ratio of external debt to gross
national product (GNP); (b)  the ratio of external debt to exports of  goods
and services;  and (c) the  debt-service-to-exports ratio.  These indicators
measure  the level of  indebtedness in  terms of the capacity  of the debtor
country  or region  to generate  income (GNP)  and its  ability to  generate
foreign exchange (exports).

24.  Some analysts also use  the present value of debt  as a numerator.  The
present value of debt reflects the value today  of the stream of payments of
interest  and principal  to  be  made on  the debt,  discounted at  a market
interest rate.  It  indicates, in effect, what an investor would be  willing
to pay today to  receive the future stream  of debt-servicing payments.   It
thus takes into account  the degree of concessionality of the existing stock
of debt.   For this reason  it is considered  by some to be  a more accurate
indicator of the indebtedness of a country than the face value of the debt.

25.   As with most  economic indicators, debt indicators must be interpreted
with caution.  This is particularly clear in  the case of debt-to-GNP ratios
in  1994.  Thus,  while  the  overall   and  regional  ratios  were  largely
unchanged, those of Africa and sub-Saharan Africa deteriorated  appreciably.
In this instance  it had much  to do  with changes in  exchange rates.   The
value of GNP of a debtor country has to be  converted into the same currency
as the debt, which is conventionally expressed in dollars since most of  the
debt is contracted in dollars.   Exchangerate devaluations reduce the dollar
value  of a  country's GNP  and  the  spate of  devaluations in  sub-Saharan
Africa -  in particular, that  of the  CFA franc -  is one  reason that  the
external debt  of this region increased from  115 per cent of GNP in 1993 to
131 per  cent in 1994, an  increase that is not  compatible with either  the
net credit flows to the region  (less than $8 billion or about 5 per cent of
1993 debt) or the economic growth experienced last year  (2 per cent in real
terms).    The point  to draw  from these  numbers  is not  that the  actual
situation deteriorated so  much in 1994 as that  the earlier data, based  on
over-valued exchange rates, underestimated the severity of the problem.

26.  Viewed  from the foreign exchange constraint,  the increase in debt  in
1994 was  within sustainable limits overall,  owing to the  robust growth of
international trade last year  and the recovery in the price of most non-oil
commodities. 9/  But  regions have been exhibiting different trends.   While
in  Latin America  the debt-to-export  ratio has been  falling for  the past
three  years,  in  Asia  it has  been  consistently rising  during  the same
period.  However, the level of  the Asian ratio is only one third of that in
Latin America.

27.   The ratio  of debt service  to exports, another  indicator, showed  an
easing of the debt  burden in all  regions in 1994.  Only the  Latin America

ratio  was above 20 per cent in 1994, a threshold  that is generally held to
mark the limit of sustainability of  the countries' external positions.  10/
This indicator,  however,  should also  be  used  with caution,  because  it
refers to payments actually  made, thus omitting arrears.  They can be quite
substantial, as  in the  case of  sub-Saharan Africa  where the  accumulated
arrears amounted  to $44  billion by the  end of 1994,  or more than  27 per
cent of the region's external debt.
 Table 3.  Debt indicators for capital-importing developing countries,
          1984-1994                                                 

(Percentage)
28.  Arrears are  not a problem exclusive to  sub-Saharan Africa.   In fact,
the  majority of  countries monitored  by  the  World Bank  have accumulated
overdue payments.   Out of 120 countries for  which data were available  for
1992 and 1993, 63 increased their interest arrears  (25 of them outside sub-
Saharan  Africa), while another 25 decreased the amount of arrears but still
had payments overdue. Only 31 countries did not have any arrears or  cleared
them during that year.

29.   The  persistence  of arrears  is  a warning  sign  that,  in spite  of
progress,  a  durable  solution  to  the  debt  problem  of  the  developing
countries may not yet have been found.   The large number of  countries that
continue  to  experience debt-servicing  difficulties  13  years  after  the
emergence of the crisis on to the international stage warrants concern.

30.  Indeed, a considerable number of countries are currently classified  by
the World Bank  as "severely indebted".     Using the ratios of  the present
value of debt service to exports  of goods and services and to GNP to assess
the degree  of indebtedness, the Bank  considers as  severely indebted those
countries with  either ratio  higher  than 220  per  cent  or 80  per  cent,
respectively.   A "moderately  indebted" country  is defined  as one  having
both ratios below the critical  values, but with either ratio at 60 per cent
or more of  the threshold value.  In its latest World Debt  Tables, the Bank
classified 51 countries as  severely indebted (see  table 4). 11/   Although
most  countries remain classified  as severely  indebted for  a considerable
length of time, some eventually leave the group,  while others join.  Recent
"graduates"  included Algeria, Cambodia, Egypt and Mexico, while new members
were  Guinea, Uruguay  and Yemen.   In  the light  of  the debt  and payment
difficulties  in 1995  of Algeria  and Mexico,  their removal from  the list
seems  to have been premature.  It  is also a concern that  Uruguay is again
classified as a severely indebted country,  as it had successfully completed
a  Brady restructuring  in  1991.   Moreover, all  countries  that  left the
category,  with the exception  of Cambodia,  were reclassified as moderately
indebted  and not  as less-indebted  countries,  which  means that  by these
criteria they still do not hold solid external  positions.  The same applies
to  those moderately indebted countries whose debt indicators approached the
established critical values.   An abrupt  increase in international interest
rates or  a major decline  in the price of their exports  might be enough to
throw them back into the severely indebted category.

Table 4.  Developing countries  classified as severely indebted by the World
Bank a/


Low-income countries b/


Middle-income countries b/

Burundi


AngolaCentral African Republic

ArgentinaCote d'Ivoire

BoliviaEquatorial Guinea

BrazilEthiopia

CameroonGhana

CongoGuinea

EcuadorGuinea-Bissau

JamaicaGuyana

JordanHonduras

MoroccoKenya

PanamaLao People's Democratic Republic

PeruLiberia

Syrian Arab RepublicMadagascar

UruguayMali

Cuba c/Mauritania

Iraq c/Mozambique

Myanmar

Nicaragua

Niger

Nigeria

Rwanda

Sao Tome and Principe

Sierra Leone

Somalia

Sudan

Uganda

Viet Nam

Yemen, Republic of

Zaire

Zambia

Afghanistan c/



  Source:  World Bank, World Debt Tables 1994-95, vol. 1, p. 187.

  a/  Countries in  which the ratio  of the present value of  debt servicing
to  exports is above 220 per  cent or the ratio of the present value of debt
servicing to GNP is above 80 per cent.

  b/  Countries are  classified as low-income  if their 1993 GNP per  capita
is $695 or less and middle-income if their 1993 GNP per capita is more  than
$695 but less than $8,626.

  c/  Countries not reporting to the World Bank's Debtor Reporting system.


 /...  A/50/379
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A/50/379
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B.  Looking beyond debt indicators

31.   If  it thus  appears that  the  debt  situation of  a large  number of
developing  countries  is still  fragile, it  is  also  the case  that their
overall economic  situations are not  as strong  as might  have been  hoped.
Growth rates of gross domestic product  (GDP) in countries that "experienced
recent debt-servicing  difficulties" 12/ have  been persistently lower  than
those of countries without debt-servicing problems.   IMF estimated that the
GDP growth rate for  the former group averaged 2.4  per cent per year during
the period  1987-1994; it  reached an  annual average  of 7.1  per cent  for
countries   without  debt-servicing   problems  during   the   same  period.
Moreover, IMF  forecasted the  differences in  growth rates  to continue  in
1995 and 1996,  with growth of  GDP in the  former group  averaging 3.3  per
cent a year and in the latter group remaining above 7 per cent a year. 13/

32.   This is  not to  say that  the differences in  growth rates  should be
attributed only  to the  debt problem.   There are  countries facing  severe
developmental constraints  besides the external  one, and diverse  political
problems  whose  solution could  clear  the  way  towards  a more  desirable
development path.    But even  some  debt-crisis  countries that  have  been
considered model adjusters - Mexico before 1994 being  a major case in point
- did not see robust economic growth.

33.  The adoption  of strong adjustment policies  has long been  an integral
part of the international  debt strategy.  But  results produced so far have
underlined how long and  difficult is the process.  With hindsight, one  can
appreciate how  often it has entailed false starts, inappropriate sequencing
and a  political-economic process of  learning by doing.  14/  Slow  growth,
reduced employment  opportunities and  cuts in  government expenditure  have
led to  an increase  in  the  number of  people living  in poverty  in  many
countries, while  the gap  between the  rich and  the poor has  increased in
some  others.  Many  countries have  been registering  a slow-down  in their
social progress, while social indicators  have been deteriorating in others.
15/   Although lately  there has  been increasing  emphasis by  multilateral
financial  institutions and  Governments on  protecting the  poor and  other
vulnerable  groups  during  adjustment, there  remains a  need  to translate
these efforts into more effective policies in many cases.

34.   The issue  acquires even greater  importance today  as countries  that
were believed  to have reached a sustainable path suddenly face new external
constraints  and are  required to  overcome  new  adjustment hurdles.   This
brings  additional burdens to  a large  segment of  their populations, often
those that also failed to enjoy the limited period of "prosperity". 

35.   The  Mexican and Argentine  crises in  1995 are  cases in  point.  The
Mexican crisis  alarmed the  international  community early  this year,  and
many initially thought that the debt crisis had returned to this country  in
a new,  virulent form.   While  the markets diagnosed  the crisis as  one of
liquidity -  born out of an unhappy combination of  trade liberalization and
an  overvalued exchange  rate - the Mexican  economy has had to  return to a
difficult adjustment path with a sharp  contraction of economic activity  in

1995, lower incomes and higher unemployment.   Argentina is another  country
where new austerity measures had to  be introduced earlier this  year, while
already facing a severe unemployment problem.

36.   The  events in  Mexico  temporarily  cooled off  investors'  attitudes
towards lending  to developing  countries.   Although some debtor  countries
have succeeded in placing bonds  in the international capital markets in the
first half of  1995, the interest rates  needed to attract  buyers continued
to   be  quite  high.     This  is  an  indication   that  these  countries'
creditworthiness  was still not  perceived to  be solid.  As  of March 1995,
among the 27  "moderately indebted" countries,  only Chile, Colombia, India,
Indonesia  and Tunisia were  rated "investment  grade" by  the major private
credit agencies. 16/


                            IV.  OUTSTANDING ISSUES

37.  Why  is it that after  more than a decade  of an evolving  strategy and
concerted efforts by both  creditors and debtors, it  is not possible to say
that the  debt crisis  is finally  over?  The  answer seems  to be that  the
international strategy for bringing countries out  of their debt crises  was
incomplete.   The strategy  can be  characterized as  first recognizing that
for whatever reason a country found itself in a foreign debt crisis, it  had
to adjust its economy  so as to  raise its production of tradable  goods and
services, increase efficiency overall  and stabilize its  macroeconomy.  The
strategy  recognized  as well  that  there  was no  way  that  the  required
adjustments could  be brought about while  maintaining minimal standards  of
living  if all the  debt also had to  be serviced on a  timely basis.  Thus,
while  debtor country Governments  recognized that  there would  be costs of
adjustment that had  to be  absorbed, the  international community  conceded
that not all of  the debt could in good  conscience be serviced.  Over time,
the  degree of difficulty  and protracted  nature of  the adjustment process
was increasingly  appreciated by the debtors, and the depth of the necessary
degree of debt relief  was increasingly acknowledged by  the creditors.  But
in  almost all  cases a  gap remained  between the  overall degree  of  debt
relief that was warranted and what was available at any one moment.

38.  One part of the  explanation for this  seems tied to the fact that  the
international strategy,  by separately dealing  with discrete components  of
the  debt stock,  has failed  to address  adequately the  "debt overhang" as
such.  In other  words, in many instances  the relief granted  has not  been
sufficient to  bring debt obligations in line with the  debtor's capacity to
pay.


A.  Middle-income countries

39.  Brady-style debt and  debt-service reduction agreements,  for instance,
were  devised for  middle-income countries  with significant  private  debt,
specifically  commercial bank debt.   These  agreements were  meant as final
restructurings  of the  debt, as  the  "exit option"  with no  mechanism for
further renegotiation of that particular debt.   In some cases, however, the
cash flow  benefit  was  small, since  debtors  had  not  been  making  full
payments before the  agreements went into effect.   Often the net  reduction
in total debt was  smaller than the reduction  in bank debt since borrowings
from multilateral sources rose to finance  the United States treasury  bonds
purchased as collateral.  Thus, although  the Mexican agreement -  the first
Brady Plan  arrangement - reduced  Mexico's commercial bank  debt by  17 per
cent, it  reduced Mexico's overall  debt (net of  reserve holdings) by  less
than  2 per cent.  In the case of Venezuela, there  was a small reduction in
commercial bank debt but a small increase  in the net debtor position of the
country.   In  the  case of  Uruguay, a  one-third  reduction in  bank  debt
translated into  less than  a  3 per  cent  improvement  in the  net  debtor
position. 17/

40.  The case of Costa  Rica illustrates another difficulty.   Its bank debt

was  reduced by 57 per  cent and the  net overall  debt by 23 per  cent as a
result of its  Brady Plan agreement.  However,  the cash flow benefits  were
not large,  owing to  the arrears  that Costa  Rica  had been  accumulating.
Also, the  standard Paris  Club rescheduling  was arranged  on Costa  Rica's
debt  to bilateral  official creditors,  and that debt  had been  roughly as
large  as   its  bank  debt.     Indeed,  soon   after,  new  debt-servicing
difficulties arose.

41.  Middle-income countries commonly owe considerable amounts to  bilateral
official  creditors.   A  significant number  of  severely indebted  middle-
income countries, for example,  owed more than 40 per  cent of their debt to
bilateral  official  creditors  at  the  end  of  1993,  including  Bolivia,
Cameroon,  Congo,  Jamaica,  Jordan,  Morocco,  Peru  and  the  Syrian  Arab
Republic.   The relief usually granted to these  countries through the Paris
Club was  merely to defer principal repayments, charging commercial interest
rates  on the deferred amounts,  terms that were far less accommodating than
those agreed by their commercial bank creditors.

42.   For  political  reasons,  treatment of  such  debt could  be far  more
concessional, as  it was for  Poland, a  middle-income country  that is  not
usually  grouped with  the developing  countries.    The Paris  Club granted
Poland a 50 per cent reduction in the entire stock  of bilateral debt (or an
equivalent reduction in the scheduled debt  service calculated on the  basis
of net present value), phased over  several years. 18/   Full implementation
of this agreement was  approved in April 1994.   With comparable relief also
obtained  from  its  bank  creditors,  Poland  may  soon  graduate  from the
severely indebted  group.  The  Polish agreement may,  in fact,  serve as an
indication  of how little official debt relief other middle-income countries
received.   Furthermore, Poland's graduation  will highlight the  importance
of treating the whole stock of debt at once.

43.   Indeed, the  treatment of the debt of some middle-income countries has
improved.     Bolivia   and  Cameroon   have  recently   rescheduled   under
concessional  terms  actually meant  for  low-income  countries:    enhanced
Toronto and Naples terms, respectively.   Several countries (Congo, Ecuador,
Jamaica, Jordan,  Morocco and Peru) restructured  Paris Club  debt under the
Houston terms which grant  a somewhat longer maturity and grace period  than
the  standard  terms,  although  no  debt-service  reduction  is  explicitly
obtained under these terms.

44.  In sum,  except in exceptional circumstances, the Paris Club offers  no
debt reduction  to severely indebted middle-income countries.  And financing
the collateral  in Brady Plan  arrangements diluted the  net benefit of  the
reduction in commercial bank debt.  The overall degree of relief could  thus
be rather small.   At first, this  did not seem to  matter, at least  to the
financial  markets  that  celebrated  the  regularization  of  relations  of
middle-income  debt-crisis  countries  with  their  creditors  by  providing
large-scale capital  inflows to several  of the countries.   As  was seen by
early 1995, however, in some cases those flows were not sustainable.


B.  Low-income countries

45.  The debt  of severely indebted low-income  countries is owed  mostly to
official creditors.  In some countries  (Cote d'Ivoire, Guyana, Lao People's
Democratic    Republic,   Madagascar,   Mauritania,   Mozambique,   Myanmar,
Nicaragua, Nigeria, Sudan, United Republic of  Tanzania, Viet Nam, Yemen and
Zaire), bilateral debt dominates the structure of total  long-term debt.  As
was seen above,  creditor Governments have increased the concessionality  of
terms  applied  to  Paris  Club  restructuring  of  the  debt  of low-income
countries.    Accordingly, several  countries  have  been  granted  enhanced
Toronto terms since 1991, and more recently, Naples terms.

46.   The  enhanced  terms,  however, have  not  been enough  to lift  these
countries out  of their  debt problem.   According  to the  World Bank,  the
application  of  enhanced   Toronto  terms  and  rescheduling  of   official

development assistance credits on agreed Paris  Club terms alone would bring
the debt-to-export ratio below the critical value of 200 per cent  in only 3
out of  32 severely  indebted low-income  countries. 19/    Naples terms  go
somewhat  further, but  their  impact  will only  be  felt if  and when  the
cancellation of the agreed share of the debt stock takes place.

47.  The limited impact  of Paris Club initiatives so  far can be  partially
explained  by  the fact  that,  as  mentioned  above,  Paris  Club does  not
restructure   the  entire  stock  of   debt  owed  but  only   part  of  it.
Furthermore,  many  countries are  not indebted  exclusively  to Paris  Club
creditors.  The  net result is that only  a share of  bilateral debt ends up
receiving the concessional treatment.  A  related problem is that creditors'
choices are  not uniform, and some  creditor Governments -  owing to complex
legal and  political  constraints  -  have  not  been  able  to  select  the
concessional  options,  so  the  scope  of  debt  reduction  varies  between
countries.   Accordingly,  the overall relief  granted may be  less than the
stipulated  50 or  67 per  cent, depending  on the composition  of creditors
involved in the rescheduling.

48.  As cases in point, lack of consensus among creditors prevented  Bolivia
and  Nicaragua from  having the  stock  of eligible  debt treated  in  their
latest restructuring  with the Paris Club,  although both  countries met the
eligibility criteria  to be  considered by  creditors on  the matter of  the
stock of debt.   In addition,  some low-income  countries have not  received
concessional treatment on their rescheduling with  the Paris Club (Kenya and
Nigeria). 20/

49.    Another  practice  that  contributes  to  relief  being  smaller than
anticipated is  the "de minimis"  clause.   It allows those  creditors whose
claims  are below  an agreed  amount to  be  excluded from  the rescheduling
agreement.   The  recent Ugandan  restructuring illustrates  these  problems
well.  First, the stock treatment did not include all outstanding debt,  but
only that contracted before the  cut-off date of 1 July  1981.  Second,  the
debt  covered was reduced  further by  a high "de minimis"  clause, and thus
only three creditor countries participated in  the agreement.  As  a result,
49 per  cent of Uganda's pre-cut-off  debt was  cancelled, which corresponds
to 26 per cent of the country's debt to Paris Club creditors. 21/

50.   In any event, the Naples terms do not solve  the problem of debts owed
to  Governments that  do  not  participate in  the Paris  Club.   Paris Club
agreements include a clause of comparability  of treatment, under which  the
debtor would seek to receive comparable  concessions from its various  other
bilateral official creditors.   The clause, however, may hinder negotiations
at  the Club, as  debtor countries  with relatively  little bargaining power
face obstacles in obtaining  the comparable relief.  22/  For many  severely
indebted  low-income  countries  (including Ethiopia,  Guinea,  Guyana,  Lao
People's  Democratic  Republic,  Madagascar,  Mali,  Mozambique,  Nicaragua,
Niger, Somalia, the Sudan, the United Republic of  Tanzania and Viet Nam)  a
significant share - sometimes  almost all - of  their bilateral debt is owed
to  non-Paris Club  countries.   Moreover,  the  multilateral  institutions,
which are  the largest  non-Paris Club  creditors, are  fully excluded  from
Paris Club treatments.

51.  Many severely indebted low-income countries are highly indebted to  the
multilateral creditors.   By the end  of 1993,  multilateral debt, including
amounts owed to  IMF, represented at least 50  per cent of  total public and
publicly  guaranteed  debt of  Burundi,  Central  African  Republic,  Ghana,
Guinea-Bissau,  Honduras,  Kenya,  Liberia,  Niger,  Rwanda,  Sao  Tome  and
Principe and  Uganda.  In  1994, the multilateral  debt service of  severely
indebted  low-income countries  amounted  to $3.2  billion  and  represented
about 47 per cent of all obligations  met by these countries.   In countries
such as Bolivia,  Burundi, Honduras, Mauritania,  Niger, Uganda  and Zambia,
multilateral debt service  alone corresponded  to at  least 20  per cent  of
their exports of goods and services in 1993.

52.    When  countries such  as these  receive  relief from  their bilateral

creditors,  the anomalous  situation could  arise wherein that  relief might
mainly help to  meet financial obligations  to their multilateral creditors.
In  effect, something  like this  already  happens.   Debtors  typically let
arrears accumulate  mainly on bilateral  and long-term  private debt,  since
costs  of  not  servicing  short-term  debt  (basically  trade  lines)   and
multilateral debt  would  have even  more devastating  consequences for  the
countries  concerned.   According  to  a recent  study, sub-Saharan  African
countries met 84 per cent of their  scheduled payments to their multilateral
creditors in 1992, while private creditors received 64 per  cent of expected
payments and bilateral creditors only 14 per cent of what was due. 23/

53.  Although multilateral  debt is not subject  to restructuring, new loans
are  usually  extended  to  those  countries  that  have  been  adhering  to
adjustment programmes supported by the multilateral financial  institutions,
and these  new loans  can help  refinance payments  falling due  on the  old
loans.    However,  to  the  degree   that  there  is  difficulty  servicing
multilateral  debt, this  only postpones  the problem  and worsens it  as it
increases indebtedness.

54.   In this regard it is quite significant that  there has been increasing
acceptance recently of  the difficulties  associated with  the servicing  of
multilateral debt  on the  part of  a number  of low-income countries.   The
communique of the summit  meeting in Halifax, Canada, of the group of  seven
major  industrialized countries  in June  1995  states  that the  group "...
recognize[s]  that   some  of   the  poorest   countries  have   substantial
multilateral debt burdens". Thus, the group  agreed to encourage the Bretton
Woods institutions to  develop a comprehensive approach to assist  countries
with  multilateral debt  problems, through  the flexible  implementation  of
existing  instruments and  new  mechanisms where  necessary  (see  A/50/254,
annex I).

55.  One new mechanism  had already been proposed by  Mr. Kenneth Clark, the
United Kingdom  Chancellor of the Exchequer.   It  entails the establishment
of a  new concessional facility  at IMF to be funded  by loans from creditor
countries.  Although the creditors  would receive  market interest  rates on
these  loans,  countries  that  drew  on   the  facility  would  pay  highly
concessional  interest  rates.   The  difference  might  be  covered by  the
earnings of a trust  fund, which could be established with the profits  from
a phased  sale of small  amounts of IMF's  gold holdings.  24/  As  only IMF
holds  significant amounts  of gold,  other  mechanisms  would be  needed to
underwrite   comparable   refinancing   facilities   at   the   multilateral
development banks.


V.  CONCLUSIONS FOR POLICY

56.   The analysis above indicates that a  more comprehensive application of
debt-relief measures may be necessary.  If so, which debt; if not, why not?

57.  Although many countries have  indeed benefited from the  implementation
of the  debt-reduction initiatives  hitherto developed, the debt  of several
countries is  still  unmanageable while  the  debt  of others  might  become
unmanageable.  It would only be prudent to consider  contingencies.  Certain
avenues of relief, however, have already been closed off for many  countries
and others are not considered practical.

58.   In particular, the Brady  Plan debt-restructuring  arrangements - like
the debt-stock treatments under the Naples  terms for low-income countries -
were meant to  be "exit" options for  the debtors and  the creditors.   They
were  intended  to  leave  the  countries  with  sustainable  debt-servicing
obligations  while  freeing   the  creditors  from  having  to   renegotiate
repeatedly the debt servicing on the same debt.  Even if the  sustainability
calculations were wrong, the creditors that took  the exit option are beyond
further  debt restructuring on the  affected debt.  Any  further relief must
thus fall  to the  remaining creditors, who  are mainly  bond holders  whose
cooperation in  new debt restructuring would  be very  difficult to mobilize

and official creditors of one sort or another.

59.   The  Paris  Club might  thus find  itself being  asked to  enlarge the
number  of countries  to which  it  accords concessional  debt relief.    As
presently conceived,  the eligibility  criteria for  debt reduction  through
the  Paris Club  exclude countries  that are  severely indebted but  have an
income per capita above the  $500 benchmark or a ratio  of present value  of
debt  to exports below 350 per cent, even if it  is still above the critical
value of 220 per cent identified by the World Bank.

 60.  Greater  concessionality by the Paris Club  need not be the  exclusive
approach  (or  even  be  sufficient  in   itself)  to  make  debt  servicing
manageable. Similar steps may  be needed on  other portions of the debt,  in
particular multilateral  debt.  The debt  owed by  some low-income countries
to the  multilateral financial  institutions has  already become of  special
concern  to the international  community.  As reviewed  above, some of these
institutions  have started  applying  special mechanisms  to  alleviate  the
debt-servicing burden  of  selected countries.    Again,  the scope  of  the
countries  considered to require  special, concessional treatment may not be
broad enough to meet all contingencies.

61.   It is  also possible,  however, that expanding the  range of countries
and types  of debt,  and deepening the  relief granted well  beyond what  is
already on  the international agenda may  only be  necessary for exceptional
types of cases, such as lowest-income or some  post-conflict countries.  The
debt-servicing  capacity  of  a  country  depends  on  developments  in  the
international economy  as much  as on  success in  structural adjustment  at
home.   One  cannot emphasize  enough  the  importance of  debtor countries'
adherence  to  policies   that  will  correct  macroeconomic  disequilibria,
maintain  a stable  economic environment  and  make relative  prices reflect
real  resource costs.  But  these policies are not  sufficient in themselves
to promote fast and sustainable growth in the countries concerned, and  that
is  the  key  to any  strategy  -  as  for  middle-income  countries -  that
envisions growing out from under a debt overhang. 

62.  The problem confronted by the severely  indebted countries may be  seen
as a race against  time.  If investment  is sufficiently high and efficient,
the  capacity to produce tradable goods and services may grow rapidly enough
to  catch  enough  of  the  opportunities  thrown  up  by  the international
economy.   Those opportunities depend, however,  on the  sustained growth of
world income and  open markets in the world's  large economies, even in  the
face of new competition from developing countries.

63.  More generally, innovative enterprise  activity in the heavily indebted
countries  needs  to  be  boosted,  which   requires  in  addition  to   the
appropriate  price  signals  a  measure  of  business  confidence.    A debt
overhang  inhibits  that   confidence,  in  particular  in  the  absence  of
contingency plans for  maintaining the  liquidity of  countries whose  debts
still  exceed  their long-run  debt-servicing  capacity,  especially  should
there be, say,  a severe international  economic downturn.  In  this regard,
the  proposed expansion  of the  resources  at the  disposal of  the General
Arrangements  to  Borrow  at  IMF  would  be  a  supportive  step,  as would
maintenance  of  adequate regular  multilateral  lending capacities  through
appropriately timed IMF Quota increases, development bank capital  increases
and concessional fund replenishments, as discussed in A/50/397. 

64.  In addition, while much attention is  given to short-term monetary  and
fiscal  indicators,  when  long-term  social  and  economic  goals   suffer,
confidence  suffers as well.   Adjustment  policies are  not substitutes for
development  policies.     The  practice  of  giving  priority  to  economic
adjustment and then  applying palliatives on the social level - through, for
instance,  the adoption  of special  funds to  finance projects  that aim at
mitigating the  social costs of adjustment  - has  produced limited results.
Confidence  and the  investment that  it determines  thus hinge  as  well on
maintaining a degree of social equilibrium.
  65.  As  always, it is  the entire  package of  adjustment measures,  plus

adequate debt relief, official  financial support and a  buoyancy in an open
world economy  that builds confidence in  the private sector  and charges up
dynamic development processes.


Notes

  1/    A companion  report  contains  an  assessment  of  recent trends  in
financial  flows to  developing  countries  (see report  of  the  Secretary-
General on agenda item 96 (a),  "Macroeconomic policy questions:   financing
of development", A/50/397).

  2/    The  external  debt  difficulties  of  heavily  indebted  transition
economies  have been  treated by  the  international  community in  a manner
parallel to that of  the developing countries.  The external debt  situation
of the transition economies is thus not covered in this report.

  3/  "Debt  conversion" is noted in the  table as one  type of treatment of
official and bank debt,  although the bulk of actual cases has involved bank
loans.  In the  latter type of conversion, banks would typically sell  their
claims at a discount  on the secondary market to potential direct  investors
(debt-for-equity swaps)  or to non-governmental  organizations (as in  debt-
fornature or  debt-for-education  swaps).   The  loan  paper would  then  be
exchanged for  equity shares  or budgetary  programme commitments.   In  the
conversions of debt owed  to official creditors, specific arrangements would
be made  between debtor and  creditor (e.g., allowing  debt servicing to  be
paid  in  local  currency  and  then  returning  the  funds  to  the  debtor
Government for use in environmental programmes).

  4/  See World Bank, World Debt Tables  1994-95, vol. 1 (Washington,  D.C.,
December 1994), p. 30.

  5/  The agreement with Sierra Leone was  concluded before the adoption  of
the Naples terms.

  6/  See IMF, Annual Report 1994 (Washington, D.C., 1994), p. 143.

  7/    Data  and country  groupings  are  those of  United  Nations,  World
Economic and Social  Survey, 1995  (United Nations  publications, Sales  No.
E.95.II.C.1).

  8/   Nevertheless, the 1980s  debt crisis entailed the  suspension of debt
servicing on bonds by some countries  (e.g., Costa Rica, Guatemala,  Nigeria
and  Panama).    For details,  see J.  J.  Fernandez-Ansola and  T. Laursen,
"Historical experience  with bond  financing to  developing countries",  IMF
Working Paper No. WP/95/27 (March 1995).

  9/  For additional details, see United Nations, World Economic and  Social
Survey, 1995, pp. 35-40.

  10/   See IMF,  Official Financing  for Developing Countries  (Washington,
D.C., April 1994), p. 14.
    11/    Out of  the  57 low-income  countries  for  which  information is
available, 33 are  considered severely indebted, 13 moderately indebted  and
only 11  are classified  as less-indebted countries.   Among the  96 middle-
income countries, 18 are severely indebted,  19 are moderately indebted  and
59 are ranked as less indebted.

  12/  This is a  category that IMF employs in  its World Economic  Outlook.
It includes  72 developing countries that  incurred arrears  or entered into
debtrescheduling agreements during the period 1986-1990.

  13/  See  IMF, World  Economic Outlook  (Washington, D.C.,  May 1995),  p.
121.

  14/  See World Economic and Social Survey, 1995, chap. V.

  15/   See  United  Nations,  Report on  the World  Social  Situation, 1993
(United Nations publication, Sales No. E.93.IV.2).

  16/   See Financial  Flows and  the Developing  Countries:   A World  Bank
Quarterly, May 1995, p. 10.

  17/   See World Economic Survey,  1991 (United  Nations publication, Sales
No. E.91.II.C.1), p. 163.

  18/  Comparable treatment was  agreed as well for Egypt in the same  year,
1991, before a  general concessional treatment  for low-income countries was
first adopted (the enhanced Toronto terms).

  19/  See World Bank, World Debt Tables 1994-95, vol. 1, p. 44.

  20/    See UNCTAD,  Trade  and  Development  Report  1995 (United  Nations
publication, Sales No. E.95.II.D.16), p. 37.

  21/  Information provided by UNCTAD/Development  and Finance Branch.   See
also  C.  Katsouris,  "Naples  debt  deal  falls  short  of  needs",  Africa
Recovery, vol. 9, No. 1 (June  1995), p. 11.

  22/  See OECD,  Financing and External Debt  of Developing Countries, 1992
Survey (Paris, 1993).

  23/  See Non-Aligned  Movement, Ad Hoc Advisory Group of Experts on  Debt,
The Continuing Debt Crisis of the Developing Countries (August 1994).

  24/  The  profits would represent  the amount by which the  net sale price
exceeded SDR 35 per ounce, which is the  official valuation of Fund gold (at
the end  of June  1995, the  market price  of gold  was almost  SDR 247  per
ounce).


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