A~~~~~~~~~~~~~~~~~~~r ;7- - - _ Fs;; 25900 Volume 1 Di evetojpxenz cnance Striving for Stability in Development Finance g W~~~~~~~~~~~~~~~~~~~~E Global Development Fnance Striving for Stability in Development Finance TH E WORLD BANK © 2003 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org All rights reserved 1 2 3 4 05 04 03 This volume is a product of the staff of the World Bank. The findings, interpretations, and conclusions expressed herein do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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Table of Contents Foreword ix Acknowledgments x Overview and Policy Messages 1 Chapter 1 Financial Flows to Developing Countries: Recent Trends and Near-Term Prospects 7 Unprecedented weakness in debt flows 7 Rotation from debt to equity 8 When will it end? 11 Official flows as buffers 11 Trends in asset accumulation by developing countries 11 Learning to live with less debt 13 Notes 14 References 14 Chapter 2 Battling the Global Headwinds of Financial Imbalances and Uncertain Geopolitics 17 A hesitant recovery in the high-income countries 19 Tracking corporate-sector adlustment 20 Supportive monetary and fiscal policies 22 Rising household debt in the United States 24 The outlook for growth in high-income countries in 2003 and beyond 25 Developing countries: A tortuous return to stronger growth in 2003 and beyond 26 China becomes the engine of East Asia 28 A peace dividend for South Asia 29 Convergence in Eastern Europe and Central Asia 30 The fallout from Argentina in Latin America 30 Cross-currents facing the Middle East and North Africa 32 Sub-Saharan Africa: Steady but subdued growth 32 Outlook for commodity prices 33 Is global deflation a threat? 34 A bumpy takeoff in world trade 36 Assessing the global flow of funds 37 Notes 39 Chapter 3 Coping with Weak Private Debt Flows 41 Debt-market developments in 2002 43 Debt-market prospects for 2003 and beyond 45 G LO B AL DE V EL O P M E N T F I N A N C E 2 0 0 3 Debt flows partly reflect lower demand 45 Creditors focus on credit risk, not return 46 A new market in credit derivatives 47 Bank retrenchment in context 49 Basel II 50 The emerging bond market really is emerging 52 Sovereign debt defaults-past, present, and future 56 The search for better crisis management 63 Annex: Commercial Debt Restructuring 69 Notes 80 References 80 Chapter 4 Sustaining and Promoting Equity-Related Finance for Developing Countries 85 Direct investment flows in 2002 86 How sustainable is the current flow of FDI? 91 Portfolio equity flows in 2002 95 Why are portfolio equity flows so modest? 100 Forecasts for equity flows in 2003-2005 101 Methodological annex: FDI forecasting model 104 Notes 105 References 105 Chapter 5 Corporate Financial Structures and Performance in Developing Countries 109 Shifts in corporate-sector debt dependence 109 Short-term corporate debt vulnerability 113 The downward trend in corporate profits 113 Borrowing from abroad and corporate performance 115 Methodological annex 120 Notes 121 References 122 Chapter 6 Living Up to the Monterrey Commitments: Raising Aid-and Ensuring Its Effectiveness 125 The decline in official financing in 2002 126 The HIPC Initiative 132 The decline in official nonconcessional lending since the 1990s 134 Are aid levels to some countries "too high"? 137 Ensuring effectiveness in large aid programs 140 Annex: Debt Restructuring with Official Creditors 142 Notes 154 References 154 Chapter 7 Workers' Remittances: An Important and Stable Source of External Development Finance 157 Trends and cycles in workers' remittances in developing countries 158 A relatively stable source of foreign exchange 160 Economic effects of remittances 164 Strengthening the infrastructure supporting remittances 165 Facilitating international labor mobility 166 From limiting to managing migration 168 IV TAB LE OF CON T ENT S Prospects for remittance flows to developing countries 169 Annex: Sources of remittance data 171 Notes 172 References 174 Statistical Appendix 177 Tables 1.1 Net capital flows to developing countries, 1997-2003 8 1.2 Dcveloping countries' external debt-equity ratios, 1997 and 2001 9 2.1 The global outlook in summary 18 2.2 Real GDP growth in the major economies, 2001-2003 19 2.3 Growth in volume of manufactured imports 36 2.4 Current-account balances 37 2.5 Long-run trends in current account balances, 1980-2002 38 3.1 Private-sector debt flows to developing countries, 1991-2002 41 3.2 Gross market-based debt flows to developing countries, 2000-2002 41 3.3 Forecasts of private-sector debt flows, 2001-2004 42 3.4 Select bond exchanges, 1999-2001 62 4.1 Net inward FDI flows to developing countries, 1999-2002 86 4.2 Estimates of South-South FDI flows, 1995-2000 91 4.3 Net portfolio equity flows to developing countries, 1999-2002 96 4.4 Net inward FDI forecasts 101 4A.1 FDI forecasting model, regression results 104 5.1 Profitability of nonfinancial firms in emerging markets, 1992-2001 114 5A.l Number of firms in sample 121 6.1 Net official financing of developing countries, 1995-2002 126 6.2 Net lending from multilateral sources, 1995-2002 126 6A.1 Paris Club agreements, January 1-December 31, 2002 143 6A.2 Multilateral debt-relief agreements with official creditors, January 1980-December 2002 145 7.1 Remittances received and paid by developing countries in 2001 157 7.2 Workers' remittances received by developing countries, by region, 1999-2002 160 7.3 Workers' remittance receipts in developing countries relative to key indicators 163 7.4 Remittances relative to growth rate by income group 163 7.5 Remittances by income group in Pakistan, 1986-87 to 1990-91 165 7A.1 Workers' remittance inflows to Pakistan, fiscal 1999-2002 171 Figures 1.1 Net financial flows to developing countries, 1995-2002 7 1.2 Net financial flows to developing countries from the private sector, 1995-2002 7 1.3 Developing countries' total external debt, 1966-2002 8 1.4 Developing countries' external debt and FDI stocks, 1980-2000 9 V G L O B A L D E V E L OP M E N T F I N A N C 1 0 0 o 3 2.1 Industrial production in the Euro Area, Japan, and the United States, 2000-2002 1 9 2.2 U.S. business debt, 1980-2002 20 2.3 U.S. business investment and change in nonfarm payrolls, 1972-2002 21 2.4 U.S. corporate profits and the financing gap, 1989-2002 21 2.5 Benchmark spreads for U.S. high-yield bonds, 1997-2002 21 2.6 Corporate profits in Japan and the United States 22 2.7 Federal Reserve (Fed) and European Central Bank (ECB) target rates, 2000-2003 22 2.8 U.S. and German fiscal balances, 1999-2003 23 2.9 U.S. household debt, 1980-2002 24 2.10 U.S. private- and public-sector financial balances and the current account, 1999-2002 25 2.11 OECD real fixed investment spending, 2000-2002 25 2.12 GDP growth for developing countries, 1990-2002 27 2.13 Industrial production in select regions, 2000-2002 28 2.14 Current-account balances for select regions, 1990-2002 28 2.15 Trends in industrial production, 1996-2002 29 2.16 Balance-of-trade positions for Argentina and Brazil, 1999-2002 31 2.17 Oil price and GDP growth in the Middle East and North Africa, 1990-2002 32 2.18 GDP growth of African non-oil exporters and comrnodity price index specific to Sub-Saharan Africa, 1990-2002 33 2.19 Output gaps in OECD centers, 2000-2002 34 2.20 Inflation rate in OECD and developing regions, 1990-2002 34 2.21 U.S. net borrowing as a share of rest-of-world savings, 1980-2004 37 3.1 Currency composition of new bond issues, 2001 and 2002 43 3.2 Debt-market issuance by low-income countries, 2001-2002 44 3.3 Breakdown of bond issuance by credit rating, 2002 44 3.4 Average regional credit quality, 1997-2003 44 3.5 Bond issuance and spreads, 2002 44 3.6 Secondary-market spreads on emerging markets, 1990-2002 45 3.7 Secondary-market spreads on Brazil and Mexico, 1991-2002 45 3.8a Spreads on benchmark bonds, Latin America, 1998-2002 46 3.8b Spreads on benchmark bonds, East Asia, 1998-2002 46 3.9 Net debt flows and G3 interest rates, 1984-2002 47 3.10 The shifting investor base of emerging-market bond markets 48 3.11 Performance of bank stocks, January 2002-January 2003 50 3.12 Volume of Brady swaps and buybacks, 1996-2002 53 3.13 Emerging economies: public debt stocks, 1996-2001 54 3.14 Share of sovereign borrowers in default on debt, 1820-2000 57 3.15 Composition of external debt to private creditors, 1970-2000 58 3.16 Ratio of debt to gross national income for select countries, 1982 and 1988 60 3.17 IMF disbursements, 1984-2002 61 4.1 Net equity flows to developing countries, 1989-2002 85 4.2 Net FDI inflows to developing countries, 1994-2002 86 4.3 Privatization and M&A in developing countries, 1994-2002 86 4.4 FDI as a share of GDP in developing countries, 1994-2002 87 4.5 Private and foreign direct investment into the telecom sector of developing countries, 1990-2000 88 4.6 FDI to developing countries, by source, 1995-2000 91 4.7 Major North-South investors 91 4.8 Proportion of FDI funded by reinvested earnings, by region, 1996-2001 92 VI TAB LE OF CON T ENT S 4.9 Proportion of FDI earnings reinvested, by region, 1996-2001 93 4.10 Average annual rates of return on inward FDI, by region, 1993-2000 94 4.11 Rate of return on FDI and GDP growth, 1995-2000 95 4.12 Portfolio equity investmenit in emerging markets, 1989-2002 96 4.13 Investment profile for equity placement in Malaysia 96 4.14 Brazilian stock marker (Bovespa) versus CVRD, January-November 2002 99 4.15 Performance of equity markets 99 4.16 Emerging stock market performance by region 99 4.17 Returns in emerging stock market by sector, 2001 and 2002 99 4.18 Risk and return by asset class 100 5.1 Corporate debt relative to GDP in East Asia, 1990-2001 110 5.2 Foreign debt relative to total corporate debt in East Asia, 1990-2001 110 5.3 Dependence on Bank debt in East Asia, 1990-2001 110 5.4 Corporate debt-equity ratios in East Asia, 1990-2001 1I1 5.5 Corporate debt in select regions, 1995, 1997, 2001 111 5.6 Leverage ratios in East Asia and Pacific and Latin America and the Caribbean, 1992-2001 112 5.7 Foreign lending to cmerging-market corporations, select regions, 1990-2001 112 5.8 External borrowing as a share of corporate sector debt in select regions 112 5.9 Corporate foreign debt in select regions, 1990-2001 112 5.10 Short-term debt and current liabilities, 1995, 1997, and 2001 113 5.11 Corporate profitability in developing countries, 1992-2001 114 5.12 Ratios of net income to sales in nonfinancial firms in select countries, 1985-2001 115 5.13 Debt as a percentage of total assets of market participants and nonparticipants, 1998-2001 116 5.14 Interest paid relative to debt by market participants and nonparricipants, 1992-2001 116 5.15 Corporate profit rates in major emerging markets, 1992-2001 117 5.16 Profit rates by region, 1998-2001 117 5.17 Profit rates by type of market participant, 1992-2001 117 5.18 Profit rates of market participants and nonparticipants, 1993-2001 118 6.1 Official development assistance, 1990-2001 128 6.2a Aid flows relative to scale of all developing economies, 1960-2000 129 6.2b Aid flows relative to scale of all low-income economies, 1960-2000 129 6.3 Proposed aid increases by nine EU countries 130 6.4 Sources of IDA resources 130 6.5 Net official nonconcessional lending, 1990-2001 134 6.6 Gross flows to and from bilateral creditors, 1990-2001 136 6.7 Gross flows to and from multilateral creditors, 1990-2001 137 6.8 Aid/income ratios for low-income countries, 1990-1995 and 1996-2000 137 6.9 Bilateral aid to large recipients by type of aid, 1990-2000 138 6.10 IDA commitments by type, 1990-2002 139 6.11 Tax effort by aid recipients as measured by tax/GNP ratio 139 6.12 Tax effort by aid recipients 139 7.1 Workers' remittances and other inflows, 1998-2001 158 7.2 Remittances as a share of GDP and of imports, 2001 158 7.3 Top 20 developing-country recipients of workers' remittances, 2001 159 7.4 Top 20 developing-country recipients of workers' remittances, 2001 159 vii G L O B A 1. D E V E L O PM ENT F INA NC E 2 0 0 3 7.5 Top 20 country sources of remittance payments, 2001 160 7.6 The top two sources of remittance payments, 1970-2001 160 7.7 Remittances and private capital flows to the Philippines, 1978-2001 162 7.8 Remittances and private capital flows to Turkey, 1978-2001 162 7.9 Volatility of remittances in the 1990s 163 7.10 India's remittance receipts, 1985-2001 164 7.11 Average transfer fee and exchange-rate commission for sending $200, February 2000 165 Boxes 1.1 Sources of information on capital flows 10 1.2 Developing countries' reserves in context 13 2.1 Limits to fiscal stimulus 23 2.2 Disinflation is a global phenomenon 35 2.3 Developing countries and the dollar 39 3.1 International versus local-currency bank claims 51 3.2 Local 10-year bond markets 55 3.3 Brazil's experience in 2002 56 3.4 Sovereign debt restructuring and domestic bankruptcy law 65 3.5 The cost of default 67 4.1 Understated FDI in developing countries 88 4.2 The resilience of FDI during a crisis 89 4.3 Outward flows of FDI from developing countries tend to be underestimated 90 4.4 Cemex and South-South FDI 92 4.5 Corporatization and FDI in China 94 4.6 Revision of the World Bank's data series on portfolio equity investment 97 4.7 Concentration of portfolio equity flows 98 4.8 FDI can reduce portfolio equity flows: Repsol-YPF 101 4.9 Surveys of FDI 102 5.1 The effect of leverage on firm profit rates 118 6.1 Defining aid 127 6.2 Is debt relief to HIPCs additional? 135 7.1 Securitizing future flows of workers' remittances 161 7.2 Mexican matriculas consulares boost remittances 166 7.3 Financial fairs to promote remittances and good banking habits among migrants 167 7.4 World migration pressure is high-and rising 170 Vill Foreword G LOBAL DEVELOPMENT FINANCE IS THE Creating the right conditions to benefit, World Bank's annual review of global fi- rather than suffer, from the shifts in private-sector nancial conditions facing developing coun- financing for developing countries is primarily the tries. The current volume provides analysis and responsibility of developing countries. This means a statistical appendix. A separate volume contains building conditions that both promote domestic detailed, standardized external debt statistics for productivity and investment, and attract FDI. 138 countries. And it has become all the more important for The background to this year's report is a diffi- governmlents to run prudent debt-management cult one. The global economy has been struggling policies, especially in nascent local-currency debt to recover from a recession in 2001. Even though markets. macroeconomic policies in the major economies However, the high-income countries also have have been very supportive, the recovery that has an important role to play if the pattern of interna- been underway for almost 18 months remains dis- tional development finance in coming years is to be appointingly anemic. A key hindranice to global re- more stable than the volatile, growth-inhibiting one covery has been the financial imbalances that built of recent years. With private capital flows low, rais- during the expansion of the 1990s, and there has ing the flow of official developmenit assistance-as been a wide incidence of debt difficulties across agreed to at the Monterrey Conference in 2001-is both developed and developing countries. On top of key importance to the poorest countries. More- of this already challenging environmenit, current over, the rich countries need to foster an open, geopolitical uncertainties add an overlay of uncer- competitive world-trading system, especially in tainty for both financial markets and policymakers. goods such as textiles and agricultural products, Against this difficult backdrop, developing in which developing countries have an obvious countries are struggling to adjust to a major shift in comparative advantage. Not only would this give the pattern of external financing that has been un- countries that are under pressure to pay down debt derway since the middle of 1998. Since that time, the opportunity to generate the necessary export the flow of private sector debt finanice to develop- revenue (through export growth, rather than by ing countries has plunged. At the same time, how- relying on import compression), but it would also ever, the flow of private sector equity finance- help create conditions fostering the continuation primarily foreign direct investment (FDI)-has of a steady and significant flow of FDI to develop- remained remarkably robust. Countries that have ing coLintries. adjusted in order to live with less debt and that have opened themselves to the flow of FDI funding have been the relatively strong performers in recent Nicholas Stern years. In turn, this solid economiiic performance has Chief Economist and Senior Vice President translated into tangible benefits in the area of The World Bank poverty alleviation. March 12, 2003 ix Acknowledgments >-v1 HIS REPORT WAS l'REPARED BY THE INTER- Glen (International Finance Corporation), Barbara national Finance Team of the Development Mierau-Klein, Sharon Stanton Russell (Massachu- Prospects Group (DECPG) but drew on re- setts Institute of Technology), Gregory Toulmin, sources throughout the Development Economics and Hung Tran (International Monetary Fund) Vice-Presidency, the World Bank operational re- were discussants at the Bankwide review. Within gions, the International Finance Corporation, and the Bank, comments and help were provided by the Multilateral Investment Guarantee Agency. Ivar Alexander, Amarendra Bhattacharya, An- The principal author was Philip Suttle, with di- thony Bottrill, Ash Demirguc-Kunt, Jean-Jacques rection by Uri Dadush. The report was prepared Dethier, Mark Dorfman, Shahrokh Fardoust, Nor- under the general direction of Nicholas Stern. The bert Fiess, Lisa Finneran, Ian Goldin, James Han- lead authors are identified on the opening page of son, Demet Kaya, Yung Chul Kim, Leora Klapper, each chapter. The statistical appendix was prepared Steven Knack, Stefan Koeberle, Frank Lysy, Pilar by Philip Suttle, Eung Ju Kim, and Fernando Mar- Maisterra, Raymundo Morales, Vikram Nehru, tel-Garcia of DECPG, and Punam Chuhan, Nevin Richard Newfarmer, Brian Ngo, Luis Periera da Fahmy, Shelley Fu, Ibrahim Levent, and Gloria Silva, Guy Pfeffermann, Malvina Pollock, Michael Moreno of the Financial Data Team of the Develop- Pomerleano, Sanjivi Rajasingham, David Rosen- ment Data Group (DECDG). The financial flow and blatt, Luis Serven, Emily Sinnott, Mark Sundberg, debt estimates were developed in a collaborative Graeme Wheeler, and John Wilton. effort between DECPG and DECDG. The main Outside the Bank, invaluable help was re- macroeconomic forecasts were prepared by the ceived from Charles Blitzer, Matthew Fisher, Global Trends Team of DECPG, led by Hans Tim- Alexander Lehmann and Krishna Srinivasan (Inter- mer and including John Baffes, Betty Dow, Caroline national Monetary Fund), John Clark (Federal Re- Farah, Robert Keyfitz, Annette I. De Kleine, Fer- serve Bank of New York), Elizabeth Kelderhouse nando Martel-Garcia, Donald Mitchell, Mick Rior- (Fcdcral Deposit Insurance Corporation), Philip dan, Shane Strelfel, and Bert Wolfe. The analysis and Wooldridge (Bank for International Settlements), forecasts were also prepared in conjunction with the William Cline (Institute of International Econom- Bank's regional chief economists: Guillermo Perry ics), Jeff Anderson and Greg Fager (Institute of (Latin America and the Caribbean), Alan Gelb (Sub- International Finance), Eric Beinstein and Joyce Saharan Africa), Homi Kharas (East Asia and Pa- Chang (JP Morgan Chase), Arturo Porzecanski cific), Sadiq Ahmed (South Asia), Pradeep K. Mitra (ABN-Amro), David Sekiguchi (Deutsche Bank), (Europe and Central Asia), and Mustapha Nabli and Susan Martin (Georgetown University). (Middle East and North Africa). Steven Kennedy edited the report. Sarah Crow The report also benefited from the comments and Awatif Abuzeid provided assistance to the of the Bank's Executive Directors made at infor- team. Dorota Nowak managed production and mal board meetings on March 6 and 10, 2003. dissemination activities by DECPG. Book design, Many others from inside and outside the Bank editing, and production were coordinated by provided input, comments, guidance and support Cindy Fisher, Melissa Edeburn, and lIma Kramer at various stages of the report's publication. Jack of the World Bank Office of the Publisher. x Overview and Policy Messages: Striving for Stability in Development Finance LTHOUGH 2002 WAS A YEAR OF HESITANT the disruptive effects of sharp reversals in financ- global recovery, financial conditions facing ing? These are the central concerns of this year's A many developing countries were once again Global Development Finance. challenging, especially for those countries (mainly On the bright side, the steady drop in external middle-income countries) dependent on interna- debt financing has been cushioned by resilience in tional financial markets. Conditions have im- foreign direct investment (FDI). A further positive proved a little in the early months of 2003, al- sign is the growth of local-currency bond markets though the uncertainties surrounding Iraq have cast in several emerging economies and the development a shadow over both the global economy and finan- of several promising innovations to manage credit cial markets. risk. These issues, too, are covered in this report. Concern over the recent pattern of financial flows for global development that has prevailed in recent years is widespread-and understandably so. Since 1998, developing countries have repaid The developing world is learning external debt to private creditors in developed to live with less external debt countries. In some cases these net repayments of he supply of debt capital to the developing debt have been required by timorous capital mar- T world, which swelled in the early 1990s, was kets grown wary of overexposure to developing- first reduced by the shock of the East Asian crisis country debt. In others they reflect reduced dc- of 1997-98, then by the turmoil in global fixed- mand for debt by countries that have either found income markets in the summer of 1998, and most alternative forms of external finance or have re- recently by the problems in global high-yield mar- duced their overall demand for external invest- kets in the aftermath of the 2001 slowdown. How- ment funds. Combined with developing countries' ever, this broad-based decline in debt flows, first steady accumulation of financial assets in high- evident in East Asia and the Russian Federation, is income economies, however, these debt repayments now focused on Latin America. mean that the developing world has become a net Some early signs of improvement in the external- capital exporter to the developed world. debt market cropped up as 2002 came to a close. On a net basis, therefore, capital is no longer The forecasts in this publication point to a further, flowing from high-income countries to economies gradual rise in debt flows in 2003 and 2004 (see that need it to sustain their progress toward the chapters 1 and 3). It is unlikely, however, that pri- Millennium Development Goals. The shortage is vate debt flows to developing countries will return compounded in the poorest countries by a signifi- to the levels of the 1990s. Nor would such a re- cant drop in official development assistance from bound necessarily be desirable. bilateral donors. While external bond and bank financing should What can or should be done to promote access continue to play an important role in the financing by developing countries to external capital? What strategies of governments and private-sector can be done to prevent growing cconomies from borrowers in developing countries, the fixed G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 commitments of debt service are not well suited to that depends critically on improvements in the in- the swings in nominal income experienced by vestment climate. A healthy operating environ- many developing countries, especially those de- ment for the corporate sector-including a sound pendent on primary commodities. Market reac- domestic institutional framework-is a necessary tions to debt-servicing strains add a whole new condition for profitable investment and the mitiga- layer of volatility that can be severely damaging to tion of risk, and therefore for the attraction of FDI growth and poverty reduction. (see chapter 5). It is also required to promote pro- The movement from debt to equity has been ductivity, entrepreneurship, and investment for do- underway in private financial markets since 1998. mestic firms and farms, the sources of 90 percent Policymakers should recognize the consequences of developing-country investment and the main of this important shift-and respond to the oppor- drivers of growth. Finally, it is the key determinant tunities and policy challenges it poses. of whether domestic capital stays at home or flees abroad. Measures to promote the inflow of foreign equity capital are critical Growth and poverty reduction DI is less volatile than external debt. Its focus on depend on prudent management Flong-term returns makes it clearly more appro- of sovereign financial risks priate for developing countries. And it can bring inancial markets react swiftly to adverse news, advantages both in technology and in operational making it all the more important to plan care- and financial management. In this context, the re- fully to mitigate risk. Fortunately, bond markets in silience of FDI in the face of the sustained weakness developing countries have moved in recent years in debt flows is a hopeful sign (see chapter 4). toward issues denominated in local currency, al- In contrast to debt investors, companies have though such issues tend to have shorter maturities, been willing to raise their exposures in the develop- at least in the early years of market development. ing world, in part because their holdings in devel- During such a transition, it is all too easy for a sov- oping countries are a relatively small part of their ereign borrower to shift, rather than mitigate, its overall capital stock, and in part because many ma- risk, with currency risks giving way to the rollover ture companies now expect a large portion of their risks that occur when domestic debt is linked to a revenue growth and cost reduction (and thus their foreign currency (see chapter 3). The fact that the profit growth) to come from operations in develop- epicenter of most middle-income debt problems in ing countries, whether they are producing for ex- recent years has been the local short-term money port or for local sale. and bond markets serves as a graphic reminder of FDI usually brings with it important benefits the case for prudent debt management. such as access to markets and transfers of technol- ogy and skills. In a world of volatile private capital flows, however, it is the financial aspects of FDI Workers' remittances are an that are particularly desirable. Companies tend to increasingly important source invest in developing countries for the long haul. of external financing They see their returns rise and fall with the overall An under-recognized trend in the external fi- performance of the host economy and generally A nances of developing countries-especially keep a significant share of earnings in the country. some of the smallest and poorest-is the steadily A solid flow of FDI to developing countries growing importance of workers' remittances (see should not be taken for granted, however. Indeed, chapter 7). Such flows now rank second in impor- net FDI to developing countries has already fallen tance only to FDI in the overall external financing from its peak of $179 billion in 1999 to $143 bil- of developing countries (see chapter 1). At $80 bil- lion in 2002. With the bulk of net cross-border lion in 2002, remittances were about double the capital flows now coming in this form, it becomes level of official aid-related inflows and showed a increasingly important for policymakers and mar- remarkably steady growth through the 1990s. The ket participants to focus on sustaining FDI-and strong U.S. labor market was especially important 2 O V E RV I E W AND PO LI CY ME SS AGES in fueling the growth of remittances, and the United Policymakers in the industrial States is now by far the largest source of remittance countries can help stabilize flows. development financing- Demographic trends suggest that remittance flows from high-income countries will grow over -by improving aid and trade policies- the medium term, with the demographic depen- Although much of the policy and many of the insti- dency ratio falling in poor countries and rising in tutional reforms needed to stabilize development rich ones. However, heightened security concerns financing must come from governments in devel- and a softening labor market in the high-income oping countries, the authorities in the developed economies will probably check these flows over world can play an important role. The major the next year or two. This prospect highlights the economies can support development most directly importance of the issues of trade in services and through coherent aid and trade policies that pro- migration. mote development. The commiltments made in advance of the United Nations Conference on Fi- nancing for Development in Monterrey in March The international community must 2002 promised a modest increase in aid flows. help borrowers manage pressures These point to a welcome reversal of the downward to reduce debt trend through most of the 1990s, but their scale is ntense pressures to pay down external debt have incommensurate with the commitment to reach the 1pl aced many countries under severe stress in re- Millennium Development Goals by 2015. cent years, usually with particularly adverse conse- The effectiveniess of aid can be improved by re- quences for poor people. There is now a growing allocating funds to poorer countries that have the consensus that the mechanisms available to cush- policies, institutions, and governance that can be ion these debt pressures are in need of reform. expected to reduce poverty. In those same coun- For low-income economies, significant progress tries, aid is also likely to be more productive if has been made in providing debt relief under the channeled through governient institutions, with Heavily Indebted Poor Countries Initiative. How- the close involvement of civil society, rather than ever, continued weakness in commodity prices, through project-oriented institutions with intru- and thus in the export earnings of many poor sive management by donors. countries, means that several countries will require Most important of all, industrial countries can additional resources before their debt can be con- spur development by reducing agricultural subsi- sidered sustainable (see chapter 6). dies and trade barriers that discriminate against For highly indebted middle-income countries, developing countries' exports. Industrial countries the International Monetary Fund (IMF) has pro- spend more than $300 billion each year in agricul- posed the creation of a sovereign debt restructur- tural subsidies, about six times the amount they ing mechanism that would provide an orderly spend on foreign aid. Unless progress is made on framework for restructuring external sovereign agricultural protection and subsidies, negotiations bond debt (see chapter 3). within the World Trade Organization (WTO) are The proposed framework is intended to be use- likely to be stalled, to the detriment of growth and ful not only after a sovereign default, but also development. ahead of such an event, as its existence would make both debtors and creditors act in a more -and by ensuring broader macroeconomic measured fashion, avoiding some of the extreme stability actions that have complicated recent defaults on The major economies also play an important role sovereign debt. through their macroeconomic policies and perfor- The discussion of this proposal reminds us that mances, which shape the global opportunities the current set-up has not worked well and that open to developing countries (see chapter 2). De- the debt difficulties of middle-income countries are veloping countries benefit most when the major likely to persist in a world of low nominal income economies achieve steady, sustainable growth, growth (see chapter 2). avoiding booms and busts. Central banks in the 3 G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 major economies have established conditions fa- sustained downturn in capital spending, but also vorable for the growth of global liquidity. With to a rise in spreads in high-yield debt markets. nominal interest rates within the Organisation for Given the large number of investors who are ac- Economic Co-operation and Development (OECD) tive in both industrial and emerging markets, the at their lowest levels in 50 years and real short- rise in spreads on high-yield debt helped lift inter- term interest rates generally close to zero, the core est-rate spreads in markets for the external debt of condition for reversing the flow of capital from developing countries (see chapter 3). In Japan, developing to developed countries is in place. corporate-debt woes and their effects on the bank- Through the 1990s, the countries of the OECD ing system held back growth throughout the made important gains in reducing budget deficits, 1990s and added to deflationary pressures but much of this progress has been reversed in the throughout the economy. past two years. The expectation of large, continu- Japan serves as a graphic example of the costs ing budget deficits may further reduce developing of delaying necessary corporate adjustments. By countries' access to funds, while fiscal stimulus contrast, the high-profile corporate bankruptcies packages, which provided an important near-term in other mature economies-especially the United boost to growth, have now generally reached their States-in 2002 can be seen as a mixed blessing. limits of effectiveness. On the one hand, they underlined the severity of The widespread debt difficulties of the corpo- the downturn and the magnitudes of the necessary rate sector in the United States and Europe were adjustments in corporate spending. On the other, an important feature of the global downturn in they served to highlight that corporate restructur- 2001, contributing not only to a pronounced, ing is proceeding. 4 Financial Flows to Developing Countries: Recent Trends and Near-Term Prospects Philip Suttle N T ET CAPITAL FLOWS TO DEVELOPING dropped steadily (figure 1.2), becoming net out- countries were down last year for the sec- flows in 2001 and 2002. 1 \1 ond year in a row (see table 1.1 on page 8 and box 1.1 on page 10). In 2002, the sum of net private debt and equity and net official flows was Unprecedented weakness in $192 billion, or 3.2 percent of developing coun- debt flows tries' nominal gross domestic product (GDP), his weakness in the growth of private-sector down from $210 billion in 2001 (3.6 percent of 11 debt flows is unprecedented in the post-1965 GDP) and $215 billion in 2000 (3.7 percent of period (figure 1.3). Already strong debt growth to GDP).' The slide has been a steady one since 1997, developing countries in the late 1960s exploded in when net flows to developing countries peaked at the 1970s, as commercial banks furiously recycled about $325 billion (5.5 percent of GDP). oil surpluses from oil producers to other develop- The decline since 1997 has occurred primarily ing countries (Cline 1995).2 In the decade of the in net capital flows from the private sector (fig- 1970s, developing-country debt growth posted a ure 1.1), particularly in the debt component (both compound annual growth rate of 24 percent (or banks and bonds). From the peak years of 16 percent in real terms). 1995-96, when net debt inflows from the private The debt crisis of the early 1980s slowed this sector were about $135 bilton per year, they have growth but did not end it. The widespread efforts to Figure 1.1 Net financial flows to developing Figure 1.2 Net financial flows to developing countries, 1995-2002 countries from the private sector, 1995-2002 Billions of dollars Billions of dollars 300 - 200 250 I \ 150 _ 200 - 100 _ 150 _ 100 Public sector 50 0 0 I -50 1995 1996 1997 1998 1999 2000 2001 2002 1995 1996 1997 1998 1999 2000 2001 2002 Source World Bank Debtor Reporting System and staff estimates Source World Bank Debtor Reporting System and staff estimates 7 G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 Table 1.1 Net capital flotvs to C;vaioping countriess, i997*-,'3 (bilitons of dollars) 1997 1998 1999 2000 2001 2002e 2003f For more detail Current account balance -91 4 -113 6 -107 61.9 27.6 453 26 2 Chapter 2 as%GDP -15 -20 -02 10 05 0.8 04 Ftnanced by: Netequiry flows 196 4 1819 194 3 186.7 177 6 152 3 1S8 0 - Chapter 4 Net FDI inflows 169 3 174.5 179.3 160.6 171 7 143 0 145.0 Chapter S Net portfolio equity iiflows 26 7 7 4 15 0 26.0 6 0 9.4 13 0 Net debt flows 102 1 57 4 13 9 -1 0 3.2 7.2 5 0 Official credirors 13.0 34.1 13 5 -6.2 28,0 16.2 0.0 Chapter 6 World Bank 9.2 8 7 8 8 7.8 7.5 15 - IMF 3.4 14 1 -2 2 -10 6 19,5 14.5 - Others 0.5 11 2 6 9 -3.4 1 0 0 2 - Private creditors 89 1 23 3 05 5 1 -24,8 -9.0 5 0 Chapter 3 Net M-L term debt flows 84.0 87 4 21 9 14.5 -8 6 29 - Bonds 38.4 397 296 17.4 101 186 - Banks 43 1 51.4 -59 2.6 -11.8 -160 - Others 2.5 -3 6 -1 8 -5.5 -7 0 -5.5 - Net short-term debt flows 5 3 -64 2 -21 4 -9 4 -16.2 -6.1 - Balancing item, -153 8 -109 0 -160 1 -192.5 -128 2 -97.8 -81 2 Change in reserves -52 9 -16 6 -37 3 -55.1 -80.3 -110.0 -108 0 Chapter 1 (- = increase) Memo items Bilateral aid grants 26.7 28.2 29.4 29.6 29.5 32.9 32 0 Chapter 6 (ex technical co-operation grants) Net private flows (debr+equiry) 285 1 205 2 194 7 191.8 152.8 143.3 163 0 Net official flows (aid+debt) 39 7 62 3 42 9 23.4 575 49.0 32 0 Workers' remirtances 62 7 59 5 64 6 64 5 72 3 80 0 - -> Chapter 7 Note e = esttmate, f = forecast a. Combination of errors and omissions and net acquisition of foreign assers (inicluding FDI) by developing countries Figure 1.3 Developing cou.n-Z,s' toal external reschedule debt (and add new money) meant that debt, 1966-2002 exposures to problem debtors were generally main- Percent change over year eariher tained, while net new credits were extended in other 40 - parts of the developing world. When market confi- Average growth rates dence returned in the 1990s in the aftermath of the 35 - Debt Nominal Real Brady Plan, real debt grew at a steady pace. 30 - 1970s 237 158 Since the middle of 1998, however, the whole 90 10 9 5 7 25 - 1990-1998 73 48 context for development financing has shifted. As Break" " 1999-2002 -1 4 -32 borrowers have chosen or been required by their 20 - senes y b creditors to pay down their debts, the external debt 15 - of developing countries has fallen in dollar terms, 10 - even as the cost of debt (as measured by OECD in- us ,OP deflator K terest rates) fell and remained at very low levels. -5 Il l 111111111 -l11 lilililil'lil Rotation from debt to equity nb. s debt is being repaid to private-sector credi- _ tors net equity inflows to developing coun- Sources 7'orld Bank Debror Reporting System and staff estimates, tries remain significant, mainly through the route US Commerce Department of FDI. Net inward FDI flows did slow in 2002, 8 F INA NC IA L FL O WS TO DE V EL O PING C O U N T R IES Figure 1.4 Developing countries'external debt and dependence on external equity is highest in East FDI stocks, 1980-2000 Asia and the Pacific, mainly reflecting the influence Billions of dollars Billions of dollars of China, where the external debt-equity ratio has 3,000 1,500 now fallen below 50 percent-China's external FDI liabilities are double its external debt liabilities. 2,500 - 1,201 The total external liabilities, relative to GDP, 1,200 of the three largest regions of the developing world 2,000 - (East Asia and the Pacific, Europe and Central Exteraldebt ax / 900 Asia, and Latin America and rhe Caribbean) are all 1,500 - (le/tremarkably similar at about two-thirds of GDP. rFDI - 600 The region of Europe and Central Asia has the 1,000 ht axis) highest share of debt-based liabilities, reflecting the 500 300 simple fact that equity ownership in much of this region was off limits to foreign investors until the end of the Cold War, although these countries could 1980 1984 1988 1992 1996 2000 and did borrow on international markets. The surge in FDI in the region through the 1990s drove down Sources World Batik Debtor Reporting Systeni anid staff estimates, th extern debt-equitytratiohsharply, althoughdIt IMF Balance of Payments Yearbook the external debt-equity ratio sharply, although It remains high relative to East Asia and Latin with most of the slowdown occurring in Latin America, which have been open to FDI much longer. America. By contrast, flows to China picked up in Much of the rest of this report focuses on why response to strong growth and optimism following this external debt-equity shift is occurring, what China's accession to the WTO. its implications are, and how much further it has The shifting pattern of private flows-debt to run. Thrcc aspects of the shift are worth noting down, equity up-has had an important implication up front: for the associated stocks of debt (figure 1.4). While the stock of developing-country external debt out- * The shift is partly driven by investor prefer- standing from all sources has fallen since 1998, the ences. Debt investors (both banks and bond- stock of equity capital owned and controlled by for- holders) have become more wary of holding eigners has risen sharply over the past decade. debt claims on developing countries, whereas The drop in what might be called the external nonfinancial corporations have come increas- debt-equity ratio, from more than 300 percent at iugly to believe that the developing world of- the end of 1997 to less than 200 percent at the fers significant growth opportunities both as end of 2001, has been spread across all regions an export platform and as a source of domes- of the developing world (table 1.2). The relative tic consumption. * The shift is partly driven by the preferences of developing cotntry policymakers. One very Table 1.2 Developing countries' external important lesson that many countries drew debt-equity ratios, 1997 and 2001 from the crises of the 1 990s was that depen- (percenit) dence on external debt financing can lead to Ext liabs sharp, sudden reversals of capital flows. To 1997 2001 %M GDi'a protect against such reversals, countries have East Asia and Pacific 218 134 650 strengthened their precautionary reserve Europe aid Central Asia 505 293 66 8 holdings and shifted their liabilities to more Latin America anid the Caribbeani 284 162 67 7 Middle East and North Africa 394 371 42 5 stable forms of mvestment, especially FDI. South Asia 968 613 305 The latter trend has been especially true of Sub-Saharan Africa 515 303 90 6 countries in East Asia (Crockett 2002), but it All developing countries 316 196 61 7 also has allowed Mexico, for example, to ab- a Slni of total external debt and FDI liabilities as a percentage sorb the capital market shocks of the last few of 2001 GDPeasmc btethnicolhaed eb- Souirces World Bank Debtor Reporting System and staff estimates, years much better than It could have done be- IMF, Balanice of Paynieits Yearbook fore 1995. 9 G L O B AL DE V EL O PM ENT F INA NC E 2 O 0 3 Box 1.1 Sources of information on capital flows '7he World Bank's data on flows of capital and other IMF also provides its estinmates of capital flows to develop- J1 financing to developing countries comes from several ing countries on a creditor basis in its semiannual World sources. Most data on FDI, portfolio equLity, and workers' Ecoiionoic Outlook (IMF 2002). remittances are found in the balance-of-payments data set The latest World Bank, IIF, and IMF estimates of capi- compiled by the IMF, although there are imiportant excep- tal flows to developing countries are presented in the table tions (see box 4.6 and the data annex to chapter 7). Data below. on debt-related flows come from the Bank's Debtor Re- Differences in the series arise for three reasons: porting System (DRS), which forms the backbone of the data set in volume 2 of Global Development Finance. o Country coverage. The World Bank covers 138 coun- The DRS has its origins in the Bank's need to monitor tries; the IMF, 125; and the 1IF. 29. Note also that the the financial position of its borrowers. Since 1951 borrow- IIF survev is not a subset of the World Bank coverage. ers have been required to provide statistics, loan by loan, The Republic of Korea, for example, is part of the on their external debt and any private debt for which they IIF survey but is no longer considered by the World have issued a guarantee. With the growth of nonguaran- Bank as a developing country. teed private borrowing, the Bank expanded the DRS to o Different concepts. The World Bank counts net in- cover this form of debt, although these data are generally ward FDI, whereas the IIF and LMF count net inflows provided in a more aggregated form, not loan by loan. less net outflows (and are thus smaller). Three aspects of the DRS are unique: o Different reporting systems. Further discrepancies in the three institutions' measures of net capital flows o It has a long, continuous history. As most market par- occur because of differences in reporting systems. In a ticipants, official and private, are painfully aware, world of large, unregulated capital flows, measuring debt tends to flow in cycles, and the DRS enables capital flows is as much an art as a science. analysts to study all the postwar cycles. o Its coverage is broad and consistent. The same methodology is applied to data from 138 countries, . . .:. large and small. Volume 2 presents a consistent array _ of data for all countries. o The loan-by-loan detail allows analysts to idenztify (billions of dollars) important debt characteristics such as the currency 1999 2000 2001 2002 2003 composition of debt, terms of new debt commitments, Current aCccont and amortization and disbursement schedules. World Bank -11 62 28 48 26 IMF -10 67 40 19 1 An alternative to the DRS, focusing on the creditor side of IIF 30 48 33 52 34 the relationship, became popular in the 1 980s. No single Net equity flowsa institution maintains a creditor reporting system, however, World Bank 194 187 178 152 158 although data on banks provided by the Bank for Interna- IMF 149 145 147 129 132 tional Settlements can be combined with data from other IIF 164 150 145 102 117 sources-including the DRS for data on multilateral flian- cilisittos Net private debt cial Institutions. (bonids, banks. anid other) The organization that led the development of the WoiId Bank 0 5 -25 -9 5 creditor-side methodology was the Institute of International IMF -1 2 -32 1 13 Finance (IIF), set up in 1983 Though it lacks its own data IIF -16 36 -19 11 21 sources, the IIF combines those of other institutions Net official debt flows (including the World Bank) to present the creditor's per- World Bank 14 -6 28 16 0 spective on the external debt stocks and capital-account IMF 28 18 35 31 34 flows of developing countries (IIF 2003). This approach IIF 12 -3 15 12 10 has become something of an industry standard, and the a IMF aiid IIF count net mflows less net outflows. World Bank's own database is now typically analyzed from Sources World Bank Debtor Reporting System and staff estimates a creditor's perspective-as it is in this publication. The IMF 2002, IF 2003 10 F I N A N C I A L 1: L O W S T O D E V E 1. 0 P I N G C O U N T R I E S On balance, the shift is a positive develop- * If the global economy is weak, then FDI in- ment. For many countries, the fundamental vestors are liable to pause, but debt investors rotation in capital flows is proving to be quite are liable to continue, and possibly accelerate, a challenge. For one thing, the currenit-account their retrenchment. This scenario is perhaps balance must move into or at least toward sur- most plausible in a situation where ctirrent plus in order to generate the foreign exchange geopolitical tensions turn out to be a lot more to pay down external debt. Nevertheless, the scvcre and protracted than currently assumed rotation is best seen as a constructive develop- (see chapter 2). ment because it puts development finance on a * If, as the current forecast assumes, the perfo- stable footing. The problem with overreliance mance of the global economy is middling, on debt financing for development is that then both FDI and debt investors will remain the downiside to adverse global dcvelopments cautious. Net FDI inflows are likely to pick up has to be borne completely by developing in 2003-04, in Iine with a modest revival in countries: they must either pay in full or de- global fixed investnment. Net debt flows will fault. When macroeconomic conditions move remain subdued, although they should turn against the country, debt markets rightly fac- positive in 2003. The gains will be led by tor in more risk and thus end up charging bond investors, for whom the high yields of- more for debt capital.3 The result is increased fered by developing country debt will be rela- strain on the country and a greater likelihood tively attractive. By contrast, net debt repay- of crisis and default. By contrast, the financing ments to commercial banks are likely to of growth and development through direct eq- persist, as banks in the Bank for International uity participation builds shock absorbers into Settlements (BIS) area remain under pressure, a process that is bound to be somewhat un- and are generally making strenuous efforts to even. The benefit of FDI is not Just that its re- reduce their risk exposures. turns are "state contingent"-that is, they pay off for the investor wheni the country does well but absorb some of the hit when the country does badly-but that an adverse shock to the Official flows as buffers country does not typically produce a sudden fficial funding for developing countries- rush for the exits. FDI investors generally em- dcfined as foreign aid plus debt finanicing from phasize that they are committed for the long official sources-fell back in 2002, mainly because haul and can absorb and tolerate a certain the IMF made fewer disbursements. Net official amount of near-term adversity. flows to developing countrics, whlich tend to play a buffer role, are thus negatively correlated with net private flows and global growth (Ratha 2000). In- deed, with net private debt flows to developing When will it end? countries likely to be once more positive in 2003, it T his rotation in the pattern of development is likely that net official flows to developing coun- T finance from private-sector sources has fur- tries will fall sharply, in Iine with a diminiished need ther to run under almost any scenario: for emergency financing. The other components of official flows are less susceptible to swings than IMF * If the global economy expands robustly in the funding (see table 1.1 and chapter 6). years ahead, then foreign direct investors are likely to continue to build their holdings in developing countries. In such a scenario, debt investors would probably also return in earnest Trends in asset accumulation to developing countries, and the main chal- by developing countries lenge facing policymakers would be to avoid /lthough the liability flows of developing coun- the excesses of near-term debt growth that A tries are important, the evolution of their ex- have often led to problems in the past. ternal financial assets is also significant. In recent G L O B A L D E V E L O P M E N T F I N A N C E 2 0 0 3 years, asset accumulation has pickecd up strongly foreign assets by the private and public sectors In and in a remarkably broad-based fashion. When developing countries. combined with changes in liabilities, the net result is that developing countries overall have become o Developing countries need to mobilize their net capital exporters to the developed world, run- savings. Leakage of capital abroad diminishes ning a modest current-account surplus in most the savings available to fund economic activity. years since 1998 (see chapter 2 for a broader dis- While substantial investment abroad by the pri- cussion of the global flow of funds). vate sector is not necessarily a sign of problems, The pick-up in the acquisition of foreign assets it can be a signal of domestic investors' distrust by developing countries is evident on three dimen- in their country's policies and institutions, sions, the first two of which are captured by the which potential foreign investors are likely to "balancing item" line in table 1.1. see as a negative signal. High external reserve holdings also come with a significant interest- o An increase in FDI. Just as globalization is rate carrying cost. Most countries invest their leading companies in high-incomc countries to foreign-exchange reserves in relatively safe, invest in the developing world, so many short-term assets, such as U.S. Treasury bills. developing-country companies are investing The yields on such instruments are currently both in high-income countries and in other de- very low-well below the interest rates that de- veloping countries. Estimates of such "South- veloping countries pay on their debt. North" or "South-South" investment vary, but o High foreign-exchange reserves imply a fear it is no doubt substantial (see chapter 4). of floating. The move from pegged exchange o An increase in private investment in other rates to floating exchange rates has been gen- assets. This catch-all category is difficult to erally greeted as a move to greater flexibility measure, in part because it includes flows that gives developing countries more breath- seeking to evade controls and taxes as well ing room. While a floating-rate system does as more legitimate outward investment flows offer many advantages, especially as it avoids from the resident private sector. countries having to defend arbitrary exchange o An increase in official reserves. The gross offi- rates against speculative attack (often through cial foreign-exchange reserves of developing extreme hikes in domestic interest rates), the countries rose by about $110 billion in 2002. move to a floating-exchange-rate regime has In the past four years, the stock of developing been accompanied by what might be called an countries' reserves has risen by an average of increased precautionary demand for foreign- about $70 billion per year to reach about exchange reserves. Current holdings of foreign- $888 billion at the end of 2002. exchange reserves by developing countries are generally well above benchmarks often used The acquisition of substantial foreign assets by as guides to assess the adequacy of reserves individuals, companies, and governments in devel- (box 1.2). Calvo and Reinhart (2000) have oping countries has some positive features. Most highlighted that the current exchange-rate significant is the opportunity to diversify away policies of many developing (and developed) from local business cycles and other risks. Main- countries is far from a free float in the text- taming high levels of foreign-exchange reserves book sense. For countries in East and South gives governments a cushion that can allow them Asia, policy has been geared toward avoiding to better ride out shocks in the international sys- exchange rate appreciation through the pur- tem. The high level of East Asian foreign-exchange chase of substantial reserves.4 reserves built up in the aftermath of the Asian fi- o Accumulation of assets is a sign of global dis- nancial crisis in 1997-98 helps explain why these equilibrium. The rapid accumulation of exter- countries were able to avoid some of the stresses nal assets can be viewed as a stock-adjustment and strains suffered by many Latin American process. For many developing countries in countries during the most recent global downturn. Asia, for example, the determination to insu- There are, however, a number of more trou- late themselves from the shocks of 1997-98 has bling aspects to the acquisition of substantial raised the precautionary demand for official 12 F INA NC IA L FLO WS TO D EVE LO PING CO UN TR I ES Box 1.2 Developing countries' reserves in context Two common benchmarks are used to assess the ade- traumatic financial events in Asia in the late 1990s. Latin T quacy of foreign-exchange reserves. Applied to the America's net foreign-exchange reserves are below its most recent data on rcserve holdings, these benchmarks short-term debt. produce the following results: Imports. For all developing countries, net foreign- Short-ternm debt. For all developing countries, net exchange reserves are equivalent to about six months of foreign-exchange reserves are currently about two-and-a- merchandise imports. In all six regions, reserves are above half times short-term external debt. The distribution varies the commonly assumed "safe" level of three montlhs of considerably across regions, however. Reserves are very imports-they are especially high in Asia and the Middle high in East and South Asia as a consequence of the East and North Africa. Ratio of net foreign-exchange reserves to short-term Ratio of merchandise imports to foreign-exchange debt in World Bank regions reserves in World Bank regions Percent Months of imports 900 12 800 10 700- 600 -8 500 6 400- 300 -4 200- 2 100 EAP ECA LAC MENA SAR AFR All EAP ECA LAC MENA SAR AFR All developing developing countries countries Note EAP = East Asia and Pacific, ECA = Etirope anid Cenitral Asia, Note EAP = East Asia and Pacific, ECA = Europe anid Central Asia, LAC = Latinl Amilerica and the Caribbean, MENA = Nfiddle East and LAC = Latiii America and the Caribbean, MENA = Mfiddle East and North Africa, SAR = SoLIth Asia, and AFR = Sub-Saharan Atrica North Africa, SAR = South Asia, and AFR = Sub-Salharan Africa Souirces World Batik Debtor Reporting S'stern arid staff estimiates, INIF Sources World ilanik staff esriinates, IMF International FinanLial Statistics International Finanicial Statistics reserves. At some point, however, this process were net lenders to developed countries. They re- will be complete and give way to pressures for mained heavily reliant on FDI to finaice both their the real exchange rate to rise. In the meantinme, debt repayments to private creditors and their ac- there is also a risk of overinvestment in sectors, quisition of foreign assets, both private and official. such as the tradable goods sector In East and This rclative stability is neither inevitable nor South Asia, that are currently benefitting from necessarily desirable, however. Key flows are ad- official policies to hold down the real ex- justing to shifts in conditions that occurred in change rate. the later 1990s. The stock adjustments expressed by the changes in flows-notably the paydown of private-sector debt-continued apace in 2002, but Learning to live with less debt they will have a finite life. When they are com- T he pattern of overall capital flows to develop- pleted, capital flows will naturally move to a differ- T ing countries did not change much in 2002 ent pattern, probably one that again favors higher over 2001. Developing countries, in aggregate, debt flows relative to equity flows. This shift is 13 G L O B A L D E V E L O P M E N r F I N A N C E 2 0 0 3 likely to begin to happen in 2003, with net debt absolute return of any major asset class (includinig equities) flows to the developing world from private sources from December 1990 to August 2002. See figure 4 18. turning modestly positive once again. These shifts 4 At the end of 2002, East and South Asian reserves, will not be dramatic, however, and the overall pat- combiined, accounted for 50 percent of total developing- country reserves, up fromn 45 percent at the end of 2000. See tern of external financinig for developing countries the Statistical Appendix, table A 50 is projected to be little changed from 2002 (see table 1.1). Meanwhile, a key role of policy wvill be to en- References sure that current shifts involve the least pain possi- ble, and that the pattern of flows that emerges Calvo, G., and C. Reinhart. 2000. "Fear of Floating." from the process of stock adjustment is one that NBER Working Paper 7993. National Bureau of puts dvo e fnn oam eEconomic Research, Cambridge, Mass puts development finance on a more stable footing Clinie, William R. 1995. International Debt Reexamined. than it was in the volatile years of the 1990s. Washingtoni, D.C.: Institute of International Economics. Crockett, Andrew. 2002. "Capital Flows in East Asia Since the Crisis." Address to the meeting of the deputies of Notes the ASEAN Plus Three, October 11, Beijing. 1 These financial flow totals are the suIml of net private IIF (Institute of International Finance). 2003. "Capital Flows flows and official flows, including aid. to Emerging Market Economies." Washington, D.C. 2. There is a discontinuity in the World Bank's Debtor IMF (International Monetary Fund). September 2002 Reporting System in 1970, when it was expanded to include World Economic Outlook Washington, D.C. private, nonguaranteed long-term debt. Ratha, Dilip 2000 "Demand for World Bank Lending." 3. For all the turbulence in emerging debt markets in Policy Research Working Paper 2652 World Bank, the 1990s, emerging-market bonds provided the highest Washington, D.C. 14 Battling the Global Headwinds of Financial Imbalances and Uncertain Geopolitics Hans Timmer, Mick Riordan, and Robert Keyfitz INANCIAL IMBALANCES CONTINUE TO RE- work, adding to discretionary spending, and cutting strain the rebound in the global economy. taxes, the governments of the countries of OECD F Some of these difficulties, such as the bur- saw their general balances deteriorate by an average geoning of nonperforming loans in Japan, have 2.9 percent of GDP between 2000 and 2002. persisted for more than a decade. Others surfaced The U.S. current-account deficit is now ap- when equity bubbles deflated at the onset of the proaching 5 percent of GDP, an unprecedented recent global slowdown, funds for many high-tech level for this stage of the business cycle. At the companies dried up, and financial institutions in same time, financing the deficit has become less Europe and the United States became more cau- straightforward, given the substantial weakening tious in the wake of major defaults. Although debt of the dollar over the latter months of 2002. overhangs have been eased through bankruptcy In this challenging financial environment, the proceedings and improved profit rates for some, for global rebound is lacking sectoral and geographical others debt-service problems have become more balance. Global growth is currently projected to severe because of low nominal growth in GDP com- accelerate to 2.3 percent in 2003 from 1.7 percent bined with high spreads. New trouble spots have in 2002 (table 2.1), but this would be very anemic emerged as well. Against an unfavorable external for the second year of what should by now be a environment, the debt dynamics of several govern- full-fledged, synchronized global upswing. In many ments in Latin America have become difficult. parts of the world, a recovery in fixed investment is The increasing likelihood of a military conflict turning out to be exceptionally slow. in Iraq has cast its shadow over the economic and A worrisome characteristic of the current eco- political landscape in recent months. With oil prices nomic environment is that macroeconomic poli- rising and investors waiting uneasily for events to cies may be running up against their limits and, on unfold, the recovery in the global economy has balance, those policies in 2003-04 are more likely likely been delayed further, while downside risks to be less stimulative-or restrictive-rather than have risen, especially for countries in and around expansive. Upside surprises are plausible, too. As the Middle East. The baseline projections assume the excesses of the boom of the 1990s are gradu- a quick resolution to current tensions regarding ally worked out and financial markets stabilize, Iraq, highlighted by the quarterly pattern of the oil the fundamentals of the world economy should price assumed: $32 per barrel in the first quarter emerge in fairly sound condition, supporting of 2003, and $29, $23, and $22 per barrel in the global growth at rates nearing longer-term quarters following. trends by 2004-05. Moreover, world growth po- Macroeconomic stimulus measures undertaken tential has likely increased due to intensifying in the high-income countries have served to cushion trade and financial integration, greater investment the global economy from an even sharper slow- in human capital, wider availability of productivity- down, but they have also contributed to further enhancing technology, and stronger institutional imbalances. By allowing automatic stabilizers to capacity throughout the world. 17 G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 Table 2.1 The global ouilook in summary (percentage change from previouts year, except interest rates anid oil price) GEP 2003 forecasts 2001 2002e 2003f 2004f 2005f 2003 2004 Global conditions World trade volume 0 4 3 0 6 2 8 1 8 1 7 0 8 0 Consumer prices G-7 countries' b 1 5 1 0 1.4 1.3 1.3 1 2 1 5 United Stares 2 8 1 6 2 5 2 3 21 21 2 3 Commodity prices ($ terms) Non-oil commodities -9.1 51 8 2 2 3 1 7 5 8 4 4 Oil price (OPEC average) 24 4 24 9 26.0 21 0 20 0 23 0 20 0 Oil price (percent change) -13.7 2 4 4 3 -19 2 -4 8 -8 0 -13 0 Manufactures unit export value' -2 9 -1 4 5 6 -0 1 1 2 3 0 2 2 Interest rates $, 6-month (percent) 3 5 18 1 7 3 2 4 2 1 5 3.1 C, 6-month (percent) 4 2 3 3 2 4 2 3 3 1 3 2 3 8 Real GDP growthd World 1.2 1.7 2.3 3 2 3.1 2.5 3.1 Memo item World (PPP weights)' 2.2 2 8 3 2 4 1 4 0 3 4 4 0 High income 0.8 1.4 1.9 2.9 2.6 2.1 2 7 OECD countries' 0 9 1 4 1 8 2 8 2 6 2.1 2 6 Euro Area 1 5 0 8 1 4 2 6 2 6 1 8 2.6 Japan 0 3 -0.3 0 6 1 6 1 4 0 8 1 3 United States 0.3 2 4 2.5 3 5 3 0 2 6 3 1 Non-OECD countries -1 1 2 2 3 0 4 3 4 5 3 7 5 3 Developing countries 2.8 3.1 4.0 4.7 4.8 3.9 4.7 East Asia and Pacific' 5 5 6 7 6 4 6 6 5.9 6.1 6 4 Europe and Central Asia 2 3 4 1 3.7 3 7 4 1 3 4 3 6 Transition Countries 4 5 3.6 3 6 3 5 39 33 35 Latin America and the Caribbean 0 3 -0 9 1.7 3 8 4 5 1 8 3 7 excludingArgentina 1 1 0 8 1 6 3 7 4 7 19 3 6 Mddle Eastand North Africa 3 2 2 6 3.7 3 9 3 7 3 5 3 7 Oil exporters 2 2 2 3 3 7 3 6 3 4 37 3 6 Diversified economies 4.1 2 5 3.1 4 2 4.2 2 7 3 6 SouthAsia 43 49 53 52 53 54 58 Sub-SaharanAfrica 3 2 2 6 3.0 3 6 3 7 3 2 3 9 Memorandum items Developing countries excluding transition countries 2 6 3 1 4 1 5 0 5 0 4 0 4 9 excluding China and India 1 7 1 7 2 9 3 9 4 3 2 8 3 8 Note PPP = purchasing power parity, GEP 2003 = Global Economic Prospects and the Developing Countries, World Bank, January 2003, e = estimate; f = forecast. a Canada, France, Germany, Italy, Japan, the United Kinigdom, and the United States b In local currency, aggregated using 1995 GDP wveights c Unit value index of manufactured exports from malor economies, expressed in U S. dollars. d GDP in 1995 constant dollars; 1995 prices and market exchange rates e GDP measured at 1995 PPP weights. f Now excludes the Republic of Korea, which has been reclassified as high-income OECD Source World Bank Development Prospects Group, March 2003 Since the early 1980s, inflation has gradually that helped to reduce inflation. A surge in innova- been reduced in the high-income countries, while tion and increased global competition further rein- developing countries experienced a similar trend forced the trend. On balance, this has been a bene- during the 1990s. Now, double-digit inflation has ficial development, as it helped foster a more stable become an exception, and several countries are macroeconomic environment while increasing the experiencing deflationary conditions. Strict and flexibility of relative prices and real wages. For increasingly independent monetary policy, fiscal re- example, sharp exchange rate devaluations no straint, and labor-market reforms were key policies longer lead automatically to inflationary spirals, 18 B A T T L I N G T H E G LO B AL H EA D WINDS OF F INA NC IA L I M B A L A N C E S but rather to adjustments in relative prices, making Central to this weakness in final demand possible a quick economic rebound in the wake of growth is that the rebound in the growth of business crises. investment from its slump in 2000-01 came more However, the trend toward deflation poses slowly and less forcefully than is usual. The debt- new challenges. Most important, debt dynamics financed capital spending extremes of the boom can easily become destabilized in a deflationary years have left many companies across the indus- environment. Against this background, monetary trial world with the need to scale back on spending authorities should focus as much, if not more now, for capital equipment. In some cases, even severe on avoiding the lower boundaries rather than the corporate retrenchment has not been sufficient, and upper limits of the forward-looking inflation tar- 2002 was a year of continued high-profile corporate gets when setting policy. restructurings and bankruptcies. During this process, growth in the industrial economies has been sustained by a sizeable stimulus from macroeconomic policies, which has, in turn, A hesitant recovery in the provided an important stimulus to certain compo- high-income countries nents of demand, especially consumer spending and t he recovery among the industrial countries, housing investment in many English-speaking T which commenced in late 2001 in the United economies (led by the United States). Not only has States, faltered in mid-2002 (figure 2.1). Quarterly the degree of stimulus provided by macroeconomic real GDP growth in the major economies slowed policies likely passed its peak, but also the reliance from 2 percent in the first half of 2002 to just on strong growth in U.S. consumer demand pre- 1 percent in the fourth quarter. figures the emergence of new imbalances, as illus- The early rebound was especially evident in trated by the recent acceleration in U.S. household a strong revival of industrial production. On the debt growth and the widening of the U.S. current- demand side, a key ingredient to the turn in indus- account deficit. trial production was the end of the process of in- Against this background, expectations about ventory liquidation, which had severely weakened the pace of the economic recovery in the major in- output in 2001. The boost from inventories was dustrial economies are grounded in the extent of limited, however, especially as the underlying the corporate-sector adjustment. Precisely because weakness of final demand growth in the industrial this is a bumpy path, made more difficult by the countries made producers leery of actually rebuild- financial market volatility and geopolitical uncer- ing inventories. tainties evident over recent months, the recovery in the major OECD blocs is likely to remain quite uneven through the first half of 2003 (table 2.2). Figure 2.1 Industrial production in the Euro Area, The pace of GDP growth is expected to ease in Japan, and the United States, 2000-2002 the United States and Japan from the second half of 2002, while the Euro Area IS projected to expe- Percentage change, 3-month/3r-month, seasonally adjusted annual rate rience little change in its recent sluggish growth. 20 10 Table 2.2 Real GDP growth in the major Euro Area economies, 2001-2003 X b9p ~(percentage change over preulous period at an annual rate) 0 ~ 2-9L 2001 2002 2003 Hi H2 Hi H2 Htf H2f United States r -10 OECD 05 -0.5 16 2.6 1 0 3.0 Japan Euro Area 1 7 0 1 0.9 1 3 1 2 1 9 Japan 1 0 -3.9 1.0 3.3 0.3 1.2 -20 l l United States -0.4 0 1 3 5 2 7 2.2 3 1 2000 2001 2002 Note' H = half, f = forecast. Sources. National agencies, ELurostat Source. World Bank staff projections 19 G LO B AL DE V EL 0 PM ENT F INA NC E 2 0 0 3 Growth is expected to accelerate going into the 2.2I UZ.. ;usiness debt, 1980-2002 second half of the year and into 2004, however, as Debt asashare of GDP (percent) more progress is made to mend corporate balance sheets, and global monetary conditions remain very accommodative. 45- 40- Tracking corporate-sector adjustment T he 1990s ended with a perception of health 35 - T and performance in the corporate sector that was at the opposite extreme of the end of the 1980s. Then, the corporate models of Japan and Germany were held up as ideals to follow, while the corporate sector of the United States was 251980 1983 1986 1989 1992 1995 1998 2001 widely seen as having fallen behind. Ten years on, Source U.S. Federal Reserve however, it was the U.S. model that was viewed as best practice, especially as the spread of informa- tion technology through the economy accelerated growing caution by consumers undermined profits, the growth of productivity throughout the econ- thus widening the corporate sector's financing gap. omy. Meanwhile, many of Japan's companies re- While these developments are easiest to docu- mained mired in the banking and debt difficulties ment in the United States, given comprehensive created during what, in retrospect, came to be seen macro-level data on the corporate sector, it is strik- as a bubble period in the second half of the 1980s, ing how widespread corporate-sector debt diffi- a time when Europe's companies were held back culties became in 2001-02. Business debt in the in their own countries by rigid labor markets and United States skyrocketed by some 25 percentage inflexible distribution channels. points of GDP between 1999 and 2002, presenting Two developments followed. First, capital a formidable overhang to be addressed against a flows to the U.S. corporate sector surged in the late background of sluggish revenue flow (figure 2.2). 1990s, especially after the East Asian and Russian Globally, telecommunications firms have suffered crises, producing a sharp drop in the effective cost the consequences of building substantial excess of capital in the U.S. corporate sector, especially in capacity or investing in technologies not yet appro- (but not limited to) information technology. Sec- priate for the current market (such as G-3 licenses ond, companies outside the United States increas- in Europe). High-tech firms and airlines have ingly moved to follow or emulate their U.S. coun- faced a collapse in demand, while financial institu- terparts, either by taking outsized bets on growth tions have been weakened by major corporate and in their own economies (this was especially true of sovereign defaults. And persistent weakness in con- European telecommunications companies), or by struction and trades in Japan and Germany have undertaking aggressive acquisition and expansion saddled banks with nonperforming loans as busi- strategies in the United States itself (thereby help- ness insolvencies have escalated. ing to further fuel the U.S. equity-market surge). The result has been a subdued private sector, When global equity markets moved down with balance-sheet adjustments across the rich from the middle of 2000, the effect was profound countries entailing a substantial contraction in cap- on businesses across the major economies, not just ital expenditure, normally the force underpinning in the United States. As asset prices fell, it became movement from early recovery to economic expan- increasingly difficult for companies to finance capi- sion. Business investment in the United States has tal spending at levels in excess of profits, especially declined at a faster rate than during the recession since such financing was entirely dependent on of the early 1990s, dropping by a cumulative 12 debt issuance. The resultant need to cut capital percent since 2000 highs, while adverse effects on spending and employment levels created something employment have been quite similar (figure 2.3). of a vicious circle, as the economic downturn and The rate of unemployment has not risen to the highs 20 B AT T L I N G T H E G LO B AL H EA D WINDS OF F INA NC IA L I M BALA NC ES Figure 2.3 U.S. business investment and change in Figure 2.4 U.S. corporate profits and the financing nonfarm payrolls, 1972-2002 gap, 1989-2002 Pinancing gap Investment (percent change) Employment (thousands) Profits (billions of dollars) (billions of dollars) 40 Employment 1500 750 - Profits 350 (2-quarter moving average change) (after inventory valuation and 30 - right axis) cap-consumption allowances) - 300 l 1000 650 - (left axis) 20 250 1 0 500 550 --200 0 ~~~~~~~~~~~~~~~~~~-0 450 - 150 -10 100 -20 Investment (1 995 dollars) - 50 30Financng gap 50 (left axis) (right axis) -30 l l l l l l 1 -1000 250 i/ _ _ I _ i _ _ _ _ _ _ O A'1\ A" N bN 1989 1991 1993 1995 1997 1999 2001 Note. Financing gap denotes capital spending less adjusted profits. Sotirces- U S Commerce Department and Bureau of Labor Staitistics SucsUS omreDprmn n eea eev or Sources U S. Commerce Department and Federal Reserve Board seen during the 1990s downturn (some 7.8 percent), Figure 2.5 Benchmark spreads for U.S. high-yield due tn large measure to slowing growth in the labor bonds, 1997-2002 force. Japanese private Investment has declined Basis points more than 10 percent since recent peaks, while the 2,500 rate of unemployment has risen to a record 5.5 per- Telecommuations cent. And although European capital spending has contracted by a more moderate 5 percent, employ- 2,000 - ment has borne a larger share of the burden, rising to 10.3 percent in Germany and to 9 percent of the 1,500 I labor force in France and Italy. On an encouraging note, however, there is 1,000 A some evidence that corporate financial Imbalances are being rectified. In the United States, corporate 500 A hihysectors profits staged a recovery through 2002 and were up by 20 percent in the third quarter over a year earlier. A reacceleration in productivity growth 1997 1998 1999 2000 2001 2002 and consequent reductions in unit labor costs have contributed, as have lower interest rates on debt. The nonfinancial corporate sector's financing gap (the difference between adjusted income and capital United States. In Japan, profit growth has recently outlays) has narrowed substantially from the late resumed following massive decline in 2001 (fig- 1990s, a signal that adjustment measures are in- ure 2.6). The revival in profits in the Japanese econ- deed having positive financial effects (figure 2.4). omy, however, has been concentrated in the major Moreover, market perceptions of this progress manufacturing (and export) sectors. A return to are being reflected in narrowing spreads for the profitability is not anticipated for industries and broader high-yield asset class and for the telecom- firms serving the domestic market, where consumer munications sector in particular-which saw a drop spending has been volatile and labor market condi- of 1,000 basis points over the period since June tions deteriorating. Banks continue to write off bad 2002 (figure 2.5). loans and, consequently, rack up sizeable losses. Improving signs of corporate profitability and In Europe, corporate profits have yet to turn diminished financial strains are not limited to the the corner, however. German company surpluses 21 G LO B AL DE V EL OP M ENT F INA NC E 2 0 0 3 Figure 2.6 Corporate profits in Japan and the Figure 2.7 Fedwrel Reserve (Fed) and European United States Central Bantk (ECB) target rates, 2000-2003 Percentage change, Percentage change, Percent year-over-year year-over-year 20 6 15 UnitedSStates 5 10 (left axis) 4 -15 2 -10 Japan (mnanufacturng) -25 1 (right axis) _ C / ngh axs}C I I I I -20 -35 2000 2001 2002 2003 a0 Q2 03 04 01 Q2 03 04 2001 2002 Sources. Federal Reserve, ECB Note The United States uses the inventory valuation and capital consumption adi.sted national accounts based measure Souirces U S. Department of Cornmerce, Japan ESRI. o The Federal Reserve's aggressive 525-basis- point reduction in target interest rates between late 2000 and late 2002 helped to underpin dropped from a gain of 5 percent during 2001, to spending on consumer durables, while trigger- a decline of almost 4 percent in the first three ing large-scale mortgage refinancings that quarters of 2002. Performance in France has been supplemented consumers' disposable incomes similar, with profit growth falling from 0.7 percent (figure 2.7). in 2001 to a decline of 3.5 percent in the first three o Despite having no latitude to trim short-term quarters of 2002. The brightest recent signs have interest rates, the Bank of Japan has been more come in corporate debt markets, where the pace aggressive in expanding base money in recent of debt downgrades has slowed and yield spreads months, which has helped flatten the yield have narrowed. curve. Unfortunately, bank credit to the pri- Although these generally positive signals pro- vate sector has continued to contract due to vide some support to the view that the worst is severe structural problems in the banking sec- behind the corporate sector in the industrial coun- tor that stifle intermediation. tries, the renewed weakening in recent months o The European Central Bank retained a cau- in global equity markets (although not high-yield tious policy stance for much of 2002, which re- fixed-incorne markets) is a reminder of both the flected its concerns over inflation. It too eased fragility of the current situation, as well as the in December 2002, and again in March 2003, major adjustments still ahead. as data underlined the persistent sluggishness of economic activity in the Euro Area. Supportive monetary Looking ahead, the Federal Reserve has little lee- and fiscal policies way for additional interest rate reductions, and MS AT onetary and fiscal policies were quite sup- will most likely keep interest rates on hold for the M%t R portive over the course of 2001-02, limiting rest of 2003 if growth, as expected, picks up grad- the downturn during 2001 and providing an im- ually. In contrast, the European Central Bank has portant impetus to growth during the early stages more room to ease and is likely to follow market of recovery. expectations and possibly trim rates slightly fur- With the effects of monetary policy expected to ther in the first half of 2003. The Bank of Japan is materialize with some lag, the degree of monetary anticipated to step up its already aggressive ap- stimulus now in the pipeline is considerable: proach to add liquidity. 22 B A T T L I N G T H E G LO B AL H EA D WINDS OF F INA NC IA L I M B ALAN C ES Fiscal policies in the OECD shifted toward an Figure 2.8 U.S. and German fiscal balances, expansionary stance in 2001, with both U.S. and 1999-2003 European fiscal deficits widening substantially. In Percentage of GDP part this was due to the operation of automatic sta- 1 5 bilizers. In the United States, there were also tax cuts nited States and a sustained rise in government spending 05 - on homeland security and defense in the wake of September 11 (figure 2.8). An additional stimulus -°S / has more recently been proposed by the administra- _1 5 tion, so fiscal policy is likely to remain expansionary in the United States in 2003, especially with stepped- -2 5 - Germ up spending on possible military action in Iraq. Fiscal stimulus has already raised budget -3 5 - deficits significantly in many developed and devel- oping countries around the world. These entail net 14'5 l l l l l dissaving and accumulation of financial liabilities 1999 20 0 0 0 by public sectors that eventually spill over to other Source OECD. aspects of the macroeconomic environment and begin to crowd out private-sector activity. Even if deficits are not quickly reversed, the marginal These constraints are already evident in Europe contribution of stimulus to growth will decline. and Japan. In the Euro Area, the Growth and Indeed, it may even turn negative on the fiscal Stability Pact is now constraining fiscal spending, front (box 2.1). partly because of a failure by members to achieve Box 2.1 Limits to fiscal stimulus A verage fiscal deficits in the OECD countries deterio- fiscal deficits are best used as a smoothing factor over rated by 2.9 percent of aggregate GDP between 2000 the business cycle, but not a medium-term engine of and 2002, reflecting a 1.5 percentage point of GDP increase growth. in expenditure and 1.4 percentage point of GDP drop in rev- * The positive short-run effects of fiscal stimulus on enue. Model simulations suggest that the impact on GDP GDP tend to reverse in the medium run, when higher was of the same order of magnitude. Indirect effects on pri- interest rates start to curb private expenditure and in- vate sector spending roughly compensate for the leakage of creasing indebtedness discourages foreign investors. government spending into imports and the absorption of tax The short-run and medium-run effects of a one-time cuts into private savings. Thus fiscal policy may well have fiscal injection tend to cancel each other out, leaving averted a sharper slowdown in the short run, but how effec- no impact in the longer term. tive is it as an engine of growth for the medium term? Fiscal stimulus is unlikely to maintain its positive contri- A fortiori these arguments apply to developing countries. bution to growth in the medium term, however. Two factors Financial markets tend to punish fiscal mismanagement make fiscal stimulus a poor medium-run engine of growth: in developing countries quickly, making the crowding-out effects larger and more immediate and even forcing many * Even when deficits are kept at high levels, govern- governments into pro-cyclical fiscal policies. Moreover, ment's direct contribution to demand growtb drops. governments in developing countries generally possess To maintain a constant contribution to growth, the more limited tools and capacities than governments in deficit has to deteriorate further each year. Instead of rich countries. On average, government spending as a deterioration, there are strong pressures (economic, percentage of GDP in developing countries is roughly political, and, in some U.S. states and the European half of the corresponding share in high-income countries, Monetary Union, statutory or normative) for more making a substantial growth-stimulus program more balanced fiscal positions. Under these circumstances, complicated. 23 G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 a more cyclically balanced fiscal stance during the in personal saving rates that resulted from the col- late 1990s. In Japan, government debt has ap- lapse of household equity wealth.' proached a dangerous level after an extended pe- In the aggregate balance sheet of U.S. con- riod of fiscal deficits of 6-7 percent of GDP, even sumers, the buildup of personal debt was overshad- with interest rates close to zero. According to owed by substantial equity gains up to 2000. More OECD estimates, stabilizing gross debt at the rela- recently, the appreciation of real-estate holdings tively high level of 180 percent of GDP will re- has helped to lift the value of household assets. quire maintaining a fiscal surplus of 1.25 percent But over recent months, equity markets have re- of GDP, nearly 8 percentage points higher than at mained weak, further undermining household present. wealth. The net effect of these asset changes over 2002 has been a decline of $1.1 trillion-a $2.2 tril- lion decline in equity valuation set against $1.1 tril- lion real-estate appreciation. Since its recent peak Rising household debt in the during the first quarter of 2000, U.S. household net United States financial worth has dropped by some $7.8 trillion, A s evidence accumulates that the corporate composed of a $6 trillion decline in the value of fi- debt overhang is being gradually reduced, new nancial assets and a $1.8 trillion rise in liabilities. imbalances are emerging. For example, household When the appreciation in the value of household debt in the United States has risen to a record tangible assets is included, this net worth decline is 320 percent of GDP as of the end of 2002, a rise reduced to $4.2 trillion, or a 10 percent decline of 50 percentage points of GDP since 1998 (fig- from its peak in 2000. ure 2.9). Similar trends, but of lesser magnitude, Although the U.S. consumer has been an im- have emerged in other English-speaking countries pressive bulwark against global weakness, these of the OECD. recent developments in the household balance The ballooning of U.S. consumer debt primar- sheet and the labor market suggest that, in the ily reflects substantial additions to household mort- near future, the growth contribution from this gage debt (some $1.5 trillion since the first quarter source is also likely to be more subdued. While of 2000). In addition to financing a significant rise low interest rates may allow consumers to con- in the housing stock, this net new borrowing has tinue to carry relatively high levels of mortgage allowed households to cash in some of the equity in debt, the appetite of borrowers to take on more their (rising) housing wealth, thus slowing the rise debt, and of lenders to extend more, shows signs of fading. Notably, household delinquency rates on higher-risk instruments (so-called subprime lending) are on the rise. To date, household income Figure 2.9 U.S. household debt, 1980-2002 growth has held up remarkably well, but the likeli- hood of ongoing corporate retrenchment is liable Debt as a share of GDP (percent) to restrain growth in labor income. Moreover, 85 readings on consumer confidence, which capture 80 0 many of these forces in a single indicator, have re- 75 - cently dropped sharply to levels not seen since the early 1990s. 70 - Although less burdened than U.S. households 65 by the legacy of debt, consumers in Japan and eo - Europe have been adversely affected by a substan- ss v~ tial deterioration in labor market conditions. As a result, strength in spending earlier in 2002 is now 50 giving way to renewed declines. Particularly in 45 Europe, consumption spending indicators were 40 l l l l l l l l l l l l l l l l l veryweak inthefourth quarter of 2002. 1980 1983 1986 1989 1992 1995 1998 2001 A critical and persistent imbalance for the Sources Federal Reserve; U.S. Commerce Department. world economy is the large U.S. current-account 24 B AT T L I N G T H E G LO B AL H EA D WINDS OF F INA NC IA L I M B A L A N C E S Figure 2.10 U.S. private- and public-sector United States absorbs some 8-9 percent of the financial balances and the current account, world's savings annually), develops over the com- 1999-2002 ing years is a key issue in the outlook, not least be- Percentage of GDP cause it raises the possibility of a significant further 2 - downward move in the dollar (as occurred in the 1 ~ Publlc-sector second half of the 1980s). This issue is addressed in financial balance more detail in the last part of this chapter. -2 Private-sector The outlook for growth in high- -3 %hfinancial balance income countries in 2003 and beyond S ustainable growth based on a resumption of -5 - \_ / Current accountin nvestment spending in the high-income eco- (foreign savimga)II l , l l nomies has been slow to materialize. The basic 1999 2000 2001 2002 premise of the forecast, however, is that the pieces Source Federal Reserve are now in place for growth to inch up over the next couple of years. There are already signs that the worst may be over on capital spending. For deficit. This international counterpart to earlier the OECD countries overall, quarterly statistics household and corporate exuberance has not di- show a gradual return to positive growth in invest- minished during the recent period of sluggish ment (figure 2.11). The year 2003 is likely to be one growth, as would normally happen in a U.S. cych- in which the pace of growth accelerates progres- cal downturn, but instead has widened to nearly sively as capacity use and profit rates rise and as 5 percent of GDP, as public-sector deficits have some of the more immediate uncertainties weigh- risen sharply. ing on consumers and investors, notably the issue The private-sector financial balance (gross of war in Iraq, are resolved. saving less gross investment) improved as a result The threat of a military conflict in Iraq is al- of the adjustments In the corporate sector noted ready acting to temper growth in the first half of above and the recent rise in household saving rates 2003, as oil prices spiked by almost $15 per barrel (figure 2.10). However, these improvements have been more than offset by the sharp swing in gen- eral government financial balance, from a surplus Figure 2.11 OECD real fixed investment spending, of 1.3 percent of GDP as recently as the third 2000-2002 quarter of 2000 to a deficit of 3.6 percent of GDP Percentage change, quarter-over-quarter, seasonally adjusted by the third quarter of 2002. Except for World annual rate War II, this swing in the public sector's financial 10 position is the most rapid on record. That it was 8 \ produced by the working of normal cyclical elas- 6 - ticities and discretionary easing measures under- 4 - lines the role of the boom and bust in equity prices 2 in the U.S. government's finances (primarily 2 through swings in the ratio of tax revenue to GDP) 0 and in those of the private sector. -2 - Under present economic and fiscal assump- -4 - tions, the U.S. current-account deficit is projected -6 to remain above $500 billion over the next three years, over which time foreigners will acquire more 01 02 03 04 01 02 03 04 01 02 03 than $1.5 trillion of U.S. assets. How this imbal- 2000 2001 2002 ance, with its large global repercussions (the Source: OECD 25 G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 between early November and early March and risen more recently. Oil prices have increased well investor sentiment fell anew. The rise in oil prices above $30 per barrel, as the risk of military inter- may well be short-lived and market sentiment may vention in Iraq rose and the strike in the Repbhlica turn around quickly, even in the case of a military Bolivariana de Venezuela reduced supply by 2 mil- conflict, as was the case during the Gulf War in lion barrels per day (9 percent of OPEC 1991. However, the recovery will be at best muted, [Organization of Petroleum Exporting Countries] and downside risks have increased. output) through much of the first quarter of 2003. The baseline forecast calls for growth in The other main downside risk to industrial- industrial-country GDP to accelerate from 1.4 per- country growth is that another round of financial cent in 2002 to 1.8 percent in 2003, reaching near- turmoil or another phase of weak asset prices lies term peak rates of 2.8 percent by 2004 before easing ahead: to 2.6 percent in 2005. This contrasts with an aver- age GDP advance of 3 percent during the strong o Despite its decline over recent years, the U.S. years of the last upswing (1996-2000). OECD-area equity market remains highly valued when growth is thus likely to remain well below potential benchmarked against traditional indicators, in most countries, pushing up unemployment rates. such as actual earnings. Although U.S. growth will be constrained by some o Globally, corporate debt levels have been of the imbalances considered above, it is likely to re- trimmed, but they remain high, and the risk of main higher than that of its major OECD partners. more "fallen angels"-investment-grade com- Constraints on policy implementation in Europe panies finding their debt downgraded to spec- and policy effectiveness in Japan are unlikely to be ulative levels by the major rating agencies- overcome in the near term, with the result that out- is significant. put growth is likely to be less in these countries. o Japan's banks remain fragile. While the risk of There are obviously uncertainties in this fore- more acute near-term difficulties seems to have cast, but they are not all negative: receded, it cannot be excluded altogether. 0 A degree of focus has shifted to the condition o The main upside risks reflect the fact that of Europe's banks, as they have been exposed OECD monetary conditions are currently to both domestic and international credit stimulative everywhere. To date, the results of losses (in both the United States and the devel- this stimulus have been narrowly concentrated oping world, especially Argentina). and slow to spread out across the global econ- omy. As adjustments to previous excesses in both high-income and developing countries are completed, the response to easy money Developing countries: A tortuous could become more powerful and pervasive. return to stronger growth in 2003 o Adding to this upside is the high degree of and beyond synchronization evident across the major utput growth for the group of low- and economies over the past few years. For most OJmiddle-income countries was 3.1 percent in of this period, synchronization has worked 2002, up by a small 0.3 percentage points from to compound weakness. Once the recovery is weak 2001 results. Growth was restrained by the underway in earnest, however, it should work lackluster recovery in the industrial countries and to boost the global cycle. by financial and political uncertainties in several o Finally, a swift resolution of geopolitical uncer- large emerging markets. Demand for developing- tainties, especially with regard to Iraq, could country exports grew by a small 2.2 percent, while give a sharp lift to markets and business confi- prices for non-oil commodities rose by 5.1 per- dence, especially if it were combined with a cent. Net debt flows were weak, especially to Latin significant decline in the price of oil. America, and FDI declined by $28 billion. The price of oil jumped from $19 to $28 per barrel Key downside risks are also evident, however. On over the course of 2002. For oil importers, this top of the risk of protracted geopolitical uncer- "Iraqi war premium" more than offset gains in tainty, the risk of an extreme oil price spike has agricultural and metals prices. 26 B A T T L I N G T i E G 1. 0 B A L H E A D W I N D S O F F I N A N C I A 1. I M B A L A N C E S Over the past 18 months, growth perfor- and banking collapse in Argentina, uncertainty mance has differed substantially across the major regarding Brazilian elections, a worsening of regions of the developing world, tied in large mea- conditions in the Rep6bhca Bolivariana de sure to the evolution of domestic conditions: Venezuela, and an associated $31 billion falloff in financial market flows. GDP dropped * China continued to make strong advances by 0.9 percent in the year, a sharp 2.4 percent in output-some 8 percent during 2002- fall in per-capita terms. despite relative stagnation in Japan and volatile * Although slowing growth in the Euro Area U.S. demand. In turn, this strong growth has cast a pall on those developing countries increasingly helped to pull the recovery in linked tightly with it, a sharp recovery of ac- East Asia. Together with policy stimulus in tivity in Turkey following its 2001 crisis, in other countries, China's performance lifted tandem with continued gains in the Russian the region to growth of 6.7 percent in 2002 Federation and the Commonwealth of Inde- (figure 2.12). pendent States (CIS) countries linked to higher * At the other end of the growth spectrum, oil prices, buoyed growth in Europe and Cen- growth in Latin America and the Caribbeani tral Asia-producing a 4.1 percent rise. was held down by the government debt default * Continued strength in domestic demand in India propelled South Asia to gains of 4.9 per- cent, despite disruptions in regional condi- Figure 2.12 GDP growth for developing countries, tions associated with the war on terrorism. 1990-2002 * Growth languished in Sub-Saharan Africa Percent and the Middle East and North Africa-with 12- the regions both registering growth rates of /ast Asia 2.6 percent. 8 ~ / All developing countries Variability in performance across regions masks 4 - underlying similarities in the developing world. A /7 _/ \ > truly global business cycle has emerged with the 0 advancing integration of developing countries into Sub-Saharan global production, trade, and financial flows. Eco- -4 - \ A / nomic conditions in rich countries now tend to be Eoe and mirrored rapidly in developing countries through Centra8 Aaia enhanced trade links, just-in-time logistics, and 12 I stronger financial tie-ups with affiliates and sup- 1990 1992 1994 1996 1998 2000 2002 pliers in middle-income countries, especially those in East Asia, Central Europe, and, to a lesser de- gree, Latin America. Indeed, recent trends in in- dustrial production across these regions show the South Asia effects of the general cycle-as well as the cycle 6 - of the high-tech sectors in East Asia-distinctly (figure 2.13). Equally noteworthy is the movement into current-account surplus by the developing world. Middle East Developing countries as a group chalked up a and North Africa surplus of $48 billion during 2002, up from 7 \All developing $28 billion in 2001. The change was more than countries Latin America accounted for by developments in Latin America, -3 i i i i i i i i i i ll where devaluations and import compression 1990 1992 1994 1996 1998 2000 2002 yielded sharp increases in trade surpluses and a Sotirce World Bank data and WVorld Bank Development Prospects $35 billion change in the region's current-account Group prolections position-from a deficit of $51 billion to one of 27 G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 Figure 2.13 Industrial production in select regions, on a number of crucial assumptions about the 2000-2002 conditions facing developing countries: Percentage change, three-monthlthree-month, seasonally adjusted annual rate o Some disruptions from possible military ac- 40 tions in Iraq (including a temporary rise in the East Asia oil price) are built into the forecasts, but no 30 - Central and severe, lasting dislocations are assumed. Eastern Europe Il . ° Related to this, the expectation is that world 20 t y 1\ / rade will expand by 6.2 percent in 2003, a substantial multiple of the 2.3 percent growth in global GDP, as is normal at early stages of tO t \ l ! \ / n , recovery. The strength in trade flows also re- t1 < [\ } J/,flects the gearing up of international produc- o \/n ,-.)~4',E5' \ b tion networks, further underpinned by dy- Latin America OECDnamic conditions in China, a new World Trade -10 l i l Organization member, and reinvigoration of 2000 2001 2002 regional trade in several areas. Souirce: World Bank data o Financial conditions facing developing coun- tries are expected to be a little less austere in 2003 than in 2001-02. Flows of FDI are proj- Figure 2.14 Current-account balances for select ected to rebound slightly, while net debt flows regions, 1990-2002 from private sources should be modestly posi- Billions of dollars tive, albeit still quite anemic. 80 Middle East 60 - and North Africa E 40° ~ Central Asia / _ 110 South Africa. Continued low domestic savings and persistent capital flight will thus hold domestic in- 2 _ \ // \ vestment rates to low levels. Accordingly, medium- term prospects for the region are that growth will be 6 80 limited to around 3.5 percent-somewhat above 0 \ / 1 percent in per-capita terms. Except for a few cases where the policy process is in disarray (C6te d'Ivoire 50 and Zimbabwe), double-digit inflation is rare and 1990 1992 1994 1996 1998 2000 2002 should remain so, while moderate fiscal and current- Soturce World Bank data and World Bank Development Prospects account deficits are projected to narrow. Group estimates * The ongoing problem of HIV/AIDS (human Outlook for commodity prices immunodeficiency virus/acquired immune fter plummeting to historic lows during the deficiency syndrome) undermines the produc- A slowdown of 2001, prices for non-oil com- tive capacity of the region, especially through modities rose through 2002. Not all these increases its debilitating effect on education systems. have held. As global industrial growth slowed from mid-year, metals prices fell back. Agricultural Prospects for growth in the region are partly driven prices retained more of their gains because of sup- by the vagaries of the weather. The forecasted accel- ply problems, especially in coarse grains, aggra- eration in growth is conditioned on an assumption vated by drought in Australia, Canada, and the of more normal weather patterns, which would United States. The higher price of wheat and close give a boost to agricultural output and incomes. substitutes generated additional export revenue of Two other important supports to regional growth about $1 billion for Argentina, a large exporter of should be the expected pick-up in external demand, wheat, maize, and soybeans. especially once European economies begin to re- It is common to think of commodity prices in cover in earnest in 2004-05. Nearer term, some dollar terms. But most commodity prices are de- gains have already been realized from higher com- termined in world markets, so the price is ulti- modity prices-and more are likely in the pipeline. mately set by the balance of global supply and While the level of prices remains low by historic demand.4 When the dollar weakens, as it has re- standards, there are indeed signs that the 20-year cently, prices tend to rise in dollar terms to stop slide in many commodity prices that has been so them falling in yen or euro terms. A moderate de- painful for much of Sub-Saharan Africa is now cine in the dollar over the next couple of years, as coming to an end. The scope for easier policies in assumed in the forecast, should help boost com- the region is limited, but there is a likelihood of modity prices when expressed in dollar terms. some easing in South African monetary policy, Aside from this effect, however, fairly restrained especially in the second half of 2003, after a signifi- changes in commodity prices (in dollar terms) are cant tightening in 2002. expected over the next two years (table 2.1). Prices Even if commodity markets were to stabilize of nonprecious metals should revive again as as expected, the forecast could not call for any sig- global industrial production accelerates through nificant reversal of recent declines in terms of 2003. Higher prices for grains in recent years are trade. Furthermore, the region will continue to face apt to stimulate more supply in 2003-05, thus 33 G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 somewhat checking their upward movement. Crit- Figure 2.19 Output gaps in OECD centers, ically, the overall global outlook for inflation is 2000-2002 likely to remain very subdued (see below), suggest- DifferencebelweenactialandpotentialGOPpercentagepoints ing little underlying demand for commodities as 3 an inflation hedge, as there was in the 1970s and l 2000 E 2001 1 2002 early 1980s. 2 _ Oil prices have been pushed up to their high- est levels since 1991 by war jitters and the strike 1 in the Republica Bolivartana de Venezuela. Fore- casting the oil price over the next year is obviously I very hazardous. Further sharp upward movements are plausible in the near term, especially in the I event of military intervention in Iraq. The rest of OPEC would have to produce up to capacity, significantly exceeding the current quota, to com- _3 l = l pensate for the loss of production in Iraq and the Undied States Japan Euro Area Tolal OECD earlier shortfalls from the Repiiblca Bolivariana Souirce. OECD de Venezuela. Beyond near-term spikes, however, increasing supply and modest growth in demand suggest that current high prices will moderate into Figure 2.20 Inflation rate in OECD and developing 2004, falling to about $21 per barrel. regions, 1990-2302 Consumption deflators, local currency (median percentage change) 40 Is global deflation a threat? E ven with interest rates low and oil prices unex- pectedly high, there are few signs of inflation- 30 - Latin America ary pressure in industrial countries. Consumer 25 - price inflation at the end of 2002 was 1.6 percent, \ Sub-Saharan Airica a modest 0.6 percentage point higher than in 20 - / A 2001, the trough of the global slowdown. Given 15 - ScuthAsi the subdued expansion ahead, there is very little East Asia prospect of a general resurgence of price pressures. According to OECD estimates, negative output 5 gaps (the difference between actual and potential o - - - - - - GDP) have either opened or widened since 2000; 1990 1992 1994 1996 1998 2000 2002 with growth expected to remain below potential Source: World Bank data and World Bank Development Prospects for the next two years, these negative gaps are not Group estimates likely to close (figure 2.19). Slack conditions in labor and product markets will leave little opportu- slack in product markets as capacity expands nity for raising prices. The result is that domestic rapidly while consumer credit is still in its infancy. factors in the major economies point to continued Although deflation is beneficial for exporters, low inflation in Europe and the United States and sustained deflation must be a concern, however, sustained deflation in Japan. for heavily indebted enterprises and households, This message of low inflation is echoed in especially in financial systems that do not offer much of the developing world (figure 2.20). China borrowers the opportunity to refinance mortgages and some of the newly industrialized economies at lower interest rates. of East Asia are experiencing deflationary trends. The most striking aspect about inflation in This is helping them to maintain or even improve Latin America is the failure of significant currency competitiveness in international markets. In China, depreciations to spark inflation. Through recent deflation is driven by fast productivity growth, the waves of devaluations, the rise in prices has gener- shedding of labor from state-owned enterprises and ally been well below the decline in the currency 34 BATT LING T H E G LO B AL HE AD WINDS OF F INA NC IA L I M B ALAN C ES Box 2.2 Disinflation is a global phenomenon I nflation has dropped sharply across all high-income the currency board was abandoned at the beginning of Lcountries from its peak in the 1,970s following the col- January 2002, the peso went into free fall, eventually lapse of the Bretton Woods system of fixed exchange rates settling at around 3.6 to the dollar, a decline of around and the first global oli crisis. In the 1 990s, however, this 70 percent (it has since strengthened somewhat). However, development became truly global. By the end of the prices rose only 35 percent. This occurred in Argentma's decade, very few countries (at all income levels) had infla- extreme deflationary environment, with domestic produc- tion over 10 percent, as fiscal consolidation and increasing tion collapsing, but a similar story could be told about central bank independence limited the creation of infla- Brazil or South Africa. tionary conditions. Monetary authorities developed more Although disinflation has been a broadly beneficial sophisticated approaches to monitoring and interveniing in development, it has a dark side if it leads to deflation or financial markets, allowing them to target inflation and in- unexpectedly low inflation. These make for a dangerous terest rates directly rather than attempting to control mon- mix with high debt levels. etary aggregates. Authorities also learned the value of Deflation increases debt problems through several greater transparency and accountability, communicating channels: their intenitions promptly and clearly. Perhaps most iinpor- tant, public support has grown for price stability. Other * As deflation suppresses future profits, lower equity broad trends that promoted noniniiflationiary adjustment prices and higher spreads on corporate debt raise were the growth of more open and competitive output financing costs, deter investment, and make debt markets and the de-ildexing of labor contracts, both of problems persistent. which lowered inflationary expectations. The recent sLirge * Households faced with higher costs of debt service in productivity growth has further dampened price curtail discretionary spending, exacerbating the pressures. deflationary spiral. The result has been markedly lower inflation through- * The financial sector may also be affected, since a de- out the world and striking new patterns of price adjust- cine in equity prices erodes the value of collateral. In ment. Whereas 20 years ago a major devaluation would countries such as Germany and Japan, where banks have triggered an inflationary cycle, real adjustment now take direct equity positions, the fall in equity values takes place quickly. Argentina is a case in point. After also shrinks the banks' capital base. (box 2.2). Moreover, second-round effects have generally devalued at the trough rather than generally been quite short-lived. For example, in- the peak of the cycle.5 flation rose to no more than 9 percent in Brazil in * Long-standing structural refortms, notably 2002, despite the 24-percent drop in the real ver- measures to open the economy to trade and sus the dollar. Consumiler price hikes in Argentina competition, have provided strength. were only 35 percent in 2002, despite the currency collapse, government default, and restrictions on In other parts of the developing world, inflation is bank deposits. Dire warnings of a return to hyper- also at very low levels-few countries have double- inflation proved too pessimistic (just as they had digit inflation rates. Even where this is the case, in Indonesia in 1998 and the Russian Federation in such as in South Africa, there are clear signs that 1999), despite a high degree of policy disorder. In the condition will be temporary and that a signifi- explaining why inflationv was less than it was feared cant decline is in the pipeline. to be in Latin America and beyond, two factors With inflationi low in the OECD and negative stand out: output gaps likely to grow in coming quarters, it is reasonable to ask whether widespread deflation is * The devaluations occurred against a backdrop a major risk to the global outlook. of weak domestic demand and, in most cases, The authorities in Europe and the United States relatively high levels of unemployment and will be able to avoid deflation in the current fore- low levels of capacity utilization. Unlike in cast by sustaining easy monetary policies, which the 1 980s, Latin American economies have will have the effect of allowing most troubled 35 G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 debtors to manage their burdens down without Table 2.3 Growth in volume of manufactured strains sufficient to jeopardize the health of the do- imports mestic banking system. With the key central banks (percentage change at annualized rates) mindful of the risks and dangers of deflation, the Qi, 1999- Cumulanve fall Growth smice the chances of avoiding generalized global deflation peak in 2000 in downturn trough of 2001 look good. High-income 11 4 -6.1 7 9 By contrast, Japan is already well beyond the East Aslia and Pacific 19.6 -0 8 20.2 danger point. There, the difficulty is finding a pol- Middle East and 8 7 -4.6 2 9 icy recipe to break the cycle of declining prices North Africa that increases the burden of corporations' liabili- Centralnd 15 3 -24 7.9 ties. As burdens rise, commercial banks becoming Latin America and 12.1 -9.8 -8 4 saddled with yet more nonperforming loans. The the Caribbean resulting contraction in new lending leads to more South Asia 6.6 -7.6 115 economic contraction and price declines. Source. World Bank staff, Policy actions designed to break into this cir- cle of debt and deflation have gained new impe- tus, but much remains to be done. Cumulative 2001, fell cumulatively less than 1 percent during nonperforming-loan disposals have amounted to the downturn, and returned to a pace of 20 percent Y82 trillion (some $680 billion) since 1992. Eco- growth during the rebound (table 2.3). At the low nomic activity may be adversely affected in the end of the spectrum, Latin American imports fell near term as more stringent accounting criteria are almost 10 percent during the downturn and, after applied to banks, and remaining lines of credit to a short upswing, started to fall again in the second financially encumbered corporations are termi- half of 2002, reflecting severe constraints on exter- nated. Alongside these restructurings, it is desir- nal finance. For both high-income countries and able that the Bank of Japan should maintain a developing countries, trade is expected to grow at truly stimulative monetary policy. a fairly moderate pace in 2003, after a brief down- turn in the first quarter. The downturn follows the temporary dip in global industrial production in the fourth quarter 2002. On an annual basis A bumpy takeoff in world trade global trade growth is anticipated to reach 6.2 per- W lith the lowering of trade barriers, the inten- cent in 2003, up from the 3-percent results of W sification of global production networks 2002. The low growth rate for 2002 reflects partly and the integration of financial markets, interna- the decline in trade within 2001; the higher growth tional trade cycles have become strikingly synchro- rate for 2003 in turn reflects partly the accelera- nous. Volume growth of developing countries' tion that occurred in 2002. Most developing re- exports and imports over recent years followed gions should share in the acceleration of trade closely the pattern of trade flows in hligh-income growth, with the trend of growing South-South countries. After record growth in 2000, trade vol- trade continuing. China is expected to grow in im- umes fell in the first half of 2001 but started rising portance as an export market, especially for other again from the fourth quarter of 2001. Although the countries in East Asia. pattern was similar, average trade growth in devel- The relatively uniform rebound in the growth oping countries was significantly stronger than in of trade volumes implies little change in trade high-income countries. This mainly reflected gains balances in the near future. There will likely be in market share by Central European and East Asian some price effects on trade balances, especially as exporters and a rapid expansion of regional trade in the dollar continues to weaken. A weaker dollar both parts of the world. should increase dollar-based revenues for exporters Within this broad, synchronous trade cycle of non-oil commodities, with a positive impact on were eye-catching differences across developing their current-account balances in the short term. regions, especially on the import side. At the high At the same time, the depreciation of the dollar- end of the spectrum, East Asian imports grew at an together with fixed-debt servicing on dollar- annual rate of 20 percent before the downturn in denominated debt-will appear as a capital gain 36 B ATTL ING T HE G LO B AL HE AD WINDS OF F INA NC IA L I M B ALAN C ES or a rise in real incomes for indebted developing Figure 2.21 U.S. net borrowing as a share of countries, potentially leading to increased import rest-of-world savings, 1980-2004 demand. All these effects would be quite modest, Percent however. 12 10 r Assessing the global flow of funds 8 Using the pattern of global current-account 6- W balances as a starting point, the global flow 4 _ of funds can be summarized as follows: 2- * Developing countries export capital to high- , income countries. * Asia and Europe export capital to rhe -2 iIHiIIIIIIIIHiIIlIIII Americas. 1980 1983 1986 1989 1992 1995 1998 2001 2004 * These data need to be treated with some care, Source World Bank data. as the overall global current-account discrep- ancy was about $130 billion in 2002, imply- ing that far more payments than receipts are by higher European inflows to equity and fixed- being recorded. income markets. More recently, official creditors have been the source of an increasing amount of the The forecast projects that the U.S. current-account funding, as central banks (especially in Asia) have deficit, which widened to nearly 5 percent of GDP resisted upward pressure in their currencies against during 2002, will remain near that level in the the dollar. Japan's international reserve holdings short run. This large deficit began to be accumu- currently stand at around $450 billion and China's lated in the late 1990s as U.S. economic growth at $270 billion. These countries are at the high end surged and the dollar firmed. This development of the scale, but the breadth and amount of central was not unanticipated, as current-account deficits bank reserve accumulation over the past couple of are associated to a large extent with business fluc- years is striking (see chapter 1).6 tuations and the dynarnics of investment. What There is, of course, no reason why countries made the U.S. experience exceptional was that the should not maintain current-account deficits or deficit hardly narrowed during the downturn in surpluses for an extended period. Since 1980, the 2001 and sharply widened further immediately afterward. By 2000, the peak year of the last busi- ness cycle, the U.S. current-account deficit reached Table 2.4 Current-account balances 4.2 percent of GDP, or 8 percent of the combined (bullhoyis of dollars) savings of the rest of the world (figure 2.21). By 2001 2002e 2003f contrast, the peak of the last current-account cycle Worlda -140 -133 -229 In the United States during the mid 1980s saw the -170 -181 -255 deficit reach 3.4 percent of GDP, or 6 percent of United States -393 -498 -550 world savings. EU(15) 18 80 69 It is difficult to identtfy the full complement of Japan 89 116 115 financiers of the U.S. deficit because the global Developing countries 28 48 26 East Asia and Pacific 43 43 41 current-account deficit has ballooned, complicat- Europe and Central Asia 18 9 7 ing the picture (table 2.4). In the early phase of the Latin America and the Caribbean -54 -16 -20 run-up of the U.S. deficit, the main flow of capital Middle East and North Africa 29 25 10 South Asia -3 -8 -6 came from Asia, where the crisis of 1997-98 led to Sab-Saharan Africa -5 -4 -5 a sharp turn in capital flows. This flow has fallen fronm its peak, but not by much. During 2001-02, Note e = esnrmate, f = forecast a Glohal currenr-account discrepancy U.S. shortfalls increasingly came to be financed Source. World Bank staff. 37 G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 Table 2.5 Long-run trends in current account balances, 1980-2002 (percentage of GDP) Stan Correlation 1980-82 1983-85 1986-88 1989-91 1992-94 1995-97 1998-2000 2001 2002 dev. with U S United States 0.0 -2 2 -3.0 -1.0 - 1 2 -1.5 -3.2 -3 9 -4 8 1.52 n.a. Euro Area -0.9 0.4 0 7 -0.6 -0.3 1.0 0 1 0.5 1 3 0 63 -0.53 Japan 0 0 2 7 3.4 1.8 2 9 1.9 2.7 2.1 2 9 1.00 -0.64 Other OECD -2.5 -0.5 -1 8 -2.0 -2.1 0.0 -0 3 1.5 1.0 1 44 -0 80 East Asia and Pacific -1.8 -2 1 0 6 -0.7 -1.2 -1 3 4.7 2.6 2 5 2.39 -0 77 Europe and Central Asia -0 6 -0.1 0.1 -0 2 -0.6 -0.8 -1 6 1.9 0.8 0.52 0 36 Latin America and the Caribbean -4 8 -0 6 -1.6 -0 8 -3 0 -2.6 -3.4 -2 9 -1 0 1 34 -0 32 Middle East and North Africa 7.3 -4.6 -3 8 -3.3 -5.2 -0 1 0 7 5.0 4.5 4.57 -0 15 South Asia -1.9 -1.6 -2.2 -2 3 -1.4 -2.0 -1 0 -0.5 -1 1 0.84 -0.77 Sab-Saharan Africa -5 1 -2.1 -1.5 -0.7 -1.9 -2.1 -2.1 -1.7 -1 4 1 21 -0 23 Note. n.a = not applicable, Stan. dev. = standard deviation Sources. IMF, Balance of Payments Yearbook; World Bank staff current-account balances (expressed as a share of occurred to some extent, the amount was small. GDP) of Japan, the European Union, Europe and The reason lies partly in the global, synchronized Central Asia, and South Asia have been relatively nature of the last downturn, in which U.S. partner stable (as shown in table 2.5 by the standard devi- demand dropped sharply. Also important was the ation in their current-account imbalances). By con- sharp rise in U.S. public-sector dissaving-a result trast, the current-account imbalances of East Asia of fiscal expansion. and Pacific and the Middle East and North Africa At present, there is little evidence to suggest have been quite volatile. In the latter case, this is that international investors are unwilling to con- no doubt due to the volatility in oil prices. tinue financing the U.S. deficit at close to current The significant and negative correlations be- levels. A weaker dollar vis-A-vis the euro and the tween the current-account balances of most regions currencies of East Asia (especially the yen and and those of the United States suggest that varia- yuan) would restore a better balance. But there are tions in the U.S. need for savings have been met by several impediments to engineering such a change. much of the rest of the world. In the late 1990s, the Consistent macroeconomic policies would be re- rise in the U.S. current-account deficit had a coun- quired to encourage domestic demand in Europe, terpart in increased surpluses in Latin America, Japan, and China to replace net exports as a East Asia, the Middle East, other OECD countries, source of growth. It is unlikely that policymakers and, to a lesser extent, in the European Union. will elect to effect such change-and unclear that Several factors were likely at play in the they would be able to do so even if willing. widening of the U.S. deficit-and in its financing. The dilemma thus facing policymakers across Rapid productivity growth in the United States in the global economy, especially those in heavily in- the l 990s translated into higher demand for im- debted developing countries, is that a U.S. current- ports, as U.S. consumers spent what they perceived account deficit of about $500 billion is absorbing a to be permanently higher incomes. This was fur- very high proportion of global saving. But the ther reinforced by a rise in the real effective ex- means of adjusting this imbalance-reduced U.S. change rate, which also encouraged imports. At the import demand, appreciation against the dollar same time, sharply higher U.S. investment spend- (and the attendant deflation risks that it might ing and the run-up in equity prices offered interna- bring), and stepped-up efforts to promote domestic tional investors exceptional opportunities. And the demand-are all either undesirable or unachieve- United States was perceived as a safe haven during able objectives (see box 2.3 for a discussion of the financial turbulence in 1997-98 and 2002. impact of a weaker dollar on developing countries). During a cyclical downturn, such as that in But as long as the existing constellation of 2001-02, the U.S. current-account deficit would exchange-rate relationships persists, a constellation normally be expected to narrow. Although this that helps foster large U.S. current-account deficits, 38 BATT LING T HE G LO B AL H EA D WINDS OF F INA NC IA L I M B ALAN C ES Box 2.3 Developing countries and the dollar Since the summer of 2001, the dollar has lost more than compete with others whose costs depend on dollar 325 percent of its value against the euro. This erosion prices. Although fewer developing countries have affects trade relations and investment positions between their exchange rates pegged to the dollar than the United States and Europe most directly, but it has an 10 years ago, different exchange-rate systems still Important effect on developing countries as well. For de- have an impact on competitiveness. An obvious veloping countries, a change in the value of the dollar may example is the link of the Chinese yuan to the dollar, lead to substantial changes in terms of trade, competitive- which gives Chinese exporters a clear advantage ness, and debt service: vis-a-vis other exporters from the region when the dollar is weak. * Exporters of non-oil commodities tend to reap * About 60 percent of long-term external debt in devel- terms-of-trade gains from a weakening dollar. Large oping countries is denominated in dollars. This share segments of supply and demand in many non-oil may be even higher if one takes into account commodities markets depend on income flows denom- exchange-rate swaps that developing countries use to inated in other currencies. Prices in those markets tend limit exposure to fluctuations in the value of other to be determined in currencies other than the dollar. currencies. A weakening of the dollar immediately Econometric estimates show that roughly 50 percent lowers developing countries' debt service as measured of dollar depreciation is translated into a rise in dollar in local currencies. prices of non-oil commodities. And as prices of oil and industrial products are to a larger extent determined in These mechanisms imply that a weaker dollar is beneficial dollars, a weakening of the dollar is likely to generate for non-oil exporters and highly indebted countries- terms-of-trade gains for non-oil commodity exporters. mainly in Latin America and Sub-Saharan Africa-but * A falling dollar implies a loss of competitiveness for may adversely affect exporters of industrial and high-tech exporters to the United States, or exporters who products in East Asia. two unfortunate side-effects will develop. -First, 2. See chapter 5. There is also now, if anything, excess foreigners will increase their already huge holdings demand for dollar-denominated debt issued by East Asian of U.S. assets, many of which are held in liquid borrowers, leading to the emergence of an "Asia premium" form. Second, real resources will continue to be (see chapter 3). 3. This does not include about $8 billion of interest committed to maintaining this pattern of real ex- arrears that Argentina built up to private external creditors change rates, leading to a possible overinvestment in 2002. Technically, this should be counted as a short-term in the tradeable goods sectors in countries and net debt inflow. regions where the real exchange rate is being held 4. There are a few commodities for which this is not down by foreign-exchange intervention. true, since they cannot be easily shipped from one market to another. A good example is natural gas. 5. One exception was Mexico in late 1994. Partly as a result, the inflationl pass-through in 1995 was relatively high. Notes 6. Not all of these reserves are held as dollars. Indeed, 1. The rare of personal savings from disposable income many central banks are now in the process of diversifying was 0.8 percent in the fourth quarter of 2001, the lowest their holdings, especially by acquiring more euros, which level on record. By the fourth quarter of 2002, it had risen may be one factor that has boosted the euro against the to 4.2 percent. dollar over the past year. 39 Coping with Weak Private Debt Flows Mansoor Dailami, Himmat Kalsi, and William Shaw EBT FLOWS TO DEVELOPING COUNTRIES very hesitant, however. Net debt flows to develop- from private-sector creditors were weak ing countries are projected to be slightly positive in D again in 2002. For the second year in a 2003 (table 3.3). Gross market-based debt flows row, new loans to, and bond issues by, developing are likely to rise somewhat, to about $155 billion. countries were less than the amount of their ma- As in 2002, much of this activity will come from turing debt. Developing countries' repayments to European and East Asian borrowers, with Latin private-sector creditors in 2002 exceeded new debt America most likely registering another year of by $9 billion, coming on top of the 2001 figure of weak flows. $24.8 billion (table 3.1). Gross market-based debt flows fell to $138 billion, from $145 billion in 2001 and $171 billion in 2000 (table 3.2).I Table 3.2 Gross market-based debt flows But recovering investor confidence in the to developing countries, 2000-2002 last quarter of the year brought a narrowing of fbilhons of dollars) credit spreads, particularly on investment-grade, 2002 emerging-market sovereign debt. Thus it is likely 2000 2001 Ql Q2 Q3 Q4 Year that the third quarter of 2003 was the bottom of Total 171 145 35 38 30 35 138 the current credit cycle. Any rebound is likely to be Bonds 58 59 19 17 6 13 55 Banks 113 86 16 21 24 22 83 East Asia 27 17 6 11 5 11 34 Table 3.1 Private-sector debt flows to developing Bonds 5 7 4 5 1 3 12 countries, 1991-2002 Banks 21 10 3 6 5 8 21 (billions of dollars) SoLuth Asia 4 3 0 1 0 1 2 1999 2000 2001 2002 Bonds 0 0 0 0 0 0 0 Banks 4 3 0 1 0 1 2 Total net flows 0 5 5.1 -24 8 -9 0 Europe and Central Asia 37 27 7 8 8 10 34 By region Bonds 14 11 5 5 1 5 15 East Asia and Pacific -241 -250 -155 -60 Banks 23 16 3 4 8 5 19 Europe and Central Asia 16 6 22 2 0 5 7 2 Latin America 10 7 10 0 -8 7 -9 1 Latin America 83 75 16 9 8 10 44 Middle East and North Africa 0 5 -3.6 2 9 1 3 ex-Argentina 64 69 15 9 8 9 41 SouthAsia -20 29 -27 -1 0 Bonds 35 34 10 4 3 5 22 Sub-Saharan Africa -1 2 -1 4 -1 3 -1 4 Banks 48 41 5 5 6 7 22 By component Sub-Saharan AfriLa 12 11 3 2 3 1 9 Disbursements 201 7 203 5 195 3 164 3 Bonds 1 2 1 2 0 0 3 AmortoLation 179 9 189 1 203 9 167 2 Banks 10 9 2 0 3 1 6 Change in short term, net -21 4 -9 4 -16 2 -6 1 Mid. East and North Africa 9 12 3 6 5 1 15 Bond financing, net 296 174 10 1 186 Bonds 2 5 0 1 1 0 3 Bank and other, net -29 1 -12 3 -34 9 -27 6 Banks 6 7 3 5 3 1 12 Source World Bank Debtor Reporting System Source Dealogic Bondware and Loanware 41 G LO B AL DE V EL O PM ENT F INA NC E 2 O 0 3 Table 3.3 Forecasts of private-sector debt flows, fundamentals and quality. The trend toward greater 2001-2004 discrimination has its broader reflection in virtu- (billiots of dollars) ally all segments of international bond markets, 2001 2002 2003f 2004f where investors' search for quality and safety have Total net flows -24 8 -9 0 5 ° 10 0 resulted in demand for transparent accounting, better corporate governance, and solid protection Bond financing, net 10 1 18 6 20 0 25 0 covenants. Bank and other, net -34 9 -27 6 -15 0 -150 In the second significant development, the te- Gross market issuance 145 138 iSS 157 structuring of sovereign debt took center stage in 2002, with new proposals from the official sector Note f = forecast Soturces World Bank Debtor Reporting System and staff estimates, generating considerable interest-as well as intense Dealogic Bondware and Loanwarc debate. Bond debt has increased significantly as a share of developing countries' total private foreign In the recent history of international credit debt. Because sovereign default will continue to cycles, the downswing of 2001-02 has been un- occur occasionally, and given the characteristics of usual in several respects. It was influenced directly bond instruments-the diversity and anonymity of by the market's perception of political risk associ- the investor base, and differences in governing law ated with general elections in Turkey and Brazil, by for internationally issued bonds-consensus is the impact of Argentina defaulting on its interna- building for new approaches to sovereign bond re- tional bond obligations, by the generalized re- structuring that could minimize the costs of debt trenchments of international banks from cross- restructuring and contribute to the efficiency of border exposure to developing counti ies, and by international debt markets. intense risk aversion. The strength of that aversion The new approaches include a relatively mod- revealed deep uncertainty about the global econ- est contractual approach, entailing the use of col- omy, the possibility of military conflict with Iraq, lective action clauses in the legal documents of the sharp deterioration in corporate credit in major bonds issued internationally, and a much more developed countries, and the emergence of a string ambitious statutory approach that would create a of corporate accounting scandals in the United legal foundation for collective action by creditors. States that undermined investor confidence and in- The first approach has been favorably received in duced high volatility in credit markets. the marketplace, even though it provides only a From a longer perspective, 2002 also bore partial solution to the collective action problem. In witness to a number of important regulatory and the absence of an international code to facilitate legislative initiatives, market developments, and debt restructuring for sovcrcign borrowers as bank- multilateral measures affecting the pattern of capi- ruptcy statutes do for companies, the IMF has pro- tal flows to developing countries. Two are worth posed a sovereign debt restructuring mechanism, noting. details of which are being worked out. The general First, the market has come to make distinc- idea is to provide a framework that would offer tions in the credit quality of emerging market bor- temporary protection to sovereign borrowers rowers, both sovereign and corporate, and to price against hostile creditor action, to aggregate credi- its products accordingly. And it has moved beyond tors, and to provide an international forum for dis- its preoccupation with a single asset class, which pute resolution-all backed by the force of an inter- grew out of the Brady bonds initiative of the 1 980s. national treaty. An important implication of the new distinctions- Financial innovations often emerge in trou- and of the divergence between the supply and cost bled times, which give rise to novel ideas, new of private debt capital-is the reduced likelihood organizational structures, and new ways of doing of financial contagion, as investors should be less business. The current global financial turbulence prone to sudden, generalized reversals of capital and the credit downswing in developing countries flows. Another implication is the establishment of have produced their share of financial innovations, meaningful yield curves based on particular types which, if reinforced by appropriate policies and of credit issue-sovereign, corporate, or prolect- measures, portend well for the stability of capital and in line with each issue's underlying economic flows to developing countries. The first innovation 42 COP ING WI I H W EA K PR I VAT E DEBT FLO WS discussed in this chapter is the development of sig- Figure 3.1 Currency composition of new bond nificant local bond markets, particularly in Asia. issues, 2001 and 2002 The second is the expansion of markets for the transfer of credit risk, ranging from basic-credit Yen default swaps to sophisticated credit-derivative 10% products such as collateralized debt obligationis. The third significanit innovationi is the movement Euro of the international bankinig industry from cross- dollar border lending to local financial services. The 61% fourth is the emergence of a nascenit market in proj- ect bonds designed to finance investmenits in infra- Olhers structure in developing countries. 1% Taken together, these developments present opportunities for the interinationial finanicial and Yen policy communiuities to provide salutary stability to 2% capital flows to developing countries. Others 13 l Debt-market developments in 2002 2002 he weakness in private debt flows as reported in the World Bank's Debtor Reporting System dollar is corroborated by a wide range of other indicators. 83% Gross market-based debt-raising activity re- ported by Dealogic Bondwar-e and Loanware showed a drop in 2002, with total gross debt flows Sotirce Dealogic Bondware falling to $137 billioni from $145 billion in 2001 and $171 billion in 2000 (table 3.2). The dynamic between the two componelnts was a sharp rise in the share of issues denominated of gross lendinig flows-bank lending and bond in U.S. dollars. issues-shifted as 2002 progr-essed. Gross bank The region most dramatically affected by the lending dropped in the first quarter but rebounded drop-off in debt flows was the one most heavily by mid-year before fading again at year end. The dependent on market-based debt finaicinig: Latin volume of bank lending was thus almost evenly America. Gross market-based flows to that region split between the first and second halves of the year. were down by 48 percent in 2002. The weakness By contrast, bond issues were strong through the in Latin Americani gross market activity since first half of the year but fell sharply at mid-year. 2000 in part reflects the virtual disappearance of Only 34 percent of the year's bonds were issued in Argentina from the lending and Issuance data. But the second half of the year, a phenomenioni related that occurred mainly in 2001 (when flows to to Brazil's actions in the run-LIp to its presidential Argentina were down by 68 percent). In 2002, gross elections in October. flows to Latin America, excluding Argentina, were Also contributing to the drop in overall bond still dowin a substantial 40 percent. activity was the severe decline in bond issues de- Gross debt flows to other parts of the develop- nominated in euros. Many Argentinie bonds had ing world dropped nowhere near as far as they did been raised in euros and sold to retail investors in in Latin America. Flows to the two other regions Europe. Losses on these bonds made European in- with sizeable market activity-Europe and Central vestors reluctant to buy new bonds in 2002, leading Asia and East Asia-rose in 2002 over 2001. Flows to a drop in the share of euro-denominated bonds to East Asia doubled. (figure 3.1). Issues denominated in yen virtually Market-based debt flows remain concentrated disappeared, despite the fact that the currency of- in upper- and middle-inconie countries. Low- fers the lowest absolute borrowiig costs. The result income countries are not wholly excluded from 43 G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 Figure 3.2 Debt-market issuance by low-income Figure 3.4 Average regional credit quality, countries, 2001-2002 1997-2003 Billions of dollars Credit rating (Moody's) 4 -A3- East Asia Bank lending Baal All rated Europe and 3 - Baa2 - emerging Central Asia Baa3 - market _ | _Bal _ ........r 2 Bond Ba2 financing Ba3 1 ~~~~~~~~~~~~~~~~~~~~~Bi Latin Amrc 1997 1998 1999 2000 2001 2002 Q0 02 03 04 -l 02 03 Q4 Souirce. Moody's Investor Service, World Bank staff estimates 01 02 03 04 01 02 03 04 2001 2002 Source Dealogic Bondwarc and Loanware Figure 3.3 Breakdown of bond issuance by credit Figure 3.5 Boncd issuance and spreads, 2002 rating, 2002 Billions of dollars Spreads (bp), inverted scale Billions of dollars 9 _ - 500 10 8 - 600 Non-investment 6 S (r eads) grade (ih sa 6 - l 700 Investment grade Bond issuance 4 -_3[ (left axis) 800 0i Jan March May July Sep Nov Jan March May July Sep Nov Note bp = basis points Sources. Dealogic, Moody's Investor Service. Sources Dealogic Bonidware, J P Morgan Chase the markets, although most of their market-based and Central Asia, but also has been deteriorattng finance is raised through bank lending (figure 3.2). in recent quarters (figure 3.4). Increasingly, market flows are tiered based on The pattern of a solid ftrst half followed by a credit quality. As the year progressed, flows shifted weak third quarter Is also evident in spreads on toward higher-rated borrowers (figure 3.3). In the emerging market bonds (figure 3.5). Narrowing first half of the year, below-investment-grade Is- through April, spreads spiked up to a high point at suers accounted for 56 percent of total bond is- the end of September. This pattern was driven by suance. In the second half of the year, however, developments in Brazil, where spreads widened these issuers accounted for 44 percent of the total. from a low of 700 basts pomts in March to a peak The tiering in credtt quality helps account for of 2,450 basis points in late September. Since then, the wide variation in the performance of regional they have narrowed considerably, signaling an im- flows, as the average credit rating in Latin America provement in market conditions that contributed is not only well below that in East Asia or Europe to a revival in bond issuance in the fourth quarter. 44 COP ING WIT If WE AK PR I VAT E DEBT F LOWS Putting the rise in secondary-market spreads various points over the past couple of years, but into historic context (figure 3.6), the severity of the degree of co-movement was much reduced rel- the rise ahead of Argentina's default in 2001 and ative to 1995 and 1998 (figure 3.7). Brazil's problems in 2002 is notable but pales in comparison with the run-ups experienced at the tinme of the Mexican crisis in 1995 and the Russian crisis in 1998. Debt-market prospects for 2003 Importantly, the degree of uniformity of and beyond movement in spreads continues to decline. For he rally in emerging markets in the fourth example, the recent difficulties in Argentina and T quarter of 2002 not only made net debt flows Brazil did spill over to raise Mexican spreads at to developing countries less negative for 2002 as a whole than had seemed likely at the end of the third quarter, but also allowed flows in 2003 to Figure 3.6 Secondary-market spreads on emerging begin on a relatively strong note. markets, 1990-2002 It is likely that both gross and net capital mar- Basis points ket debt flows to developing countries will be Russia higher in 2003 thai in 2001-02 (table 3.3): 1,600 - E ' E LI r rm * Net debt flows are projected to be positive for 1,200 - < the first time in three years, although they will remain subdued relative to the peak years of the 1990s. Net issuance of bonds is forecast to be 800 - much higher than net bank lending. Indeed, continued bank retrenchment will cause net 400 - V ' + , ' | i bank lending to be negative for yet another year in 2003. * Gross capital market flows to developing 0 I I I countries are expected to rise to $155 billion 1990 1992 1994 1996 1998 2000 2002 in 2003 from $137 billion in 2002. By 2005, Note Counirry names mark date of finaiicial crisis, gross flows of bank lending and portfolio se- Sotirce J P Morgan Chase curities together are expected to rise to around $165 billion. This outlook is based on econo- metric models of capital flows to developing Figure 3.7 Secondary-market spreads on Brazil countries that integrate the effects of supply and Mexico, 1991-2002 conditions in industrial countries with the Basis points demand factors in developing countries. The Brazi econometric framework used for generating 2,500 - i ' a - the forecasts for capital market flows to devel- oping countries is the same as was used in 2,000 - , , Global Development Finanice 2002 (World Bank 2002). 1,500 - Brazil , 1,000 ~ J\ Ki <, tDebt flows partly reflect 500 \--W-vMVxJ' \ ,< , ', lower demand MexicoV i P , ,, rlThe drop in debt-related flows to developing oi ITI I I' I I , I | P I 'I ' I i I Rcountries over recent years is not wholly due 1991 1993 1995 1997 1999 2001 to the reluctance of creditors to supply funds. In Note Country niames mark date of financial crisis many cases, reduced demand for external debt Source J P Morgan Chase finance lies behind the diminished flows. 45 G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 Figure 3.8a Spreads on benchmark bonds, Figure 3.8b Spreads on benchmark bonds, East Latin America, 1998-2002 Asia, 1998-2002 Basis points Basis points 500 - 1,200 - 400 - Latin America 300 - 800 - 200 - 100 Similarly rated benchmark iSmilarly rated benchmark 400 l 0 i l l l 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 Sources Bloomberg, J P Morgan Chase Souirces. Bloomberg, J P Morgan Chase This is especially true for the economies of (U.S. Treasury securities) offered by the debt in Asia, which have shifted from being substantial net question, but also how that spread has developed borrowers in the years leading up to the 1997-98 in recent quarters relative to similarly rated debt. crisis to a position where they no longer need exter- In the case of Latin America, bond spreads in nal debt. Sustained current-account surpluses and 2002, on average, rose both absolutely and rela- steady inflows of FDI mean that many countries in tive to similarly rated benchmarks (figure 3.8a). the region have an external financing surplus to de- For East Asia, however, the opposite is true: ploy. The surplus is being used to pay down exter- spreads narrowed both absolutely and in relation to nal debt and accumulate external assets, either in similarly rated (investment-grade) benchmarks (fig- the form of foreign exchange reserves or privately ure 3.8b). Evidently, there is a shortage of foreign- held assets. currency-denominated bonds issued by East Asian It is hard to determine with precision whether borrowers relative to the demand for such claims- lower flows (and stocks) are a reflection of re- often from bond funds within the region-leading duced borrower demand or investor supply. There to the emergence of what some market commenta- have been episodes during which identifiable tors have called an "Asia premium." exogenous factors have affected the supply curve, as in the sudden loss of confidence in the Asian cri- sis of 1997-98, which triggered a considerable fall in domestic investment in all affected countries. In Creditors focus on credit risk, the case of the most recent credit downswing, no not return major exogenous factor can be identified; hence, IA lthough reduced demand can account for part the identification problem is not trivial. A of the drop-off in debt flows to developing Some guide can be provided by pricing, how- countries, much of the move must be interpreted as ever. In a simple supply-demand framework, a re- a supply shift due to the increased reluctance of in- duction in demand would be associated with a fall vestors to hold debt claims on developing countries. in quantity and price, while a fall in supply (in this A key ingredient in creditors' willingness to take context, reduced availability of debt financing) on debt held by developing countries is the prevail- would be associated with a fall in quantity but a ing pattern of interest rates (both short- and long- rise in price. term) in the major markets. Low returns in the The relevant price in consideration here is not major markets might be expected to promote a flow just the interest-rate spread over the risk-free rate of funds to higher-yielding developing-country debt, 46 COP ING WIT If WE AK PR I VAT E DEBT FLO WS Figure 3.9 Net debt flows and G3 interest rates, to developing countries mounted in the late 1 990s, 1984-2002 lower short-term G3 interest rates failed to pro- Billions of dollars Percent, inverted mote a resumption of capital flows. Indeed, the 160 - - 1 mass exodus of capital from high-risk developing 140 Netprivate debtfiowsto G3short-term (and developed) markets to the safety of G3 gov- 120 - developin countrles (ri ghtes a ernment bond markets duriug episodes of severe 1200- (lett axis) / t (right axi) - 3 risk aversion in recent years hlas hlelped drive down Joo V - 4 bond yields in the G3, thus contributinig to the 80 - - \ 5 positive correlation between flows and yields evi- 60 _ dent since 1997. 40 - / _A>/ ' \ Increased investor wariimess about holding 20 - 7 lower-rated debt claims can be illustrated by the 0 - 8 pattern of investors in the bond market. J.P. -20 9 Morgan, the investmenit bank that has typically -40 I I I I I I I I I I i--:-i-- -l--I---10 accounted for the largest share of secondary- 1984 1988 1992 1996 2000 market business in developing-country debt, main- Souirces \Vorld Bank Debtor Reporrinig System, Bloomiberg tains data onl tlhe couniterparts witlh wlhich it does business (figure 3.10). These have shlifted signifi- cantly since the crisis years of l997-98.2 Most important is the notable shrinkage in the while high returns in the major markets would be an share of the market accounted for by institutionis attraction to keep this capital at home. Such a with a relatively high tolerance for risk. For exam- "push" factor was commonly identified as a key dri- ple, dedicated emerging-miiarket and macro hedge ver of capital flows to developing countries in the lit- funds accounted for about 30 percent of this erature of the early 1990s (Calvo, Leiderman, and market in December 1998, but only 10 percent in Reinhart 1993). September 2002. By contrast, the share of demand From the late 1980s to 1996, this inverse rela- accounted for by "cross-over" high-grade investors tionship between bond yields in the major indus- has more than tripled, from 9 percent to 32 per- trial countries and net private debt flows to devel- cent, over the same period. The result has been an oping countries did indeed hold (figure 3.9). The increased appetite in the aggregate to hold the debt correlation coefficient between yields and net flows of higher-rated developing countries, but a reduced was -0.7. In this framework, it is not difficult to appetite to hold the debt of lowver-rated borrowers. understand what became known as the "Tequila crisis" of 1994-95, wheni net debt flows to Latin America became anemic. In 1994, G3 bond yields rose by 120 basis points, having fallen steadily A new market in credit derivatives from 1990, when the flow of debt finance to devel- nvestor concern over the risks of investing in de- oping countries first began to accelerate il earnest. velopimg countries has led to the development of Since 1996, however, this negative correlation a variety of instruments to manage risk-and new has broken down, and the relationship between net markets in those instruments-)ust as the intensifi- private debt flows and yields has become positive. cation of currency and interest rate risk in the In most years, yields and flows have dropped to- 1980s, following the breakdown of the Bretton gether. If the pre-1996 relationship between net Woods system of fixed exchange rates, ushered in flows and yields had held in 2002, net debt flows the development of markets in currency and inter- would have been about $160 billion, compared to est rate derivatives. the drop of $9 billion that was realized. Instruments providing insuranice against de- To make sense of this regime shift, it is im- faults and other credit events have been develop- portant to recognize that investors in developing ing rapidly in global fixed-income markets; with countries have become more concerned with credit developing-country debt markets at the higher end risk than return in their lending attitudes to devel- of the credit-risk spectrum, it is only natural for oping countries. As concerns about overexposure them to become part of this market. 47 G LO B AL DE V EL 0 PM ENT F INA NC E 2 0 0 3 Figure 3.10 The shifting investor base of emerging-market boncr na.-strot5 December 1998 Szp'crn :^r 2032 Other Macro hedge Macro hedge 2% funds funds Private banking 7% Dedicated 11% hedge funds 3% Latin American Other accounts 25% 9% Dedicated Dedicated mutual funds Private bankig hedge funds 23% 0%~~~~~~~~~~0 0% / \ 10% High-grade e Latin American investors accounts 32% 11% High-grade __ _ Dedicated Investors mutual funds Non-U S 9% Non-U S 14% financial financial institutions institutions 13% 11% Source J P Morgan Chase Markets for credit-risk transfer have regtstered of credtt protection, such as financial guarantees, strong growth in recent years, even though global credtt derivattve products offer flexibility, liquid- financial market condttions have been generally ity, and the advantage of standardtzed trading of subdued. Between 1997 and 2002, the global mar- credit risk as a separate asset class. Furthermore, ket expanded more than ten-fold, reaching $2 tril- as banks enhance their ability to diversify their lion in outstanding notional amount; it is expected credit exposure across markets and sectors, they to increase to $4.8 trillion by the end of 2004 are less likely to be vulnerable to risks (sector- or (British Bankers Association 2002). As the market borrower-specific shocks) emanating from loan has come of age, it has proven resilient to financial concentration-and thus less prone to make sud- turbulence and high-profile corporate and sover- den changes in their supply of credit. eign defaults, gaining confidence as an efficient The natural buyers of default protection are means of hedging exposure to credit risk embedded institutions with debt exposure against which they in a variety of debt. prefer to hedge rather than sell. For example, For the buyer of default protection, a credit growing concerns about Brazil's ability to service derivative is a type of insurance contract. In the its sovereign debt in 2002 led many financial insti- most common arrangement, the credit default tutions with illiquid exposures in the country to swap (CDS), the buyer of credit-default protection seek ways to hedge their risk, raising the demand pays a periodic premium to the seller. In the event for default insurance. The natural sellers of default of a default on the underlying credit instrument, protection are investors, particularly insurance the seller pays the buyer an agreed-upon amount. companies. By providing opportunities to transfer credit risk from banks and other institutions having a A market-based solution to credit risk comparative advantage in credit relationships and Several forces have driven the rapid growth of the funding to institutions and investors that are pre- credit derivatives market-among them regulatory pared to take on risk as part of their diversifica- arbitrage, advances in risk management technology tion and investment strategies, such as insurance and practice (including the application of value-at- companies, credit derivatives have the potential to risk methodology), and renewed interest in hedging fundamentally alter the traditional approach to credit risk as a way of dealing with deteriorating credit-risk management and thereby the lending credit quality and rising corporate and sovereign and borrowing business. Relative to other vehicles defaults. 48 C OPI NG WITH WEAK PRI VAT E DEBT FLOWS Yet the use of credit derivatives to manage In a CDS transaction, the payout to the buyer credit risk is still only about 2 percent of their use of credit protection is triggered by a credit event, in managing interest rate and currency risks. And the precise definition of which is of the utmost im- the notional amount of credit risk being transferred portance. ISDA's 1999 credit-derivatives definitions through credit derivatives is a very small fraction cover six types of events: bankruptcy, obligation of the debt held by major banks and bondholders. acceleration, obligation default, failure to pay, Credit-derivative deals transacted on emerging- repudiation/moratorium, and restructuring. The market debt have so far been limited, but the poten- definitions have helped market development, but tial for growth seems to be large. Two important they have not eliminated recourse to courts for characteristics of emerging-market debt flows are dispute resolution. likely to make emerging-market debt the new fron- The 1999 ISDA definitions are under review in tier for credit derivatives. First, in times of financial response to objections by ratings agencies concern- distress, emerging-market debt indexes tend to ing their liberal language on evidence of a credit spike to levels that may not be warranted by a par- event. A fourth draft of the 2002 ISDA credit- ticular country's long-term creditworthiness or un- derivatives definitions was distributed in Novem- derlying economic fundamentals. And, second, the ber 2002 for consultation. universe of investment-grade emerging-market debt issuers is expanding. Several, including Mexico and Poland, now have investment-grade ratings. In- frastructure project bonds, accompanied by credit Bank retrenchment in context enhancements such as political risk insurance (guar- A s noted earlier, commercial banks as well as antees from multilateral bodies or national export- AEbondholders have become more cautious credit agencies), provide new avenues of emerging- about extending credit to developing countries. market long-term debt. European banks, which led the rapid growth in claims on developing countries through much of Types of investments the 1990s, are now leading this retrenchment. Single-name CDSs accounted for about half of the Even at the end of the decade, when banks of credit-derivatives market at the end of 2001; collat- other nationalities began to cut back (especially eralized debt obligations (CDOs) accounted for the Japanese), European banks continued to ex- 23 percent (British Bankers Association 2002). pand in developing countries, possibly because of Other products-total return swaps, credit-linked the shrinking opportunities offered in the domestic notes, and credit-spread put options-each ac- market (due to rapid consolidation of the industry counted for 13 percent or less of the market. after the successful introduction of the euro). As a The CDS market offers standardized credit result, the share of total claims on developing coun- protection on rated corporate and sovereign enti- tries accounted for by European banks has risen to ties, including emerging-market borrowers. As the about 77 percent in recent quarters, up from about CDS market has grown, it has provided valuable 64 percent in 1990. price information, supplementing information One factor contributing to greater caution on available in the credit markets and thereby en- the part of Europe's banks over the near-term will hancing financial stability and efficiency. In a typi- be the path of their stock prices through recent cal CDS transaction, the maturity is five years and quarters. Europe's banks were hardest hit by the fees or premiums, expressed in basis points on widespread global declines in commercial bank the notional contract amount, are paid quarterly. stock prices in 2002 (figure 3.11). The decline re- Trade takes place primarily in the inter-dealer mar- flected growing concerns about credit losses in Ar- ket based on the standard documentation of the gentina and about large corporate losses in North International Security Dealers Association (ISDA). America and Europe. The CDS has also provided the building block for Beyond the immediate causes of the retrench- the more sophisticated structured products, such ment lies a fundamental shift in commercial banks' as CDOs, which offer investors exposure to a port- strategy in recent years away from cross-border folio of reference assets. lending and toward greater participation in the 49 G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 Figure 3.11 Performance of bank stocks, reconsider their local-market presence in develop- January 2002-January 2003 ing countries, especially Latin America. Late in Index; Jan 2002= 100 2002, Spain's Santander bank sold its business in 125 Peru, and Germany's HBV, its business in Brazil. In both cases, the buyer was a local bank. 100 nited Stat Basel II T he prospect of international banks' involve- 7 5 - Tme n t in developing countries will also be signif- icantly shaped by certain global regulatory Europev >< initiatives, particularly the newly revised Capital Adequacy Accord (Basel II), now under consulta- Jan. tion. Scheduled for initial implementation in late Jan. March May July Sep. Nov Jan. 2002 2003 2006 by the member countries of the Basel Commit- tee on Banking Supervision (BCBS), the new accord Source~ Bloomberg. replaces and in many ways improves the original 1988 accord. The new accord is designed to en- local banking market. The shift is best illustrated hance the safety and soundness of the banking in- using data collected by the BIS, which now breaks dustry worldwide through a better alignment of reg- total claims into local claims, which have been ulatory capital with banking risks, including credit, growing rapidly in recent quarters, and cross- market, and operational risks. The minimum capi- border claims, which have been declining (box 3.1). tal requirement under the new accord-that is, the This trend in bank behavior matches the ratio of bank assets put aside as a cushion to absorb global shift in external financing from debt to eq- unexpected losses-would be the same as under the uity. When BIS-area banks focused on cross-border 1988 accord. lending, loans invariably were funded in the inter- The new accord will be based on three pillars: national market, undertaken in foreign currency, (a) a revised risk-based, minimum-capital require- and appeared as a net debt inflow on the capital ment rule, (b) a new supervisory review mechanism, account of the balance of payments. Local claims, and (c) enhanced market discipline. Reflecting the however, are generally denominated in local cur- changes that have taken place since 1988 in rency and funded locally, leaving no record of banking, risk management, and supervisory prac- balance-of-payments financing beyond the infu- tices, the new accord emphasizes greater sensitiv- sion of equity capital required to establish and cap- ity to risk, particularly sovereign- and corporate- italize a local banking presence. credit risk, and encourages the development of In principle, a local banking presence brings internal risk-control and management capabilities with it benefits that extend well beyond the small as an important part of the regulatory approach increase in balance-of-payments financing. It to the banking industry. should help improve the efficiency of the local In moving toward a more risk-sensitive ap- financial intermediation system-thus mobilizing proach to credit risk, the accord provides three scarce domestic savings more efficiently. These ben- approaches for assessing capital adequacy: a "stan- efits apply to poor countries as well. The significant dardized" approach and two "internal ratings presence of BIS-area deposit-taking institutions is based" (IRB) approaches that sophisticated banks one of the most important ways in which the poor- will be able to use under extensive supervisory est developing countries are connected to the global review and disclosure requirements. The standard- financial system (World Bank 2002). ized approach builds essentially on the 1988 In recent years, foreign banks invested heavily methodology of risk-weighted assets and a mini- to create a local market presence in Argentina. The mum capital ratio-but with a more refined ap- 2001 financial crisis led to severe losses on these proach to credit risk. First, risk weights would be set investments, raising concern that banks may for a bank's exposure to sovereigns, corporations, 50 COP ING WITH WEAK PR I VAT E DEBT FLOWS Box 3.1 International versus local-currency bank claims T he foreign assets of banks reporting to the BIS can be The big jump for East Asia came between 1999 and 2000, broken into two components. The first is cross-border when claims jumped from $63 billion to $83 billion. claims (or international claims) funded in the international The two asset components pose different risks. Inter- markets. For such claims banks secure deposits (liabilities) national claims expose banks to currency and cross- in markets other than the country to which the funds are border-transfer risks, since their claims on borrowers (that lent (assets). Usually, the funds are raised in the headquar- is, their assets) are funded in foreign currency (liabilities). ters of the bank. The second component of the bank's for- Local-currency claims, being funded most often in local eign assets are its local-currency claims. These are funded markets seldom pose such risks. However, they retain by attracting deposits directly in emerging markets. other risks associated with the country-political, legal, International claims are the outcome of the traditional and economic. business of international banks in developing countries. Local lending is broadly matched by local deposit tak- Local-currency claims, by contrast, are of more recent ing (see table below). By contrast, BIS-area banks have genesis. They reflect the growing amount of foreign slumped from being net lenders in the cross-border market direct investment in the banking and financial sector of to being net borrowers (see figure at bottom right). As of emerging markets. Local-currency claims arose from March 2002, deposits from emerging markets in BIS-area banks' desire to: banks far exceeded their borrowings. The shift from international claims to local-currency * Expand globally into new markets claims, while reducing some risks for both banks and * Pursue a more equitable growth of assets and emerging markets, has brought about other risks that are liabilities only now beginning to surface. A good example is the case * Provide protection in the event of exchange-rate and of Argentina, where the disparate treatment of locally debt crises, such as those of the 1980s and late 1990s. funded foreign-currency assets and liabilities, enacted earlier in 2002 in the wake of currency pressures, has The local-currency claims of BIS banks operating in emerg- prompted some banks to become more cautious about ing markets have risen sharply in relation to international expansion in developing countries in general claims (see figure at bottom left)-shooting up from about $130 billion at the end of 1996 to a peak of close to $490 billion at the beginning of 2002. The largest in- Position of BIS banks for emerging markets, June 2002 creases were in Latin America, where such claims grew (billions of dollars) from $66 billion in 1996 to over $290 billion by the begin- Assets Liabilities ning of 2002. In Europe and Central Asia local claims went from $12 billion to $87 billion over the same period. International claims 793 949 Local currency 472 421 BIS banks' claims on emerging markets, 1983-2002 Emerging-market assets minus liabilities, 1983-2002 Billions of dollars Billions of dollars 1,000 275 800 _ _ 200 - 125 - 60 0 1983 1986 1989 1992 1995 1998 2001 1983 1986 1989 1992 1995 1998 2001 Source: Bank for International Settlements. 51 G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 and other banks based on ratings from major credit- the cost in spreads for lower-rated emerging rating agencies and approved domestic agencies. borrowers to be possibly 200 basis points. If, as Second, the system of risk weights for corporate expected, most domestically owned banks in lending would be enlarged to include four weights emerging-market economies adopt the standardized (20, 50, 100, and 150 percent), replacing the pre- approach to credit risk, they will be at a compara- sent single weight of 100 percent applied to all cor- tive disadvantage vis-a-vis cross-border lending by porate exposures regardless of underlying credit international banks when attempting to lend to quality. high-quality domestic borrowers. On the other The IRB approaches include a basic (or "foun- hand, they will have a comparative advantage in dation") approach and an advanced approach. In lending to low-quality domestic borrowers (Fischer both, banks are allowed to use their internal rat- 2002, Hayes 2002). ings of each borrower's creditworthiness to assess Finally, the prospects for capital flows for in- credit risk in their portfolio, subject to certain frastructure projects frorn the market in syndi- methodological and disclosure requirements. The cated commercial-bank loans depends on how the advanced version gives banks more discretion; it BCBS ultimately elects to treat structured credit is expected to be adopted by more sophisticated products, including project finance. The current institutions. proposal places project loans in a higher risk cate- The new method of assessing the minimum- gory than corporate loans, leading the BCBS to capital requirement is expected to have important recommend higher capital requirements that could implications for emerging-market economies, prin- reduce the availability of syndicated project- cipally because capital charges for credit risk will be finance loans and possibly increase their cost to explicitly linked to indicators of credit quality, as- borrowers in infrastructure and other sectors. But sessed either externally under the standardized ap- according to evidence provided by the private sec- proach or internally under the two ratings-based tor in response to the BCBS's recommendation, approaches. The implications include the likelihood project-finance loans outperform unsecured cor- of increased costs of capital to emerging-market porate loans, both in default rates and recovery borrowers, both sovereign and corporate; more lim- performance, thus requiring lower capital charges, ited availability of syndicated project-finance loans not more (Berner and others 2002). The BCBS is to borrowers in infrastructure and related indus- reportedly considering this evidence. tries; and an "unleveling" of the playing field for domestic banks in favor of international banks active in developing countries. Concerns over the increased cost of capital The emerging bond market really under Basel II relate to the cross-border lending of is emerging international banks, and the potentially higher cap- t he weakness of international bond issuance ital charges associated with such lending, particu- v by developing countries and the high level of larly under the internal, ratings-based approaches spreads through most of 2002 belie the fact that that international banks are expected to adopt. The the so-called emerging bond markets of develop- regulatory capital requirements would be signifi- ing countries really are emerging in several impor- cantly higher in the case of non-investment-grade tant ways-some of which have important policy emerging-market borrowers than under Basel I. At implications. the same time, borrowers with a higher credit rat- The first notable development is the continued ing would benefit from a lower cost of capital shift from Brady bonds to more conventional eu- under Basel II. A quantitative assessment of such robond issues in the international market. Buyback effects is not straightforward, as the results are and swap activity began in 1996 and peaked in sensitive to a number of factors, including banks' 2000 (figure 3.12). It slowed in 2002, in part be- loan pricing policies and, in particular, the extent cause of unfavorable market conditions for new to which banks' economic capital, which derives eurobond issues, but also because the outstand- loan pricing, may exceed the minimum capital ing stock of Bradys has fallen by so much that charges under the IRB approach. A recent study by there is not much more of this transformation the OECD (Weder and Wedow 2002) estimates to complete. Of the $150 billion in Brady bonds 52 COP ING WITH WEAK PR I VAT E DEBT FLO WS Figure 3.12 Volume of Brady swaps and buybacks, debt spectrum, offering asset diversification and in- 1996-2002 vestment opportunities particularly to institutional Billions of dollars investors, such as insurance companies and pen- 20 sion funds, whose long-term liabilities match the long-term tenor of project bonds. Third, they mir- Swap ror the shift in the pattern of capital flows from 15 - bank loans to publicly issued bonds. Although the volume of capital raised in the 10 _ project-bond market remains relatively small, the market has matured, delivering a series of high- profile transactions-among which are the $1.2 bil- 5 Buyback lion bond issue by Qatar for the Ras Laffan liq- I n uid natural gas project, a $1 billion issue by the c _ i nir Republhca Bolivariana de Venezuela for the o F _ I _ _ I | ffi I 7 _ + _ + _ I l _ H Petrozuata oil project, and a $125 million issue by 1996 1997 1996 1999 2000 2001 2002 the Philippines for the Quezon power project-and Note. 2002 data are through September encompassing a broad range of projects, issue Source World Bank staffestimates. sizes, and terms. One important factor contribut- ing to the growth of this market has been the de- sign of creative bond covenants that have provided originally issued, only $S0 billion are still in circu- bondholders contractual protection against certain lation. Mexico has reduced its outstanding stock risks inherent in such projects. An examination of of Bradys from an original issue of $33 billion to a sample of prolect bonds issued between January just $5 billion. There are two basic reasons for this 1993 and March 2002 reveals that project inden- transformation: tures contain the standard covenant provisions aimed at mitigating conflicts of interest arising * Cost. Brady bonds have consistently traded at from asset substitution, dividend policies, claim di- a discount to the comparable eurobonds of the lution, and underinvestment. In addition they con- same issuer, possibly due to the complexity in tam clauses that serve as commitment and incen- the pricing of Bradys (for example, pricing-out tive devices for host governments and other collateral). As long as the Brady-eurobond contracting parties to the project. All sample proj- spread differential is positive, sovereign bor- ect bonds were issued under New York Law, under rowers can realize debt-service savings by ex- which market practice does not normally include ploiting this arbitrage. collective action clauses in bond indentures. * Reputation enhancement. Bradys carry with The third and most significant development is them the stigma of previously rescheduled debt. the shift away from bond issuance in the inter- national markets in favor of issuance in local- The second development is that various features currency bond markets. This shift is most impor- of truly developed markets are now more evident in tant for government issuers, although nascent the markets for developing-country bonds. The local-currency bond markets are already an impor- emergence in the 1990s of a nascent project bond tant source of funding for private-sector borrowers market to fund long-term infrastructure projects in in much of Asia. An important rotation from exter- developing countries-such as electric power nal to domestic debt has already occurred in the plants, roads, ports, airports, telecommunications pool of public-sector debt in the major emerging networks, and water and waste water facilities- economies (figure 3.13). In several countries- which were traditionally the preserve of the public among them Brazil, Chile, Hungary, India, the sector, merits attention for several reasons. First, Republic of Korea, Malaysia, Mexico, Poland, project bonds are a potentially major source of South Africa, and Turkey-local-currency fixed- long-term private debt capital linked directly to income markets have grown considerably in recent economic growth and competitiveness. Second, years. In response to several institutional and they are a new asset class in the emerging-market policy initiatives, they also have undergone 53 G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 Figure 3.13 Emerging economies: public debt intended to ease or remove barriers to the entry of stocks, 1996-2001 foreign investors. In India, for instance, foreign in- Billions of dollars stitutional investors were allowed as early as 1997 1,800 to invest in local fixed-income markets, including government securities. The Republic of Korea took 1,700 - a significant step forward in 2001 when it made 1,600 - the won fully convertible on the capital account. soo00- Domestic/ The scope for further reform is great. Although most 1,500 countries have achieved currency convertibility in 1,400 - their current-account transactions, their currencies 1,300 - are not convertible for capital account transac- tions. Capital-account transactions in most devel- 1,200 - oping countries are still subject to exchange-rate 1100 restrictions and controls. 1,000 l l l There are a number of very important features 1996 1997 1998 1999 2000 2001 about the movement toward debt denominated in Source J P Morgan Chase local currency and traded in local markets. First, the shift toward domestic debt is a nat- ural aspect of the move to floating exchange rates. considerable modernization in terms of trading When governments were choosing to peg their own practice, clearance and settlement mechanisms, currencies to another, usually the dollar, borrowing and electronic transfer of securities, as well as in externally in foreign currency was a way of mini- market capitalization and pricing procedures. Such mizing borrowing costs while signaling to the mar- markets now offer a range of money market, trea- ket the government's commitment to maintain the sury bill, and longer dated securities. They have ad- foreign-exchange peg. The government, of course, equate liquidity, particularly on the government was thus vulnerable to considerable exchange- side, and the depth to respond to the debt issuance rate risk, one reason why the currency crises in needs of the public and corporate sectors. And in the 1990s often turned quickly into government countries such as Chile, the Republic of Korea, and debt crises. With the move to floating foreign- Malaysia, which have well-developed local institu- exchange rates, governments have a greater incen- tional investors (insurance companies, pension tive to borrow in their own currency. funds), local debt markets have developed the ca- Second, the shift toward domestic debt was fos- pacity to meet needs for long-term infrastructure tered by the growing success of macro policy in investment. many developing countries. Developing countries' A country may choose to develop a local- success in controlling inflation in the new environ- currency fixed-income market for several reasons. ment of generalized floating foreign-exchange rates Virtually all developing and transition economies has given domestic and foreign investors the confi- have access to international credit markets only dence to buy locally denominated debt. The key to through the use of the hard currencies in which creating credibility on inflation has been the combi- international debt instruments are denominated. nation of an operationally independent central But this practice exposes the borrower to the bank and a responsible, coherent fiscal policy. vicissitudes of currency risk-a danger brought Where such necessary conditions have been met, it home painfully by the East Asian crisis of 1997-98. has proved possible for countries to develop deep Local-currency markets provide a natural hedge for and relatively liquid local bond markets and to issue domestic borrowers. They may also be attractive as securities with the same long maturities previously assets that generate returns for foreign investors seen only in the international market (box 3.2). who seek diversified investment opportunities, par- Third, locally denominated debt is an impor- ticularly in the current environment of subdued re- tant way for countries to overcome "original sin"- turns in more established global financial markets. the inability of governments to borrow in their own The evolution of local fixed-income markets currencies in international markets (Eichengreen, has been helped along by liberalization measures Hausmann, and Panizza 2002). Few currencies are 54 CO PIN G WITH WEAK PR I VAT E DEBT FLOWS Box 3.2 Local 10-year bond markets A key step toward stable local-market funding for the buoyancy of private-sector debt looking for "safe" devel- A public sector is the development of a benchmark oping country investments. 10-year, fixed-rate, coupon bond. To be able to issue such a bond in its own currency, not only must a government achieve an adequate credit rating in the market, but also it Ten-year benchmark government bond yields, 2001-2002 must convince market participants, both local and foreign, of its ability to control inflation over the long run. The fact Percent that so many developing countries, including some that 9 suffered severe financial crises in recent years, now have 1 0-year benchmark issues is an indication of how far their 8 _ reputation for fiscal soundness has come. Weoghied average for Hungary, India, As impressive as the emergence of these long-maturity 7- securities is the convergence in their yields (see figure). For a basket of developing countries, spreads over the core 6 markets of the United States and the Euro Area (Germany) G have narrowed to a weighted average of not much more than 250 basis points, down from almost 400 basis points 4- United Slate at the start of 2001. Typically, bond-yield convergences such as these have taken much longerto occur, as ittakes 3 - l l l l l l l l l l l l l l l i time to build reputation. The fact that it is happening so Jan, March May July Sep Nov Jan March May July Sep Nov quickly for many developing countries is a testament to 2001 2001 2001 2001 2001 2001 2002 2002 2002 2002 2002 2002 their policy efforts, to be sure, but it may also reflect the Source' Bloomnberg used in international markets, and the dollar re- it could have access to foreign saving through inter- mains dominant, so it is little surprise that emerging- national markets, it might raise the cost of local market governments have made little headway in bond finance to private-sector borrowers. This these markets. Local-market investments in devel- crowding-out effect might be offset by the boost to oping countries, by contrast, have become increas- the local bond market liquidity that the supply of ingly attractive for bond-market investors in mature government benchmarks might provide, however. markets, partly because yields in the mature mar- Finally, domestic debt shifts the nature of the kets are so low. Foreign investors are attracted not risks facing borrowers, but it does not remove only by the higher yields offered by developing- them. One advantage of borrowing in foreign cur- country bonds, but also by the prospect of capital rency is that the term of the loan is often relatively gains arising from interest-rate convergence. This long. By contrast, most debt issues in emerging local phenomenon has been especially visible in recent markets are concentrated at the short end of the quarters in the former transition economies of curve-until the government develops a credible Eastern Europe. To the extent that such cross- record for good macroeconomic policy. Short matu- border inflows are seen as desirable (which is likely rities leave government borrowers open to consider- to be the case if they allow developing-country gov- able rollover risk in the early stages of their transi- ernments to repay foreign-currency debt and thus tion from international to local markets. Indeed, the shift foreign-exchange risks to the investor), then interaction of high rollover risk with other adverse policy measures to develop domestic market infra- macro shocks lies behind many of the crisis episodes structure and regulation will prove as important as of the past 10 years. (For Brazil's experience, see the more fundamental policy improvements noted box 3.3.) above (IMF and World Bank 2001). The moral of the story is that a government Fourth, there is some risk of crowding-out. If cannot avoid a debt crisis simply by shifting from the government borrows in the local market when a pegged to a floating currency. While a floating 55 G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 Box 3.3 Brazil's experience in 2002 i razil's experience in 2002 highlights some of the vulner- o By objective standards, Brazil has a heavy load of abilities that can develop even as a government shifts its external debt. Indeed, World Bank classifications put funding from international to local markets. Brazil in the "severely indebted" group of middle- Brazil's markets initially responded to the default of income countries, although well over half of this stock neighboring Argentina with remarkable resilience. The cur- is owed by private-sector borrowers. With investors rency strengthened during the fourth quarter of 2001 as Ar- increasingly unwilling to hold debt from higher-risk gentina plunged into a disorderly default. Moreover, bond- developmig countries, Brazil suffered. yield spreads narrowed through the first quarter of 2002. o The economy entered 2002 with a relatively high Although not immediate, the hit from Argentina was real, current-account deficit and a declining inward flow however, and led to a reduction of many flows to Brazil, in- of FDI. With debt investors retrenching, this left little cluding FDI and trade finance. Partly as a result, markets option but to engineer a rapid adjustment in the trade weakened sharply through the second and third quarters, as and current-account balances. The real thus came bond yields spiked and the currency dropped by almost 40 under sharp downward pressure. percent between the end of March and the end of Septem- o The domestic public debt structuire made the ber. This deterioration was eventually halted and partly re- country vulnierable. The currency was supported at versed by the IMF program that began in early September. various points in 2001 and 2002 by heavy issuance Uncertainty about the presidential election in October of dollar-linked government paper. As external ad- was another key factor in the country's difficulties. As Lula justment pressures pushed the real lower, the govern- da Silva, the left-of-center opposition candidate and even- ment's debt-to-GDP ratio began to rise sharply, rais- tual winner, gained in the polls, markets weakened even ing concerns in both local and international though, as a candidate, Lula made a commitment to the financial markets. The government was obliged to strong monetary and fiscal policies that had characterized offer high interest rates and shorter-dated maturities the Cardoso administration. Once in office, Lula reiterated as it rolled over its short-term debt, further raising his commitment to adhere to sound policies and there was market worries about debt sustainability. As noted, a remarkable improvement in Brazilian markets that has these concerns faded quickly after both the success- lasted through the early months of 2003. ful political transition and the announcement by the But political uncertainty is by no means the only new government that it would raise the target for explanation for Brazil's problems in 2002. Three other the primary budget surplus in 2003, to 4.25 percent factors are important: of GDP. foreign-exchange regime may help the country Sovereign debt defaults-past, absorb adverse shocks-as well as alleviating the present, and future need for the authorities to push interest rates to 'The desire of investors to trim their holdings of damagingly high levels to avoid a complete loss of 1L developing-country debt and shift toward the reserves-it does not guarantee government sol- stronger end of the credit spectrum has put many vency. Only a sustainable long-run fiscal policy borrowing countries under severe pressure. For can do that. some, this pressure could worsen domestic eco- Until such policies become generalized nomic and political problems sufficiently that the throughout the developing world, the specter of outcome is default. According to Beers and sovereign debt defaults will haunt financial markets Chambers (2002), six sovereign borrowers de- and leave developing countries open to the damage faulted in 2002: Argentina (which formally de- done by frightened creditors hastening to cut their faulted in January), Gabon, Indonesia (which losses. Recently, collective action clauses and a pro- restructured its syndicated bank credits as required posed "sovereign debt reduction mechanism" have under its Paris Club agreement), Madagascar, been developed to keep debt problems from becom- Moldova, and Nauru, taking the number of coun- ing downward spirals of panic and penury. These tries in default of their debt to 28 at year end- are discussed in the next section. the highest incidence since 1992. Of these six 56 COP ING WITH WE AK PR I VAT E DEBT FLOWS countries, Indonesia originally reached an agree- number of countries currently on default in their ment for debt restructuring in 1998-thus the debt (28) is higher than the peaks of the pre-1980s country's 2002 bank-debt rescheduling was part of upturns, the share of countries in default is cur- the clean-up begun at that time. Nauru is not clas- rently much lower (28 out of 202 borrowers). sified by the World Bank as a developing country. In the 1820s the newly independent countries But it is the magnitude and the potential impact of of Latin America issued bonds in London. The the Argentine default that have put the issue of firns arranging these bond issues generally retained sovereign default and bankruptcy back on the at least two years of interest and amortization international policy agenda. (See the annex to this (Dammers 1984). When these funds were ex- chapter for a discussion of defaults in 2002, plus a hausted, all but onc of these countries defaulted. tabulation of commercial-debt restructurings since Some European countries (e.g., Denmark follow- the 1980s.) ing the Napoleonic wars; Ramphal 1989) also de- faulted. Several states of the United States defaulted The history of sovereign default in the 1830s and 1 840s (Eichengreen 1991). Sovereign borrowers have defaulted on foreign The second wave of Latin American defaults debt since the dawn of international lending (accompanied by Turkey and Egypt) came in the (Dammers 1984). In the fourth century B.C., the 1 870s, during a deflationary period for the global Attic Maritime Association, to which a majority of economy. Most of these defaults were settled by the Greek city-states belonged, defaulted on loans 1880s. Lending to emerging markets grew rapidly from the Delos temple England's King Edward III following World War I and debt difficulties eased. repudiated his debts to Italian bankers in 1357. By 1927, only 5 percent of foreign-government France ceased payments on its debt an average of obligations were in default, if one excludes pre- once every 30 years from the 1500s to the 1800s. revolutionary Russian bonds. The world recession Modern lending to emerging markets got of the 1936s led to widespread and sustained de- under way In the 1820s in the aftermath of the faults, however, and industrial-country bond mar- Napoleonic wars (Chancellor 2000). Since that kets became effectively closed to developing coun- time, sovereign defaults have occurred in four tries until well after NVorld War II. waves (the 1820s, the 1870s, the 1930s, and the There were some notable features to the way 1 980s), in part driven by broad cyclical movements that the international capital markets handled sov- in the global economy (figure 3.14). Although the ereign defaults before the First World War. Defaults during the 19th and early 20th cen- tury were often resolved relatively efficiently Figure 3.14 Share of sovereign borrowers in through private negotiations (Eichengreen and default on debt, 1820-2000 Porres 1995). Bondholders' committees were estab- Percent lished to facilitate coordinationi among investors, and the creation of permanent bondholder commit- 40 - 17 25 tees (without government participation) in the 35 14 5S United Kingdom was credited wisth reducing the 30 _ cost of negotiations. 25 1\_ 1 \ I \ /\ Not all defaults were resolved privately, how- 25 \ [ t { t { \ ever. In some cases, navies of creditor countries 20 - blockaded ports until debt service resumed, seized 15 2 liquid assets, or took over and ran customs offices 10 -| V V N \ 1 \ }of debtor nations (for example, the Arab Republic 10 g < jof Egypt by Britain, Turkey by France). The United 5 1 / States intervened in the Dominican Republic, Haiti, 0 .. IllllI lllll I 11:11 llllI Honduras, and Nicaragua against governments 4S t° Ne 4° 90° 9 4' 4' that defaulted on their debt (Dammers 1984). But creditor governments usually viewved defaults as a Note Numbers at peaks denote absolute niumber of countries 1e default matter of busmess rather rhan poltcs, and mosr Sonjrces Suter 1992, Beers and Chambers 2002 British governments were reluctant to use their 57 G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 power or influence to support creditor rights in was due to the breadth and severity of the world emerging markets. recession and the interruption from the war, rather Creditors demonstrated some flexibility in than a change in attitude by lenders. The collapse dealing with default, in part because repayment in commodity prices and rising protectionism cut could rarely be enforced through the seizure of the export revenues of 41 primary product ex- assets (except for the use of gunboat diplomacy) porters by about half from 1928-29 to 1932-33, due to a broad interpretation of sovereign immu- and real interest rates rose to more than 15 per- nity. The courts could be contemptuous of attempts cent (Ramphal 1989). In such difficult conditions, to enforce collection of foreign loans. In 1877, an countries that did not default (such as Argentina) English court characterized Peruvian bonds as enjoyed no better capital market access than de- essentially unenforceable "engagements of honor" faulting countries (Jorgensen and Sachs 1998). (the equivalent of gambling debts; Kaletsky 1985). Rescheduling agreements and the capitalization of Sovereign default in the 1980s interest into new bonds were common, and often When sovereign lending from the developed to the reflected debt relief rather than repayment in full developing world began to revive in earnest in the (Ramphal 1989). In general, settlement typically 1970s, the source of lending shifted. The main cred- did not involve complete repayment of interest itor group was not bondholders, but commercial and principle (Cole, Dow, and English 1994). banks. From 1970 to the late 1980s, banks ac- Default did not necessarily mean exclusion counted for about 90 percent of developing coun- from the capital markets for a lengthy period. tries' public external debt to private creditors Many countries were able to obtain new loans rela- (figure 3.15). tively soon after settling their old debts (Cole, Dow, Several factors dictated the reemergence of and English 1994). Practice changed in the course sovereign borrowing in the form of bank loans: of the 19th century. The time from default to the restoration of market access averaged 14 years o Banks were flush with liquidity with the recy- from 1821 to 1870, a figure that fell to just six cling of oil wealth and the drop in real interest years after 1870 (Suter 1992).3 In general, some rates that accompanied rising inflation during settlement was a prerequisite for obtaining new the decade. The U.S. long-term bond yield loans. Even after long periods of default, one of averaged between 6 and 8 percent in every more than 50 years, old debts were settled before year from 1970 to 1978, while consumer new loans were made available. Relatively easy ac- prices increased by almost 7 percent a year. cess to new loans by defaulted states that agreed to settle their obligations generally reflected changes in regime that indicated more accommodating Figure 3.15 Composition of external debt to policies toward foreign creditors. From 1841 to private creditors, 1970-2000 1843, eight U.S. states and one territory defaulted Pricate crditors, d9t0-e000 on obligations that were held largely by residents of Pubic and puDlicly guaranteed debt (percent) other states or Britain. Those states that settled their 100 debts were able to regain access to international 90 nks credit in the 1850s, while states that refused to set- 80 - tle were for the most part unable to access foreign 70 - loans (English 1996). There were even cases of ser- 60 _ ial defaulters. Guatemala defaulted in 1828, 1864, 4, 1876, 1894, 1900, and 1917, each occasion leading 40 - to debt restructuring, followed by successful at- 30 _ tempts to raise fresh capital (Ramphal 1989). 20 - By contrast, defaults by a majority of sover- 10 Bonds eign debtors during the 1930s effectively closed _.__________________ ____________ New York, London, and Paris bond markets to o c: e foreign sovereign borrowers, particularly less de- N' '4\ ep veloped countries, until the late 1960s. This likely Soerce: World Bank Debtor Reporting System 58 COP I NG WIT Hi WE AK P RI VAT E DEBT F LOWS * It was hoped that banks, with their long-term This rescheduling was facilitated by the con- relationships with emerging markets, would centration of holdings of claims. For example, in be a more savvy source of funds than bond the United States the top nine banks held more than investors. 60 percent of major U.S. banks' assets in eight of * Many emerging markets were experiencing the largest emerging market debtors (Kaletsky respectable growth rates, which bolstered 1985). Initially, at least, such rescheduling opera- lenders' confidence in repayment prospects. tions allowed all sides to claim that default had For example, GDP rose by 5.9 percent per been avoided. For policymakers in the industrial year in Latin America in the 1970s (this countries, this was a welcome fix, as many impor- compares with the average of about 2 percent tant industrial-country banks had very large expo- that prevailed over the subsequent two sure to developing countries, so that a default could decades). Moreover, booming commodity threaten the solvency of industrial-country banking prices led to substantial windfall income gains systems. For cxample, as of March 1984, nine for many developing countries. money-center U.S. banks had loans totaling 179 per- * Despite the historical experience, the belief cent of their equity in six developing countries with prevailed that major emerging markets would severe debt difficulties (Kaletsky 1985). Many not default, either because "countries do not debtor countries entered into a series of agreements go out of business"4 or because the creditor with commercial banks to restructure debt (Mexico governments would not permit a default, given had eight in the 1980s; Argentina, Brazil, and the the vulnerability of their major banks. Republica Bolhvariana de Venezuela each had four). Multiyear restructuiring agreements. As the The boom in bank lending came to an end with the 1980s wore on, the restructuring period grew sharp tightening in U.S. monetary policy at the end longer. Multiyear- restructuring agreements with of the 1970s. Countries that had borrowed when commercial banks were introduced in 1984, which U.S. real interest rates were close to zero and global economized on time spent in negotiations and re- growth was buoyant suddenly had to face high real duced the cost of rescheduled debt. But the debt interest rates, depressed global demand, and plung- problems remained unresolved, reflecting the failure ing commodity prices. In the three years following of simply postponing repayment to address the debt the Mexican payments sLuspension in August 1982, burden, coupled with policy failures by some bor- 24 middle-incomiie countries were forced to renego- rowers and recurrence of external shocks. By 1988, tiate their debt with commercial banks. despite significant trade surpluses m many debtors, At this point, the concept of a sovereign de- their nominal level of debt relative to income was as fault became a little murkier. In the end, the de- high or higher than it had been in 1982 (figure 3.16). faults and write-downs on bank debts followed a Moreover, debt continued to trade on sec- three-stage process in most countries: ondary markets at a substantial discount to face Rescheduilings. At first, the banks and coun- value, confirming the market's skepticism that debt tries agreed on the rescheduling of principal for would ever be repaid in full.5 the following year-this on the expectation that In September 1988, the secondary market price interest rates would fall, global growth would of 13 major debtors traded at an unweighted aver- resume, and countries could quickly return to full age of 44 cents on the dollar. The continued debt payment on their external debts. For example, the overhang was believed to constrain growth in the agreements reached with Argentina and Brazil in major indebted countries. Expectations that volun- 1983 covered only 12 months; the agreement with tary commercial bank lending would resume to the the Dominican Republic, 13 months; and the debtors who rescheduled debt service payments agreement with Mexico, 28 months (reached in and undertook structural reforms (key elements of August 1983, it consolidated debt over the previ- the Baker initiative-a U.S. government-led plan to ous 15 months and the next 12 months) (see allow countries to grow their way out of debt diffi- annex to this chapter). These agreements involved culties along with net new lending) were frustrated. simply a delay in repayments, with interest accru- Net commercial bank lending to the 17 countries ing on the rescheduled debt, rather than any involved in the Baker initiative averaged less than reduction in the debt burden. $3 billion per year from 1985 to 1988. 59 G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 Figure 3.16 Ratio of debt to gross national income The rise in bond finance can be attributed to for select countries, 1982 and '.988 improved prospects and greater stability in many Total external debtiGNI debtor countries; the opening of capital markets, 100 which encouraged greater lending to domestic 90 _ 1988 firms (including state enterprises); market innova- 80 _ 1982 tions, such as derivatives and securitization, which 70 - _ r facilitated greater risk sharing and hence a greater supply of capital; and the reduction of inflation in 60 - industrial countries during the 1980s, which made 50 _ -_ ] the supply of bond finance more attractive. 40 _ As in past episodes, however, the expansion of 30 _ finance was accompanied by debt crises. Mexico 20 H (1994-95), East Asia (1997-98), the Russian Fed- 10 eration (1998), Brazil (1999 and 2002), Turkey o _ _+ _ _+ _ _+ _ _+ _11+ (briefly in 1994 and 2000-01), and Argentina °r *§3 (2001-02) all suffered massive economic (and in 4P ,. some cases political and social) dislocations as ei- ther the government or the private sector struggled Source World Bank Debtor Reporting System. to meet its obligations. The economic cost was huge: output in the eight countries most directly af- fected by the filancial crises of the 1990s fell by al- most 3 percent during crisis years, compared with a The Brady initiative. The Brady initiative, sup- rise of almost 5 percent in the years before and ported with funds from the World Bank and the after the crisis. IMF, finally provided the framework for a reduction Growing official support for countries in of the debt burden. From 1989 to 1995, 13 coun- crisis. The most striking aspect of the strategy tries with $191 billion in commercial bank debt adopted to handle debt crises in the 1990s was completed debt and debt service reduction (DDSR) a massive increase in official support, despite the operations, which provided for the reduction of fact that the threat posed by emerging-market fi- nearly 20 percent in the nominal value of commer- nancial crises to industrial-country banks had eased cial bank debt. The DDSR programs included a since the 1980s. Severe debt service problems were variety of instruments: buybacks at a discount, ex- often met by financing packages from creditor changes for discount bonds at market rates, par governments and multilateral institutions, at times bonds at below-market interest rates, and in some (for example, the Republic of Korea) combined cases, partial payment of arrears and new money with undertakings by commercial banks to roll over bonds. The new obligations were generally securi- short-term credit lines. IMF disbursements jumped tized, that is, issued in the form of bonds and beginning in 1995, with the bulk of funds devoted enhanced by collateral for principal and interest to large rescue packages designed to restore finan- payments. As a result of debt reduction and, in cial stability in major debtors (figure 3.17). Since many countries, some rise in growth rates, the aver- 1995, 10 major emerging markets have received age debt to gross national income ratios of the IMF programs that exceeded 400 percent of quota, major debtors listed in figure 3.16 fell from 57 per- whereas 300 percent of quota had been set as a cent in 1988 to 43 percent in 1994. maximum in 1992, with exceptions allowed for extraordinary circumstances (Porzecanski 2002). Debt crises in the 1990s Three factors appear to have encouraged Developing countries' access to bond markets in- this strategy shift to more aggressive official inter- creased as their problems with commercial bank vention: debt declined. Net bond flows to developing coun- tries rose from $11 billion in 1991 to a peak of o Policymakers became concerned that crises $40 billion in 1997-98, before dropping with the affecting a few borrowers would spill over fallout from the East Asian Crisis. rapidly to many other securities markets, 60 COP ING WITH W EA K PR I VAT E DEBT FLOWS Figure 3.17 IMF disbursements, 1984-2002 moral hazard and thus encourage greater risk Billions of dollars taking by lenders.7 Also, as a result of the official 35 support, the country may be even more vulnerable because of the larger amount of inflexible debt on 30 i its books. Market-based approaches to resolving crises. 25 - The task of ensuring that private-sector creditors 20 -^\ 1/ \\ 11 contribute to resolving crises has become more complicated due to the increasing importance of 15- bonds in emerging market debt. During the 1 980s debt crisis, holders of 85 percent of a country's debt 10 - could be represented by 15 banks with powerful in- s - yToVal centives to cooperatc, including similar institutionial Majorpackages interests, the desire to secure future business with 0 1 + = l 1 1 1 1 1 1 1 1 1 I the debtor, a reluctance to oppose their regulators, 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 and the legal obligation to share the proceeds of any Note Major packages are defjined as those having disbursements in litigation with all other creditors (Krueger 2002a).' excess of $1 bIlihon Soerce finterlationial Moetary Fnd By contrast, bondholders are more numerous and may be anonymous. They generally do not have long-term relationships with debtors or regulators, and their incentive to sue is greater because they including those in both the developing and de- often do not have to share the proceeds of litiga- veloped world Aggressive lending was thus a tion. Thus the potential has increased for coordina- public good, designed to head off widespread tion failures and disorderly debt restructurings, contagion. characterized by competitioni among creditors to * The central role played by bond finance made collect and legal disputes among creditors and be- it difficult to coordinate many diffuse market tween creditors and the debtor. participants. Adding emergency funding was a A disorderly process can increase the eco- way of keeping bond markets liquid at a time nomic disruption suffered by the debtor economiiy, of severe selling pressure. further impairing the debtors' ability to pay and * Political and economic ties between creditor thus reducing potential payments to creditors governments and malor debtors had strength- (Chari and Kehoe 1998, Miller and Zhang 1998). ened. This was especially important in the The potential for an extremely costly default can U.S.-led support for Mexico in early 1995. lead insolvent debtors to delay formal default, for example by increasinig the amount of debt at ex- The availability of official resources to refiilance tremely short maturities, forcing domestic institu- debt service has undoubtedly reduced the number tions subject to regulatory authority to lend to of countries forced to declare formal default on the government, and drawing down reserves to their external debt. In this sense, the policy can be dangerously low Ievels. Such measures increase the viewed as a success. costs to the debtor's economy when default finally Legitimate concerns have been expressed occurs. Disorder also can lead to an unpredictable about the extent of reliance on official finance dur- and Inequitable allocation of payments to credi- ing recent crises, however. Most important, the in- tors, thus increasinig uncertainty and reducing the creasing openness of capital account transactions supply of finance (Cornelli and Felli 1994). More- has raised the amount of official resources re- over, the likelihood of a disorderly restructuring quired to restore confidence.6 This raises an inher- process can reduce incentives for creditors to par- ent credibility problem, as a package large enough ticipate in necessary restructurings by holding out to reassure creditors completely may have to be so the promise of higher returns through legal action. large as to be politically untenable for the major Lipworth and Nystedt (2001) argue that the shift industrial countries. Moreover, such large official from commercial bank lending to Eurobonds financing packages are more likely to increase following the 1980s debt crisis in part occurred 61 G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 because creditors believed eurobonds would be Table 3.4 Select bond exchanges, 1999-2001 extremely difficult and costly to restructure. Voluntary Conccrted While the dangers of a disorderly restructur- ing are real, recent negotiations of bonded debt have been resolved without great difficulty despite Debt eligible 29 5 0 6 2 7 6 7 3 1.8 Debt reduction (Y) 0.0 0 0 0 0 40 0 37 0 the potential for litigation, the requirements of ADcounts exchanged 29 5 0 6 2.3 6 6 31 8 unanimous consent by creditors, and the problems Exchange bonds issued 30.4 0 6 2.3 4 0 21.1 involved in identifying and coordinating the ac- Sotrce Chuhan2001. tions of thousands of bondholders. Pakistan (1999), Ukraine (1999 and 2000), and Argentina (2001) undertook voluntary bond exchanges, Ecuador). The Ecuador operation was particularly under which some form of sweetener was included interesting because negotiations took less than a to enhance investor participation, which reached year (much shorter than many of the bank debt almost 99 percent in Pakistan and Argentina, and restructurings), and the legal advisor was able to 85 percent in the 2000 Ukraine operation. Some cram down the terms on holdouts. While Ecuador's observers have cited these examples in claiming bonds required unanimity to change payment that market-based approaches are efficient ways to terms, only 51 percent agreement was required to address sovereign defaults (Roubini 2002). change the nonfinancial terms, so "exit consent" Despite these successes, there are two reasons clauses were used to change the terms of the old why market-based approaches may not deal effi- bond and make them less appealing to potential ciently with future crises: holdouts. Despite the existence of acceleration and cross-default clauses, creditors did not take legal * These bond exchanges typically covered just a action to enforce their rights, presumably because few bond issues, in a few cases with relatively litigation is costly and sovereign assets are rela- small amounts of debt (Bolton 2002). The tively difficult to attach, despite the increased use Pakistan issue had a relatively homogeneous of waivers of sovereign immunity for commercial investor base that facilitated negotiations. It transactions (Roubini 2000). Thus, the Ecuador has not been shown that bond exchanges can case does provide some comfort that the restructur- be used to deal with a default covering very ing of bonded debt, which involves a write-down large amounts of debt and involving multiple of claims, does not have to be disorderly. instruments. Nevertheless, recent legal cases show that the * Many of these operations did not reduce the potential for a more disorderly restructuring present value of the debt (Chuhan 2001), and process remains. Earlier attempts to buy distressed the Pakistan and Ukraine deals provided sig- debt and sue for full payment were generally un- nificant mark-to-market gains for creditors successful. Lawsuits were filed during the restruc- (substantial upfront cash was included in the turing of Latin American bonds during the late Ukraine operation). It is not clear that the op- 1980s and early 1990s, but they achieved little erations have restored the solvency of the success. Lawsuits also have been filed against countries involved (Roubini 2000) (by now the Brazil for nonipayment of commercial debt (Priest failure of the Argentine operation has become 2001), with little result. clear). Thus these operations do not demon- More recent cases have shown that such a strate that private negotiations have achieved strategy may be profitable. A fund bought some an efficient resolution of crises involving $20 million in Peruvian defaulted debt at a dis- bonded debt that restored debt sustainability. count of almost 50 percent and obtained court in- junctions to prevent the government from repay- Ecuador and the Russian Federation implemented ing other creditors until its claims were settled (ICN concerted bond restructurings in August of 2000 2000). After a New York court ruled in its favor in that did involve debt reduction-an average of 2000, Peru faced the potential for a breakdown of 40 percent in Ecuador and 37 percent in the the Brady restructuring, which would have further Russian Federation (see table 3.4). Creditor partic- deepened the country's economic difficulties. The ipation in both operations was high (97 percent in government then settled the case, paying the fund 62 COP ING WITH WEAK PRIVATE DEBT FLOWS a substantial premium over what other creditors already have provisions for collective representa- received. The same fund has also secured signifi- tion, majority, and sharing of repayments. How- cant payments by suing, or threatening to sue, ever, bonds issued under U.S. law do not automati- Panama and Vietnam (Brady Forum 2000). Simi- cally have such provisions. lar issues arise regarding the restructuring of debt Empirical research indicates that collective ac- in the Democratic Republic of the Congo (Krueger tion clauses have either no impact or a positive im- 2002b). There were reports last year that vulture pact on the terms on lending. Eichengreen and funds were active in buying Argentine securities Mody (2000) found that bonds subject to U.K. (Priest 2001). Some commentators expect "an governing law (which thus include collective ac- avalanche of lawsuits against the Argentine gov- tion clauses) had lower spreads than bonds subject ernment," particularly if foreign bondholders are to U.S. law for more credit-worthy issuers, who not provided the same terms as domestic bond- appear to benefit from the potential for a more holders (Latin American Advisor 2002). Thus, orderly debt restructuring. In contrast, less credit- there remains some potential for the disruption of worthy issuers may pay higher spreads on bonds future restructurings of bonded debt. with collective action clauses. With higher default risk, investors may be more sensitive to the poten- tial for moral hazard implied by making defaults more orderly. However, Becker, Richards, and The search for better crisis Thaicharoen (2001) find that neither more nor less management creditworthy issuers are charged higher spreads in R eluctance to rely on the provision of large bonds with collective action clauses. R amounts of official finance to resolve debt Collective action clauses could play an impor- service difficulties, coupled with potential prob- tant role in facilitating debt negotiations. They lems in coordinating bond creditors, have led to provide Important protections for the rights of the increased interest in improving the framework for majority of creditors within a single instrument to the restructuring of bonded debt. Two proposals achieve agreement with the debtor when a restruc- have been the focus of recent debate: the greater turing of debt is necessary. At the same time, use of collective action clauses to facilitate coordi- greater use of collective action clauses is unlikely nation, and international agreement on a legal to adversely affect the market for sovereign debt. framework similar to domestic bankruptcy law. In No radical change to existing rules would be re- addition, work is continuing on the development quired to encourage collective action clauses. of a voluntary code of conduct that would help Mexico's recent issuance of a bond with a collec- improve the environment for the resolution of tive action clause is a positive signal that is likely debt difficulties (Krueger 2003). to encourage other investment-grade developing countries to follow suit. And efforts to develop Collective action clauses model language for these clauses should facilitate Collective action clauses are provisions of bonds their adoption. that specify procedures for selecting bondholders' Despite all of these positive aspects, however, representatives in debt negotiations and provide for two factors suggest collective action clauses are, at the modification of terms on bonds by a substan- best, only part of a solution: tial majority. They generally prohibit individual bondholders from initiating litigation and require * Collective action clauses played only a mar- that any funds recovered through litigation be ginal role in recent bond restructurings. They shared with all creditors (Eichengreen 2002). were invoked in some of Ukraine's bonds, Greater use of collective action clauses could which may have helped to bind holdout help impose majority-supported debt restructuring creditors. On the other hand, Pakistan's bonds agreements on minority creditors, thus reducing did have collective action clauses, but they the probability of a disorderly default. Bonds is- were not used. And bonds issued by Ecuador sued under U.K. law (which a few years ago ac- and the Russian Federation did not have col- counted for just under 50 percent of the stock of lective action clauses, but holdouts did not emerging market eurobonds; see Haldane 1999) disrupt the deal (Roubini 2000). Thus their 63 G LO B AL DE V EL O P M E N T F I N A N C E 2 0 0 3 contribution to resolving future disputes over register creditor claims and oversee voting. The debt restructurings is uncertain.9 role of the IMF, which is both a major creditor and o Collective action clauses may not provide suf- an organization controlled by creditors (Hurlock ficient protection against a disorderly restruc- 1995), would be limited to avoid a conflict of in- turing. They only bind acceptance of a debt terest. The IMF proposal would not envision the negotiation by creditors with the same instru- restructuring of multilateral credits, since these are ment, so they would not help resolve disputes designed to provide a public good rather than to across instruments or classes of creditors. That gain commercial advantage. is, they would not aggregate claims across Potential advantages. The SDRM would ad- creditors. Nor would they address the large dress important issues that can impede the resolu- portion of the existing stock of debt that does tion of sovereign debt crises. The provision that mi- not include collective action clauses. And it nority creditors would be bound to a decision by a may be difficult to get some issuers (particu- supermajority of creditors, and for the sharing of larly issuers rated below investment grade) to proceeds from litigation, would virtually eliminate include such clauses in bond instruments for the incentive for creditors to hold out or undertake fear that this would signal the intention to de- legal action that would disrupt a debt restructuring fault and erode the issuer's competitive posi- agreement. Thus creditors and debtors would find tion in the international debt markets. it easier to reach agreement on a restructuring and ensure that the agreement is implemented. Insol- A sovereign debt restructuring mechanism vent debtors would have less incentive to take The IMF recently proposed a formal bankruptcy costly measures to avoid an inevitable default, procedure (the sovereign debt restructuring mech- which could reduce the cost of future defaults. The anism, or SDRM) to enable an insolvent govern- SDRM would not make default costless, however, ment to seek legal protection from external credi- nor necessarily reduce the incidence of crises. But it tors while negotiating a restructuring of its debt.10 could play a role in encouraging earlier recognition, The proposal is in part modeled on corporate and thus less costly resolution, of unsustainable bankruptcy law (see box 3.4), and is still being re- debt positions. fined. Only the broad outlines of the proposal are To the extent that the SDRM reduces the in- thus discussed here. centives for insolvent borrowers to delay default, The SDRM would be activated at the sover- it would also reduce the pressure on international eign's request (Krueger 2002b). The SDRM would financial institutions to provide emergency finance provide a legal mechanism for binding a minority for insolvent debtors. Thus private lenders would of creditors to a debt restructuring agreed upon be- be forced to evaluate the prospects for repayment tween a supermajority of creditors and the debtor. with a reduced likelihood of official financial sup- New finance would be shielded from restructuring. port, meaning the costs of borrowing would more At the same time, creditor interests would be pro- accurately reflect actual risks. tected, including the prohibition of payments to The SDRM also could facilitate the attraction nonpriority creditors and sanctions against abuse of new financing from private sources (referred of the mechanism." It is envisioned that this to as "debtor in possession finance" in domestic framework would be invoked rarely and would be bankruptcy procedure) by giving seniority to new applied only to insolvent (as opposed to illiquid) loans. Even if the SDRM were rarely invoked, it debtors. It would gain force of law through an would encourage negotiations between creditors amendment to the IMF's Articles of Agreement, and debtors and thus facilitate more orderly reso- which requires agreement by three-fifths of the lution of debt service difficulties. IMF's members holding 85 percent of voting power, Potential disadvantages. The SDRM also has and which would be binding on all members. potential drawbacks. An important point is Approval of the final restructuring would be whether radical changes to the international vested in the debtor and a supermajority of credi- framework for treating sovereign defaults really tors. Disputes could be adjudicated by an indepen- are necessary to avoid disorderly debt restructur- dent dispute resolution forum that also would ing for insolvent debtors. Recent negotiations over 64 COP ING WITH WE AK PR I VAT E DEBT FLO WS Box 3.4 Sovereign debt restructuring and domestic bankruptcy law acillitating coordination among creditors is an impor- more debtor friendly. In France, maintaining employment Ftant goal of bankruptcy law. Bankruptcy legislation is a stated goal. typically provides for: (a) a stay on legal actions against the debtor to avoid a grab race for assets that lowers the Sovereign governments are not firms return to crcditors as a whole; (b) liquidation or mainte- Differences in the nature of sovereign governments versus nance of the firm as a going concern, depending on which firms have important implications for the balance of credi- course provides the greatest rcturn to creditors; (c) senior- tor versus debtor interests. Sovereigns cannot be liquidated ity for new finance, where the firm continues to operate; and the ability to seize their assets is limited. Thus there is (d) imposition of a majority-agreed reorganization on no lower limit to the return to creditors (the liquidation potential holdouts, which facilitates a speedy resolution; value of the firm in corporate bankruptcy), and creditors' and (e) monitoring or replacement of management, to safe- leverage in defining the reorganization agreement and en- guard creditor interests against asset stripping and insider suring a speedy resolution is less than in corporate bank- payments. ruptcies. Moreover, sovereigns cannot be taken over by At the same time, these steps to protect creditor inter- creditor-imposed management. Thus, creditors cannot ests provide debtors with the potential to undertake strate- ensure that the government's policies are consistent with gic defaults: a debtor may seek protection from its credi- maximizing their return. The absence of these safeguards tors through bankruptcy, even though the debtor has the for creditor rights is a major reason why many creditors resources to pay. believe that the SDRM would provide excessive leverage to debtors, as compared with the position of firms under Balancing the interests of creditors and debtors domestic bankruptcy legislation. A key goal of domestic bankruptcy law is to maintain an Other differences between sovereigns and firms pro- appropriate balance between the interests of debtors vide greater leverage to creditors than in corporate bank- (becoming free from unpayable debts) and the interests of ruptcy. Sovereigns arc ultimately accountable to their peo- creditors (maximizing the value of the firm after bank- ple for domestic economic activity. Suspensions of debt ruptcy and ensuring that the incentitves to repay debt are service can be met by a flight from domestic assets, result- maintained). ing in a massive exchange rate devaluation, a banking Considerable differences exist among legal systems in crisis, and perhaps widespread corporate bankruptcy. the balance between creditor and debtor interests. Bank- Capital controls and bank holidays may be inadequate ruptcy codes have changed over time; no approach to means of addressing such shocks to the financial system. bankruptcy law is clearly superior to all others. In the These economic costs often lead to the replacement of United States, the treatment of bankrupt railroads in the political leadership following a result of a crisis. Thus, 19th century evolved from a liquidation procedure to debt sovereigns may face sufficient incentives to repay debt, reorganization, which preserved the value of the railroad even if a sovcreign bankruptcy system improved their as a going concern. During the 1930s, Chapter 10 of the leverage vis-A-vis creditors Chandler Act mandated an administrative model for bank- Municipal bankruptcy may provide a closer analogy rupt firms, augmenting the power of an inclependenit than corporate bankruptcy to the issues facing the SDRM. trustee at the expense of both debtors and creditors, and Like sovereign nations, municipalities also cannot be frequently leading to liquidation. Firms tended to avoid liquidated. In the United States the court cannot interfere in Chapter 10 in favor of Chapter I 1, which provided greater a municipality's political or governmental powers Model- potential for maintaining the firm as a going concern. The ing a sovereign bankruptcy framework on U.S. municipal 1978 Bankruptcy Act, whlich facilitated the use of the more bankruptcy laws would tend to improve the leverage of debtor-friendly provisions of Chapter 11, may have con- debtors. For example, stakeholders such as citizens' groups tributed to the boom in the corporate bond market in the and labor unions (who are unlikely to have creditor inter- 1980s. By contrast, the administrative process under the ests at hcart) can be represented in bankruptcy procedures, U.K. bankruptcy law provides more leverage to creditors, and their interests may be taken into account by the court. who appoint a receiver to take control of the firm. In Adopting this approach to sovereign bankruptcy France and Germany, where the court appoints an admm- would likely tilt the balance too far in the direction of istrator to run the firm, bankruptcy institutions tend to be debtor interests. In the U.S. context, creditor rights can be 65 G L O B AL DE V EL O PM ENT F INA NC E 2 0 0 3 Box 3.4 (continued) protected by state oversight, which can limit municipali- court would have a larger role in shaping the debt restruc- ties' ability to declare bankruptcy or shelter revenues from turing plan. In contrast, the SDRM is a relatively market- being used as debt service during bankruptcy. This con- friendly procedure, with the debt restructuring plan the straint would not be available in sovereign bankruptcy. outcome of bargaining between the creditors and debtors. Thus relying on the municipal bankruptcy model could lead to arbitrary infringements of creditor rights, as the Souirces Bolton 2002, Kreuger 2002b, Miller and Zhang 1998 bond restructurings have largely taken place with- Chapter 11 of the bankruptcy code and oversee out disruption and with little difficulty in coordi- financial manipulations of municipalities subject nating creditor positions or reaching agreement be- to Chapter 9 (Eichengreen 2002). tween debtor and creditors. As noted above, these The SDRM could increase investor uncer- restructurings often failed to restore solvency and tainty regarding the outcome and fairness of nego- involved relatively few instr uments, and recent tiations. An investor might be willing to agree to a legal cases have raised concerns regarding the po- collective action clause that facilitates restructuring tential for greater disruption in future negotiations. of an individual bond by a majority of the bond- Thus while it is not clear that recent restructurings holders, but be reluctant to commit to a restruc- are useful precedents for a massive default by a turing dictated by a majority of all creditors. The major creditor, so far the historical record does not investor might lack knowledge about the composi- demonstrate that bonded debt restructurings are tion and interests of all creditors and the terms on necessarily more disruptive than commercial-bank other instruments, and be more uncertain about debt restructurings. the outcome of a debt negotiation involving all The availability of orderly bankruptcy through creditors. An investor might be concerned that the SDRM could encourage "strategic defaults," larger creditors could impose a restructuring that suspensions of debt service by countries with the serves their longer-term interests (for example, means to repay. If a solvent debtor can choose to maintaining relationships with the debtor) rather default and use the SDRM as a shield against legal than gains the maximum from current negotia- redress, then creditors would be less willing to pro- tions. Investors also could worry that parties con- vide funds in the first place (see box 3.5 for views nected to the sovereign could purchase debt in an on the sanctions that make sovereign borrowing attempt to influence the terms of the restructuring feasible). However, creditors could refuse to sup- (although presumably this practice would be open port a restructuring proposal (or a proposal relat- to challenge under the mechanism envisioned to ing to priority financing) by a debtor they consid- adjudicate disputes). This potential underlines the ered solvent (IMF 2002). Moreover, the current importance of increasing the information on the proposal would enable creditors to terminate the universe of a country's creditors in the context of use of the SDRM. Thus, the ability of solvent bond offerings. debtors to use the SDRM as a shield against mak- Defining the debts potentially covered by the ing debt-service payments is limited. mechanism would be controversial and could dis- The SDRM could increase investors' uncer- tort market valuation of different instruments. In- tainty regarding their legal rights in case of a crisis. cluding domestic debt is not envisioned, as the Protection of creditor rights (for example against government already has the legal tools required to running down reserves or removal of collateral) minimize the collective action problems inherent may be weak, almost certainly weaker than pro- in restructuring debt subject to the jurisdiction of vided under domestic bankruptcy proceedings. For domestic courts (IMF 2002). However, excluding example, in the United States the court has the domestic debt in a world of open capital accounts power to replace management of firms under could lead foreigners to escape the SDRM by 66 COP ING WITH WE AK PR IVA r E DEBT FLO WS Box 3.5 The cost of default I[t is difficult to identify the nature and extent of the future loans (Eaton and Gersowitz 1981), foreign seizure Mcosts that are directly attributable to the decision to of assets or other interruptions to international trade stop payments on external debt. The decllnes in output (Bulow and Rogoff 1998), and a creditor run that precipi- associated with debt crises are typically huge. Hutchison tates a crisis and severe loss of output (Dooley 2000a): and Neuberger (2001) estimate that currency and balance of payments crises over the 1975-97 period reduced out- * Losing access to future loans seems like a weak incen- put by about 5-8 percent, even after controlling for other tive for maintaining debt service during a crisis. Bulow determinants of growth. These costs reflect several fac- and Rogoff (1990) find that pure reputation-based tors, including the endogenous macroeconomic responses debt is not sustainable (that is, the cost of default is to the boom/bust cycle that usually characterizes debt too low to provide creditors with adequate assurance crises. that debt will be repaid) under a broad range of as- There is indirect evidence that defaults are costly, in sumptions, unless the loss of reputation affects more that borrowers suffering debt service difficulties and with than simply credit markets. For example, governments little hope for voluntary access to additional external loans are likely to place value on their political ties to other nevertheless make significant net transfers to their credi- countries, making them reluctant to default (Rogoff tors, even during times of severe economic stringency. 1999). Thus Latin American debtors that rescheduled during the * The seizure of assets and making it difficult to trade ] 980s paid more than 3 percent of their annual output to is potentially a severe sanction that could encourage private creditors for five years following a rescheduling repayment of debt. However, such actions are rarely agreement, and emerging market debtors on average observed (Dooley 2000b), although cases have been paid more than 2 percent of output for three years after brought to seize sovereign assets (Miller and Zhang rescheduling, in both the 1980s and 1990s (see figure 1998). Only a small proportion of a state's assets is below). (The net transfer from countries that avoided a usually available to creditors, as most are located on crisis and did not enter into a rescheduling agreemenit was the sovereign's territory, while exports can be trans- close to zero in both decades.) Presumably these payments ferred to other owners before they leave the debtor reflected the desire to avoid some penalty if debt service country (Miller and Zhang 1998). paymcnts ceased entirely. * The potential for default to cause severe financial The penalties for default that underpin economists' disruption is clear. If debtors and creditors cannot models of sovereign borrowing include restricted access to quickly renegotiate contracts, then financial interme- diation within the country may break down following a default. Even if governments can discriminate Net transfers to private creditors against external creditors in favor of domestic credi- tors, the former may precipitate a run on the currency, Percentage of GDP, 3, 5, and 10 years after rescheduling requirinig the imposition of capital controls. In turn, 3 5 capital controls will make it difficult for banks and 1l All developing corporates to service external debts, leading to domes- 30 - _ot 1980s tic bankruptcies. Moreover, a default on external debt, 2 s - b LAC in 1980s particularly one accompanied by Iliiits on access to El 1990s foreign exchange, is likely to impair overall confidence 2 o E in the government and the banking system. The grow- 1 5 ing participation in extern al borrowing of developing country residents and businesses makes it very diffi- 10 cult to cease payments to foreigners without imposing a considerable cost on the domestic economy. In this 0 5 view, the output loss from the breakdown of finan- 0 o _ _ _ _ l _ _ _ l _ cial arrangements is the cost of default, and it is this 3 years 5 years 10 years threat that makes sovereign borrowers seek to service Note LAC is Latin America and the Caribbean thei- debts, and thus makes sovereign borrowing Source World Bank Debtor Reporting System possible. 67 G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 lending to the government through domestic resi- period of reduced flows to emerging markets is dents. Also, governments have felt compelled dur- likely due to the global economic slowdown and ing some crises to assume the external debt of the problems facing some of the major emerging banks and private corporations, and the treatment markets. But some creditors may be waiting to see of such liabilities may become an important issue. how the controversy over the SDRM is resolved be- Some flexibility in the treatment of debt would fore committing substantial funds. A speedy resolu- probably be beneficial, but that may not be con- tion of this issue is necessary to clearly define the sistent with a consistent legalistic approach. More legal framework facing sovereign loans. broadly, defining what debts are covered in the Weighing the potential benefits versus the SDRM is likely to encourage market reactions to costs of the SDRM is obviously difficult. And this lend through other channels. One might expect trade-off may vary considerably, depending on the greater reliance on securitized debt, where the col- ultimate form of the proposal that will be submitted lateral is outside the control of the government for approval. One issue worth emphasizing, which (for example, future flow receivables where re- is not often addressed in either the academic or ceipts are paid into an escrow account). official literature on dealing with sovereign bank- Implementatio11 issues. The SDRM may face ruptcy, concerns how the implications of financial challenging implementation problems. The diffi- crises for income distribution and poverty should culties in reaching agreement on a change in the affect one's view of this trade-off. Debt crises have IMF Articles that would attempt to override do- severe implications for the poor, who had no role mestic law should not be underestimated. Essen- in making decisions on borrowing.i2 Whatever the tially, the SDRM faces considerable opposition, but relative cost of crises for different income groups, it near-consensus is required for passage. Even if po- is clear that the total cost to the economy is not litical agreement could be reached, there is some fully internalized by the borrowers. Thus, institu- uncertainty whether domestic courts would recog- tions concerned about poverty may view the po- nize that the country's treaty obligations (as re- tential costs and benefits of changes in the interna- flected in the Articles) would override domestic tional financial architecture governing sovereign law, particularly in countries that have not ap- borrowing very differently from creditors and sov- proved the change in the Articles. Moreover, the ereign borrowers. It may be preferable to undergo judges appointed to adjudicate disputes would not considerable expense to reduce the costs of default, be accountable to any institution, raising questions even if uncertainty exists concerning whether these about the legitimacy of their decisions (Eichengreen steps are necessary and whether they have the po- 2002). Thus, the SDRM may not mean the end of tential to reduce the supply of finance by providing litigation, while such disputes could foment greater too much leverage to sovereign debtors. These uncertainty about the ultimate outcome of debt concerns are likely one reason for the widespread negotiations. support for the sovereign bankruptcy proposal The transition costs of moving toward the among groups concerned about distributional SDRM also need to be considered. The current issues. 13 68 Annex: Commercial Debt Restructuring T pHIS ANNEX PROVIDES A TABULATION OF Madagascar, which remains in default on its commercial-debt restructuring activities of foreign-currency debt, defaulted on about $200 mil- "T developing countries since 1980. It does not lion worth of local-currency debt in 2002. include restructuring undertaken voluntarily by Two countries restructured their previously sovereigns for the purpose of liability manage- defaulted debt in 2002. Indonesia completed the ment, such as exchanging existing debt for new restructuring of bank loans worth $1.5 billion, as fixed-income securities. However, it does include stipulated under the agreement with the Paris Club debt buybacks by countries undertaken to preempt of official creditors in April 2001. In August, formal restructuring of debt or reduce debt hang- Seychelles cleared about $70 million in arrears overs, and aided by official financinig. owed to commercial banks. In 2002, three countries defaulted on their The International Development Association foreign-currency debt. The most prominent default (IDA) created a Debt Reduction Facility in 1989 to was by Argentina, which formally suspended pay- help low-income countries manage their commer- ments on its public foreign debt of $95 billion-the cial debt burdens. Although there were no IDA- largest such sovereign default ever. Argentina also sponsored debt buybacks in 2002, three countries defaulted on $2.2 billion of local-currency bonds. were at an advanced stage of buyback procedures. While the moratorium on public foreign debt was In April 2001 Tanzania completed a first buyback announced in November 2001, the default was operation in which $156 million of debt was extin- not formalized until January 2002. As of February guished. A second and final buyback is expected 2003, formal negotiations to restructure Argentina's during 2003. Tanzania's buyback is sponsored by foreign-currenicy debt had not commenced. In April the IDA Debt Reduction Facility and the govern- 2002, Gabon defaulted on $30 million worth of ments of Germany and Switzerland. Cameroon bank loans that had been restructured in 1994 reached an agreement with the London Club, under under the auspices of the London Club of coinmer- the auspices of the IDA Debt Reduction Facility, to cial creditors. The third country to default was buy back about $600 million in eligible debt (in- Moldova (in June 2002), wlhich for the second time cluding interest arrears) at a price of 14.5 percent defaulted on a $75 million bond issued in 1998. The of the principal outstanding. The financing pro- outstanding amount on the bond had declined to posal for this deal will soon be submitted to the $40 million and, after the default, was restructured IDA Board for consideration. Negotiations for to mature in 2009 instead of 2002. In addition, Mozambiquc's debt buyback were also in progress. 69 G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 How to use these tables The dates shown are those of agreements, not of missed payments. Deferment refers to short-term rollover of current maturities. Rescheduling refers to consolidation of debt into new long-term obligations. It may include arrears as well as future maturities. Interest and short-term debt are included only if indicated in country notes. New money refers to loans arranged for budgetary or balance-of-payments support in con- junction with debt rescheduling, usually in proportion to each creditor bank's exposure. This is sometimes referred to as concerted lending. Short-term credit maintenance refers to understandings by banks to maintain the size of existing trade or other short-term credit facilities, arranged in conjunction with debt rescheduling. The figures for Brady deals include the face value of buybacks and of all debt exchanges. The Brady deals were also known as officially supported debt- and debt-service-reduction agreements. Albania Bank debt restructurings July 1995 Restructuring of $501 million due to commercial banks Of the total, $371 million was bought back for $96 S million, funded by grants from IDA Debt Reduction Facility and other donor countries, and $130 million was converted into long-term bonds Algeria Bank debt restructurings Feb 1992 1991-93 Financing Facility, designed to refinance liabilities due between October 1991 and March 1993 Tranche A covered debts with a maturity of 2 years or more anti was repayable in 8 years including 3 years grace bearing interest at London Interbank Of- fered Rate (LIBOR) + 1X percent Tranche B covered debts with a maturity of more than 360 days and less than 2 years and was repayable in 5 years includiisg 3 years grace June 1995: Rescheduling of $3.2 billion in maturities starting March 1994 Argentina Bank debt restructurings Jan 1983 Bridge loan ($1 3 billion) Aug 1983 New money loan ($0 S billion) Aug 1985 Rescheduling agreement of maturities in January 1982-January 1986 ($9 8 billion), new long-term money ($3 6 billion), mainte- nance of short-term credit lines ($3 1 billion) Aug 1987 Revised restructuring agreement covering amounts under 1983 and 1985 agreements and loans falling due subsequent to those arrangements ($24 3 billion), new long-term money ($13 billion), maintenance of short-term credit lines ($3 5 billion) Brady deal April 1993 Outstanding stock of $19.3 billion exchanged for either (i) 30-year bonds yielding a market interest rate (LIBOR + 13/16 per- cent) at a 35 percent discount, or (ii) 30-year par front-loaded interest reduction bonds (FLIRBs)-(first year interest rate 4 per- cent, rising to 6 percent in year seven and remaining there until maturity Both boiids were collateralized for principal and contained rolling 12 month interest guarantees Agreement also included $9 3 billion of past due interest, $0 7 billion was paid in cash at closing, $400 million was written off, the remainder was exchanged for bonds (17-year maturity), repayable in rising installments and yielding LIBOR + 13/16 percent. Bond market defaults and restructurings Jan 2002 Announcement of a moratorium on public foreign debt in December 2001 In January 2002, formalization of default on $95 bil- lion of foreign currenicy bonds and default oni $2 2 billion of local currency bonds The local currency bonds were exchanged for new debt, which carried covenants less favorable than the origitial debt Bonds maturing before 2010 were extended by three years, and the coupon was reduced to 7 perceiit or less As of Januarv 2003, the foreign currency bonds were still to be restructured Stand-by credit facility ($2 98 billioni) by the IMF for transitional financial support until August 2003 Bolivia Bank debt restructurings Dec 1980 Deferment of $200 million of maturities (including short-term debt) in August 1980-March 1981 April 1981 Rescheduling of $411 million of maturities (including debt deferred in 1980) in April 1981-April 1983 July 1988 Commercial bank debt retired throLIgh a buyback ($272 million) and a local currency bond exchange ($72 million) This was a rolling program and applied only to previously deferred loans May 1993 Buyback of $170 million commercial bank debt, funded by grants from IDA Debt Reduction Facility and other donor countries Brady deal July 1992 (i) Cash buyback at 84 percent discount, (il) Collateralized interest-free 30-year bullet-maturity par bonds, (ill) Short-term discount bonds (84 percent) convertible on maturity into local currency assets at a 1 1 5 ratio, exchangeable into investments for special projects Past-due interest canceled under all options Value recovery clause was based on price of tin. Bosnia and Herzegovina Bank debt restructurings Dec 1997 London Club Agreement to restructure $1 3 billion of principal and past-due interest owed to commercial banks Past due iiterest of $700 million was writteni off Eligible principal of $600 million svas exchanged for $400 million of uncollateralized discount bonds 37 S percent of the new bonds carried a 20 year marurity, including 7 years' grace and stepped-up interest rates rising from 2 0 percent in years 1-4 to LIBOR + 13/16 in years 11-20 Servicing on 62 5 percent of the new bonds was linked to economic 70 COP ING WITH WEAK PRI VAT E DEBT FLO WS performance The country was not required to make principal or interest payments for the first 10 years After that the country was required to make debt service payments if per capita income exceeded $2,800 for two consecutive years. Per capita income in 1997 was estimated at $1,079 Brazil Bank debt restructurings Feb 1983 Rescheduling agreement of $4.8 billion of maturities January 1983-January 1984; new long-term money ($4 2 billion); mainte- nance of short-term credit lines ($15.7 billion) Jan 1984 Rescheduling agreement of $5 9 billion of maturities in January 1984-January 1985, new long-term money ($6.5 billion), niaimite- nance of short-terns credit lines ($15 1 billion) July 1986 Deferment of $9 6 billion and rescheduling agreement of $6.6 billion of maturities in January 1985-January 1986, maintenance of short-term credit lines ($14 7 billion) Nov. 1988 Rescheduling agreement of $61 5 billion of maturities in January 1987-January 1994; new long-term moniey ($5.2 billion); main- tenance of short-term credit lines ($14 8 billion) Also included a broad package of creditor options. July 1992 Clearanice of interest arrears as of December 31, 1990 Cash payment during 1992 $863 million When term sheet concluded for long-term debt, the balance was to be converted into 10-year bonds (3 years grace), bearing market interest rates. Brady deal April 1994. Four components of debt were restructured totaling $48 billion (i) debt to foreign banks under the 1988 multiyear deposit facility agreement ($32 5 billion), (it) debt to Brazilian banks under the multiyear depoisit facility agreement; (ill) debt resulting from the 1988 new money facilities ($8.1 billion) and (iv) interest arrears accruing from 1991 to 1994 ($6.0 billion) The first category of debt was restructured followving a 6-choice meniu (i) discount bonds, 35 percent discount, 30-year bullet maturity yielding LIBOR + 13/16 percent with principal collateral and a 12-month rolling interest guiarantee ($11.2 billion); (ni) par bonds with a reduced fixed-rate interest (yielding 4 percent in the first year and gradually rising to 6 percent in year seven), 30-year bullet maturity, also with principal collateral and a 12-month rolling interest guarantee ($10 5 billion); (iii) front-loaded interest reduction bonds ($1.7 billion), with interest rising from a fixed rate of 4 percent in year one to 6 percent in years five and six and then reverting to LIBOR + 13/16 percent from year seven to maturity, 15 years maturity including 9 years grace, 12-month rolling interest guarantee, (iv) C-bonds, par reduced interest rate bonds with capitalization of iiterest ($7 1 billion), with repayment terms of 20 years maturity including 10 years grace, interest beginning at 4 percent and the applicable rates in the first 6 years being capitalized, no collateral, (v) conversion bonds ($1 9 billion) combined with new money bonds in a 1.5 5 ratio, interest is LIBOR + 7/8 percent, terms are 18 years maturity including 10 years grace for the conversion bonds and 15 years including 7 years grace for the new money bonds, no collateral, (vi) interest reduction loan with capitalization, maturity of 20 years including 10 years grace, interest rising froni 4 percent in year one to 5 percent in vear six to LIBOR + 13/16 froni year seven to matUrity. Bulgaria Brady deal July 1994 Creditors agreed to restructure $8 3 billion in public external debt, including about $2 1 billion in passed-due interest (PDI) The menu for the original debt included (i) buyhack at 0 25 cent per US Dollar (SO 8 billion), (ii) discount bond, 50 percent discount on face value (30 years bullet maturity, market rate, $3 7 billion), the discount bonds were collateralized for principal, (ii) FLIRBs 18 years maturity, 8 years grace interest beginning at 2 percent, rising to 3 percent in the seventh year and thereafter LIBOR + 13/16 ($1 7 billion) The FLIRBs hase one year's interest rolling interest guarantee Interest arrears were cleared with a cash payment of about 3 percent, a buyback ($0 2 billion), a write-off of $0 2 billion, and the issuance of PDI par bonds ($1 6 bdi- lion) with a 17 year maturity, including 7 years grace and a yield of LIBOR + 13/16 percent. Cameroon Banik debt restructurings May 2002 Buyback of $600 million (including interest arrears) of commercial bank debt on which the country has been in arrears since 1985, 14 S percent of the principal amount due Chile Bank debt restructurings July 1983 Rescheduling agreement of $2 1 billion of maturities in January 1983-January 1985, new long-term money ($1 3 billion), mairite- nance of short-term credit lines ($1 7 billion) Jani 1984 Consolidationi of short-term debt of $1 2 billion June 1984 Provision of new long-term money ($0 8 billion) Nov 1984 Short-term debt rolled over to June 30, 1985 Nos 1985 Short-term trade credit rolled over to 1990 Rescheduling agreemetit of $3 9 billion of maturities in Janiary 1985-Januiary 1988, newv long-term money ($1 billion); maintenance of short-term credit lines ($1 7 billion) June 1987 Rescheduling agreemiient of $9 7 billion of maturities in January 1988-Janiuary 1992, Maintenance of short-term credit lines ($1 7 billion) Aug 1988 Interest spread reduced to 13/16 percenit Also cash buybacks ($439 milliol) Dec 1990 Rescheduling agreemiienit of $4 2 billion of nsaturities in Janiuary 1991-January 1995, includinig previously rescheduled debt, new long-term money (S0 3 billion) New money bonds not tied to existing banks' evposure Congo, Republic of Bank debt restructurings Oct 1986 Agreement iti principle, but never concluded, to restrmcture 1986-88 maturities, repayable in 9 years including 3-year grace, bear- ing interest at LIBOR + 23A percent Approximately $200 milliois of debt would have beeni restructured In addition there was a niew money provisioii of $60 million Sept 2002 Debt rescheduling agreement with Paris Club See the chapter 6 anniex for details 71 G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 Costa Rica Bank debt restructurings Sept 1983 Rescheduling agreement of $0 7 billion of maturities (including principal arrears) in January 1983-January 1985, new long-term money ($0 2 billion), maintenance of short-term credit lines ($0 2 billion) May 1985 Rescheduling agreement of $0.5 billion of maturities, including deferment of revolving credit ($2 million) due in January 1985-January 1987, new long-term money ($75 million). Brady deal May 1990 Cash buyback at 84 percent discount ($992 million), debt-for-bond-exchange (S579 million), and write-off of $29 million of past- due interest C6te d'lvoire Bank debt restructurings Mar 1985 Rescheduling agreement of 50 5 billioii of maturities in December 1983-January 1985, new long-term money ($0 1 billion) Nov 1986 Multyear rescheduling agreement (MYRA) of $0 9 billion of maturities in January 1986-January 1990, April 1988 Agreement designed to replace the MYRA Included new money to refinance iiiterest Interest on the new money portion was LIBOR + 1 '4 percent Agreement was not put into effect because interest arrears were not cleared, and current interest payments were suspended in April 1988. Brady deal May 1997 Agreement for restructurinig $6 5 billion of principal and past-due interest For eligible principal of $2 3 billion, creditors agreed to (i) exchange $159 million for discount bonds (50 percent discount) subject to stepped-up interest rising from 2 5 percent in years 1-2 to LIBOR + 13/16 in years 11-30, (n) exchange $1 4 billion for FLIRBs with a maturity of 20 years, including 10 years' grace, and stepped-up interest rising from 2 0 percent in years 1-7 to LIBOR + 13/16 in years 14-20, (liii) buyback $0.7 billion at 24 cents per dollar Principal was collateralized with 30-year U S Treasury zero-coupon bonds for the discount bonds, but not for the FLIRBs A six-month rolling interest guarantee was required for the FLIRBs, but not for the discount bonds For past-due interest of $4 2 billion, $30 million was settled in cash at closing, $0 9 billion was exchanged for bonds with a 20-year maturity (half a year of grace period) repayable on a graduated amortization schedule, and $3 3 billion was written off Cuba Bank debt restructurings Dec 1983 Rescheduling agreement of $0 1 billion of maturities in September 1982-December 1984, maintenance of short-term credit lines ($0 5 billion) Dec 1984 Rescheduling agreement of $0 1 billion of maturities in January 1984-December 1985, maintenance of short-term credit lines ($0 S billion) July 1985 Rescheduling agreement of $0 1 billion of maturities in January 1985-December 1986, maintenance of short-term credit lines ($0 S billion) Dominican Republic Bank debt restructurings Dec 1983 Rescheduling agreement of $0 S billioti of maturities in December 1982-December 1983 (including short-term debt) Feb 1986 Muliyear rescheduling agreement of $0 8 billion of maturities in January 1985-December 2000 (including arrears as of December 31, 1984). Brady deal Aug 1994 Agreement covering principal and interest past-due ($1 2 billioii) The agreement had a menu conisisting of (i) buybacks ($ 4 bil- lion), (l) discount exchange bonds ($ S billion) 35 percent discount, to be repaid 30 years bullet maturity, interest rate LIBOR + 13/16 percent, (in) past-due-interest bonds ($171 million) bearing interest at LIBOR + 13/16 percent, with 3 years grace and 15 years maturity The accord also included a write-off of $112 million of past-due interest, and $52 million paid in cash at closing Ecuador Bank debt restructurings Oct 1983 Rescheduling agreement of $2 8 billion of maturities in November 1982-December 1983, new long-term money ($0 4 billion), maintenance of short-term credit lines ($0.7 billion) Dec. 1985 Multiyear rescheduling agreement of $4 2 billion of maturities in January 1985-January 2000 New long-term money ($0.2 bil- lion), maintenance of short-term credit lines ($0.7 billion) Nov 1987 Replaces the multiyear rescheduling agreement Brady deal Feb 1995 Agreement restructuring $7.8 billion of principal and part-due interest For principal, creditors agreed to exchange $2 6 billion for discount bonds (45 percent discounit) yielding LIBOR + 13/16 percenit and $1.9 billion for par reduced-interest rate bonds Both bonds had a 30-year bullet maturity, vere collaterahlLed for principal, and had a 12-mnonth rolling interest guarantee The interest rate on the par bonds was 3 percent for the first year, rising to 5 percent in year 11 For past-due interest, $75 billion was to be settled in cash at closing, $2 3 billion was exchanged for bonds with a 20-year maturity (no grace period) repayable on a gradu- ated amortization schedule, $191 million was exchanged for iiiterest equalization bonds, and $582 million was written off Bond market defaults and restructuriiigs Aug 2000 Agreement to exchange about $5 9 billion in defaulted Brady bonds and eurobonds for $3 9 billion in new 12 and 30-year global bonds The new 12-year issue was priced to yield 12 percent, and the new 30-year issue carried the multi-coupon with the initial coupon rate of 4 percent This operation resulted in a 40 percent reduction in principal for the bondholders Ethiopia Bank debt restructurings Jan 1996 Debt buyback at 8 cents per U S dollar of $226 million owed to commercial banks Funding for the operation provided by the IDA Debt Reduction facility. 72 COP ING WITH WE AK PR IVA T E D E B T F L 0 WS Gabon Bank debt restructurings Dec 1987 Rescheduling agreement of $27 inilliois of maturities in September 1986-December 1987 Dec 1991 Rescheduling agreenient of $75 millioni of maturities in January 1989-Decemiiber 1992 May 1994 Reschediling of $187 million of maturities Prinicipal due through 1994 oni debt contracted prior to Septemliber 20, 1986 (debt covtred by the 1991 agreemeicnit, whicil had niot been implenmented) was rescheduiled Ternsis 10-year matuirity includilng 2T years grace Interest l.IBOR + 7/8 percent. Arrears of initerest anid arrears of post cut-off maritriies as of July I, 1994, were to be repaid between 1994 and 1996 April 2002 Default on $30 tidllion of batik loanls, which had becl restructured in 1994. Gambia, The Bank debt restructLrings Feb 1988 Reschedulusg of debt outstandiisg as of 18 December, 1986, new loiig-terni miioney ($19 millitom) Guinea Bank debt restructurings April 1988 ResLheduliilg of short-term debt of $28 iiidllioni Dec 1998 Buyback of $130 niilion uitider rhe IDA Debt Rcduction Facility at 13 cenits per US Dollar, fiisanced IDA DRF aisd other donior counitries Guyana Bank debt restructUrings Aug 1982 Onie-year deferment of $14 million of miaturities in March 1982-April 1983 June 1983 Extensioni of $12 million due in July 1983-D)ecember 1983, previously deferred in 1982 July 1984 Extenision of $11 iisillion due in August 1 984-AuLguist 1985, previously deferred July 1985 Exteisioni of$l15 nillion due in ALIgist 1985-December 1986, previously deferred Jtily 1988 Defermlent of $8 milliol Nov 1992 Bnlyback of $69 million under the IDA DRF at 14 cents per US Dollar Dec 1999 BuybaLk of $55 9 million Linder the IDA DRF at 9 ceists per U S dollar, financed IDA DRI and the Switzerland governiisenit Honduras Baisk debt restrucsuriisgs JLine 1987 Resclheduling agrcenieset of $248 iillion of maturities due April 1987-December 1989 As two previous agreements (in 1983 atid 1984) were not implemented, this agreement incoirporated 198 1-85 mattirities as well, although it too was not signled Aug 1989 Bilateral reschedulmog of $101 million, inclidinlg misterest arrears, due to two commercial banks Aug 2001 Buyback of $13 million tinder the IDA DRF TI he buybaLk price was set at 18 cenits per dollar of the principal amoLnt The IDA and the governmiienits of the Netherlands, Norway, atid Swvitzerland provided fundinig for the operation Indonesia Bank debt restruLcturings June 1998 Agreement oii a framework for restructurinig $80 billion of the Inidonesian private debt The inter-bank loans were extended into new government-guaranteed loans with maturities of I to 4 years, at imterest rates of 2 75, 3, 3 25, atid 3 S percent over LIBOR The corporate debts were to be rescheduled over 8 years, including a 3-year grace period for repayment of principal Over 8-year rescheduling period, the real interest rate was set to be 5 5 percent, bIut it would decline to 5 percent for debtors who agree to repay in 5 years There vas also an agreemeist to pay off trade fiiiaticiog arrears to maisitaiis trade finiancing from foreign creditor banks Sept 2002 Completion of restructuring of $1 S billion in syndicated bank credits, as required Liinder the agreeimsent with Paris Club Iran, Islamic Republic of Bank debt restrilctiuritigs Mar 1993 ReschedulitIg of $2 8 billion of debt outstandinig as of March 1993 Dec 1994 ReschedLlilIg of $10 9 billioi of dLbt outstalnditig as of December 1994 Jamaica Bank debt restruicturitigs April 1981 Rescheditiliig of $126 million of niaturities in April 1979-April 1981 June 1981 Rescheduling of $89 milliots of maturities in July 198 I-March 1983, new loiug-term nioney ($89 iisillion) lune 1984 Resclieduling of $164 millioti of iiatuirities in July 1983-March 1985 Sept 1985 Reschediling of $359 million of niaturities its April 1 985-Marcli 1987 May 1987 Rescliedulisig oif $366 milliois of niaturities its latiuary 1987-March 1990, tiscIlided reduced spreads ois earlier rescheduling JLiise 1990 Reschediling of $315 idilliots of matLrities in laisuary 1990-Deceribler 1991 Also, redilued spreads iois earlier rescheduling Jordain Bank debt restructurings Sept 1989 Rcschedultisg agreement in principal of $580 million of maturities in January 1989-Jiunc 1991 Nov 1989 Provision of new long-term nsoney ($50 million), short-teriss credit ($50 million) to meet obhligations due bet veems lausuary 1989 and June 1990 73 G L O B A L D E V E L O P M E N r F I N A N C E 2 0 0 3 Brady deal Dec. 1993. Agreement restructuring $736 million of principal and $153 million of past-due interest For restructured principal, a small amount was repurchased at 39 cents per U.S. dollar, $243 was exchanged for discount bonids (35 percent discount); and $493 mil- lion was exchanged for par fixed interest bonds Both bonds had a 30-year bullet maturity with principal collateral and a 6-month rolling interest guarantee. The discoLint bonds yielded LIBOR + 13/16 percent interest, the yields on par bonds began at 4 per- cent in the first year, risinig to 6 percent in year seven. Regarding past-due interest, $29 million was paid at closing, $91 million was exchanged for non-collateralized bonds with a 12-year maturity including 3-years grace and yielding LIBOR + 13/16 per- cent, and $33 million was written off Up-fronit costs totaled $147 million, all of which was provicded from Jordan's own resoturces. Korea, Republic of Bank debt restruictrings Jan. 1998: Agreement to restricture the short-term foreign debts owed to foreign commercial banks Eligible short-term debt of $21.4 billion was converred into new government-guaranteed loans with maturities of between I and 3 years and floating interest rates set between 2.25 anid 2.75 percenitage points over LIBOR The commission charged by the government was set between 0 2 and 1 5 percentage points based on the credit rating (Moody's Imivestors Service or by S&P, and the BIS capital adequiacy ratio) of the debtor Also, the debtor had to mect a reserve requirement of 3 percent of total guaranteed amount in US dollars Liberia Bank debt restrticturinigs Dec 1982. Rescheduling of $29 million of maturities in July 1 981-Junie 1982 June 1983. Consolidation of $26 million of oil facility debt Mauritania Bank debt restructtirinigs Aug 1996. Debt buyback of $53 0 million, at a 90 percent dliscount, owed to commercial banks Funding for the operation provided by the IDA DRE. Madagascar Bank debt restrIucturings Nov. 1981 Arrears ($1s5 million) on overdrafts consolidated into long-term debt Oct 1984 Restructuring of entire stock of debt ($379 million), including arrears. June 1987 Modification of the terms of the October 1984 restructuring agreement. May 1990 Rescheduling agreement in principal of $49 million of matirities in April 1990-August 1995. Jani 2002 DefaulIt on $200 million in local currency debt, in addition to continuing defauilt on foreign currenicy commercial bank loans Malawi Bank debt restructtirings Mar 1983 Rescheduling of $59 million of maturities in September 1982-Auiguist 1984. Oct 1988: Rescheduling of balances as of August 21, 1987 ($36 million) Mexico Bank debt restricturings Aug. 1983 Rescheduling of $23 3 billion of maturities in April 1982-Auigiust 1984; new long-term moniey ($5 billion). April 1984: New long-term money ($3 8 billion) Mar 1985 Multiyear reschedtling agreement of $28 billion, incluiding previously rescheduled debt, maturing in Jantiary 1 987-December 1991 Aug 1985. Multiyear reschediling agreement of $20 3 billion of maturities (not previously rescheduled) in January 1985-December 1990 Oct 1985 Deferent of first payment ($0.9 billion) Linder the March 1985 agreement Mar 1987 Modification of terms of earlier agreemeints covering $44.2 billion of matLrities, niew long-term monley ($7.4 billion) Aug. 1987 Rescheduling of $9 7 billion of private sector debt maturing in January 1988-December 1991 Mar 1988' Exchanige of debt for 20-year zero-coupon collateralized bonds ($556 million) Brady deal Mar. 1990: Agreement restructuring $48.2 billion of debt. In addition to new money of $1 billion, the agreement provided for the exchange of $20.5 billion of debt for bonds at a 35 percent discount, al) exchange of $22 4 billion of debt at par for reduced interest rate bonds, anid conversion bonlds totaling $5 3 billion. The latter were not collateralized and had a tenor of 15 years maturity, includ- ing 7 years' grace, and an interest rate of LIBOR + 13/16. The total base also included $693 million not committed to any option Moldova Bond market defaults and restrticturings June 2002 Second default oni $75 million foreign currency bond (privately placed) originally issued in 1997. Outstanding amount of the bond reduIced to $40 mnillon after the initial default This time arotind the maturity of the bond, due in June 2002, was extended until 2009. Morocco Bank debt restructtirings Feb. 1986: Agreement in principle (initiated AuguIst 1983) rescheduling $531 million maturing in September 1983-December 1984, Short- term credit maintenance ($610 million) Sept 1987 Rescheduling of $2 4 billion of maturities in Janiuary 1985-December 1988 74 COP ING WITH WEAK PR I VATE DEBT FLOWS Brady deal June 1990 Rescheduling of $3.2 billion of maturities outstanding as of December 1989 Phase onie of this agreement restructured debt; phase two was a Brady deal that would take effect if Morocco had signed an EFF agreement with the IMF by December 31, 1991 Mozambique Bank debt restructurings May 1987 Reschediling of outstanding stock of debt ($2S3 million), inlclidinig ilitelest arrears Dec 1991 Buyback of $124 niillion of outstanding commercial bank debt ar a 90 percent discount, funded by granits from the II)A DRF and from France, the Netherlands, Switzerland, and Sweden Nicaragua Bank debt restructurings Dec 1980 Rescheduling of government debt ($582 milihon), all maturities, including arrears Dec 1981 Rescheduling of nationalized bank debt ($192 million), all maturities, including arrears. Mar 1982. Rescheduling of debts of nonfinancial enterprises ($100 million), all matui ties, inciliding arrears Feb 1984 Deferment of service on rescheduled debt ($145 niilion) due between Jliy 1983 and June 1984. Dec. 1995 Buyback of $1.1 billion of outstanding commercial bank debt at 8 cents per US Dollar Niger Bank debt restrricturings Mar. 1984 Rescheduling of $29 million of maturities in October 1983-March 1986 April 1986 Rescheduling of $36 million of maturities in Ocrober 1985-December 1988. Mar 1991 Buyhack of all commercial bank debt at 82 percenit discounit ($107 nsillion) Resources provided by grants from the DRF for IDA-only coLintries ($10 million), Switzerland ($3 million), and France ($10 milloll) Nigeria Bank debt restructiurings Nov 1987 ReschedIling of $4.7 billion of maturities, including short-term debt, duie between April 1986 and December 1987 Mar 1989 Rescheduling of $5 7 billion of short-term debt, includinig arrears on line of credit Brady deal Jan 1992 Agreement rescheduling $S.3 billion of debt. The terms provided for a cash-back at 60 percenlt disconisit on $3.3 billion, and debt exchanges on $2 billion for collateralized 30-year huilet maturity par bonds with reduced interest rates. 5.5 percenit for the first three years, 6 25 percent thereafter. Creditor selections: 62 percent for the buyback; 38 percent for the debt-reduction bond. A third option, new nmoney combined with conversion bonds, was not selected by participating creditor banks. Panama Bank debt restructurings Sept 1983. Provision of new long-term money ($278 nsillion); short-terei credit ($217 million) Oct 1985. Rescheduling of $578 millioii in maturities in January 1 985-Deceniber 1986, new long-term money ($60 million); maintenance of short-term credit lines ($190 million) Brady deal May 1996 Creditors agreed to restructuring of $3 9 billion in public external debt, mncludisig $2.0 billioni in past due interest The nmenu for the principal included. (i) discount bonds at a 45 percent discount of face value (30 years bullet niaturiry, marker rate, $87 8 mil- lion), (ii) Par bonds with rcduccd interest ratcs anid a 30 year bullet rcpaymeint ($268 0 nsilihon), and (tit) FLI.RBs for $1,612 2 mil- lion with a tenor of 18 years maturity includimig S years grace period The discotint anid the par bonds are collateralized with respect to the principal by U.S Treasury zero-couponi bonids, anid with respect to interest in the form of a 9-nionth rolling interest rate guarantee in the first year rising to 12 momiths in 2-3 years The FLIRBs do not require guarantee for the capital, but include a six-month rolling interest guarantee. PDI settlement included progress payments of $30 million, a payment at closing of $100 million, a write-off of $590.4 million arising from the recalculation of penalty interest at a lower interest rate, and PDI par bonids of $1,247.6 million with 20 years' maturity, incltidinig 7 years grace, and interest rate of LIBOR + 13/16 percent. Neither principal nor interest was guaranteed. Moreover, Panama cosild capitalize for the first six, the differenice was positive between LIBOR + 13/16 and 4.0 perceiit p.a. Peru Bank debt restructurings Jan 1980. Rescheduling of $364 million of maturities in January 1980-December 1980 July 1983. Rescheduling of $432 million of niatrirites In March 1983-FebrUary 1984; new long-ternm iioney ($6S0 million), mainteniance of short-term credit lines ($2 billion) Brady deal Nov. 1996- Creditors agreed to restructuring of $8 billion inl public external debt, including $3 8 billion in PDI. The menIL for the principal included (i) discount bonds at a 45 percent discount of face valtie (30 years bullet maturity, niarket rate, $947 milloll); (1i) par bonds with reduced interest rates anid a 30-year bullet repayment ($189 million); (1ii) FLIRBs for $1,779 million with a tenor of 20 years maturity includinig 8 years grace period, and (iv) a buyback of $1,266 million at 38 cents per US Dollar The discount and the par bonds were collateralized with respect to the principal by U S. Treasury 7ero-coupomi bomids, and with respect to interest in the form of a six-month rolling interest rate giuarantee secuired by cash or permitted investnments. The FLIRBs did not require guarantee for the capital, but included a six-month rolling ititerest guiaratitee PDI settlenmenit included progress paymelnts of $83 million, a payment at closing of $22S millioji-a buyhack of $1,217 million at 38 cents per US Dollar, and PDI par bondis 75 G L O B A L D E V E L O P M E N T F I N A N C E 2 O 0 3 of $2,284 million with 20 years' maturity, including 10 years grace, anid interest rate of LIBOR + 13/16 percent Neither princi- pal nor interest was guaranteed Moreover, Peru coulcl capitalize for the first six, the difference was positive between LIBOR + 13/16 anid 4 0 percent p a Philippines Banik debt restructurings Jan 1986- Rescheduling of $5 9 billion in maturities in October 1983-December 1986; new long-term money ($925 million), maintenanlce of short-term credit lines ($2974 millon) Dec 1987 Rescheduling of $9 billion in maturities in January 1987-December 1992, maintenance of short-term credit lines ($2,965 million) Brady deal Jan 1990 Agreement provided for $1 3 billion of buybacks at a 50 percenr discolint. Dec 1992 Following implemenitation of a cash buyback of $1 3 billion oni May 14, 1992, baniks selected debt exchaniges from three options; (i) front-loaded interest-reduiction par borids, yielding LIBOR + 13/16 percent from year seven to maturity (15 years for series A and 15 year for series B, both includinig seven years grace), (ni) collateralized step-down/step-up interest reduction bonds yielding 6.5 percenit from year six to maturity (25-year bullet iiiaturity for series A and 25X year for series B), and (Ill) new money com- bined with conversion bonlds in a 1 4 ratio, with both bonds attaining 17A (series A) or 17-year (series B) maturity, including five years grace and yielding LIBOR + 13/16 percent Interest payments on both interest-reduiction bonds covered by a rolling 14-month guarantee Creditor choices (total, $4 4 billion, 96 percent total eligible debt), buybacks, $1 3 billion (27 5 percent) option (a), $0 8 billion (46 3 percent), optioni (b), $1 9 billion (41 1 percent); option (c), $0 5 billion (11 7 percent) Poland Bank debt restructurings April 1982 Rescheduling of $1 9 billion of maturities in March 1981-December 1981 Nov 1982. Rescheduling of $2 2 billion of matuirities in Janiuary 1982-December 1982. Nov 1983 Rescheduling of $1 3 billicin of maturitoes in Januiary 1983-December 1983 July 1984 Rescheduling of $1 S billion of maturities, including some short-term trade credits, due in January 1984-December 1987. Sept 1986 Rescheduling of $1 9 billion of maturities, including debt reschieduled in 1982, due in January 1986-December 1987 July 1988 Multiyear rescheduling agreement of $8 3 billion of maturities due in January 1988-December 1993, maintenance of short-term credit lines ($ 1 billion) Also improved the terms of earlier agreemilents June 1989 Agreenient in principal to defer principal due May 1989-December 1990 ($206 millicon), until December 1991, and in October, the interest due in the fourth quarter of 1989, $145 million, was deferred unitil the second qtiartei of 1990 Brady deal Oct 1994 Creditors restrutuired $14 4 billion Three categories of debt were affected (i) long-terni debt covered by the 1988 restructuring agreement ($8 9 billion), (l) debt diue under the Revolving Short-Term Arrangement (RSTA) ($1 2 billion), (iii) past-due interest not otherwise restructured ($4 3 billion) The first category was sublect to a menu approach $2 1 billion of long-term debt was repurchased at 41 cenits per US Dollar, and $0 3 billion of RSTA debt was repurchased at 38 cents per US Dollar For the remilain- ing long-term, creditors chose between (i) discount bonids-45 percent discount ($5 4 billion), (ii), par reduced fixed interest bonds ($0 9 billion), (ill) coniversion bonids combined with new moniey bonids equal to 35 percent of the amount coliverted ($0 4 billion) The discount bonids and par bonds had 30-year bLillet maturities and featured collateralization of principal only Interest on the discount bonds was LIBOR + 13/16 percent Interest on the par bonds was 2.75 percent for the first year, rising to 5 percenit for year 21 The conversion bonds had a 25-year maturiry, including 20-year grace Their yield in year one was 4 5 per- cent, rising to 7 5 percent in year 11 The new money bonds had a 15-year maturity, iticliding 10-year grace and yield LIBOR + 13/16 percenit T he new nioney and ciinversioni bonds are not collateralized The RSTA debt not repurchased ($0 9 billion) was exchanged for 30-year bullet maturity fixed interest bonds, with similar (but slightly different) step/down-step/up arrangements as the par bonds, starting at 2 75 percent in year one aiid graduallv rising to 5 percenit in year 21. For past-duie interest, $0 8 billion was repurchased with related long-term and RSTA principal. A portion was to be settled with cash payments at closing ($63 mil- lion) A portion was written off ($0 8 billion), and the rensainder ($2.7 billion), wis converted into fixed-interest rate bonds yield- ing 3 25 percent in year one, rising to 7 percent in year nine Maturity was 20 years, including 7-years grace Amortization was graduated Romania Bank debt restructurings Dec 1982 Rescheduling of $1 6 billion of maturities in January 1982-December 1982 June 1983 Rescheduling of $0.6 billion of maturities in January 1983-December 1983 Sept 1986 Rescheduling of $0 8 billion in previouisly rescheduled debt maturing in January 1 986-December 1987 Sept 1987 Agreement in principal to reschedule $0 8 billion of maturities in January 1986-December 1987. Russian Federation Bank debt restructLrings Dec 1991. Determent of principal due in Deceiiber 1991-March 1992 on pre-1991 debt. The deferment was extended for each consecutive quarter until the enici of 1993 July 1993 Rescheduling of the stock of FSU debt contracted prior to January 1, 1991 ($24 billion), to be repaid with 15-year maturity including 5-year giace In the fourth quarter of 1993, $500 million was to be paid on interest accruing during 1993 At the end of 1993, all remaining unipaid interest (estimated at $3 billion) was then to be consolidated atid repaid at a 1 0-year maturity, including S vears' grace The 1993 interest payments were not made, the agreement was not implemented, mainly because Russia refused to accept bankers' requirement that sovereign imoiiunity be waived However, an understanding was reached on October 5, 1994, that the banks vould drop their insistence on a waiver of sovereign immuniuty and that the Vneshekonombank (or another public entity) would guaranitee the debts 76 COP ING WITH WE AK PR I VAT E DEBT FLO WS Nov 1995 Agreemenit in principle to comprehensively reschedule $33 billion in debt outstanding as of 15 Novenmber 1995 Heads of terms were sigined for reschedudling debt of the forimier Soviet Unilon in the amounit of $25 5 billion of principal outstandinig and $7 5 bil- lion in accrtled interest due The cligible prinicipal was to be repaid over 25 years, with 7 years of grace, beginniiing Decemiiber 15, 1995, in 37 semi-animual paymiienits omi a graduated schedule at LIBOR + 13/16 percetit per year It was further agrced that ani interest niote for $6 billion wvould be issued with a 20-year iiatirity and 7 years' grace from Decemiiber 15, 1995, that would be the same iiterest rate, listed on tbe Luixenmbourg Stock Exchange The remaining $1 5 billion in interest arrears was paid over 1995-96 By September 1996, the minimIlm subscribership by commercial banks of $20 billion in outstanding prinicipal was reachel wsivch triggered the Russian agreement to the rescheduling package Nov 1998 Outline ot an agreemiienit to restructure $13.5 billion of defailted Treasury bills (GKOs and OFZs) Uiider the restrricrsirinlg plan, 10 percenit of the defaulted bills was to be redeemed in cash iubles, and 20 peicents of the debt was to be exchanged for three-year zero-coupon bonds The remiiainimig 70 percent of the debt was to be restructured into 4-year and 5-year variable coupon bonds Feb 2000 Agreemenit to restructure $31 8 billion Soviet-era debts owed to rhe Lonidomi Club of commiziiercial banks The Lonidoni Club's credi- tors agreed to write off $11 6 billion of thIe principal and a 7-year gracc period for prin ipal repayments, and swappinig the rest of its defaulted debts (PRINs anid IANs) for a newv 30-year eLirobotids The interest rate on a niew eurobond was set at 2 25 percent for the first six iimonths, 2 5 percent for the seconid six mouiths, and 5 perLent for years trvo and seveni-yielding 7 5 percent a year Sao Tome and Principe Bank debt restructurings ALig 1994 B1uyback tinder rhe IDA debt-redluction facility at 10 cetits per US Dollar $101 i isllioti of principal was extiiguiished (87 percent of eligible debt) Senegal Banik debt restructurings Feb 1984 Rescheduling of $96 miliion of maturities in May 1981-June 1984 May 1985 Rescheduling of $20 miillion of niatLrities in July 1984-Junle 1986 Jan 1989 Rescheduling of $37 million Dec 1996 Debt buyback at 8 cents per US Dollar of US$80.0 million owed to commercial banks Funding for the operation provided by the IDA DRF Sierra Leone Bank debt restrucrirings Jan 1984 Rescheduling oif principal arrears ($25 millmoti) outstanding as of Decciiber 31, 1983 Aug 1995 Buyback, at 13 cents oni average per US Dollar, of US$235 million duie to commercial banks funded by granits fromil IDA DRF and other donior couintries South Africa Baiik debt restrucmtirimigs Sept 1985 Deferment of $13 6 billion maturing in August 1985-Deceiliebr 1985 NMar 1986 Rescheduling of $650 million of maturities in August 1985-Iline 1987 Mar 1987 Rescheduling of $4 5 billion of imiatirities in July 1987-June 1990 Oct 1989 Rescheduling of $7 5 billion of maturities in October 1989-De ember 1993 Sept 1993 Rescheduling of $5 billion, including interest arrears Sudan Banlk debt restructurinigs Nov 1981 Rescheduling of $593 million of miaturities due in Janliuary 1980-Marcch 1982, incIliding principal arrears and somiie short-term debt Mar 1982 Rescheduling of $3 million of iiterest arrears and modificationi of 1981 agreement April 1983 Rescheduling of $702 millioii of initerest arrears aisd inodificatiois of 1981 agreeniieint Oct 1985 Rescheduling of $1,037 millio (includinig interest arrears) Suriname Banlk debt restructLirinigs Dec 2001 Clearing of $36 million in principal arrears owed to comimillercial banks Tanzania Bank debt restructurimogs April 2001 Buyback of $76 6 million of eligible prinicipal debt and about $79 2 million of associated interest Linder tlIe IDA DRF The buyback price was set at 12 cents per dollar ot the priticipal amounlt with a 5% of foreign exchange risk margin The IDA aiid the goveriments of Germany anid Switzerlatid provided tundinig for the operation Togo Banik debt restructurmigs Mar 1980 Rescheduling of $69 million of debts owed to French baniks, incltidig arrears of principal Interest rates varied by currency Oct 1983 Rescheduling of $84 million of debts owed to all commercial bank debt, including previously rescheduled debt May 1988 Rescheduling of $48 million restructurinig in 1983 Dec 1997 Debt buyback at 12 5 cetits per dollar of $46 I million owed to conimercial banks Fundinig for the operation was providcd by the IDA DRF 77 G L O B A L D E v E L O P M E N T F I N A N C E 2 0 0 3 Trinidad and Tobago Bank debt restructurings Dec 1989 Rescheduhng of $473 million of maturities in September 1988-August 1992 Turkey Bank debt restrucrurings Mar 1982 Improvement on the terms of the August 1979 agreement, affecting $2 3 billion of debt Uganda Bank debt restructurinigs Feb 1993 Buyback of $153 million comnercial bank debt funded by grants from IDA DRF and other donor countries Ukraine Bond market defaLlIts and restruCtLrings July 1999 Agreement to restruicture a 10-monith $163 million euirobond (including principal anid interest) Instead of niaking the $163 mil- lion repayment dtue in June 1999, Ukraine was to repay 20 percent of bond in cash and swap the remaining 80 percent into a D-mark-denomiinated etirobonld with a maturity of 3 years and coupon yield of 16 percent Feb 2000 Agreement to restructure $2 7 billion of the short-teren debt obligations No debt forgiveniess or reduction in principal was required from bondholders, and all accrued interest on existing eligible bonids was to be paid in frill and in cash, and all accepting investors were to be offered a new 7-year eurobonid, deiiominated either euiros or US dollars, at ani interest rate of 10 percent for euiro-denominated bonids and 11 percent for dollar-denoininated bonds. Mar 2001 About $21 5 million of the external debt was exchanged for a 6-year eurobond, denominated in either Euro at an interest rate of 10% or U S dollar at an interest rate of 11% Bonds eligible for the exchange were Deutsche Mark 16% eurobond due in February 2001, Euro 10% amortizing notes due in March 2007, U S dollar 11 % ansortizing notes due in March 2007, and U S dollar 11% amortizing notes duIe in March 2007 Uruguay Bank debt restructurings July 1983 Rescheduling of $55s million of maturities its January 1983-December 1984, new long-term moniey ($240 million) July 1986 Multyear rescheduiling agreemeist of $1 7 billion of maturities due in January 1985-December 1989. Mar 1988- Rescheduling of $1 5 billion of maturities us lanuary 1990-December 1991, isclucling improvemenit of terms of the July 1986 agreement Brady deal Feb. 1991 The agreement provided for cash buyback at a 44 percent discounit ($628 million), collateralized debt reduction bonds ($535 mil- lion), and new money ($89 million) combined with debt conversion notes ($447 nsillion) The repayment terms were 30-year bullet maturity aisd 6 75 peicent fixed interest for the interest reduction bonds, 16-year maturity including 7 years' grace with LIBOR + 7/8 percent interest for the coniversion notes, and 15-year maturity includisig 7 years' grace with LIBOR + 1 percent interest for the new money notes Venezuela, Republica Bolivariana de Bank debt restructurings Feb 1986 Multiyear rescheduling agreement of $21 billion of maturities duie in January 1983-December 1989 Nov 1987 Reductiois of spread and extension of matirities on the 1986 agreement, new long-term money ($100 million) Sept 1988 Interest spread reduced on February 1986 agreens1ent, affecting $20 3 billion in debt Dec 1988 Exchange of debt for bonds outside the framework of the main isegontations Brady deal Dec 1990 Agreement featured huybacks in the form of 91-day collateralized short-term notes ($1,411 million), exchange for bonds at 30 per- cent discounit ($1,810 million), exchange at par for reduced fixed-rate interest bonds ($7,457 million), exchange for bonds at par with temporary step-down interest rates ($3,027 million), and new moniey consbisied with debt conversion bonds ($6,022 million) Vietnam Brady deal Dec 1997 Agreement restrticturinlg $310 9 million of principal and $486 2 million of past-due interest For restructured principal, $20 4 mil- lion was repurchased at 44 cents per U S dollar, $51.6 million was exchanged for discount bonds (50 percent discount), and $238 9 millioii was exchanged for par fixed interest bonds Both bonids had 30-year maturity, but the discount bond was repayable in a bullet payment on year 30 while the par bond had a step-up aniortization schedule beginning on year 15 Also, 50 percent of the face value duic of the par bond was due at matuirity The disLount bond was subject to an interest rate of LIBOR plus 13/16 while the par bond was subject to step-up interest rates rising from 3 percent in years 1 and 2 to 5 5 percent in )ears 21-30 One hundred percent of the discount bonds anid SO perceist of the par bonds were guaranteed by U S Treasury zero- coupon bonds, and the discount bonds had a 6-month rolling interest guarantee Regarding past-due interest, $15 million was paid at closing, $294 8 million was exchanged for non-collateralized bonids with an 18-year maturity including 7 years' grace and step-sip interest rates, $21 8 million wsas repurchased at 44 cents per dollar, and $154 6 million was written off Yemen, Republic of Bank debt restrLItLirings June 2001 Buyback of $362 million of principal and $245 milliol of associated interest tinder the IDA DRF The buyback price was set at 2 94 cents per dollar of the principal amount The IDA and the governments of the Netherlands, Norwvay, and Switzerland provided funding for the operation 78 COP ING WITH W EA K PR I VAT E DEB r FLO WS Yugoslavia, Federated Republic of Bank debt restructLirinigs Oct 1983 Reschedulhing of $1 3 billion of maturities, incliding a 1-year rollover of short-terimi bonds, due in January 1983-Decemilber 1983, nexv long-teriim nsioniey ($600 millioni), miaintenanice of short-terimi credit lines ($800 isillion) May 1984 Rescheduling of $1.3 billion of maturities due in lanuiary 1984-March 1985 Dec 1985 Multiyear reschedilinig agreemiient of $4 billion of maturities in January 1 985-Decemiiber 1988 Sept 1988 Rescheduling of $7 billion of matuirities diue in janiary 1988-December 1989 Zaire Bank debt restruCturiigs April 1980 Rescheduling of $402 miiiliioni of debt outstaniding as of rhe enid of 1979, includinig arrears Jan 1983 Defernment of principal duie in Janiuiary 1983-December 1983 ($58 million), rescheduled inder the April 1980 agreemelit Junie 1984 Deferment of principal due in January 1984-April 1985 ($64 million), rescheduled under the April 1980 agreemient May 1985 Deferment of principal due in May 1985-April 1986 ($61 milioni), rescheduled under the April 1980 agreelmlelit MI ay 1986 Deferimient of principal due in May 1986-April 1987 ($65 million), rescheduled unider the April 1980 agreemenit Ma) 1987 Determent of principal due in Ma) 1987-April 1988 ($61 nmillion), rescheduled under the April 1980 agreemelnt juine 1989 Deferment of prinicipal to finance monthly payments on outstanding clainms, nmainly interesr on arrears Zambia Bank debt restrIcttirings Dec 1984 ReschedLuIlig of $74 million of miaturities, includinlg arrears as of Febriuary 28, 1983 79 G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 Notes bankruptcy. Adam Smith mentioned it, and there were I We monitor debt flows in two fornis Most mean- extensive discussions of the legal aspects of sovereign debt ingful are net flows. These data are hard to trace on a crises in the first half of the 20th century More recently, in- timely basis, however It is more straightforward to moni- terest in sovereign bankruptcy rose from the late 1970s and tor gross market-based actions-publicly announced and gathered steam in the 1990s (Rogoff and Zettelmeyer 2002 completed bond issues and bank loans These flows are provide an extensive drscussion). just one influence on net debt flows The other three- 11 The basic framework is described in Krueger 2002 debt repayments, new borrowing not publicly announced, and IMF 2002. and changes in all short-term debt-cannot be assumed to 12 See World Bank 2000b for a discussion of the dis- be static, so it is not possible to map directly from gross tributional consequences of financial crises. market-based flows to net debt. Gross market-based flows 13 See, for example, www.attac.org and www. are, however, a very helpful indicator of debt-market jubilee2000uk org trends. 2 The pie charts understate the shift fiom the peak of flows in mid 1997, as the first chart shows the pattern of in- vestors in December 1998, which was well into the retrench- References ment phase for many of the higih-risk investors, especially hedge funds. Beale, Chris, Michel Chatain, Nathan Fox, Sandra Bell, 3. This improvement may have been due to the devel- James Berner, Robert Preminger, and Jan Prins Fall opment of mechanisms for the orderly restructuring of 2002 "Credit Attributes of Project Finance." The debts, such as standing bondholders' committees (World Journal of Strncttred and Project Finance: 5-9. Bank 2000a) Also, the speed-up of communications (partic- Becker, Torb;orn, Anthony J Richards, and Yunyong ularly the laying of the transatlantic cable) may have facili- Thaicharoen 2001. "Bond Restructuring and Moral tated negotiations Hazard. Are Collective Action Clauses Costly?" 4. Walter Wriston wrote this in 1982 (Nvew York International Monetary Fund Seminar Series 44. IMF, Tontes, September 14; quoted in Kaletsky 1985). Washington, D.C. 5. An active secondary market in developing country Beers, David T., and John Chambers. 2002 "Sovereign loans grew rapidly in the 1980s, reaching an annual volume Defaults: Moving Higher Again in 2003?" Standard of $50 billion in 1988. Irnitially the marker was driven by and Poor's Research New York interbank swaps designed to consolidate portfolios and Berner, James, Christopher Beale, Sandra Bell, Michel manage risk. The market took off in 1985, hoxvever, when Chatain, Robert Preminger, and Jan Prins. 2002 "Do Chile and Mexico introduced systematic debt conversion Pro]ect Finance Loans Outperform Corporate Loans?" programs (World Bank 1990) Infrastructure Review 2002: 20-26. 6. In the absence of effective capital controls, the en- Bolton, Patrick. 2002 "Towards a Statutory Approach to tire monetary base constitutes a claim against the govern- Sovereign Debt Restructuring: Lessons from Corporate ment that might be converted into foreign currency. In Bankruptcy Practice Around the World " Princeton practice, governments in crisis can impose capital controls University. Processed. (although these are not 100 percenr effective), and presum- Brady Forum. 2000. "Peru-Elliott Case Shifts Balance of ably the availability of official support would help discour- Power to Creditors." October 2. www.bradynet.com age capital outflows, which limits the likely claim on offi- British Bankers Association. 2002. Credit Derivatives cial resources Survey 2001/2002. 7 Some commentators have also asserted that rescue Bulow, Jeffrey, and Kenneth Rogoff 1990. "Cleaning Up packages encourage governmlents to borrow excessively, in Third WVorld Debt Without Getting Taken to the anticipation of a bailout It is doubtful that governments Cleaners." Journal of Economic Perspectives 4(1): would invite a crisis, however, that almost uniformly culmi- 31-42. nates in a change of government and loss of power. Calvo. Guillermo, Leonardo Leiderman, and Carmen 8 Roubini (20021 notes that the restructuring of devel- Remihart. 1993 "Capital Inflows to Latin America: oping countries' bank debt during the 1980s faced consider- The Role of External Factors " IMF Staff Papers 40 able difficulties due to the hundreds of banks involved, their (March) different interests (for example, large banks with extensive Chancellor, Edward 2000. Devil Take the Hiidndmost: A relationships with debtor countries versus small banks), and History of Financial Speculation. New York Plume. the differences in the legal istiumiients involved. Neverthe- Chari, V. V., and Patrick J. Kehoe. 1998. "Asking the Right less, developing countries' creditors are a much more diverse Questions about the IME" Anniual Report. Mmnneapo- set today than 20 years ago. lis, Minn.: Federal Reserve Bank of Minneapolis 9 Eichengreen (2002) points out that the potential for Chuhan, Punam. 2001 "Recent External Bond Exchanges." collective action clauses to be used to invoke bondholders World Bank, Washington, D.C. Processed. meetings may have facilitated agreement in the Pakistan Cole, Harold L, James Dow, and William B. English 1994. and Ukraine debt restructurings, even wheie they were not "Default, Settlement, and Signaling: Lending Resump- used tion in a Reputatonial Model of Sovereign Debt." Re- 10 Of course, the International Monetary Fund (IMF) search Department Staff Report 180. Federal Reserve Is not the first to consider a legal process for sovereign Bank of Minneapolis, Minneapolis, Mmnn. 80 COP ING WITH WE AK PR I VAT E DEBT FLO WS Cornelli, Francesca, and Leonardo Felli. 1994 "Efficiency IMF (International Monetary Fund) 2001 of Bankruptcy Procedures." Banca d'Italia Temi di . 2002. "Sovereign Debt Restructuring Mechanism- Discussione 245. Rome. Further Considerations." Washington, D C. Dammers, Clifford. 1984. "A Brief History of Sovereign IMF and World Bank. 2001. Guidelines for Public Debt Defaults and Reschedulings." In David Suratgar, ed , Management. Washington, D.C. Default and Rescheduling: Corporate and Sovereign Jorgensen, Erika, and Jeffrey Sachs 1998 "Default and Borrowers in Difficulty. London: Euromoney Renegotiation of Latin American Foreign Bonds in Dooley, Michael P. 2000a "International Financial Architec- the Interwar Period." NBER Working Paper 2636: Na- ture and Strategic Default. Can Financial Crises Be Less tional Bureau of Economic Research, Cambridge, Mass. PainfulX" Carnegie-Rochester Conference Series on Kaletsky, Anatole. 1985. The Costs of Default. New York: Pliblc Policy 53. 361-77 Priority Press - 2000b. "Debt Management and Crisis in Develop- Krueger, Anne 0. 2002a. "A New Approach to Sovereign ing Countries " Journal of Development Econo"iics Debt Restructuring " International Monetary Fund, 63. 45-58 Washingtoni, D.C. Eaton, Jonathan, and Mark Gersovitz 1981 "Debt with . 2002b. "Sovereign Debt Restructuring Mecha- Potential Repudiation. Theoretical and Empirical nism One Year Later." Speech given at the Banco de Analysis." Review of Economic Sttudies 48(152): Mexico's Conference on "Macroeconomic Stability, 289-309 Financial Markets, and Economic Development Eichengreen, Barry 1991. "Historical Research on Interna- November 12, Mexico City. www.imf.org. toiial Lending and Debt " Journal of Economic Per- . 2003. Remarks made at the Sovereign Debt Re- spectives 5(2). 149-69 structuring Mechanism Conference, IMF, Washington, - 2002. Financial Crises and What to Do About D.C., January 22-23, 2003. Them. Oxford Oxford University Press Latin American Advisor. 2002. "Will Argentina's Foreign Eichengreen, Barry, and Ashoka Mody. 2000 "Would Col- Creditors Get Equal Treatment>" January 22 www. lective Action Clauses Raise Borrowing Costs?" NBER thedialogue.org Working Paper 7458. National Bureau of Economic Lipworth, Gabrielle, and Jens Nystedt. 2001. "Crisis Reso- Research, Cambridge, Mass lution and Private Sector Adaptation." Finance and Eichengreen, Barry, and Ricardo Portes. 1995. Crisis? What Development 38(2) Crisis' Orderly Workotuts for Sovereign Debtors Miller, Marcus, and Lei Zhang. 1998. "Sovereign Liquidity London Centre for Economic Policy Research Crisis the Strategic Case for a Payments Standstill." Eichengreen, Barry, Ricardo Hausmann, and Ugo Panizza. Centre for the Study of Globalization and Regionaliza- 2002. "Original Sin. The Pain, the Mystery, and the tion Working Paper no. 35. University of Warwick, Road to Redemption." Paper prepared for the "Cur- NWarwick, England. rency and Maturity Matchmaking Conference," Porzecanski, Arturo. 2002. "A Critique of Sovereign Bank- Washington, D.C., November 21-22, 2002 ruptcy Initiatives." ABN-AMRO, New York. English, Williamii B 1996. "Understanding the Costs of Priest, Andrew. 2001. "Vulture Funds Swoop on Bloodied Sovereign Default. American State Debts in the Argentine Debt." The Industry Standard. www. 1840s." The American Economic Review 86(1) thestandard com 259-75 Ramphal, Shridath S. 1989. "Sovereign Default A Back- Fischer, Stanley. 2002. "Basel 11 Risk Management and Im- ward Glance." The Washington Quarterly 11(2). plications for Banking in Emerging Market Countries." 63-75. Paper presented at the International Conference of Rogoff, Kenneth. 1999. "International Institutions for Re- Banking Supervisors, September 19, Cape Town, South ducing Global Financial Instability " NBER Working Africa. Paper 7265 National Bureau of Economic Research, Haldane, Andy. 1999. "Private Sector Involvement in Finan- Cambridge, Mass cial Crisis Analytics and Public Policy Approaches." Rogoff, Kenneth, and Jeromin Zettelmeyer. 2002. "Early Financial Stability Review 7: 184-202. Ideas on Sovereign Bankruptcy Reorganization A Hayes, Simon, Victoria Saporta, and David Lodge 2002 Survey." IMF Working Paper WP/02/57 International "The Impact of the New Basel Accord on the Supply of Monetary Fund, Washington, D C. Capital to Emerging Market Economics." Financial Roubini, Nouriel. 2000. "Bail-In, Burden-Sharing, Private Stability Review (December): 110-1 4. Sector Involvement (PSI) in Crisis Resolution and Hurlock, James B. 1995. "Sovereign Debt Default: The Way Constructive Engagement of the Private Sector." Stern Ahead for Sovereign Debt." International Financial School of Business Processed. Law Reviewv (U K.) 14(July) 10-12 2002 "Do We Need a New International Bank- Hutchison, Michael M , and Ilan Neuberger. 2001. "Output ruptcy Regime? Comments on Bulow, Sachs, and Costs of Currency and Balance of Payments Crises in White " Papet piesented at a symposium on "A Bank- Emerging Markets." University of California at Santa ruptcy Court for Sovereign Debt," April 2, Brookings Cruz, Santa Cruz, Calif. Processed. Institution, Washington, D.C. ICN (Independent Catholic News) 2000 "Vulture Funds Suter, Christian. 1992. Debt Cycles in the World Econoniy: Prey on Poorest Countries." November 1. www. Foreign Loans, Financial Crises, and Debt Settlements, indcatholicnews com 1820-1986. Boulder, Colo.. Westview Press 81 G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 Weder, Beatrice, and Michael Wedow. 2002. "Will Basel II . 2000a. Global Development Finance 2000. Affect International Capital Flows to Emerging Mar- Washington, D.C. kets?" Technical Paper 19. OECD Development Center. . 2000b. Global Economic Prospects 2001. Weiss, Wendy. 1997. "Debt and Devaluation: The Burden Washington, D.C. on Ecuador's Popular Class." Latin American Perspec- . 2002. Global Development Finance 2002. tives 24(4): 9-33. Washington, D.C. World Bank. 1990. Global Development Finance 1989/90. Washington, D.C. 82 LI Sustaining and Promoting Equity-Related Finance for Developing Countries Dilek Aykut, Himmat Kalsi, and Dilip Ratha T pHE FLOW OF EQUITY-RELATED FINANCE TO The first part of this chapter focuses on FDI. developing countries takes two forms: After reviewing developments in 2002, the key .portfolio investments and direct invest- issue addressed is that of the sustainability of the ments. Combined inflows of both forms totaled a current, relatively high level of flows. The main net of about $152 billion in 2002, down from message is that although there are several reasons $178 billion in 2001 and from their peak of $196 to believe that FDI flows can be sustained at or billion in 1997 (figure 4.1). This decline mirrors above current levels in the years ahead, such a re- the weakness of global equity markets in recent sult cannot be taken for granted-there are clear years. However, when viewed against the plunge vulnerabilities to the current level of FDI. Various in debt outstanding to private-sector creditors factors have reduced returns on FDI in recent discussed in chapter 3, the flow of private-sector years, while the willingness and ability of compa- equity-related capital appears remarkably robust. nies in high-income countries to make long-run, Indeed, its steadiness is a key part of the signifi- strategic investments in developing countries has cant rotation from debt to equity in the pattern been reduced by financial-market pressures. of private financing for developing countries. The second part of the chapter reviews devel- opments in portfolio equity flows in 2002 and early 2003 and puts them in their historic context. Figure 4.1 Net equity flows to developing It then goes on to ask a basic question about port- countries, 1989-2002 folio equity flows: If FDI investors find equity- Blllions of dollars related investing in developing countries such a 250 - good idea, why are portfolio equity flows relatively Netl inward FDI weak? Why have they failed to rise since the early El Portfolio equity 1990s? For policymakers faced with weak debt 200 - _ flows, this is an important issue to address. The simple fact is that, due to regular crises and volatile 150 - growth, emerging-market equities have offered _lr1 poor returns over an extended period. Policymakers 100 _ in developing countries need to maximize the at- .jj tractiveness of local equity by strengthening do- mestic institutions, most notably those related to 50 _ corporate governance, with a view to protecting the n n _ _ _ __nrights of minority shareholders. o Ll 1n1R = I _ + _ + _ + _ + + _ + = + _ + _ + = + _ q The chapter closes with a forecast for equity Rw q 5q $ bNe CP 9g R8 O 4 (1.5 percent of GDP) in countries that had rela- s SV K ' tively even income distribution (represented by Note The exchange-rate commission for Cuba and El Salvador is zero Gini index) than in other countries (0.9 percent of Souirces Multilateral Investment Fiund 2002, Orozco 2002 GDP). Some studies argue that remittances increase urban-rural inequality as they tend to finance in- vestments in real estate or in enterprises in urban to be small, usually below $200. Reducing such areas. McCormick and Wahba (2002) found that transactions costs to less than 10 percent would returning migrants in the Arab Republic of Egypt imply an annual savings of $3.5 billion to overseas in 1988 tended to set up enterprises in greater workers. No doubt a substantial portion of this sav- Cairo; however, this may have been due to distor- ings would be remitted. tions in the economy that discouraged investments Improved banking sector technology could in rural areas. substantially reduce transaction costs by expediting check clearance, reducing exchange losses, and im- proving disclosure, especially in rural areas in devel- Strengthening the infrastructure oping countries. One promising approach is to es- supporting remittances tablish partnerships between leading banks and the D espite the clear welfare benefits of remit- government post office network in countries that do D tances, weaknesses in the financial sector and not have banks with extensive branch networks in in government administration impose substantial rural areas. Remittance activities may also be at- transaction costs on migrant workers who send tractive for banks, as margins can be very high. them. Easing these constraints could increase re- Banks in many developing countries have not mittance receipts, while bringing a larger share of shown much interest in workers' remittances in the remittance payments into the formal financial past, presumably because of cumbersome paper- system. Anecdotal evidence suggests that inefficien- work and lack of widespread branch networks. cies in the banking system-long delays in check This is beginning to change, however. The efforts to clearance, exchange losses, or improper disclosure crack down on money laundering and financing of transaction costs"4-deter inward remittances. terrorism have affected remittances through the The average cost of transferring remittances to informal networks, and a large number of workers Central and South America is in the range of 13 per- are looking for formal banking channels to remit cent, and often exceeds 20 percent (figure 7.11; see funds. These developments, and the high margins also Orozco 2002).15 These charges, which are as- associated with this business, have attracted some tronomical in comparison with the costs of bank new entrants. For example, the International Re- transfers among industrial economies, are largely mittance Network has started offering funds trans- due to the fixed cost of wire transfers combined with fer services by linking credit union cooperatives the fact that the average remittance transaction tends (such as of unionized agricultural workers) with 165 G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 Citibank branches in the United States and in re- tances and encourage migrant workers to use the ceiving countries such as El Salvador, Guatemala, formal banking system (box 7.3). and Mexico. Reportedly, the cost of remittance through this new network is only $6.50 per transac- tion, significantly lower than the costs of using Facilitating international labor informal networks. mobility Industrial countries should consider facilitat- ]1Jacilhtating labor mobility between source and ing efforts to reduce the transaction costs of remit- .1 destination countries is perhaps the most tances to developing countries. Mexico and the crucial-and controversial-means of increasing United States are already collaborating to provide remittance flows to developing countries. Even better financial services to Mexican migrants (in- though world migration pressures have risen, the cluding illegal immigrants), an effort that promises progress of globalization has been slower in the area to significantly improve the migrants' access and of migration (Hatton and Williamson 2002, World use of banking services, especially for wiring funds Bank 2002) than in trade (Findlay and O'Rourke to families back home. Such policies-including 2002) and capital flows (Obstfeld and Taylor 2002). measures to improve disclosure16 in fund transfers- The main concerns of developed countries are likely also to benefit the source-country (by regarding immigration center on (a) the local job- generating more tax revenues), as well as banks seekers' fear of competition from migrant workers, (by generating fees for fund transfers and other (b) the fiscal burden that may result on native tax- banking services). payers for providing health and social security to Recent surveys of migrants in Los Angeles and migrants, (c) fears of erosion of cultural identity New York show that migrants are discouraged and problems of assimilation of immigrants, and from opening bank accounts because of minimum (d) national security (especially after September 11, balance requirements-and to a lesser extent, 2001). stringent identification requirements. When these On the first issue, conceptually increased labor obstacles are eased-for example, by accepting supply due to immigration is expected to depress Mexican consulates' matriculas or IRS's individual wages or raise the unemployment rate. Empirical taxpayer identification numbersi7 as valid forms evidence, however, has remained inconclusive as of identification-immigrants can become the researchers have been unable to isolate the effects source of substantial banking business over and of immigration from those of other factors such as beyond wire transfers (box 7.2). In recent years, differences (between local workers and migrants) "financial fairs" have been held to promote remit- in skills, sex, age, and professional education and Box 7.2 Mexican matriculas consulares boost remittances For decades, Mexican consulates have been issuing a identification document. (More recently, U.S. banks are 1simple identity card, known as matricula consulal; to showing reluctance in accepting these documents because Mexican citizens living in the United States-legally or ille- of concerns about illegal funds tranfers.) gally. According to a study by the Pew Hispanic Center At present, only the Mexican government offers such (2002), 740,000 matriculas were issued in the United an identification document to its citizens abroad. Several States during the first nine months of 2002. Designed orig- Central American governments are also considering such inally to help police identify persons involved in accidents cards, which would help their migrant population obtain a (or crime), matriculas are increasingly accepted as proof of bank account and use banks to transfer funds cheaply and identity when opening accounts at U.S. banks. Some 66 transparently. banks (and 801 police departments in 13 states in the United States) now accept the matricula as a valid Source Pew Hispanic Center 166 W OR K ER S ' REM IT TAN C ES AN I MP O RTA N T AND S TAB LE SO UR C E Box 7.3 Financial fairs to promote remittances and good banking habits among migrants Developing countries interested in increasing remittance D flows from the United States can benefit from the ex- ) periences of some innovative "financial fairs" organized in Fin August 2002 in Kansas City and Chicago. Recognizing the dy Ml 7.200 m9an -2p multifaceted potential of migrant workers as a source of El C.ft M.f-Fl- remittances, tax revenues, and savings, the Community 290S l0IrnnK-C.Cy.KS66l01 Affairs Office of the Federal Deposit Insurance Corpora- tion staged the fairs in collaboration with the Mexican Consulate, the Internal Revenue Service (IRS), and six pri- vate banks. All participants appeared to benefit from the event. Ali iep.n At the fairs, the Mexican consulate issued an identifi- cation card (matricula) with photo and U.S. address to undocumented migrant workers from Mexico. The IRS collected back taxes from workers and issued individual taxpayer identification numbers (ITINs) on the spot, spar- ing everyone the 6-8-week wait. The tax payments entitled other forms of identification such as passports or even workers who were becoming legal residents to claim earned voter registration cards. Some financial institutions (such income tax credits-good for an average tax refund of as U.S. Bank in Kansas City and Second Federal Savings in about $1,700 per year-once their papers were processed. Chicago) have started accepting voter registration cards as The banks accepted the matricula and ITIN as identifica- valid identification documents. Following the Mexican tion from migrants wishing to open bank accounts. model, the Guatemalan consulate has also started issuing Already legalized workers were able to receive earned identification cards to its citizens in the United States. The income tax credits on the spot; some deposited their tax cards are accepted by Wells Fargo for opening bank refunds in their newly opened bank accounts. accounts. The documentation requirement for opening new ac- counts (according to section 326 of the Patriot Act) allows Souerce Federal Deposir Insurance Corporation experience obtained abroad (Coppel, Dumont, and in the United States from 1975 to 1995 reduced Visco 2001). The dynamic nature of this problem the wage earnings of unskilled local workers by up has made it more difficult to assess the effects of to 5 percent, not a small amount considering that migration on labor supply. For example, local wages should have increased during this period. workers may move to another location and this (See also World Bank 2002.) may show up as lower employment in their orig- Although the potential adverse effect of immi- inal location, but it would be hard to attribute gration on unemployment and wage rates receives this fall in employment rate to immigration (sce a lot of attention, immigration also generates many Borjas, Freeman, and Katz 1997; Borlas 1994). positive effects. First, migrant workers may relieve Some studies that distinguish between long run the labor shortage in many areas in which native and short run impact find that in response to im- workers do not want to work, and where there migration, while unemployment may increase in were also no substitutes for human labor (e.g., car- the short run, in the long run the overall rate of ing for the elderly). Migration may thus increase unemployment falls permanently (Gross 1999). productivity and moderate inflation as was the The effects of immigration on wages are found to case in the United States (especially in the technol- have been negative as expected. Borlas, Freeman, ogy sector) in the 1990s. Second, migrant workers and Katz (1997) found that the 21 percent in- tend to be more responsive to labor market con- crease in the number of unskilled migrant workers ditions than local workers; thus, migration may 167 G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 help soften labor market rigidities and improve For developing countries, the benefits of mi- productivity (Coppel, Dumont, and Visco 2001). gration-and its costs-are more obvious. Coun- Third, the multiplier effects generated by migrants' tries benefit from workers' remittances and from spending in the host countries should not be un- the rise in real wages (especially for unskilled and derestimated. Finally, the competition faced by local unemployed workers) that often occurs as emigra- less skilled workers in developed countries from tion clears the labor market. On the negative side, migrant workers is "neither more nor less than the the emigration of highly skilled workers has been challenge posed to such workers by imports of linked to skill shortages, reductions in output, labor intensive goods from developing countries" and tax shortfalls in many developing countries. (Winters forthcoming). Such burdens appear even heavier for countries On the question of whether immigrants are a where educated workers emigrated in large num- fiscal burden on destination industrial countries, bers after receiving highly subsidized technical ed- again the evidence is mixed. Smith and Edmonston ucation. Carrington and Detragiache (1998) esti- (1997) conclude that immigrants with less than a mate that over one-third of individuals with high school education continue to be a fiscal bur- tertiary education from Africa, the Caribbean, and den into the next generations, but that skilled im- Central America emigrated to the United States migrants pay more in taxes than what they receive and other countries of the OECD. Migration rates in social security from the state. Other studies are also high in the Islamic Republic of Iran, the have argued that even in the case of unskilled im- Republic of Korea, the Philippines, Taiwan, and migrants, the fiscal costs, if any, are limited to the Turkey. The International Organization for Migra- first generation; it is believed that the next gen- tion (1999) estimates that for 40 percent of eration earns and contributes more in taxes than African countries, more than 35 percent of college the corresponding generation of native workers graduates reside abroad. Desai, Kapur, and (Borjas 1994). Another contentious point is that McHale (2001b) discuss the emigration of a signif- the fiscal burden is usually borne by localities, with icant share of India's information-technology pro- the federal/national governments getting benefits. fessionals to the United States in the late 1990s. Fiscal costs are obviously reduced if migrant work- They estimate forgone income-tax revenues as- ers did not stay in the country until they are eligible sociated with that emigration to be one-third of to receive social security. Some policy makers have current Indian income-tax receipts. suggested greater use of temporary unskilled work- The negative effects of brain drain are offset to ers (as in the Mexican guest workers proposal of some extent by inward remittances from migrant U.S. Senator Phil Gramm).i8 However, enforce- workers. Source developing countries may also ment of such "revolving door" policies may prove benefit from network effects (business contacts, extremely difficult (Mattoo 2002, introduction). investments, technological help) from their skilled The social costs of immigration, including and successful emigrants abroad (Desai, Kapur, cultural fears, crime, and national security, are not and McHale 2001b). And it is debatable whether quantifiable and will continue to act as brakes the skilled workers, had they not emigrated, would against attempts to liberalize immigration laws in have been used to their full potential given the advanced countries. However, the rising migration imperfect work environment in many developing trend is unlikely to be reversed as these costs have countries."9 Finally, skilled workers may return to to be traded off against the benefits of letting in their home country if the investment climate and more immigrants at the margin (Winters 2002). work environment improve. Considering the huge income gap between rich and poor countries, most economists and de- veloping country policy-makers see large benefits in greater international mobility of labor. Winters From limiting to managing migration (forthcoming) estimates that world welfare would T hagwati (2003) believes that developed coun- increase by more than $150 billion per year if de- .k))tries should shift the focus of their immigration veloped countries were to increase their quotas of policies from limiting to managing migration. The international temporary workers to 3 percent of goal of such a shift would be to glean the shared their workforce. (See also Rodrik 2001.) benefits of greater international labor mobility and 168 W OR K ER S ' RE M I T TA N C E S AN I MP O RTA N T AND S TA B LE SO UR C E to avoid the undesirable effects of immigration long-term. In particular, remittance flows from quotas-chief among which are the sufferings of nonresident or temporary workers are expected those trying to cross borders illegally and the abuse to surge in the medium-term. The search for lower of illegal immigrants. For their part, developing costs is driving multinational corporations to hire countries could benefit by adopting a "diaspora overseas workers for cross-border jobs. This trend approach" in dealing with the emigration of work- towards more mobility of temporary workers may ers, exploiting their potential as a source of capital, be reinforced if progress is made on Mode 4 trade remittances and other transfers; building "net- in services in the GATS negotiations. Improvements works" for trade, tourism, investment promotion, in transportation and communications will com- and training youngsters at home; and otherwise plement this trend. harnessing their knowledge, skills, and assets for Migration pressure is likely to continue to rise economic development.20 At the very least, devel- in the foreseeable future (box 7.4).23 The most opmg countries could remove the hurdles that important factor in the rise is perhaps the aging of their nationals may face in undertaking overseas the population-and the implied surge in pension travel .21 costs-in the developed nations (see, for example, Immigration policies in developed countries United Nations 2000). Since skilled workers pay are so complex that making a direct investment more taxes and need less support from state social in a developing country is often less cumbersome security systems, future changes to immigration than bringing in workers to a developed country policies are likely to favor permanent-skilled and (Mattoo 2002). To improve transparency in im- temporary-unskilled migrants (Desai, Kapur, and migration policies Bhagwati (2003) proposes a McHale 2001a). World Migration Organization that would codify In addition to differential changes in depen- immigration policies and spread best practices. dency ratios, Hatton and Williamson (2002) iden- Rodrik (2001) similarly proposes "multilateraliz- tified three historical economic determinants of ing" immigration rules so that two countries par- world migration: ticipating in a special arrangement to share work- ers would not generate adverse spillover effects on * Wide wage gaps between developed and de- other countries. veloping countries One positive, albeit limited, step in this direc- * High but falling costs of migration relative to tion is the so-called Mode 4 proposal for supply- the low incomes in developing countries ing services under consideration in the current * The size of existing migrant stocks in receiv- round of the General Agreement on Trade in Ser- ing countries (which affects the extent of in- vices (GATS). The agreement proposes greater flux of friends and relatives through family freedom for the "temporary movement of individ- reunification). ual service suppliers."22 Although little progress was made when this issue was first negotiated in Economic growth in some parts of the developing the Uruguay Round, the member countries of the world, for example, East Asia and South Asia, may WTO now seem more willing to negotiate. How- imply less migration pressure from these regions, ever, the Mode 4 trade proposal is presently lim- but it is unlikely to reduce the migration pressure ited in scope to managers, executives, and profes- from Africa. Also South-South migration is likely sionals; thus, countries that are not significant to increase faster than South-North migration as foreign investors and those with unskilled workers many fast-growing newly industrialized countries are not going to benefit much from progress in the in the South are expected to attract more migra- current negotiations. tion than the industrial countries (Hatton and Williamson 2002). (The only factor that may mod- erate migration is the casualty from HIV/AIDS.) Prospects for remittance flows The possible induction of up to 10 Central and to developing countries Eastern European countries into the EU is also R emittance flows have shown remarkable sta- likely to increase migration from these countries bility over time, and the rising trend evident in into the EU, but movement of temporary workers is recent years is likely to continue in the medium- to especially likely to surge.24 169 G L O B A L D E V E L O P M E N T F I N A N C E 2 0 0 3 Box 7.4 World migration pressure is high-and rising n 1994, about 3 6 million persons were on the waiting (the total INS budget for the 2002 fiscal year was $5.5 bil- list for admission to the United States (Hatton and lion, more than triple what it was in 1993; the size of the Williamson 2002, Smith and Edmonston 1997) Each year Border Patrol has more than doubled in size since then), it a million people enter the United States legally, 500,000 is also due to rising demand for migration. illegally. The numbers are similar in Europe. Immigration to many Asian countries-among them the Republic of Korea, Malaysia, Taiwan, and Thailand-surged in the Payments to tvffthers for selected migration routes 1990s. And the number of asylum seekers remains high. (dolls perapetsor) Worldwide asylum applications reached 914,855 in 2001, according to the United Nations High Commissioner for Kurdisran-Gernany 3,000 Refugees, with about 940,226 cases awaiting decision. China-Europe 10,000-15,000 China-New York 35,000 As demand for migration has riseni, so have payments India/Pakistan-United States 25,000 to human traffickers. Fees range from $200-400 along the Arab states-Uilited Arab Emnirates 2,000-3,000 Mcxico-Los Angeles route to $35,000 along thc China- North-Africa-Spain 2,000-3,500 New York (see table). Iraq-Europe 4,100-5,000 The fees paid to coyotes, professional people- Mddle East-UAnted States 1,000-15,000 smugglers along the U.S.-Mexican border "have doubled, Philippines-lndonesia/Malaysia 3,500 tripled or even quadrupled, depending on the entry corn- Source "Migi ant Trafficking and Human Smuggling in Europe,' Interna- dor and the services offered" (Cornelius 2001). Although Siouial Organization for Migration, 2000 (as reproduced in The Econonmst, this increase is due in part to stricter border enforcement Survev of Migranoni, Novemb-r 2, 2002) However, in the near to medium term, this countries such as Kuwait and Saudi Arabia are positive outlook for remittance flows to develop- likely to experience some declines in remittance ing countries needs to be moderated in view of flows. Increased migration from central and east- the sluggish labor markets in G-7 economies and ern Europe, after the EU enlargement, may crowd tighter scrutiny of international travelers following out migration from other countries. These declines the events of September 1, 2001-factors that are are, however, likely to be dominated by positive ef- likely to change the geographical composition, as fects on remittance flows of greater labor mobility, well as the volume, of remittance flows. Given the progress in (Mode 4) GATS negotiations, depend- geopolitical risks of war and conflicts, developing ing on how quickly G-7 economies overcome the countries in the Middle East and North Africa economic down cycle. region and South Asia who supply workers to 170 Annex: Sources of remittance data I N THIS STUDY, WORKERS' REMITTANCES jewelry, clothes, and other consumer goods, or are defined as the sum of three components: through hawala. These are believed to be significant (a) workers' remittances recorded under the in many countries, ranging from 10 to 50 percent of heading "current transfers" in the current account total remittances, but often are not recorded in the of the balance of payments; (b) compensation of official statistics (Pun and Ritzema 2000; El-Qorchi employees which includes wages, salaries, and and others 2002). If and when they are recorded, it is other benefits of border, seasonal, and other non- not clear to what extent they reflect actual transfers resident workers (such as local staff of embassies) rather than imports. For example, in recent years and which are recorded under the "income" sub- India has started recording as imports gold brought category of the current account; and (c) migrants' in by incoming international passengers, previously transfers which are reported under "capital trans- this was classified as remittances. Thus, data for pri- fers" in the capital account of the IMF's Balance of vate transfers in recent years show a slight decline, Payments Yearbook (item codes 2391, 2310, and even though substantially nothing has changed. 2431 respectpvely). The unrecorded portion of remittances may be This broader definition is believed to capture heading down due to better technology and efforts the extent of workers' remittances better than the to crack down on money laundering. These data reported under the heading of workers' re- changes makc it difficult to interpret current mittances alone. In the Philippines, for example, trends. For example, in the first nine moniths of remittances from overseas Filipino workers 2002 remittances to Mexico were up 9.9 percent through the banking system are largely recorded over the previous year; how much of this rise re- under compensation of employees (which, strictly flects better reporting and how much a rise in un- speaking, should include only remittanices by tem- derlying activity is difficult to tell. More extreme is porary workers). In the year 2001, compensation the case of Pakistan which recorded a whopping of employees amounted to $6.2 billion whereas $2.4 billion in remittance receipts in fiscal year workers' remittances were just $122 million. In 2002, more than double the $1.1 billion recorded a contrast, in India, most remittances reported by year earlier (table 7A.1). According to the State authorized dealers are captured under workers' Bank of Pakistan (2002), "the turning point was remittances (nearly $10 billion in 2001), and the the international crackdown on the Hundi net- compensation-of-employees figure ($126 million in 2000) is known to be underestimated. In Turkey, workers' remittances exclude other current trans- Table 7A.1 Workers' remittance inflows to fer credits such as "imports with waiver," that is, Pakistan, fiscal 1999-2002 imports finaniced from the earnings of Turkish na- (millions of dollars) tionals living abroad; this item needs to be added FY99 l'YOO FYOI FY02 to remittances.2s Total 1,060 984 1,087 2,389 The above definition does not include transfers From U S 82 80 135 779 through informal channels-such as hand-carries by Fromil U K 74 73 81 152 friends or famlly members, or in-kind remittances of Souirce State Bank of Pakistai, Ainnual Report, 2001-02 171 G LO B AL DE V EL O PM ENT F INA NC E 2 O 0 3 work" (especially in the United States and Britain, 3. These numbers do not reflect Saudi Arabia's indirect after September 11, 2001); the other reason might contribution to remittance flows in the form of training un- skilled workers, many of whom arrive as unskilled workers have been the "waning attraction of foreign ex- in Saudi Arabia and then migrate to other developed coun- change holdings due to an appreciating Rupee." tries after acquiring substantial skills. Nor does the definition include "other current 4. Some governments are trying to encourage the use transfers," which often reflect workers' remittances. of remittances for investment purposes. For example, Remittances are supposed to be current trans- government bodies in Zacatecas, in northern Mexico, give three dollars for every dollar contributed by migrants' asso- actions that do not involve transfers of ownership ciations for investment projects (The Economist, February of assets. In practice, however, it may be difficult 21, 2002) to identify or estimate such transactions. For ex- 5. The funds brought back by return migrants is re- ample, remittances can be masked as capital in- ported as migrants' transfers in the balance of payments. flows to take advantage of tax and other incen- Unifortunately very few countries report this as a separate item. Presumably a large part of this item is already included tives. In many countries, nonresident deposits, in remittance receipts. Among the developing countries, only although classified under the capital account, may the Russian Federation reports any sizeable amount of in part reflect workers' remittances. For example, migrants' transfers; but even there, the size has steadily de- the nonresident rupee deposits in India are most cined, from $4.5 billion in 1994 to $417 million in 2001. ikely remittances disguised as deposits-upon ma- rThe aggregate migrants' transfers to developing countries as luikey, rhemittanctestisuise as dhepnonrsidets-u ponsm- reported in the IMF balance-of-payments statistics was only turity, they do not return to the nonresident depos- about $1 billion in 2001. itor, because the rupee is not convertible into hard 6. For example remittances rose sharply when countries currency. allowed residents to hold onshore foreign currency deposits. As with most of the items in the global bal- Private transfers to Uganda increased from $80 million in ance of payments, the estimates of remittances 1991 to $415 million in 1996 in response to measures that ance f payents,the etimats of emittnces permitted residents to open foreign currency accounts on- suffer from the fact that inflows and outflows re- shore (Kasekende 2000). In October 2002, Uganda's foreign ported by countries do not match. World inflows exchange accounts deposits were 27.8 percent of all deposits. of remittances totaled $111 billion in 2001-more 7. See also Russell (1992, p. 277), Meyers (1998), and than 7 percent higher than recorded outward flows Elbadawi and Rocha (1992). Reinforcing this argument, ($103 billion). El-Sakka and McNabb (1999) found that inflation had a positive and significant impact on inflow of remitrances, probably reflecting the need to boost family support in times of rising prices. Notes 8. Swamy (1981) argues that the economic situation in 1 Remittances are defined as the sum ot workers' remit- the host country is the main determinant of the size of re- tances, compensation of employees and migrants' transfers mittance flows to developing countries. Straubhaar (1986) (see data annex). Remittances are known to be underesti- similarly argues that "international migration flows are mated significantly in the balance-of-payments statistics of demand-determined by the existence of restrictive immigra- the IMF. If other current transfers-which cover food, cloth- tion control systems.' ing, consumer goods, medical supplies, gifts, dowries, pay- 9. See Clark, Hatton, and Williamson (2002) and ments from unfunded pension plans from nongovernmental World Bank (2002) for a description of changes in U.S. im- organizations, and so on-were also to be included, remit- migration rules and trends. The increase in remittance flows tance receipts would amount to $99.s billion or 1.6 percent to developing countries coincided with an increase in the of GDP in 2001. A frequent practice in the literature is to also migrant population in developed countries. Estimates sug- include migrants' transfers in remittance receipts See annex gest that migrant stocks in developed countries increased for a discussion of data issues relating to remittances. Remit- from 3.1 percent in 1965 to 4.5 percent in 1990 (Hatton tance payments by developing countries stood at $22 billion and Williamson 2002); in all likelihood this trend has con- in 2001. Most of this amount ($15.1 billion) was paid by tinued through the 1990s. Saudi Arabia. 10. The decline in remittances from Gulf countries in 2. One reason why remittance flow data are not disag- the mid-1980s was most likely due to restrictions on hiring gregated by source countries or by destination countries is new workers from overseas. Birks, Seccombe, and Sinclair that financial institutions that act as intermediaries often (1986) reported that the collapse of oil prices did not result report funds as originating in the most immediate source in large-scale exodus of foreign labor from the Arab Gulf country. For example, the Philippines tends to attribute a states. Remittances intended for investment purposes may large part of its remittance receipts to the United States decline when the source country's economy is strong and because many banks route their fund transfers through rates of return are high. El-Sakka and McNabb (1999) the United States. Orozco (2002) suggests that more than found that remittance inflows to Egypt were lower when 90 percent of remittance flows to Latin American countries rates of return were higher in Arab source countries during originate in the United States. 1967-91. 172 W OR K ER S ' RE M I T TA N C E S AN I MP O RTA N T AND S TA B L E S O U R C E 1I. The same skilled workers could be significantly less reservoir of unemployed among the educated, and thus the productive in a developing country (where the unemploy- macroeconomiiic impact is perhaps negligible. ment rate is higher and investment climate worse) than in an 20. Some authors argue that developing countries industrial counltry See also Nayyar (1994) should also try to tax their rich and successful migrant 12 Rural households tend to consume more domesti- workers abroad, by changing their tax rules to one based on cally produced goods-and hence generate larger multiplier "nationality" (as in the case of Eritrea, the Philippines, and effects-than urban households the United States) from one based on "residence." See Desal, 13. Adams (1993) found from Egyptian household survey Kapur, and McHale (2001a) and Bhagwati (2003). data collected in the second half of the 1980s that the relation- 21 Such hurdles may include restrictions on or delays ship between migration and income had an inverted U-shape, in issuance of passports, access to foreign exchange to un- suggesting that it is the middle-income types who migrate; the dertake the initial travel, or simply lack of a communica- very poor do not migrate because they cannot pay the costs as- tion infrastructure that slows down job search or results in sociated with international travel, while the very rich do not delays in finalizing job contracts Political instability often want to migrate. After adding land to income, he dismissed this disrupts international migration For example, the number view and concluded that it is the very poor who migrate be- of Mozambicani woikers in Soutl African minles dropped cause they have the most to gain from migrating (and they are by half around the period preceding and following abletomeettravelcostsbypresumablysellingland). Mozambique's independence from the Portuguese in 1975 14. A 2002 survey by the Pew Hispanic Center (spon- To some extent, this drop reflected mistrust of "leftist" sored by the Interamerican Development Bank) of 302 Latin workers by South African mine owners, but to a large ex- American born adults residing in Los Angeles and Miami also tent, it was also a result of disruption in passport issuance found that remitters had significant concerns about the high by Mozambique authorities (Lucas 1987). cost of transferring funds due to flat fees and unfavorable ex- 22. See Mattoo 2002 for a detailed discussion of van- change rates. Other concerns include delays in money being ous aspects of this issue The other three modes of GATS delivered to the recipient. This survey revealed that nearly are: "cross-border supply" (trade in goods), consumption 83 percent of persons interviewed sent moniey through inter- abroad (tourism or study abroad), and commercial presence national money transfer companies such as Western Union or (supplying services througlh a branch abroad). Moneygram, and only 9 percent through banks. The Bank of 23 The industrial countries may respond to these ris- Mexico (1997) estimated that in 1995, 40 percent of remit- ing migration pressures by relaxing immigration laws, in tances came in through money orders, 24 percent through particular, by encouraging more temporary migration (akin wire transfers, 27 percent through other electronic means, and to the U.S. H- I B visa) 8 percent through cash transfers Lozano-Ascencio (1998), 24. A seven-year delay before workers from central using surveys of migrants themselves, estimates that lS per- and eastern Europe are allowed to work in the EU has been cent of remittances entered Mexico as pocket transfers proposed, similar to the "ti ansitional period" arranged for 15 The cost of transfers through informal channels, Spain and Portugal when they entered the EU in 1985. Sev- such as Hawala, used in other parts of the world is said eral studies estimate that migration from these countries to be much lower than it is through institutional channels into the EU would rise to about 2-3 percent of the popula- (El-Qorchi 2002) tion of the sending country (see, for example, Boeri and 16. In 2001, the United States amended the Electronic Brucker 2000), but others (Borjas 1999, Drinkwater 2002) Fund Transfer Act (see the Wire Transfer Fairness and estimate smaller numbers. There appears to be a consensus, Disclosure Act of 2001), instructing financial institutions or however, that temporary movement of workers from these money transmitters initiating an international money transfer countries will increase significanitly to prominently disclose the exchange rate used in the transac- 25. One of the techniques devised to cope with the de- tion, the exchange rate prevailing at a major financial center teniorating external imbalance was a form of foreign bor- of the foreign country as of close of business on the business rowing known as the "convertible Turkish Lira deposit" day immediately preceding the transaction date, all commis- scheme or the Dresdner Bank scheme. The program, daring sions and fees charged, and the exact amount of foreign cur- from the late 1960s, was designed to attract the savings of rency to be received by the customer in the foreign country Turkish nationals working in foreign countries and also the (see www.ncua gov, H R 1306-Wire Transfer Services) cash deposits that might have been earned in black-market 17. An individual taxpayer identification number trade, smugglilg, or the mis-invoicing of imports and ex- (ITIN) is required to open interest-bearing accounts in U.S ports. According to the scheme, the Central Bank of Turkey banks Without an ITIN, only checking accounts that do offered interest rates on foreign exchange deposited in not pay interest can be opened Turkish commercial banks 1.75 points above the Euromar- 18. Senator Gramm has proposed that Mexican "guest ket rate while also guaranteeing the foreign exchange value workers" be hired on an annual or seasonal basis, and a of both principle and interest. Beginning in 1975, the pro- 15.3 percent payroll tax imposed on their employers would gram was broadened to allow nonresidents in general, and pay for the worker's emergency medical care and an IRA not only Turkish nationals working abroad, to hold these account, which the worker could withdraw at the tinme of deposits. Foreign exchange receipts from this source were departure back to Mexico. See http.//migration.ucdavis.edul transferred from commercial banks to the Turkish central rmn/archive_rmn/oct_2001-1 Ormn.html bank and on-lent to government and state enterprises, with 19 Nayyar (1994) argues that the magnitudes of emi- expansionary effects on the money supply. Inflation acceler- gration from India are small compared to the substantial ated markedly (still with a fixed exchange rate), worsening 173 G LO B AL DE V EL O PM ENT F INA NC E 2 0 0 3 the underlying disequilibrium in the external sector. 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"The Economic Implications nies." http://banking.senate.gov/02-02hrg/022802/ of Liberalising Mode 4 Trade." In Aaditya Mattoo and orozco.htm. Antonia Carzaniga, eds., Moving People to Deliver Pew Hispanic Center. 2002. "Billions in Motion: Latino Im- Services: Labor Mobility and the WTO. Oxford Uni- migrants, Remittances and Banking," presentation at a versity Press. 175 i I Statistical Appendix PmT HE SUMMARY STATISTICAL TABLES HAVE especially important in the Heavily Indebted been significantly revised for this edition of Poor Countries (HIPC) Initiative, where coun- Global Development Finance. The tables in tries are classified based on the ratio of the this statistical appendix are now divided into six present value of public and publicly guaran- sections. teed debt to exports of goods and services, excluding worker remittances. * Summary tables. These tables provide a snap- * Key debt ratios and country classifications. shot of recent history and the outlook for the These tables provide a summary of indicators global economy and each of the six developing typically used by country risk analysts to mon- country regions. (For the full World Bank clas- itor and classify countries. The World Bank's sification of countries by region and income own debt classifications are defined and tabu- level, see table A.53.) lated. The precise method used to categorize * Key macro variables. These provide detail on countries as severely, moderately, or less in- growth and inflation indicators by region and debted is shown at the bottom of table A52. (historically) for selected economies. Although The two key ingredients used are the present detailed country forecasts form the basis for value of future debt-service streams (PV) to the regional growth and inflation projections, (a) gross national income (GNI) and (b) to individual developing country forecasts are not exports of goods and services. These variables shown separately. are averaged over the three years, 1999-2001. * Current account tables. These tables combine The use of critical values to define the data from the IMF's balance-of-payments sta- boundaries between indebtedness categories tistics with aid-related data from the OECD's implies that changes in country classifications Development Assistance Committee and our should be interpreted with caution. If a country own preferred measure of workers' remittances has an indicator that is close to the critical (see the annex to chapter 7). value, a small change in the indicator may trig- * Capital account tables. New external financ- ger a change in indebtedness classification even ing tables have been developed. They combine if economic fundamentals have not changed the IMF's current account, foreign-exchange significantly. Moreover, these indicators do not reserve, and net inward foreign direct invest- represent an exhaustive set of useful indicators ment data with the World Bank's portfolio of external debt. They may not, for example, equity and debtor reporting system (DRS) data adequately capture the debt-servicing capacity to produce an overall tabulation of how re- of countries in which government budget con- gions finance themselves externally. straints are key to debt-service difficulties. * External liabilities and assets. These are a sum- Moreover, rising external debt may not neces- mary of the DRS debt data that are provided sarily imply payment difficulties, especially if on a country-by-country basis in volume 2. An there is a commensurate increase in the coun- important variable found in table A43 is the try's debt-servicing capacity. Thus, these indica- present value of each country's total future tors should be used in the broader context of a debt-service payments (PV). This variable is country-specific analysis of debt sustainability. 177 S TAT I S T I C AL AP PEND I X Contents Summaty tables A.1 The global outlook in summary, 2001-2004 180 A.2 East Asia and Pacific outlook in summary, 1981-2003 181 A.3 Europe and Central Asia outlook in summary, 1981-2003 182 A.4 Latin America and the Caribbean outlook in summary, 1981-2003 183 A.5 Middle East and North Africa outlook in summary, 1981-2003 184 A.6 South Asia outlook in summary, 1981-2003 185 A.7 Sub-Saharan Africa outlook in summary, 1981-2003 186 Key macro variables A.8 Global real GDP growth, 1981-2003 187 A.9 Global inflation, 1991-2002 188 A.10 Commodity prices, 1980-2003 189 A.11 Commodity price indices, 1980-2003 190 A.12 Global nominal GDP growth, 1981-2003 191 Current account A.13 Global merchandise export growth, 1981-2003 192 A.14 Global merchandise import growth, 1981-2003 193 A.15 Global merchandise trade balances, 1995-2003 194 A.16 Global merchandise trade prices and volumes, 1981-2003 195 A.17 Global current account balances, 1998-2003 196 A.18 Global current account balances, 1981-2003 197 A.19 Workers' remittances received by developing countries, 1995-2002 198 A.20 Net official development assistance from DAC countries to developing countries and multilateral organizations, by donor, 1995-2001 199 A.21 Net official development assistance to developing countries, by recipient, 1995-2001 200 Capital account A.22 External financing: all developing countries, 1997-2003 201 A.23 External financing: East Asia and Pacific, 1997-2003 202 A.24 External financing: Europe and Central Asia, 1997-2003 203 A.25 External financing: Latin America and the Caribbean, 1997-2003 204 A.26 External financing: Middle East and North Africa, 1997-2003 205 A.27 External financing: South Asia, 1997-2003 206 A.28 External financing: Sub-Saharan Africa, 1997-2003 207 A.29 Net inward foreign direct investment in developing countries, 1995-2003 208 A.30 Net inward portfolio equity flows to developing countries, 1995-2003 209 A.31 Net inward debt flows to developing countries, 1995-2003 210 A.32 Net inward short-term debt flows to developing countries, 1995-2002 211 A.33 Net inward debt flows to public-sector and publicly guaranteed borrowers in developing countries, 1995-2001 212 A.34 Net inward debt flows to private-sector borrowers in developing countries, 1995-2001 213 A.35 Net inward debt flows from public-sector creditors in developing countries, 1995-2003 214 A.36 Net inward debt flows from private-sector creditors in developing countries, 1995-2003 215 A.37 Gross market-based capital flows to developing countries, 199S-2003 216 A.38 Gross international equity issuance by developing countries, 1995-2003 217 A.39 Gross international bond issues in developing countries, 1995-2003 218 178 S TAT IS T ICA L AP PEND I X A.40 Gross international bank lending to developing-country borrowers, 1995-2003 219 A.41 Change in foreign exchange reserves of developing countries, 1995-2003 220 External liabilities and assets A.42 Total external debt of developing countries, 1995-2001 221 A.43 Total external debt of developing countries, as of December 2001, present-value basis 222 A.44 Total external debt of developing countries, medium- and long-term, 1995-2001 225 A.45 Total external debt of developing countries, short-term, 1995-2001 226 A.46 Total external debt of developing countries owed by public-sector and publicly guaranteed borrowers, 1995-2001 227 A.47 Total external debt of developing countries owed by private-sector borrowers, 1995-2001 228 A.48 Total external debt of developing countries owed to public-sector creditors, 1995-2001 229 A.49 Total external debt of developing countries owed to private-sector creditors, 1995-2001 230 A.50 Foreign exchange reserves of developing countries, 1995-2003 231 Key debt ratios and country classifications A.51 Key external debt ratios for developing countries 232 A.52 Classification of countries by levels of external indebtedness and income 235 A.53 Classification of countries by region and level of income 236 179 ST AT IS T ICA L AP PEND I X S SUM MARY T AB LES Table A.1 The global outlook in summiary, 2001-2004 (percent change from previous year, except interest rates and oil price) GEP 2003 forecasts 2001 2002e 2003f 2004f 2005f 2003 2004 Global conditions World trade volume 0 4 3.0 6.2 8.1 8 1 70 8 0 Consumer prices G-7 countries-- b 1 5 1.0 1.4 1 3 1 3 1.2 1.5 United States 2.8 16 2 5 2 3 2.1 21 2 3 Commodiry prices ($ terms) Non-oil commodities -91 S l 8 2 2 3 17 5.8 4 4 Oil price (OPEC average) 24 4 24 9 26.0 21.0 20 0 23 0 20 0 Oil price (percent change) -13 7 2.4 4 3 -19 2 -4 8 -8 0 -13 0 Manufactures unit export value' -2 9 -1 4 5.6 -0 1 1 2 3.0 2 2 Interest rates $, 6-month (percent) 3.5 1 8 1 7 3 2 4.2 1 5 3.1 C, 6-month (percent) 4 2 3 3 2 4 2 3 3.1 3 2 3 8 Real GDP growthd World 1.2 1.7 2.3 3.2 3.1 2 5 3.1 Memo item' World (PPP weights)' 2 2 2.8 3.2 4.1 4 0 3.4 4.0 High income 0.8 1.4 1.9 2.9 2.6 2.1 2.7 OECD countries 0.9 1 4 1.8 2 8 2.6 2.1 2 6 Euro Area 15 0 8 1.4 2 6 2 6 1 8 2 6 Japan 0 3 -0 3 0.6 1.6 14 0 8 1.3 United States 0 3 2 4 2.5 3 5 3 0 2 6 31 Non-OECD countries -1 1 2 2 3.0 4.3 4.5 3 7 5.3 Developing countries 2.8 3.1 4.0 4.7 4.8 3.9 4.7 East Asia and Pacificf 5.5 6 7 6 4 6 6 5 9 61 6 4 Europe and Central Asia 2.3 4.1 3.7 3.7 4 1 3.4 3 6 Transition Countries 4 5 3 6 3.6 3 5 3.9 3 3 3 5 Latin America and the Caribbean 0 3 -0.9 1.7 3 8 4.5 1 8 3 7 excluding Argentina 1 1 0.8 1.6 3 7 4 7 1 9 3 6 Middle East and North Africa 3 2 2 6 3.7 3.9 3.7 3 5 3.7 Oil exporters 2.2 2.3 3 7 3 6 3 4 3 7 3 6 Diversified economies 4 1 2 5 3.1 4 2 4.2 2 7 3 6 SouthAsia 43 49 53 52 53 54 58 Sub-Saharan Africa 3 2 2 6 3.0 3 6 3 7 3.2 3 9 Memorandum items Developing countries excluding transition countries 2.6 3.1 4.1 5.0 5 0 4 0 4.9 excluding China and India 1 7 1.7 2 9 3 9 4 3 2.8 3 8 Note PPP = purchasing power parity, e = estimate, and f= forecast GEP 2003 is Global Economic Prospects and the Developtng Countries, January 2003 a Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States b. In local currency, aggregated using 199S GDP weights. c. Unit value index of manufactured exports from major economies, expressed in U S dollars d GDP in 1995 constant dollars, 199S prices and market exchange rates e. GDP measured at 199S PPP weights f Now excludes the Republic of Korea, which has been reclassified as high income 180 S TAT IS T ICA L AP PEND I X S SUM MARY TAB LES Table A.2 East Asia and Pacific outlook in summary, 1981-2003 Real economy (percent change, tunless stated) 1981-90 1991-00 1997 1998 1999 2000 2001 2002c 2003f Real GDP growth 7.4 7 7 6 4 0 6 5 6 7.1 5 5 6 7 6 4 Private consumption per capita 5 6 5.7 2 6 -0.5 4.6 6 0 4.1 6 0 6.0 GDP percapita 5 7 6 4 5 2 -0 5 4 5 6 0 4 6 5 7 5 5 Population 1 6 1 2 1 1 1.1 1 1 10 0 9 0 9 0 9 Gross domestic investment/GDP, 23 2 28.7 30 7 29.2 28.3 29 2 30.5 33 0 34 0 Inflationb 5 5 5 6 4 2 9.2 1 8 5 0 6.6 3 1 2 7 Central government budget balance/GDP -1.3 -1 2 -0 7 -1.5 -2 3 -3 3 -3.3 -3 4 -3 3 Exportmarketgrowth' 67 96 73 -12 7.7 141 -26 3.4 73 Export volumed 8 2 114 13 7 3 6 3.6 21.5 2 6 16 5 13 8 Terms of trade/GDP' -0 3 -0 2 0 1 -0 3 0 4 0 2 -0.3 -0 4 -0 4 Current account/GDP -1.4 0 5 1 1 4.4 4 2 3.6 2.6 2 5 2 2 Workers remittances (billions of dollars) - - 14 2 8 3 10 6 10 3 10 4 11 0 - Memorandum items GDP growth: East Asia excluding China 5 7 4.6 3.3 -9 5 3.1 5 5 2 3 4.2 4 2 External financing and debt (billions of dollars unless stated) 1995 1996 1997 1998 1999 2000 2001 2002e 2003f Net inward FDI 51 3 58 6 62 2 57.6 48 9 44 0 48 9 57 0 610 Net inward portfolio equity flows 9 1 10 1 0 0 -2 8 4 6 19 3 2 9 5 4 7 0 Net inward debt flows 54 2 52 0 44 5 -32 5 -11.6 -18 0 -12 0 -8.3 -13 0 From public sources 9 1 3 6 17 3 14 7 12 5 7 0 3 5 -2 3 -8 0 From private sources 45 0 48 4 27.2 -47 2 -24.1 -25 0 -15 5 -6.0 -5 0 Gross market-based capital inflows 60 0 715 76 2 27 3 28.2 48 7 20 7 41.0 50 0 Total external debt 462 498 529 535 541 497 504 - - Medium- and long-term 352 368 396 449 467 433 411 - - Short-term 110 130 133 86 75 64 93 - - Owed by public-sector borrowers 263 263 278 295 314 294 289 - - Owed by private-sector borrowers 199 235 250 240 227 203 215 - - Owed to public-sector creditors 167 160 159 185 206 194 187 - - Owed to private-sector creditors 295 338 370 350 335 303 317 - - Gross foreign exchange reserves 154 5 199 7 212 5 233 2 262 5 272 6 320 3 377 3 432 3 - Not available Note e = estimate, f = forecast a Fixed investment, measured in real terms b Local currency GDP deflator, median c Weighted average growth of import demand in export markets d Goods and non-factor services e Change in terms of trade, measured as a percentage of GDP 181 STATISTICA L AP PEND I X: SUM MARY TAB LES Table A.3 Europe and Central Asia outlook in summary, 1981-2003 Real economy (percent change, unless stated) 1981-90 1991-00 1997 1998 1999 2000 2001 2002e 2003f Real GDP growth 1.6 -1.5 3.1 0 1 1.8 6.5 2.3 4 1 3.7 Private consumption per capita 0.1 0.4 5 3 0.6 -1 2 8 7 5 0 5.6 3 6 GDPpercapita 07 -1.7 3.0 -01 1.6 64 22 40 3.5 Population 0 9 0.2 0.1 0.1 0.2 0.1 0 1 0 1 0.1 Gross domestic investment/GDP, 32.1 24 2 22.3 22.3 21 3 22.0 21.5 21 4 21.5 Inflationb 1.1 52.5 17.5 11.9 7.6 9.7 7 0 3 8 5.7 Central government budget balance/GDP -0.5 -4.4 -4.4 -4 5 -5.6 -5.3 -8 4 -7 8 -6 9 Export market growth, 3.3 10.2 8.0 4.8 -1 0 11 9 2.6 2.0 6.6 Export volumed 0.1 3 1 9.4 4.6 -0.1 13 1 1.7 5 9 7.9 Terms of trade/GDP, 0 1 0 2 0 2 -0.6 -0 4 0 8 2 9 -3 0 1.8 Current account/GDP -0.5 -0.7 -2 5 -2 7 -0.3 2.0 1.9 0.8 0 6 Workers remittances (billions of dollars) - - 7.1 9.2 8.1 8 7 8 9 10 0 - Memorandum items GDP growth. Transition countries 1 2 -2.4 2.1 -0 7 3 5 6 3 4 5 3 6 3 6 Central and Eastern Europe 1 1 0 7 3 4 2.8 2.2 3.9 2.8 2.7 3.0 CIS 1.3 -4.4 1.0 -3 6 4 6 8.4 5 8 4 4 4 1 External Financing and Debt (billions of dollars unless stated) 1995 1996 1997 1998 1999 2000 2001 2002e 2003f Net inward FDI 170 16 3 21 8 26.0 28.3 29.2 30.1 29.0 30.0 Net inward portfolio equity flows 1 7 4 3 4.0 4.0 2.0 1.2 0.3 1.4 2 0 Net inward debt flows 23 4 22.7 32 6 40.4 15.8 22 0 3.3 11 2 17.0 From public sources 6.8 8.6 6 7 7 4 -0 8 -0.1 2 8 3 9 2.0 From private sources 16.6 14.1 25.9 33.1 16.6 22.2 0.5 7.2 15.0 Gross market-based capital inflows 21 9 26 9 51 2 43.4 31.0 40 7 27.7 35.5 44.0 Total external debt 350 367 387 484 494 504 498 - - Medium- and long-term 305 315 331 413 422 423 422 - - Short-term 44 52 56 71 72 80 76 - - Owed by public-sector borrowers 287 287 289 321 316 305 291 - - Owed by private-sector borrowers 63 80 98 163 178 198 207 - - Owed to public-sector creditors 157 161 157 173 171 166 159 - - Owed to private-sector creditors 193 206 230 312 323 338 339 - - Gross foreign exchange reserves 81.1 83.4 90.7 95.6 102 8 119 6 130 0 164.0 189.0 -Not available. Note: e = estimate, f = forecast. a. Fixed investment, measured in real terms. b. Local currency GDP deflator, median. c Weighted average growth of import demand in export markets. d Goods and non-factor services. e. Change in terms of trade, measured as a percentage of GDP 182 S T AT I S T I C A L A P P E N DIX. SUM MARY TAB LES Table A.4 Latin America and the Caribbean outlook in summary, 1981-2003 Real economy (percent change, unless stated) 1981-90 1991-00 1997 1998 1999 2000 2001 2002e 2003f Real GDP growth 1.1 3.3 5.2 2 0 0.2 3 5 0 3 -0 9 1.7 Private consumption per capita -1 0 2.3 3.2 -0.2 -1.6 2.1 -0.9 -3.4 0.3 GDP per capita -0 9 1.6 3 4 0.4 -1.4 1.9 -1.3 -2.4 0.3 Population 2.0 1 7 1.6 1.6 16 1.6 16 1.5 1 4 Gross domestic investment/GDP, 20.1 19 9 21.1 21 3 19.7 19 6 19.1 17.7 17.0 lnflationb 17.3 11 9 8.2 6.7 4.2 7.2 6.8 4 6 4.2 Central government budget balance/GDP -9.1 -3 3 -3.0 -4 0 -3.0 -2 2 -1.8 -2.6 -2.8 Export market growth, 4.4 11.3 12.7 77 5.0 120 -1.2 03 6 8 Export volumed 5.4 8.6 9.8 7.9 6.3 10.4 0 7 4.0 8.6 Terms of trade/GDP, 0 9 0.2 0 4 -0.2 0.2 0.7 -0 3 0.0 -0.4 Current account/GDP -1 5 -2.8 -3.3 -4.5 -3 2 -2.4 -2.9 -1 0 -1 2 Workers remittances (billions of dollars) - - 13.6 14 8 16.9 19.2 22 6 25.0 - Memorandum items GDP growth- Latin America and the Caribbean excluding Argentina 1.6 3.1 4 6 1.7 0 9 4.3 1.1 0.8 1 6 Central America 1 0 4.4 4 7 5 2 4.4 2 9 0.4 1.8 2.8 Caribbean 2 0 4.0 4 8 5.2 5.9 5 9 31 2 9 3.9 External Financing and Debt (billions of dollars unless stated) 1995 1996 1997 1998 1999 2000 2001 2002c 2003f Net inward FDI 30.5 44 4 66.1 73.4 87.8 75.8 69.3 42.0 38.0 Net inward portfolio equity flows 4.8 12.2 133 -2.1 -3.6 -0.4 23 1.0 20 Net inward debt flows 61 3 36 0 24.3 37.9 12 3 -1.1 11.4 3.5 0.0 From public sources 22.0 -10 7 -8 6 10.9 1.6 -11 1 20 2 12 6 6 0 From private sources 39.3 46 8 32 9 27.0 10.7 10 0 -8.7 -9 1 -6 0 Gross market-based capital inflows 42.8 84.9 120.6 84 5 75.3 89.9 75.8 45 3 44 0 Total external debt 650 671 702 774 795 783 765 - - Medium- and long-term 522 550 575 656 685 677 669 - - Short-term 128 121 127 119 109 106 96 - - Owed by public-sector borrowers 435 433 413 436 442 433 443 - - Owed by private-sector borrowers 215 238 289 338 353 350 322 - - Owed to public-sector creditors 217 194 176 180 183 170 181 - - Owed to private-sector creditors 432 477 526 594 612 613 584 - - Gross foreign exchange reserves 125.1 153 1 166 7 157.5 150.0 152 9 155.9 151.9 161 9 - Not available. Note. e = estimate, f = forecast a Fixed investment, measured in real terms. b. Local currency GDP deflator, median. c Weighted average growth of import demand in export markets. d Goods and non-factor services. e Change in terms of trade, measured as a percentage of GDP 183 S IAT I S T I C A L AP PEND I X: SUM MARY TAB LES Table A.5 Middle East and North Africa outlook in summary, 1981-2003 Real economy (percent change. unless stated) 1981-90 1991-00 1997 1998 1999 2000 2001 2002e 2003f Real GDP growth 2.4 3.2 2.7 3.2 2.0 4.3 3 2 2.6 3.7 Private consumption per capita 1.5 0.2 -0.2 1.2 0.1 1.1 5.1 1.0 1.0 GDP per capita -0.6 1.0 0.7 1.3 0.1 2.3 1.3 0.7 1 7 Population 3.1 2.2 2.0 2.0 1 9 2.0 1.9 1 9 1.9 Gross domestic investment/GDPa 26.7 21.2 21.1 21.5 21.5 21.4 21.5 21.9 22.2 lnflationb 8.4 6.4 5.0 0.1 5.7 7.7 3.3 3.8 4.0 Central government budget balance/GDP -3.9 -0.9 -0.4 -2.5 -1.1 0.5 -0 9 -2.2 -2.2 Export market growth' 5 3 10.0 6.9 2.0 8.4 13.2 -1.2 2.3 7.9 Export volumed 0.7 5.0 2.6 -1.8 3.4 7.6 3.6 1 4 4.6 Terms of trade/GDP, -0.9 0.5 -0.9 -5.1 5 4 8.7 -1.9 0.0 -2.3 Current account/GDP -1.7 -2.0 0.5 -5.8 0.8 7.4 5.0 4.5 1 7 Workers remittances (billions of dollars) - - 9.4 10.3 10.5 10.9 13.1 14.0 - Memorandum items GDP growth. oil exporters 1.0 2.8 2.4 1.2 -0 2 3.7 2.2 2.3 3.7 Diversified exporters 4 3 3.9 3.0 5 6 3.8 3.6 4.1 2.5 3.1 External Financing and Debt (billons of dollars unless stated) 1995 1996 1997 1998 1999 2000 2001 2002e 2003f Net inward FDI -0 6 0.7 6 2 7.5 3.2 2.5 5.5 3.0 3.0 Net inward portfolio equity flows 0.1 0 5 0.8 0.3 0.7 0.2 -0.1 0 0 -1.0 Net inward debt flows 2.7 -2 5 -4.4 8 3 -2.2 -6.5 1 7 -0.3 2.5 From public sources -1 5 -0.8 -4 0 -1.7 -2.7 -2.9 -1.2 -1 6 0.0 From private sources 4.2 -1 7 -0.4 10.0 0.5 -3.6 2 9 1.3 2.5 Gross market-based capital inflows 11.3 4.5 18.7 12 1 13.6 8.9 12.1 14 7 16.0 Total external debt 212 204 195 210 214 202 201 - - Medium- and long-term 167 162 154 164 163 156 153 - - Short-term 45 42 41 46 50 47 47 - - Owed by public-sector borrowers 162 156 147 155 157 149 146 - - Owed by private-sector borrowers 50 48 48 55 57 53 55 - - Owed to public-sector creditors 118 117 109 112 107 101 98 - - Owed to private-sector creditors 94 87 86 98 106 101 102 - - Gross foreign exchange reserves 44.9 56.4 63 0 61.6 64.2 76 5 85.2 90.2 90.2 - Not available Note e = estimate, f = forecast a. Fixed investment, measured in real terms b Local currency GDP deflator, median c Weighted average growth of import demand in export markets d Goods and non-factor services. e. Change in terms of trade, measured as a percentage of GDP 184 S T A T I S T I C A L A P P E N D I X SU M M AR Y T AB LES Table A.6 South Asia outlook in summary, 1981-2003 Real economy (percent change, unless stated) 1981-90 1991-00 1997 1998 1999 2000 200)1 2002e 2003f RealGDPgrowth 58 52 42 60 58 40 43 49 53 Private conisumpton per capita 2 3 2 4 1 3 -0 3 -0 I 0 1 35 2 0 2 3 GDPpercapita 35 32 24 41 39 21 26 32 36 Population 22 19 1 8 1 8 19 19 17 17 16 Gross domestic iinvestment/GDPI 20 1 21 9 21 8 22 2 22 6 22 8 23 6 23 9 23 9 Inflationb 89 81 73 75 46 58 61 50 51 Central governmenit budget balance/GDP -12 6 -10 3 -9 9 -10 7 -9 8 -97 -10 3 -10 3 -98 Export market growth, 5 0 12 7 8 2 3 7 71 12 9 0 2 28 6 3 Export volumed 6 4 9 3 5 6 8 6 18 7 7 3 8 5 3 10 0 Terms of trade/GDP' 0 0 -0 1 0 3 0 9 -0 4 -0 8 0 4 0 0 0 2 Currentaccount/GDP -20 -1 5 -1 1 -1 8 -1 0 -1 0 -05 -1 1 -08 Workers remittances (billions of dollars) - - 14 6 13 3 IS 1 13 5 14 9 16 0 - Memorandum itenis GDP growth South Asia excluding India 5 5 4 3 3 2 3 7 3 6 4 2 3 8 3 9 4 8 External Financing and Debt (billions of dollars uniless stated) 1995 1996 1997 1998 1999 2000 2001 2002e 2003f Net inward FDI 29 35 49 35 31 31 41 50 60 Net inward portfolio equity flows 1 6 4.1 2 9 -0 6 2 4 1 7 1 6 0 8 2 0 Net inward debt flows 2 5 2 6 0 6 4 7 0 5 3 4 -0 3 0 9 -1 0 From public sources - 1 2 1.0 0 3 2 3 2 5 0 5 2 5 1 9 -1 0 From private sources 3 7 1 6 0 3 2 4 -2 0 2 9 -2 7 -1 0 0 0 Gross market-based capital inflows 7 4 10.5 12 7 5 1 4 2 4 8 3 3 2 6 3 0 Total external debt 157 155 155 163 167 165 162 - - Medium- and long-term 148 145 147 156 160 159 157 - - Short-term 9 10 8 7 7 6 5 - - Owed by public-sector borrowers 140 135 135 145 150 144 142 - - Owed by private-sector borrowers 17 20 20 18 17 21 19 - - Owed to public-sector creditors 114 110 104 110 119 108 107 - - Owed to private-sector creditors 43 46 51 53 49 57 55 - - Gross foreign exchange reserves 24 2 24 8 30 0 32 9 37 9 42 6 52 8 70 8 85 8 - Not available. Note e = estimate, f = forecast a Fixed investment, measured in real terms. b Local currency GDP deflator, median. c Weighted average growth of import demand in export markets d Goods and non-factor services e Change in terms of trade, measured as a percentage of GDP. 185 STATISTICA L AP PEND I X S SUM MARY TAB LES Table A.7 Sub-Saharan Africa outlook in summary, 1981-2003 Real economy (percent chanige, intless stated) 1981-90 1991-00 1997 1998 1999 2000 2001 2002c 2003f Real GDP growth 1.7 2.2 3.4 2.3 2.5 3.3 3.2 2 6 3 0 Private consumption per capita -1 0 -0.5 4.0 -1.7 0.0 -2.1 1.0 0 1 04 GDP per capita -1.2 -0.4 0.6 -0.2 0 1 0.8 07 03 0.6 Population 2.9 2.6 2.8 2 6 2 4 2 5 2 4 2 4 2 3 Gross domestic investment/GDP, 18.6 17.0 17.6 183 178 18.2 189 194 19.8 liflationb 9 6 9 5 7 2 5 6 5.4 6.8 5 6 4 3 3.9 Central government budget balance/GDP -4 5 -4.6 -2.8 -3.1 -2.8 -1.4 -1 8 -2 2 -2.4 Export market growth, 4 8 143 9 1 8.1 6.7 10.7 02 2.2 5.6 Export volumed 1.5 4.3 5 1 31 3 5 5 4 3.8 21 7 3 Terms of trade/GDP, 0.2 -0 1 -0.3 -2 0 1 3 2 1 -2 0 1 5 -0.6 Current account/GDP -2 7 -2 0 -2 9 -5.9 -3.6 0 1 -1.7 -1.4 -1.5 Workers remittances (billions of dollars) - - 3.8 3.6 3 5 2 0 2.4 4.0 - Memoranduim itenms GDP growth Sub-Saharan Africa excluding SoIth Africa 2 2 2.7 4.1 3 8 2 9 3.2 3 5 2 4 2.9 Oil exporters 2.0 2.6 4.3 3 6 2.0 4.2 4 3 1.8 3 6 CFA countries 21 2.4 5.2 4 8 2 2 2.2 31 2 0 2.1 External Financing and Debt (billions of dollars uenless stated) 1995 1996 1997 1998 1999 2000 2001 2002e 2003f Net inward FDI 4.3 4.3 8.1 6.5 8 1 6.1 13.8 7 0 7.0 Net inward portfolio equity flows 2.9 2 4 5.6 8 6 8 9 4.0 - I 0 0.7 1.0 Net inward debt flows 7 6 3.2 4 5 -1.4 -0.9 -0 9 -1.0 0 2 -0.5 From puilic sources 3.5 2 0 1.4 0 5 0.4 0.5 0 3 1.6 1 0 Froin private sources 4 1 1 2 3.1 -1 9 -1.2 -1.4 -1.3 -1 4 -1.5 Gross market-based capital inflows 78 7.8 7.9 64 100 12.2 11.1 99 120 Total extertial debt 235 231 221 228 215 211 203 - - Medium- and long-term 195 189 180 186 174 178 171 - - Short-ternm 41 43 41 42 41 33 32 - - Owed by public-sector borrowers 183 178 171 178 164 167 158 - - Owed by private-sector borrowers 52 53 50 51 51 44 45 - - Owed to public-sector creditors 146 144 138 146 135 141 135 - - Owed to private-sector creditors 89 87 83 83 80 70 68 - - Gross foreign exchange reserves 17.9 20 6 28.1 26.8 28 2 34.0 34 3 34 3 37.3 - Not available Note e = estimate, f= forecast. a. Fixed investment, measured in real terms. b Local currency GDP deflator, nmedian. c Weighted average growth of import demand in export markets d Goods and non-factor services. e Change in terms of trade, measuired as a percentage of GDP. 186 S TAT IS T ICA L AP PEND I X : K E Y MAC R O VAR IA B LES Table A.8 Global real GDP growth, 1981-2003 (GDP in 1995 prices and exchange rates, average annual growth, percent) Average GDP 2001 Estimate Forecast (1995 dollars) 1981-90 1991-00 1997 1998 1999 2000 2001 2002 2003 World 33,902 3.0 2.6 3.4 2.1 2.9 3.9 1.2 1.7 2.3 High-income countries 27,679 3.1 2.5 3.2 2.2 2.9 3.7 0.8 1.4 1.9 Industrial countries 26,852 3.1 2.4 3 1 2 2 2 9 3 6 09 1 4 1 8 European Union (15) 9,771 24 2 0 2.5 2.8 2.7 3.6 1 5 1 0 1 5 Japan 5,701 41 1 4 1 8 -1 2 02 2 8 0.3 -03 06 United States 9,040 3.2 3.2 4.4 4.3 4.1 3.8 0.3 2.4 2 5 Other high-income countries 827 4.9 5.4 5.4 1 0 3 7 6.7 -1.1 2 2 3 0 Asian NIEs 623 7.4 6.1 6.3 1.1 5.1 7.8 -1.4 28 33 Developing countries 6,222 2.6 3.3 4.7 1.8 2.7 5.1 2.8 3.1 4.0 excluding China 5,106 2.2 2.3 4 0 0.7 1.9 4.5 1.9 2 1 32 excluding Central Europe and CIS 5,334 3.1 4.6 5.2 2.2 2.6 4.9 2.6 3.1 4 1 Severely indebted 1,602 1.5 3.2 4.4 -0.7 0.2 3.0 09 -03 23 Moderately indebted 1,513 2.6 09 3 5 -1 6 1.5 5 8 1 7 3.2 3 1 Less indebted 3,107 3.4 4 7 56 5.2 4.8 5.8 45 49 5 2 Middle-income countries 5,131 2.3 3.3 4.9 2.0 2.5 5.2 2 6 2 9 3.9 Upper middle-income countries 2,306 1.2 3.1 5.1 1 8 0.9 3.9 0.6 -04 2.0 Lower middle-income countries 2,825 3 4 3 5 4.7 2.2 3.8 6 4 42 5.6 5 4 Low-income countries 1,091 4.2 3 1 3 9 0.7 3 9 4.2 4.3 4.2 4 4 East Asia and Pacific 1,712 74 7.7 6 4 0.6 5.6 7.1 55 6 7 6 4 China 1,116 9.3 10.1 8.8 7.8 71 8 0 73 8 0 - Indonesia 217 6.4 4.2 4 7 -13 0 03 53 3.3 3.5 - Europe and Central Asia 1,080 1.6 -1.5 3.1 0 1 1 8 6.5 2.3 4.1 3 7 Russian Federation 378 1 5 -40 0.9 -4.9 5.4 9.0 5.0 4 1 - Turkey 192 52 3 6 75 3.1 -4.7 74 -65 63 - Poland 165 -03 3 7 68 4.8 4.1 4.0 1.0 1 2 - Latin America and the Caribbean 1,929 1.1 3 3 5.2 20 02 3.5 0 3 -0.9 1.7 Brazil 797 1.5 27 3 3 0.1 1 2 4 0 1.5 1.2 - Mexico 372 1 8 3 5 6.8 49 3 7 6 6 -0.3 1.1 - Argentina 280 -1.5 4.5 8.1 3.9 -3.4 -08 -44 -1 .0 - Middle East and North Africa 490 2.4 3.2 2 7 3 2 2.0 4.3 3.2 2.6 3.7 Saudi Arabia 141 03 2.3 20 1.7 -0.8 45 1.2 0.7 - Iran, Islamic Rep. of 111 2.7 4 2 3.4 2.0 2.5 5 9 4.8 4.9 - Egypt, Arab Rep. of 80 55 43 5.5 4.5 63 5.1 2.9 2.3 - South Asia 634 5 8 5.2 4.2 60 5.8 4 0 43 4.9 5.3 India 488 5.9 5.4 46 6 8 6.5 4 0 4.5 5 2 - Sub-Saharan Africa 378 1.7 2 2 3.4 2.3 2 5 3.3 3.2 2.6 3.0 South Africa 177 1.3 1 7 2.6 0.8 20 3.5 2.8 2.9 - Nigeria 33 11 2.6 2.7 1 9 1.1 3.8 4.0 -0.7 - -Not available. 187 S TAT IS T ICA L AP PEND I X KEY MAC R O VAR IA B LES Table A.9 Global inflation, 1991-2002 (consumer price indices, local currency, percent change') Weights Average Estumate 1995 1991-2000 1996 1997 1998 1999 2000 2001 2002 World 100 3.4 3.3 2 8 2.0 1.9 2.7 1.5 2.1 High-income countries 85 2.2 2.2 1 9 1 2 1.3 2.1 0.9 1.5 Industrial countries - 2 2 2 2 1 9 1 2 1 4 2 1 1 0 1.6 European Union (15) - 2 6 2.1 2 1 1 1 1.7 2 5 1 9 2 3 Japan - 0.7 0.6 1 8 0 6 -1 1 -0 4 -1 2 -0 3 United States - 2 7 3.3 1 7 1 6 2 7 3 4 1 6 2.4 Other high-income countries - 3 0 3 6 2 1 0 4 -0 9 0 7 -2 0 -1 I AsianNIEs - 30 36 20 04 -10 06 -20 -12 Developing countries 15 9.7 9.2 7.3 6.6 4 8 5.9 4.6 5.5 excluding China - 9 7 9 1 7.4 6 7 4 9 5 9 4.6 5 5 excluding Central Euirope and CIS - 9 2 9 1 7 2 6 4 4 5 5 6 4 7 5 6 Severely indebted - 10 9 9 6 7.3 5 9 4 4 4 9 45 5 8 Moderately indebted - 11 5 11 4 8.9 7 2 6 0 6 6 5 4 S 8 Less indebted - 7 8 71 5 7 6.1 4 2 5 3 4 1 4 7 Middle-income countries - 9 5 S 0 6 8 6.3 4 5 5.4 4 1 4 9 Upper middle-income countries - 9 9 8.3 6 7 5.7 5 7 5 8 3 7 5 2 Lower middle-income countries - 9 3 9 4 7 1 6 5 3 9 5 4 4 8 5 0 Low-income countries - 10 8 9 8 8 5 8 8 5.5 7 4 6 3 6 2 EastAsia and Pacific - 5 S 5.7 6 1 7 8 2 4 3 1 2 8 4 3 China - 7.0 70 04 -1 0 -1 0 0.4 -1 4 -0 1 Indonesia - 13 4 6 0 10 3 77 6 1 9 9 3 12 5 10 0 Europe and Central Asia - 27 4 19 2 16 2 10 1 11 1 10 0 6 3 4 2 Russian Federation - - 21 8 11 0 844 365 202 18.6 15 1 Turkey - 74 9 79 8 99 1 69 7 68 8 39 0 68 5 29 7 Poland - 24 2 18 7 13 2 8.5 9 8 8 6 3.7 0 7 Latin America and the Caribbean - 12 9 12 6 9.3 7 2 6 1 6 6 5 5 6 8 Brazil - 1806 96 52 17 89 60 76 125 Mexico - 175 27.7 15 7 18 6 12 3 8 9 44 5 7 Argentina - 9 2 0 1 0 3 0 7 -1 8 -0 7 -1 5 40 9 Middle East and North Africa - 5 9 4 4 3 8 2 9 3 2 2 4 2 7 1 8 Saudi Arabia - 0 7 1 2 -0.4 -0 9 -0 6 - 1 3 0 0 -1 0 Iran, Islamic Rep of - 24 1 20 9 15.8 20 2 19 0 12 8 10 6 16.4 Egypt, Arab Rep of - 8.7 5 4 4.3 3 6 3 2 2 3 2 5 3 0 SouthAsia - 8.5 121 4.7 112 15 37 48 46 India - 8 4 10 4 6.3 15 3 0 5 3 5 5.2 4 0 Sub-Saharan Africa - 8 9 8 1 6 6 5 5 4 9 7 1 4 7 6 1 South Africa - 8 6 9 3 6 5 8 7 2 5 7.3 4 1 14 5 Nigeria - 29 0 14 3 10 2 11.9 0.2 14 5 16 5 10 0 -Not available a. Developing country aggregates show median rates Industrial-country aggregates use 1995 US$ GDP weights World total is GDP weighted average of developing anid high income total Inflation is calculated on a December/December basis. 188 S TAT IS T ICA L AP PEND IX: K E Y MAC R O VAR IA B LES Table A.10 Commodity prices, 1980-2003 (dollar terms) Forecast Unit 1980 1990 1997 1998 1999 2000 2001 2002 2003 Energy Coal, Australia $/mt - 39 67 35.10 29.23 25.89 26.25 32.31 27.06 26.00 Crude oil, average $/bbl 36.87 22.88 19 17 13.07 18.07 28 23 24.35 24.93 24.00 Natural gas, Europe $/mmbtu 3 40 2.55 2.74 2 42 2 13 3.86 4.06 3 05 3 00 Non-energy commodities Agriculture Beverages Cocoa ¢/kg 260.4 126 7 161 9 167.6 113.5 90.6 106 9 177 8 200.0 Coffee, arabica ¢/kg 346 6 197 2 416 8 298.1 229.1 192.0 137 3 135.7 143.3 Coffee, robusta ¢/kg 324.3 118.2 1736 1823 148.9 91.3 60.7 66.2 86.0 Food Fats and oils Palm oil S/mt 583 7 289 8 545 8 671.1 436.0 310.3 285.7 390.3 460.0 Soybean meal $/mt 262.4 200.2 275 8 170.3 152.2 189.2 181.0 175.2 190.0 Soybeans $/mt 296 2 246.8 295.4 243.3 201.7 211.8 195.8 212.7 240.0 Grains Maize $/mt 1253 109.3 117.1 102.0 90.2 88.5 89.6 99.3 108.0 Rice, Thailand $/mt 410.7 270.9 303 5 304.2 248.4 202 4 172 8 191 9 195 0 Wheat, US. $/mt 172.7 135.5 159.5 126.1 112.0 114 1 126 8 148 1 160.0 Other food Bananas, U.S $/mt 377 3 540.9 517.1 489.5 373.8 424 0 583.3 528 6 529 1 Sugar, world f/kg 63 16 27.67 25.06 19.67 13 81 18.04 19 04 15.18 18.0 Raw materials Cotton f/kg 206.2 181.9 174 8 144.5 117 1 130.2 105.8 101 9 127 9 Rubber, Malaysia f/kg 142.5 86.5 101.8 72.2 62.9 69.1 60 0 77.1 86 0 Sawnwood, Malaysia $/cum 396.0 533.0 664.5 484 2 600 8 594 7 481.4 526.5 570.0 Fernlizers Triple superphosphate $/mt 180.3 131.8 171.9 1731 154.5 137.7 126.9 133.1 1350 Metals and minerals Aluminum $/mt 1,456 1,639 1,599 1,357 1,361 1,549 1,444 1,350 1,400 Copper $/mr 2,182 2,661 2,277 1,654 1,573 1,813 1,578 1,559 1,650 Gold $/toz 607 9 383.5 331.1 294.2 278.8 279 0 271 0 310.0 335.0 Nickel $/mt 6,519 8,864 6,927 4,630 6,011 8,638 5,945 6,772 7,500 Memorandum Deflator index 78.8 100 0 103 5 99.6 99.3 97 2 94 3 93.0 98.2 (MUV 1990 = 100)" Reuters/CRB Commodity 294 2 234 8 242.5 215 2 194 5 218.6 207.3 209.4 - Futures index (1967 = 100) - Not available Nore- bbl = barrel, cum = cubic meter, kg = kilogram, mmbtu = million British thermal units, mt = metric ton, toz = rroy oz See http //www worldbank org/prospects for details of price series and forecasts a MUV is the unit value index in U S. dollar terms of manufactures exported from G-5 countries weighted by exports to developing countries. 189 S TAT IS T ICA L AP PEND I X: K E Y MAC R O VAR IA B LES Table A.11 Commodity price indices, 1980-2003 (real dollar terms, deflated by $ MUV: 1990 = 100) Forecast Weights, 1980 1990 1997 1998 1999 2000 2001 2002 2003 Energy Coal, Australia - 100.0 85 5 74.0 65.7 68 1 86 3 73.4 66 7 Crude oil, average 204.5 100.0 809 573 79.6 1270 112.8 1172 115.7 Natural gas, Europe 169 2 100.0 103 8 95.3 84.1 155.8 168 8 128.6 119 8 Non-energy commodities, 100.0 159.2 100.0 113.6 99.5 88.6 89.4 83.7 89.2 91.6 Agriculture 69.1 175.2 100.0 124.4 108.2 93.5 90.3 84.5 93.0 96.7 Beverages 16.9 230.2 100.0 164.9 141.1 108.5 90.9 76.4 91.0 94.6 Cocoa 3 9 260.8 100 0 123.4 132 9 90.3 73.6 89 4 150.9 160 8 Coffee, arabica 8 0 223 0 100.0 204 1 151 8 117.0 100.2 73 8 74.0 74 0 Coffee, robusta 2 8 348.2 100 0 141.9 154 8 126.9 79 5 54.5 60.2 74.1 Food 29.4 176.7 100.0 112.3 105.3 88.2 87.0 91.2 96.9 100.0 Fats and oils 10.1 188.6 100.0 142.7 133.4 105.8 99.0 94.4 108.8 117.7 Palm oil 2.3 255.6 1000 182.0 2325 151.6 1102 104.5 144.8 161 7 Soybean meal 4.1 166 3 100.0 133 1 85.4 76 6 97.3 95.9 94 1 96.7 Soybeans 2.0 152.3 100 0 115.6 99 0 82.3 88 3 84 1 92.7 99.1 Grains 6.9 170.4 100.0 108.3 101.7 87.0 81.8 82.9 94.7 95.1 Maize 1.7 145.4 100 0 103.5 93 7 83 2 83 4 87 0 97.7 100.6 Rice, Thailand 2 9 192.4 100 0 108 2 112.7 92 4 76.9 67.6 76.2 73 3 Wheat, US 1.9 161 7 100.0 1137 93.4 83.3 866 99.2 1 17.5 1202 Other food 12.4 170.5 100.0 89.7 84.5 74.5 80.0 93.2 88.2 88.1 Bananas, U.S. 23 88.5 1000 923 90.9 696 807 114.3 105.1 996 Sugar, world 7 5 289.6 100 0 87 5 71.4 50 3 67.1 72.9 59 0 66 2 Raw materials 22.8 132.7 100.0 109.9 87.7 89.2 94.0 82.0 89.5 94.1 Cotton 5.9 143 8 100 0 92.8 79.7 64.8 73 7 61 7 60.3 71.6 Rubber, Malaysia 4.8 2090 1000 113.7 83.8 732 823 73.6 95.8 101 3 Sawnwood, Malaysia 29 94.3 100.0 1204 91.2 113.6 114.8 957 1062 108.9 Fertilizers 2.7 163.6 100.0 115.7 122.6 114.9 108.9 104.7 108.1 102.0 Triple superphosphate 09 173.5 1000 126.0 131.8 118.1 1075 102.0 1086 1043 Metals and minerals 28.2 119.5 100.0 87.0 75.8 74.2 85.4 79.6 78.3 77.9 Aluminum 7.9 112.7 100.0 94.2 83 1 83 6 97.2 93.3 88.5 87.0 Copper 9.3 104.0 100.0 82 6 62.4 59 5 70.1 62.9 63.0 63.1 Gold, - 201 1 100 0 83.4 77.0 73 2 74 9 74 9 86 9 89 0 Nickel 2.2 93.3 100 0 75 5 52 4 68.3 100.3 71.1 82 2 86 2 Memorandum Deflator index (MUV 1990 I O0)l 78.8 100.0 103 5 99 6 99 4 97.3 96 0 96.5 99.3 - Not available. a. The World Bank primary commodity price indices are computed from 1988-89 export values in U.S dollars for low- and middle-income economies, rebased to 1990 Energy and gold prices are not included in the index. b MUV is the unit value index in U.S. dollar terms of manufactures exported from the G-5 countries weighted by exports to developing countries Source- World Bank Developmenlt Prospects Group See http.//www.worldbank.org/prospects for details of price series and forecasts. 190 S TAT IS T ICA L AP PEND I X: K E Y MAC R O VAR IA B LES Table A.12 Global nominal GDP growth, 1981-2003 (percent change from a year earlier) Average Estimate Forecast 1981-90 1991-00 1996 1997 1998 1999 2000 2001 2002 2003 World 9.4 5.9 5.9 6.4 4.6 4.1 5.5 3.2 3.1 3.6 High-income countries 8.4 4.6 4.3 5.6 3.6 3.3 4.6 2.2 2.4 3.0 Industrial countries 7.9 4.4 4.1 5.5 3 7 3 3 4 6 2 3 2 4 2 9 European Union (15) 8 6 4 9 3 2 6 7 5.4 3.4 4 9 3.8 3.2 3.2 Japan 6 2 1.5 2 8 2 1 -1.3 -1.3 0.8 -1.2 -1 4 -0.1 United States 7.6 5 4 5 6 6.5 5.6 5.6 5.9 2 6 3 6 4.1 Other high-income countries 25.2 9.2 11.0 8.9 2 0 2 8 6.7 -0.8 1 8 4 2 Asian NIEs 12 2 8.5 9 6 94 2.2 1.7 5.6 -1.8 1 1 3.6 Developing countries 15.2 13.5 14.9 11.4 10.1 8.8 10.6 8.9 7.2 7.6 excluding China 15.1 13 4 14 7 11.4 10.2 8.8 10.6 8 9 7.1 7.6 excluding Central Europe and CIS 15 2 13.5 14.9 11.4 10 1 8 8 10 6 8.9 7.2 7 6 Severely indebted 15.2 14.8 17.1 10 7 10 2 7.5 10.3 9.7 8 0 7.6 Moderately indebted 14.9 14.7 14 7 11 2 9.8 7.6 8.9 8 8 6.7 7.5 Less indebted 15 6 13 0 13 6 12.1 10.0 10.0 11 5 8.5 8.1 7.8 Middle-income countries 16 4 12 8 14.0 11.1 8 1 8 6 10.6 8.1 6.7 7.4 Upper middle-income countries 16.8 11.8 15.4 11 1 6.6 7.5 10.8 6.6 63 7.3 Lower middle-income countries 16 1 13.0 13.4 11.0 8 7 8.6 10.6 8.8 6 7 7.6 Low-income countries 14.3 14.9 16.2 11 9 10 8 9.8 10.5 10 1 8.1 8.0 East Asia and Pacific 13.2 12 0 14 1 11 1 5.2 6 2 11 1 7.3 8.2 8.6 China 15.2 17.0 16 1 9.7 5.2 4 8 9.0 7.3 8 2 - Indonesia 15.7 19 8 17.2 17.9 57.7 13.1 14 5 16 3 13.7 - Europe and Central Asia 4.7 59.6 28.2 21.5 13 8 11.9 13.7 12 2 6.0 9 9 Russian Federation - 277.9 39.3 15.5 10 6 73.9 53.2 23.8 15.3 - Turkey 54 0 78.7 90.3 95.2 81.1 48.2 60.9 45.6 55.9 - Poland 71.8 29.1 25.9 21.8 172 11.1 11.3 64 7.1 - Latin America and the Caribbean 25.0 16.5 14 9 12 4 12.2 5.6 10.6 7 8 5 9 7.2 Brazil 337.4 214.3 205 11.8 50 5.4 12.7 104 10.0 - Mexico 66.7 22 2 37.5 25.7 21.0 19.5 19.4 5 1 4.9 - Argentina 431 4 15.2 5.5 7.6 2.1 -5.2 0.2 -5.5 16.3 - Middle East and North Africa 12.4 12.1 17.2 7.8 7.0 9.4 10 8 8.1 6 5 7.7 Saudi Arabia -2.9 5 2 10.6 3 6 -12.3 11.2 21.3 8.3 5.5 - Iran, Islamic Rep. of 18 6 31.9 31.5 17 3 18.7 26.8 40.1 14 0 10.4 - Egypt, Arab Rep of 19.3 13.4 12.5 12.1 8 1 8.6 12.1 6 8 6.4 - South Asia 14.7 13 2 13.6 12 7 10.8 9 1 9.6 9 9 9.9 10.7 India 14 7 14.3 15 2 11.3 16.3 10.0 11 2 8.0 9.9 - Sub-Saharan Africa 14.1 14.2 16.3 11 5 11.4 9 7 10.6 10.1 8 1 7.8 South Africa 16.5 11.8 12.7 11.0 7 8 8.6 10 6 9.8 10 4 - Nigeria 17 9 32.0 42.8 4.1 -3.8 13 5 30.1 10 1 14.2 - -Not available. a Developing countries aggregated using median growth rates. Industrial aggregates use 1995 US$ GDP weights. World total is GDP weighted average of developing and high income total. 191 S TAT IS T ICA L AP PEND I X. C UR RE N T AC CO UN T Table A.13 Global merchandise export growth, 1981-2003 (merchandise exports [FOB] in dollar terms; average annual growth, percent) Average Exports 2001 Estunare Forecast (billions of dollars) 1981-90 1991-00 1997 1998 1999 2000 2001 2002 2003 World 6,024 6.4 6.8 4.1 -2.5 3.6 12.1 -3.8 4.3 13.7 High-tncome countries 4,541 7.4 6.0 3.2 -1.5 2.7 9.4 -4.7 3.2 14.8 Industrial countries 4,008 7.1 5 7 3.2 -0 4 2 4 7 8 -3 8 3.0 15 S European Union (15) 2,246 7 1 5 0 0 8 2 3 0 1 3.0 0 2 6.2 19 0 Japan 384 8.1 5.0 2.4 -8 6 7.6 13 8 -16.1 1 7 7 1 United States 734 6 2 7 2 114 -1.1 2 3 12.6 -6 5 -3.9 7 3 Other high-income countries 533 10.7 8.8 3.3 -9 8 S 0 21 6 -10 7 4 2 9 0 Asian NIEs 435 13.2 9.2 3.0 -9.2 4 0 19.0 -11 0 4.9 10 6 Developing countries 1,500 2.7 9.6 7.4 -6.1 7.0 23.0 -0.9 6.6 10.8 excluding China 1,234 2.2 8.6 5 3 -7.3 7 2 22.0 -2 4 3 6 8 5 excluding Central Europe and CIS 1,213 3 2 9.7 8 0 -6.4 8 9 22.7 -2.3 6 5 10.4 Severely indebted 215 3.4 6.0 5.9 -9 8 0.3 20 3 -2 0 1.1 10 5 Moderately indebted 481 4.7 9 4 3.7 -7 9 6.9 23.5 -5 6 3.7 9 9 Less indebted 812 1.1 11.1 10.5 -3.7 9 2 24 9 2 2 8.6 11.4 Middle-income countries 1,306 2 5 10.1 8.1 -5.4 7 2 23.5 -0.6 7.1 10.8 Upper middle-income countries 619 1.5 9.9 8.0 -5 0 8 7 23 1 -1.8 3.1 7 3 Lower middle-income countries 688 3.6 10.4 8.1 -5.7 5.9 23 9 0.5 10 7 13.7 Low-income countries 194 3.4 69 3 3 -104 5.8 24 1 -6.4 29 109 East Asia and Pacific 509 8 4 14 1 11.9 -2.4 8.3 22.9 -1.9 13 0 16.7 China 266 11.8 17.1 20.9 0.5 6.1 27.9 6 8 20 4 - Indonesia 56 3.3 9 2 7.5 -8.8 -0.4 27 6 -9 3 0.6 - Europe and Central Asia 322 1 2 9 0 4.2 -4.8 -1.6 24.7 3 8 6.2 11 4 Russian Federation 102 1 0 9.5 -1.7 -15 9 1 0 39 5 -3 8 6.3 - Turkey 34 14 8 9.0 0.1 -4 5 -5.9 6.5 11 9 2.8 - Poland 42 1.9 8.5 11.5 5 6 -7 4 19.4 16 0 4.7 - Latin America and the Caribbean 351 5 4 10.1 11.1 -1.2 5 7 19.6 -3 6 0 8 5.8 Brazil 58 4.5 5.8 11.0 -3.5 -6.1 14.7 5 7 3 3 - Mexico 158 11.2 15.8 15.2 6 2 16.0 22 2 -4.8 1.5 - Argentina 27 4.4 7.9 9.9 0.0 -11.8 13 3 1.0 -5 1 - Middle East and North Africa 161 -2.8 5.3 -1.4 -28 1 29 9 43.0 -4 6 2.9 -0 5 Saudi Arabia 73 -6.9 S 7 0 0 -36.1 30.7 52.9 -5.9 3 2 - Iran, Islamic Rep. of 26 -1.6 3.9 -17.9 -28.6 60 3 34.8 -9 9 3.1 - Egypt, Arab Rep. of 7 4 5 6.1 15.6 -20.3 18.9 34.8 -0S 3.6 - South Asia 65 8.4 8 7 6.3 -2 4 6.9 12 6 3.2 3.4 13 2 India 43 8.4 8 9 5.8 -4.6 10.1 14.5 0.7 3.1 - Sub-Saharan Africa 95 0.7 3.3 0.0 -13.7 7 2 21.1 -3.6 -1 0 9 6 South Africa 31 -0.7 2.7 3 0 -6.1 -2 2 10.5 -3.1 -2.9 - Nigeria 17 -1.4 3.7 -5.6 -41 0 43.5 51.4 -10 8 -0.6 - -Not available. 192 ST AT IS T ICA L AP PEND I X C UR RE N T AC CO UNT Table A.14 Global merchandise import growth, 1981-2003 (merchandise imports, dollar terms, average annual growth, percent) Average Imports 2001 Estimate Forecast (billions of dollars) 1981-90 1991-00 1997 1998 1999 2000 2001 2002 2003 World 6,021 5.9 6.9 3 8 -1.9 4.5 12.8 -3.8 3.2 15 4 High-income countries 4,698 6.6 6.5 3 0 -1.1 6.2 12.3 -5 2 1.9 16.1 Industrial countries 4,185 64 6 1 2.8 04 63 11 3 -45 1 9 16.6 European Union (15) 2,139 5 9 4 8 0 6 3 7 2.3 5 6 -2 1 3 2 19 9 Japan 313 49 5.2 -32 -181 11.4 222 -86 -58 95 United States 1,167 7 6 9 5 95 5 0 12 4 18 8 -6.1 2 0 10 9 Other high-income countries 513 9 0 9 3 4 3 -11 8 4 9 19 9 -10 9 2 4 12 0 Asiani NIEs 415 11 5 9 6 5.3 -13 9 2.6 21.8 -13 0 3 2 13.1 Developing countries 1,341 2.9 8.8 6.9 -4.6 -1.7 16.6 1.6 6.2 13.2 excluding China 1,109 2 6 7 7 7 4 -5 2 -4 1 13 5 0 3 3 0 10 5 excluding C E Europe/CIS 1,077 3 4 9.4 6.6 -4 7 1.1 18 1 -0 6 5.6 13 1 Severely indebted 171 0 1 6 9 7 7 -7 8 -11 9 8 6 -1 6 -9 7 12 5 Moderately indebted 408 4 4 6 6 4 8 -14.4 -5 5 17 6 -1 7 5 7 12 7 Less indebted 772 2 9 111 8 3 4 0 3 8 19 6 4 2 86 13 6 Middle-income countries 1,170 3.0 9.6 7 9 -3.5 -1 3 18 4 1 4 6 4 13 5 Upper middle-income countries 559 0 9 11 6 13 7 1 6 -0 8 15 7 -0 8 -0 6 9.5 Lower middle-income countries 612 4 6 8 1 3 2 -8 1 -1 7 21 3 3 5 12 7 16 7 Low-income countries 171 2 9 5 2 1 8 -10 6 -4.2 12 3 -3 6 4 5 11 1 East Asia and Pacific 424 8 9 11 9 0 0 -17 5 11 2 29 1 11 14 5 20 7 China 232 9 3 17 6 3 7 0 3 15 9 35 2 81 215 - Indonesia 31 6.5 4 6 -2 9 -34.4 -12 2 38 9 -7 1 0 9 - Europe and Central Asia 303 1 6 7 3 8 5 -4.2 -12 2 16 4 2 2 98 12 5 Russian Federation 54 3 8 0 2 5 7 -19 4 -31 9 13 5 19 8 12 3 - Turkey 39 110 8 9 11 3 -5 4 -12 5 35 1 -26 8 17 9 - Poland 49 -4 1 14 7 16 4 117 -0 4 6 8 2 3 5 4 - Latin America and the Caribbean 352 1 3 12 6 18 4 5.9 -3 8 15 1 -2 0 -6 5 5 6 Brazil 56 -1 0 10.4 12 1 -3 4 -14 6 13 3 -0 5 -15 3 - Mexico 168 78 154 22.7 140 133 228 -34 02 - Argentina 19 -8 8 20 4 28.1 3 4 -18 4 -I 0 -19 9 -53 4 - Middle East and North Africa 108 1 2 2 S 0 5 3 5 -2 7 8 1 6 6 6 2 9 7 Saudi Arabia 29 -3 3 2 6 4 0 4 4 -6 6 7 9 33 61 - Iran, Islamic Rep of 19 7 4 -1 9 -5 8 1 2 -6 0 13 2 25 5 7 8 - Egypt, Arab Rep of 14 8 9 4 1 7 5 3 3 3 7 1 4 -9 2 3 9 - South Asia 78 60 71 21 -47 33 87 38 76 96 India 52 7.7 78 44 -20 16 95 35 76 - Sub-Saharan Africa 83 -1 2 3 7 6 6 1 7 -5 1 5.7 -0 2 -5 3 10 1 South Africa 26 -0 9 4 7 4 6 -5 7 -9 8 11 3 -6 0 -1.0 - Nigeria 9 -76 59 476 -31 -68 1 6 57 24 - -Not available 193 S TAT IS T ICA L AP PEND I X: C UR RE N T AC CO UN T Table A.15 Global merchandise trade balances, 1995-2003 (billions of dollars) Percent of GDP Estimate Forecast 2001 1995 1996 1997 1998 1999 2000 2001 2002 2003 World 0.0 116.2 103.9 122.9 84.8 41.2 5.0 3.4 70.0 -23.2 High-income countries -0.6 117.3 91.1 104.4 86.1 -57.8 -191.4 -157.0 -104.7 -182.7 Industrial countries -0.7 125.4 88.0 106.0 76.9 -68.0 -212.2 -176.4 -134.2 -199.2 European Union (15) 1.4 143.3 170.9 175.6 152.3 107.1 57.1 107.2 179.5 194.1 Japan 1.7 133.6 82.8 102.4 122.9 122.7 116.1 71.7 96.5 96.0 United States -4.3 -173.8 -189.9 -196.5 -248.8 -348.5 -457.9 -432.5 -483.6 -561.3 Other high-income countries 2.6 -8.0 3.1 -1.6 9.2 10.2 20.8 19.4 29.5 16.4 Asian NIEs 3.7 -7.1 0.5 -9.0 12.7 18.7 11.3 19.4 27.4 19.4 Developing countries 2.7 -1.2 12.8 18.5 -1.3 99.0 194.0 159.3 174.7 159.5 excluding China 2.6 -19.2 -6.7 -27.7 -47.9 63.1 159.5 125.3 136.4 125.2 excluding Central Europe and CIS 2.7 -2.1 26.6 40.5 21.8 94.6 158.4 135.9 154.9 140.9 Severely indebted 3.7 -0.4 8.2 5.3 0.9 23.0 46.4 44.7 63.7 67.1 Moderately indebted 5.6 -20.5 -11.8 -16.9 12.8 60.1 94.9 73.2 68.0 63.0 Less indebted 1.2 19.7 16.5 30.1 -14.9 15.9 52.8 39.4 43.1 29.3 Middle-income countries 2.8 12.0 23.9 27.1 6.0 90.2 160.7 136.6 154.1 137.0 Upper middle-income countries 2.6 28.2 34.5 13.2 -19.7 25.2 67.0 60.0 82.5 76.5 Lower middle-income countries 2.9 -16.2 -10.6 13.9 25.7 65.1 92.9 75.7 71.6 60.5 Low-income countries 2.2 -13.1 -11.0 -8.6 -7.3 8.8 29.6 22.7 20.6 22.5 East Asia and Pacific 5.4 0.9 3.5 46.0 98.2 97.6 99.7 84.9 89.3 84.6 China 2.9 18.1 19.5 46.2 46.6 36.0 34.5 34.0 38.4 - Indonesia 17.5 4.8 6.9 11.9 21.5 24.7 28.8 25.4 25.4 - Europe and Central Asia 1.9 -12.3 -24.4 -37.4 -37.4 -6.1 13.7 18.8 9.3 6.8 Russian Federation 15.4 20.3 22.5 17.0 16.9 36.1 60.7 47.8 47.6 - Turkey -3.1 -13.2 -10.6 -15.4 -14.3 -10.5 -22.4 -4.5 -10.5 - Poland -4.4 -1.6 -7.3 -9.8 -12.8 -15.1 -12.3 -7.7 -8.3 - Latin America and the Caribbean -0.1 2.3 3.7 -14.6 -36.3 -7.7 4.8 -1.0 24 6 26.6 Brazil 0.5 -3.5 -5.6 -6.8 -6.6 -1.3 -0.8 2.7 13.1 - Mexico -1.6 7.1 6.4 0.6 -8.0 -5.7 -8.0 -10.0 -8.0 - Argentina 2.8 2.4 1.8 -2.1 -3.1 -0.8 2.6 7.6 16.4 - Middle East and North Africa 9.5 19.4 35.8 33.5 -5.3 24.6 67.8 53.3 51.4 39.4 Saudi Arabia 23.6 24.4 35.4 34.4 11.3 25.0 49.8 44.4 45.0 - Iran, Islamic Rep. of 5.7 5.6 7.4 4.3 -1.2 7.6 13.1 6.5 5.8 - Egypt, Arab Rep. of -7.0 -7.6 -8.4 -8.6 -10.2 -9.9 -8.3 -6.9 -7.2 - South Asia -2.0 -13.9 -17.9 -16.1 -14.0 -12.6 -11.5 -12.4 -16.0 - 15.2 India -1.7 -6.7 -10.1 -10.0 -10.8 -8.0 -6.9 -8.4 -10.9 - Sub-Saharan Africa 4.2 2.3 12.1 7.1 -6.4 3.3 16.1 12.7 16.1 17.3 South Africa 4.7 2.7 2.7 2.3 2.1 4.1 4.3 5.0 4.3 - Nigeria 19.8 3.5 9.7 5.7 -0.2 4.3 10.8 8.2 7.9 - - Not available. 194 S TAT IS T ICA L AP PEND I X. C UR RE N T AC CO UN T Table A.16 Global merchandise trade prices and volumes, 1981-2003 (average annual percent change, prices are in dollar terms unless tzndicated otbertvise) Average change Estimatc Forecast 1981-90 1991-00 1996 1997 1998 1999 2000 2001 2002 2003 Trade prices Manufactured goods prices 2 4 -0.3 -4.9 -7.0 -3.8 -0.3 -2 1 -2.9 -1.4 5.6 (SDR terms) 2 0 0.0 -0 6 -1.9 -2.4 --1.1 1 6 0.3 -31 -0.4 Developing countries' export prices 3.2 1 2 6 3 -0 6 -7.3 2.6 70 -2.8 -2.2 0.8 Oil price -4.7 2.1 18.9 -6.1 -31 8 38 3 56.2 -13.7 2.4 -3.7 Non-oil commodity prices -2.2 -1.4 -5.8 2.2 -15.7 -11.2 -1 3 -9.1 5 1 8 2 Terms of trade World 1.5 0.1 0.7 -0.7 0 2 0 6 -1 2 -0 2 0 2 -1.2 High income 1.8 -0.1 0.0 -1.1 1.2 -0 3 -31 0 2 1 0 -1 I Developing countries 0 9 0 3 3.4 0.6 -3.5 2.9 5 4 -1 5 -2 7 -0.8 Severely indebted 7.6 1 0 6.2 1.7 -5.0 3 9 5.9 -1.2 -2.8 -4 5 Moderately indebted -0.3 1 6 5 2 0.6 -4.3 1.6 6.9 -4.2 -5.5 1.7 Less indebted -2.4 -0 9 1 2 0 4 -2.3 3 4 4 3 0.2 -1.1 -1 3 Middle-income countries 1.2 0.6 3.5 0.7 -3 2 2 6 5 7 -1.8 -2 6 -0.9 Upper middle-income countries -1.7 0.6 3.5 0.8 -4.5 4.0 6.9 -1.8 -0 3 -2 6 Lower middle-income countries 3.7 0.7 3 5 0.6 -2.1 1.4 4 7 -1.7 -4.4 0 6 Low-income countries -1.4 -1.4 2.9 0 0 -4 9 4.2 3 1 0 5 -3.6 -0 7 East Asia and Pacific -2.4 -1.0 2.7 0 4 -0.9 1 4 0 9 -1.0 -1.4 -1.4 Europe and Central Asia 0.5 1.6 3.3 1.1 -2.5 -1.2 3.2 0 9 -95 55 Latin America and the Caribbean 8 5 1 6 2.6 3.1 -1.1 1.6 3 9 -1 7 0 2 -1 9 Middle East and North Africa -6 2 0 9 12.6 -3 6 -21 8 26 5 39.8 -7 5 0 1 -9 0 South Asia -1 0 -1.6 -3 5 2 6 7 9 -3 6 -7 1 3 4 -0.3 1.7 Sub-Saharan Africa -0.6 -0.6 1.8 -1.4 -8.4 5.3 9.3 -2.6 -0.2 -2 3 Global merchandise export volumes World 2.9 6.9 5.3 10.0 3.8 4.8 13.0 -0.7 3.4 6.0 High income 3 8 6.7 5.3 10 5 4 4 4 9 12 8 -1.6 2.0 5 0 Developing countries -0.5 8.3 5.2 8.0 1.3 4.4 15.3 1.9 9.0 9.9 Severely indebted -6.5 4.4 1.7 6.9 -0.8 -2.1 10.3 5.1 3.5 10.2 Moderately indebted 2.5 7 0 1.7 4 3 -0 I 5 5 15.2 -3.0 7 0 8.2 Less indebted 14 10.8 9.2 110 2.9 5.8 177 33 11.7 108 Middle-income countries -0.9 8.5 5.3 8 2 1 5 4.9 15.7 2.1 9 9 10.1 Upper middle-income countries 1.3 8 3 5.5 8 2 2.9 5.1 13 9 -0 8 4.2 8 7 Lower middle-income countries -2.6 8.6 5.0 8.3 02 4.7 174 4.7 14.7 11 2 Low-income countries 1.9 7.5 4.9 6 8 0 4 2.0 15.4 -1.4 3 3 8 5 East Asia and Pacific 7.8 13 7 5 5 13.2 2.5 7.6 21.3 2 2 16 3 13.9 Europe and Central Asia -0.8 6 9 4.7 4.9 2.1 0.8 19 0 -0.2 8.4 6 9 Latin America and the Caribbean -5.1 7 5 5.8 8.5 3 6 3.9 12.7 -0.3 3 6 8.5 Middle East and North Africa 0.9 3.5 2.3 3.2 -5 8 4.0 2.9 6.0 1 4 4.6 South Asia 6.2 9.0 5.8 5 2 -1 9 6.8 13.0 1 1 3 5 9.3 Sub-Saharan Africa -1.5 3.0 7.4 2.4 -2.3 1.8 9.5 2 1 1.9 7 1 195 S TAT IS T ICA L AP PEND IX - C UR RE N T AC CO UN T Table A.17 Global current account balances, 1998-2003 (billions of dollars) Percent of GDP (2001) Mercbandise Services Income Transfers, Estimate Forecast balance balance balance nct 1998 1999 2000 2001 2002 2003 World -0.4 0.1 -0.3 -0.1 -36.2 -93.7 -156.2 -139.7 -133.0 -228.6 High-income countries -0.7 0.2 0.1 -0.5 70.2 -84.6 -217.4 -170.1 -181.3 -254.8 Industrial countries -0 8 0.2 0.1 -0 5 42 6 -114 8 -265 1 -218 1 -240 9 -304 9 European Union (15) 1 0 0.1 -0 6 -0 8 89 0 25 4 -43 1 17 5 79 8 69 0 Japan 17 -1.0 1.6 -02 1196 1149 1190 888 1157 1140 United States -4 2 0.6 0 1 -0 5 -203 8 -292 9 -410 3 -393 4 -498 1 -549 3 Other high-income countries 2 1 5 0 1 3 0.0 27.6 30 3 47 7 48 0 59 6 50 1 Asian NlEs 1 8 9.2 2 1 -1 2 27.0 36 4 33 7 45 0 572 53 6 Developing countries 1.2 -0.6 -2.1 1.6 -113.6 -10.8 61.9 27.6 48.3 26.2 excludinig China 0.7 -0 6 -2 3 1 8 -145.1 -31 9 41 4 10 2 30 0 6 0 excluding C E Europe/CIS I 0 -0 7 -2 3 1.7 -85 ( -9 3 33 8 12 7 38 7 17 8 Severely indebted 0 9 -1 9 -3 8 15 -66 7 -40 1 -21 5 -21 7 -0 1 0 8 Moderately indebted 6 0 -0 S -2 3 1 0 -4 1 42 3 72 9 48 4 47 5 414 Less indebted -0 7 -0 2 -1 5 19 -42 8 -13 0 10 5 0 9 0 9 -16 0 Middle-income countries 1 7 -0 4 -2 2 1 2 -85 0 -0 6 56 3 28 2 55 4 35 3 Upper middle-income couiitries 0 3 -0 6 -2 8 0 7 -103 5 -59.9 -30 2 -34 9 -0 3 -14 6 Lower middle-inconme countries 2 9 -0 3 -1 8 1 5 18 5 59 2 86 6 63 1 55 7 49 9 Low-income countries -2 0 -1 6 -1 6 4 3 -28 6 -10 1 5 6 -0 6 -7 1 -9 0 East Asia and Pacific 4 5 -0 9 -1 7 0 5 58.8 60 4 55 7 42 6 42.8 41 0 China 30 -OS -1 7 07 31 5 211 205 174 183 - Indonesia - - - - 4.1 5 8 8.0 6 9 4 0 - Europe and Central Asia 1 7 10 -1 8 1 3 -26 6 -2 9 18 3 18 3 8 9 6 7 Russian Federation 15 4 -2 7 -1 3 -0 2 0 7 24 7 47 3 34 6 31 2 - Turkey -3 1 6 2 -3 4 2.6 2 0 -1 4 -9 8 3 4 -0 7 - Poland -4 4 0 5 -0 8 1 7 -6 9 -12 5 -10 0 -5 4 -6 4 - Latin America and the Caribbean -0 1 -1 0 -2 9 1 3 -89 5 -55 7 -47 2 -54 1 -16 3 -19 5 Brazil 0 5 -1 5 -3 9 0 3 -33 8 -25 4 -24 6 -23 2 -7 8 - Mexico -1 6 -0 7 -2 0 1 5 -16 1 -14 0 -17 8 -17 7 -155 - Argentina 2 8 -1 5 -3 0 ()I -14.5 -11 9 -8 9 -4 6 8 6 - Middle East and North Africa -1 3 1 5 -2 0 5 2 -27 8 4 2 40.8 28 9 24 7 9 5 Saudi Arabia - - - - -13 1 0 4 14 3 14 5 13 2 - [ran, Islamic Rep of - - - - -2 1 6 6 12 6 55 4 8 - Egypt, Arab Rep of -7 0 2 0 0 6 4 0 -2 6 -1 6 -1 0 -0 4 -0 4 - South Asia -2 2 -0 9 -0 9 4 2 -9 6 -5 S -6 1 -2 9 -7 6 -6 1 India - 19 -0 7 -0.5 3 3 -6 9 -3 2 -4 2 1 1 3 3 - Sub-Saharan Africa 0 9 -3 2 -4 0 1 7 -19.0 -11 3 0 4 -5 1 -4 3 -5 4 South Africa 4 4 -0 5 -3 4 -0 7 -2 2 -0 6 -0 6 -0 2 -0 7 - Nigeria - - - - -4 2 0 5 7 0 4 9 2 6 - -Not available 196 STAT IS T ICA L AP PEND I X C UR RE N T AC CO UN T Table A.18 Global current account balances, 1981-2003 (percent of GDP) Average Estimate Forecast 1981-90 1991-00 1996 1997 1998 1999 2000 2001 2002 2003 World -(.5 -0.2 -0.1 0 1 -0.1 -0.3 -0.5 0.5 -0 4 -0.7 High-income countries -0.2 0.1 0 2 0.5 0.3 -0.3 -0.9 -0.7 -0.7 -0.9 Induistrial countries -0 4 -0 1 0 1 0 4 0 2 -0 5 -I I -0 9 -I 0 -I I European Union (15) 01 0 2 1 0 1 5 1 0 0 3 -0 5 0 2 0 9 0 7 Japan 23 24 1 4 22 30 2.6 25 2 1 29 28 United States -19 -1 8 -1 5 -1 5 -2.3 -3 2 -4 2 -3 9 -4 8 -5 1 Other high-income couritries 10 5 4 0 3 7 4 0 3 8 41 5 9 6 3 7 8 6 2 AsianNIEs 69 52 40 35 53 68 59 85 108 97 Developing countries -1 6 -1.6 -1 6 -1.5 -2 0 -0.2 1.0 0 5 0.8 0.4 excluding China -1 8 -2 3 -2 0 -2 5 -3 1 -0 7 09 02 06 0 1 excluding Central Europe and CIS -1 7 -1 6 - 1 7 -1 3 -1 7 -0 2 0 7 0 2 0 8 0 3 Severely indebted -2 2 -2S -2 9 -3 7 -4 5 -3 2 - 1 6 -1 8 0 0 0 1 Moderately indebted -2 0 -1 5 -1 7 -21 -0 3 3 4 5 4 3.6 3 5 2 8 Less indebted - I1 -1 2 -0 8 0 0 -1 5 -0 4 0 3 0 0 0 0 -0 4 Middle-income countries -1 3 -1 6 -1 3 -1 3 -1 8 0 0 1 2 0 6 1 1 0 7 Upper middle-income counitries -1 5 -2 9 -2 2 -3 3 -4 5 -2 8 -1 3 -1 5 0 0 -0 7 Lower middle-income countries -12 -0 2 -0 6 0 5 0 8 2 5 3 4 2 4 2 0 1 7 Low-income countries -2 7 -2 0 -2 8 -2 6 -3 1 -1 0 0 6 -0 1 -0 6 -0 7 East Asia and Pacific -14 0 5 -1 8 1 1 4 4 4 2 3 6 2 6 2 5 2 2 China 02 1 6 09 4 1 33 21 1 9 1 5 1 5 1 5 Indonesia -31 -04 -34 -23 43 41 52 47 22 10 Europe and Central Asia -0 5 -2 5 -1 3 -2.5 -2 7 -0 3 2 0 1 9 0 8 0 6 Russian Federation - - 2 8 0 5 0 2 12 8 18 2 11 2 9 5 8 6 Turkey -1 3 -1 1 -13 -1 4 1 0 -07 -49 23 -04 -09 Poland -1 4 -3 7 -2 3 -4 0 -4 4 -8 1 -6 3 -3 1 -3 4 -3 6 Latin America and the Caribbean -1 5 -2 8 -2 2 -3 3 -4 5 -3 2 -2 4 -2 9 -1 0 -1 2 Brazil -1 1 -21 -3.0 -3 8 -4 3 -4 8 -41 -4 6 -1 7 -0.9 Mexico -0 8 -3 7 -0.8 -1 9 -3 8 -2 9 -3 1 -2 9 -2 5 -3 9 Argentina -2 2 -3 1 -2 5 -4 2 -4 9 -4 2 -3 1 -1 7 8 5 9 0 Middle East and North Africa -1 7 -2 0 0 6 0 5 -5 8 0 8 7 4 5 0 4 5 17 SaudiArabia -73 -66 05 02 -102 03 8.3 77 66 24 Iran, Islamic Rep of -0 4 1 9 5 0 2 2 -21 6 6 12 5 4 7 5 3 2 0 Egypt, Arab Rep of -3 4 1 5 -0 3 -0.9 -3 1 -18 -1 0 -0 4 -0 4 -0 4 South Asia -2 0 -1 5 -2 5 - I 1 -1.8 -1 0 -1 0 -0 5 -1 1 -0 8 India -1.7 -1 2 - 16 -0 7 -1 7 -0 7 -0 9 -0 7 -1 2 -0 9 Sub-Saharan Africa -2 7 -2 0 -0 5 -2.9 -5 9 -3 6 01 -1 7 -14 -1 5 South Africa 0 4 -0 2 -1 3 -1 5 -1 6 -0 5 -0 4 -0 1 -0 6 -0 3 Nigeria -0 7 0.4 9 9 1 5 -13 2 1 5 16 9 119 5 8 2 0 197 S TAT IS T ICA L AP PEND I X: C UR RE N T AC CO UN T Table A.19 Workers' remittances received by developing countries, 1995-2002 (billions of dollars) 1995 1996 1997 1998 1999 2000 2001 2002e All developmg counmes 48.1 52.6 62.7 59.5 64.6 64.5 72.3 80.0 East Asia and Pacific 8 3 9 5 14 2 8.3 10.6 10 3 10 4 110 China 04 1 7 46 03 05 08 12 - Indonesia 0 7 0 8 0.7 1 0 1 1 12 10 - Malaysia 0.1 0.2 0 2 0 2 0 3 0 3 0 3 - Philippines 5 4 4.9 68 5 1 6 9 6 2 6 4 - Thailand 17 1 8 17 14 15 1 7 1 3 - Europe and Central Asia 5.5 6 2 7.1 9 2 8 1 8 7 8 9 10.0 Albania 0.4 0 6 0 3 0 5 04 0.6 0.7 - Croatia 05 07 06 06 05 06 07 - Poland 0.7 0 8 0 8 1 1 0 8 0 8 1 1 - Russian Federation 0 2 01 0 2 0 3 0 4 0 5 0 6 - Turkey 3.3 3 5 4 2 5 4 4.5 4 6 2 8 - Latin America and the Caribbean 12.8 12.8 13.6 14 8 16 9 19 2 22 6 25.0 Brazil 3.0 21 1 6 1.2 15 1.4 15 - Colombia 0.7 0 6 0 7 0 5 13 1 6 1 8 - Dominican Republic 0.8 1 0 1 1 14 16 1 8 2 0 - El Salvador 1 1 1 1 12 13 14 1 8 19 - Mexico 44 50 55 65 6.6 76 99 - Middle East and North Africa 8 6 9 1 9 4 10 3 10.5 10 9 13 1 14.0 Egypt, Arab Rep of 3.2 31 3 7 3 4 3.2 2 9 2.9 - Jordan 12 15 1 7 1 S 1.7 1.8 2.0 - Lebanon - - - 12 14 16 2.3 - Morocco 2 0 2 2 1 9 2.0 1 9 2.2 3 3 - South Asia 10 0 12 3 14 6 13.3 1S 1 13 5 14 9 16 0 Bangladesh 12 13 1.5 16 18 2 0 2.1 - India 62 88 10.3 9.5 11.1 92 100 - Pakistan 1 7 1 3 1 7 1.2 10 1 1 15 - SriLanka 0.8 0 8 0 9 1 0 1.1 1.2 1 1 - Sub-Saharan Africa 2 7 2 7 3 8 3 6 3.5 2.0 2 4 4.0 Lesotho 0.4 0 4 0 4 0 3 0.3 0 3 0.2 - Nigeria 0 8 0 9 19 16 13 - - - Senegal 0 1 0 2 0 2 0 1 0.2 0 2 0.2 - Sudan 03 02 04 07 07 0.6 0.7 - - Not available Note e = estimate 198 S TAT IS T ICA L AP PEND I X: C UR RE N T AC CO UNT Table A.20 Net official development assistance from DAC countries to developing countries and multilateral organizations, by donor, 1995-2001 (billions of dollars) 1995 1996 1997 1998 1999 2000 2001 Total ODA 58.9 55.6 48.5 52.1 56.4 53.7 52.3 Australia 1 2 1 1 1 1 1.0 10 1.0 0.9 Austria 0 8 0 6 0 5 0.5 0 5 0 4 0.5 Belgium 1.0 0 9 0 8 0.9 0.8 0 8 0 9 Canada 21 1 8 2 0 17 1 7 17 1.5 Denmark 16 1 8 1 6 1.7 1 7 1 7 1 6 Finland 0.4 04 04 04 04 04 0.4 France 8 4 7 5 6 3 5.7 5.6 4.1 4 2 Germany 7 5 7 6 5 9 5 6 5 5 5.0 5 0 Greece - 0 2 0 2 0 2 0.2 0.2 0.2 Ireland 0 2 0 2 0 2 0 2 0 2 0.2 0.3 Italy 1 6 2 4 1 3 2 3 1.8 14 1.6 Japan 145 94 94 106 153 135 9.8 Luxembourg 0 1 0.1 0.1 0.1 0 1 0.1 0 1 Netherlands 3.2 3 2 2 9 3 0 3.1 3 1 3.2 New Zealand 0.1 0 1 0 2 0 1 0 1 0 1 0 1 Norway 1.2 1.3 1.3 1.3 1.4 1 3 1 3 Portugal 0 3 0 2 0 3 0 3 0.3 0.3 0 3 Spain 1.3 13 12 14 14 12 17 Sweden 1.7 2 0 1 7 16 16 1 8 17 Switzerland 1 1 10 0 9 0 9 10 0 9 0.9 United Kingdom 3.2 3 2 3 4 3 9 3 4 4 5 4.6 United States 7 4 9 4 6 9 8 8 91 10 0 114 - Not available 199 STAT IS T ICA L A PPEND I X CU RRENT ACCO U N T Table A.21 Net official development assistance to developing countries, by recipient, 1995-2001 (billions of dollars) 1995 1996 1997 1998 1999 2000 2001 All developing countries' 61.0 51.9 46.6 50.3 52.4 50.5 52.0 Unspecified 85 65 76 79 79 90 85 East Asia and Pacific 9 5 7.6 66 80 9 4 80 68 China 35 26 21 24 24 1.7 15 Indonesia 14 1 1 0.8 13 2 2 1 7 15 Philippines 09 09 0.7 0.6 0 7 0 6 0 6 Vietnam 0 8 0.9 1.0 1.2 14 1 7 14 Europe and Central Asia 9 5 6.9 5 6 7.0 9 6 9.6 9 1 Bosnia and Herzegovina 0 9 0 8 0.9 09 10 07 0 6 Poland 3.8 12 09 09 1.2 14 10 Russian Federation 1 6 1 3 0 8 1.1 1 9 1 6 1.1 Yugoslavia, Fed Rep of 0 1 0 1 0 1 0.1 0.7 11 13 Latin America and the Caribbean 5 7 5 5 4.5 4 5 4 7 3 8 5 2 Bolivia 0 7 0.8 0 7 0.6 0 6 0 5 0 7 Honduras 0 4 04 03 0 3 0 8 0.4 07 Nicaragua 0 7 0 9 0 4 0 6 0 7 0.6 0 9 Middle East and North Africa 4 9 5.3 4 8 4.7 4 3 3.7 3 9 Egypt, Arab Rep of 20 22 20 2 0 16 13 13 Jordan 05 05 05 04 04 0.6 04 Morocco 0.5 0.7 O.S 05 0 7 0 4 0 5 SouthAsia 52 52 4.3 49 43 42 59 Bangladesh 1.3 12 10 12 1.2 12 1 0 India 17 19 1.6 16 15 15 17 Pakistan 0 8 09 0 6 11 0.7 0 7 19 Sub-Saharan Africa 17 8 15 0 13.3 13 3 12.2 12 2 12 7 C6te d'lvoire 1.2 10 0.4 1 0 0 4 0 4 0 2 Ethiopia 09 0.8 0.6 0.7 0.6 0 7 11 Mozambique 11 0.9 09 1.0 0.8 09 09 Tanzania 0 9 0 9 0.9 1.0 10 10 12 Zambia 2.0 0.6 06 03 06 0.8 04 Note Total net ODA flows from DAC countries, multilateral organizations, and non-DAC countries. a This total does not include regionally unallocated and unspecified amounts due to the different country grouping used by the OECD 200 STAT IS T ICA L APP END I X CAP I TA L AC CO UN T Table A.22 External financing: all developing countries, 1997-2003 (billionis of dollars) 1997 1998 1999 2000 2001 2002e 2003f Current account balance -91 4 -113 6 -10 7 619 27 6 48 3 26 2 as a percentage of GDP -1 5 -2 0 -0 2 10 0 5 0 8 0 4 Financed by. Netequityflows 1960 1819 1943 1867 1776 1523 1580 Net FDI Inflows 169 3 174 5 179 3 160 6 1717 143 0 145 0 Net portfolio equity inflows 26 7 7 4 15 0 26 0 6 0 9 3 13 0 Net debt flows 102 1 57 4 13 9 -1 0 3 2 7 2 5 0 Official creditors 13 0 34 1 13 5 -6 2 28 0 16 2 0 0 World Bank 9 2 8 7 8 8 7.8 7 5 1 5 - IMF 34 141 -22 -106 195 145 - Others 0 5 112 6 9 -3.4 1 0 0 2 - Private creditors 89 1 23 3 0 5 5 1 -24 8 -9 0 5 0 Net medium- and long-term 84 0 87 4 21 9 14.5 -8 6 -2 9 - debt flows Bonds 38.4 39 7 29 6 17.4 10 1 18 6 - Banks 43 1 514 -5 9 2 6 -11 8 -16 0 - Others 2 5 -3 6 -1.8 -5 5 -7 0 -5 5 - Net short-term debt flows 5 0 -64 2 -21 4 -9 4 -16 2 -6 1 - Balancing itema -153 8 -109 0 -160 1 -192 5 -128 2 -97 8 -81 2 Change in reserves i-= increase) -52 9 -16 6 -37 3 -55 1 -80 3 -110 0 -108 0 Memo items Bilateral aid grants 26 7 28 2 29 4 29 6 29 5 32 9 32 0 (ex technical cooperation granits) Net private flows (debt + equity) 285 1 205 2 194 7 191.8 152 8 143 3 163 0 Net official flows (aid + debt) 39 7 62 3 42 9 23 4 57 5 49 0 32 0 Workers' remittances 62 7 59 5 64 6 64 5 72 3 80 0 - - Not available Note e = estimate, f = foreLast a Combination of errors and omissions and net acquisition of foreign assets (including FDI) by developing cosintries 201 S TAT IS T ICA L AP PEND I X. CAP I TA L AC CO UN T Table A.23 External financing: East Asia and Pacific, 1997-2003 (billons of dollars) 1997 1998 1999 2000 2001 2002e 2003f Current account balance 16 1 58 8 60.4 55 7 42 6 42 8 41.0 as a percentage of GDP 1.1 4 4 4 2 3.6 2.6 2.5 2.2 Financed by: Net equity flows 62 2 54.8 53 5 63 3 518 62 4 68 0 Net FDI inflows 62 2 57.6 48 9 44 0 48 9 57 0 61.0 Net portfolio equity inflows 0 0 -2 8 4.6 19 3 2.9 5 4 7 0 Net debt flows 44 5 -32.5 -11 6 -18.0 -12 0 -8 3 -13.0 Official creditors 17 3 14.7 12.5 7 0 3 5 -2 3 -8 0 World Bank 2 0 2 8 2 4 1 8 0.9 -1 9 - IMF 5.9 7 0 1.9 1 2 -2 5 -28 - Others 9 3 4 8 8.2 3.9 5 1 2.4 - Private creditors 27 2 -47.2 -24.1 -25 0 -15 5 -6 0 -5 0 Net medium- and long-term 22 8 -3 3 -10.7 -14.8 -15.0 -6 6 - debt flows Bonds 13 3 0.7 0.9 -1.6 -0 4 6.5 - Banks 3 9 -4 9 -11 S -11 8 -12 9 -12 0 - Others 5 6 09 -0.2 -1.3 -1 8 -1.1 - Net short-term debt flows 4 4 -43 9 -13 4 -10 2 -0 4 0 6 - Balancing item' -110 1 -60 4 -73 0 -90 9 -34 8 -40.0 -41.0 Change in reserves (- = increase) -12 8 -20 7 -29 3 -10.1 -47.7 -57.0 -55.0 Memo items Bilateral aid grants 2.4 2 5 2 7 2.6 2.2 2 1 2 0 (ex. technical cooperation grants) Net private flows (debt + equity) 89 5 7 6 29 4 38.3 36.4 56.4 63 0 Net official flows (aid + debt) 19 7 17 2 15 3 9 5 5 7 -0 2 -6 0 Workers' remittances 14.2 8 3 10.6 10 3 10.4 11 0 - - Not available Note e = estimate; f = forecast a Combination of errors and omissions and net acquisition of foreign assets (including FDI) by developing countries 202 S TAT IS T ICA L AP PEND I X CAP IT AL AC CO UNT Table A.24 External financing: Europe and Central Asia, 1997-2003 (billions of dollars) 1997 1998 1999 2000 2001 2002e 2003f CuLrrent account balance -27 8 -26 6 -2 9 18 3 18 3 8 9 6 7 as a percentage of GDP -2 5 -2 7 -0 3 2 0 1 9 0 8 0 6 Financed by: Net equity flows 25 9 29 9 30 2 30 4 30 4 30 4 32 0 Net FDI inflows 218 26 0 28 3 29 2 30 1 29 0 30 0 Net portfolio equity inflows 4 0 4 0 2 0 1 2 0.3 1 4 2 0 Netdebtflows 326 404 158 220 33 112 170 Official creditors 6 7 7 4 -0 8 -01 2 8 3 9 2.0 World Bank 3 9 1 6 1 9 2 1 2 1 0 9 - IMF 2 4 5 3 -3 1 -0 7 6 1 48 - Others 0 3 0 5 0.4 -1 5 -5 4 - 1 8 - Private creditors 25 9 33.1 16 6 22 2 0 5 7 2 15 0 Net mediuim- anid long-term 17 4 28 7 17 6 12 7 5 8 10 8 - debt flows Bonds 92 160 82 6 1 07 5 1 - Banks 8 1 13 8 10 3 8 4 7 2 7 1 - Others 0 1 -1 1 -1 0 -1 7 -2 1 -1 3 - Net short-termn debt flows 8 5 4 4 -1 0 9 5 -5 3 -3 6 - Balancing item' -23 5 -38 8 -36.7 -51 6 -41 6 -16 5 -30 7 Change ini reserves (- = increase) -7 3 -4 9 -6 5 -19 1 - 10 3 -34 0 -25 0 Memo items Bilateral aid grants 5 4 58 8 0 8 3 7 4 9 6 10 0 (ex technical cooperation granits) Net private flows (debt + equity) 51 8 63 0 46.8 52 6 30 9 37.6 47 0 Net official flows (aid + debt) 12 1 132 7.2 8 2 102 13 5 120 Workers' remittances 7 1 9 2 8 1 8 7 8 9 100 - - Not available Note e = estimate, f = forecast a Combination of errors and omissions and net acquisition of foreign assets (includinig FDI) by developing countries 203 ST AT IS T ICA L AP PEND I X CAP I TA L AC CO UN T Table A.25 External financing: Latin America and the Caribbean, 1997-2003 (billions of dollars) 1997 1998 1999 2000 2001 2002e 2003f Current account balance -66 3 -89 5 -55 7 -47 2 -54 1 -16 3 -19 5 as a percentage of GDP -3 3 -4 5 -3.2 -2 4 -2 9 -1 0 -1 2 Financed by: Net equity flows 79 4 713 84 2 75 4 716 43 0 40 0 Net FDI inflows 66 1 73 4 87 8 75.8 69.3 42 0 38 0 Net portfolio equity inflows 13 3 -2 1 -3 6 -0 4 2.3 1 0 2 0 Netdebt flows 24 3 379 12 3 -1 I 114 3 5 00 Official creditors -8 6 10 9 1 6 -11 1 20 2 12 6 6 0 WorldBank 08 24 21 20 13 -03 - IMF -3 9 2 5 -0.9 -10 7 15 6 123 - Others -5 4 6 0 0.4 -2 4 3.3 0 7 - Private creditors 329 270 107 10.0 -8 7 -9 1 -60 Net medium- and long-term 41 6 54 4 18 6 12 6 0 5 -5 6 - debt flows Bonds 11.0 17 3 19 1 5 3 3 5 4.5 - Banks 314 39 3 -1 4 8 3 -1 4 -8.3 - Others -0 9 -2 3 1 0 -0 9 -1 6 -1 8 - Net short-term debt flows -8 6 -27 4 -7 9 -2 6 -9 2 -3 5 - Balancing item, -23 8 -28 8 -48.2 -24 2 -25 9 -34 3 -10 5 Change in reserves (- = increase) -13 5 9 2 7.5 -2 9 -2 9 4 0 -10 0 Memo items Bilateral aid grants 2 8 3 3 3.0 2.5 3 2 3 2 3.0 (ex. technical cooperation grants) Net private flows (debt + equity) 112 3 98 3 94 9 85 4 62 8 33 9 34 0 Net official flows (aid + debt) -58 142 45 -86 23 4 15 8 90 Workers' remittances 13 6 14 8 16 9 19.2 22 6 25 0 - - Not available Note e = estimate, f = forecast a Combination of errors and omissions aisd net acquisition of foreign assets (including FDI) by developing countries 204 S TAT IS T ICA L AP PEND I X C A P I TA L A C C O U NT Table A.26 External financing: Middle East and North Africa, 1997-2003 (billions of dollars) 1997 1998 1999 2000 2001 2002e 2003f Current account balance 2 3 -27 8 4 2 40 8 28 9 24 7 9 5 asapercentageofGDP 05 -58 08 74 50 45 17 Financed by: Net equity flows 7 0 7 8 3 9 2 7 5 3 3 0 2 0 Net FDI inflows 6 2 7 5 3 2 2 5 5 5 3 0 3 0 Net portfolio eqity inflows 0 8 0 3 0 7 0 2 -0 1 0 0 -10 Net debt flows -4 4 8 3 -2 2 -6 5 17 -0 3 2 5 Official creditors -4 0 -1 7 -2 7 -2 9 -1 2 -1 6 0 0 World Bank -0 3 -0 2 0 2 -0 3 -01 -0 3 - IMF 03 00 00 -02 -01 -03 - Others -40 -1.5 -30 -24 -1 0 -1 0 - Private creditors -0 4 10 0 0 5 -3 6 29 1 3 2 5 Net medium- and long-ternm 0 2 5 4 -0 8 0 4 2 1 1 0 - debt flows B3onds 1 5 13 1 4 12 4 4 2 3 - Banks 01 38 -12 06 -14 -06 - Others -14 0 3 -1 1 -1 5 -0 9 -0 7 - Net short-term debt flows -0 6 4 6 13 -4 0 0 8 0 3 - Balancing itema 1 7 10 3 -3 3 -24 8 -27 2 -22 4 -14 0 Change in reserves (- = increase) -6 6 15 -2 6 -12 2 -8 8 -5 0 0 0 Memo items Bilateral aid grants 40 42 3 3 3 8 3 2 34 3 0 (ex technical cooperation granits) Net private flows (debt + ecluity) 6 9 17 8 44 -09 8 3 43 45 Net official flows (aid + debt) 00 25 06 09 20 1 8 3 0 Workers' reniittatices 94 10 3 10 5 10 9 131 140 - - Not available Note e = estimate, f = forecast a Combination of errors and omiiissions and net acquisition of foreign assets (incltiding FDI) by developinig countries 205 S TAT IS T ICA L AP PEND I X CAP I TA L AC CO UN T Table A.29 Net inward foreign direct investment in developing countries, 1995-2003 (billions of dollars) 1995 1996 1997 1998 1999 2000 2001 2002c 2003f All developing countries 105.6 127.9 169.3 174.5 179 3 160.6 171.7 143.0 145.0 East Asia and Pacific 51 3 58 6 62 2 57.6 48 9 44 0 48.9 57 0 61 0 China 35 8 40.2 44 2 43 8 38 8 38 4 44 2 52 7 - Malaysia 4 2 5 1 5 1 2 2 3 9 3.8 0 6 2.8 - Philippines 1 5 1 5 1 2 2 3 0.6 1.2 1 8 1 3 - Thailand 2 1 2 3 3.9 73 6 2 3 4 3 8 0.7 - Vietnam 2.3 2 4 2 2 1.7 1.4 1 3 1.3 1 5 - Europe and Central Asia 17 0 16 3 21.8 26.0 28.3 29 2 30 1 29 0 30 0 Czech Republic 2 6 1.4 1.3 3 7 6 3 5 0 4 9 8 1 - Hungary 4 5 2 3 2 2 2 0 2.0 1 6 2 4 1.0 - Poland 3 7 4.5 4 9 6.4 7.3 9.3 5 7 4 1 - Russian Federation 2 1 2 6 4 9 2 8 3.3 2 7 2 5 3 0 - Slovak Republic 0 2 0 4 0 2 0 6 0 4 2.1 1.5 4 0 - Latin America and the Caribbean 30 5 44 4 66 1 73 4 87 8 75 8 69 3 42 0 38 0 Argentina 5 6 6 9 9 2 7 3 24 0 11 7 3 2 0 7 - Brazil 4 9 11 2 19 7 319 28 6 32 8 22.6 16 6 - Chile 3.0 5 0 5.3 4 8 9.0 3 6 4 5 1 7 - Mexico 9.5 92 128 119 125 142 247 136 - Venezuela,R.B de 10 22 55 45 33 45 34 14 - Middle East and North Africa -0 6 0 7 6 2 7 5 3 2 2.5 5.5 3 0 3 0 Algeria 0 0 0 3 0 3 0 5 0.5 0 4 1 2 0 7 - Egypt, Arab Rep of 0 6 0 6 0 9 11 1 1 1 2 0 5 0 6 - Morocco 0 4 0 4 1 1 0.3 0 8 0 2 2 7 0.4 - SouthAsia 29 35 49 35 31 31 41 50 6.0 India 2.1 2 4 3.6 2 6 2 2 2.3 3 4 3 6 - Pakistan 0 7 0 9 0 7 0 5 0.5 0 3 0 4 0 8 - SriLanka 01 01 04 02 0.2 02 02 02 - Sub-Saharan Africa 4 3 4 3 8 1 6 5 8 1 6 1 13.8 7 0 7 0 Angola 05 02 04 1 1 25 09 1 1 1 1 - Nigeria 1 1 1 6 1 5 1 1 1 0 0 9 1 1 1 0 - South Africa 1 2 0 8 3 8 0 6 1 5 1 0 7 2 1 0 - -Not available Note e = estimate, f = forecast. 208 S TAT IS T ICA L AP PEND I X: CAP I TA L AC CO UN T Table A.28 External financing: Sub-Saharan Africa, 1997-2003 (billions of dollars) 1997 1998 1999 2000 2001 2002e 2003f Current account balance -9.9 -19.0 -11.3 0.4 -5.1 -4.3 -5.4 as a percentage of GDP -2.9 -5.9 -3.6 0.1 -1.7 -1.4 -1.5 Financed by: Net equity flows 13.7 15.1 17.0 10.1 12.8 7.7 8.0 Net FDI inflows 8.1 6.5 8.1 6.1 13.8 7.0 7.0 Net portfolio equity inflows 5.6 8.6 8.9 4.0 -1.0 0.7 1.0 Net debt flows 4.5 -1.4 -0.9 -0.9 -1.0 0.2 -0.5 Official creditors 1.4 0.5 0.4 0.5 0.3 1.6 1.0 World Bank 1.7 1.3 1.1 1.5 1.8 1.9 - IMF -0.5 -0.3 0.0 0.1 0.1 0.5 - Others 0.3 -0.5 -0.7 -1.0 -1.6 -0.8 - Private creditors 3.1 -1.9 -1.2 -1.4 -1.3 -1.4 -1.5 Net medium- and long-term debt flows -0.4 -1.4 -0.7 -0.3 -0.2 -0.9 - Bonds 1 0 0.3 1.2 1.0 1.9 0.6 - Banks -1.6 -1.3 -1.7 -0.8 -1.6 -1.1 - Others 0.2 -0.4 -0.2 -0.5 -0.5 -0.4 - Net short-term debt flows 3.5 -0.5 -0.6 -1.1 -1.1 -0.5 - Balancing item' -0.8 3.9 -3.4 -3.6 -6.4 -3.7 0.9 Change in reserves (- increase) -7.6 1.4 -1.5 -6.0 -0.3 0.0 -3.0 Memo items: Bilateral aid grants 9.6 10.1 10.0 10.0 9.9 10.4 10.0 (ex. technical cooperation grants) Net private flows (debt + equity) 16.8 13.2 15.8 8.7 11.6 6.3 6.5 Net official flows (aid + debt) 11.1 10.6 10.3 10.6 10.2 12.0 11.0 Workers' remittances 3.8 3.6 3.5 2.0 2.4 4.0 - - Not available. Note: e = estimate; f = forecast. a. Combination of errors and omissions and net acquisition of foreign assets (including FDI) by developing countries. 207 S TAT IS T ICA L AP PEND I X: CAP I TA L AC CO UN T Table A.29 Net inward foreign direct investment in developing countries, 1995-2003 (billons of dollars) 1995 1996 1997 1998 1999 2000 2001 2002e 2003f All developing countries 105.6 127.9 169.3 174.5 179.3 160.6 171.7 143.0 145.0 East Asia and Pacific 51.3 58.6 62.2 57 6 48.9 44.0 48.9 57.0 61.0 China 35.8 40.2 44.2 43 8 38 8 38 4 44 2 52.7 - Malaysia 4.2 5.1 5.1 2.2 3.9 3 8 0 6 2.8 - Philippines 1 5 1.5 1.2 2.3 0.6 1.2 1.8 1.3 - Thailand 2.1 2.3 3 9 7 3 6.2 3.4 3.8 0.7 - Vietnam 2.3 2.4 2.2 1.7 1.4 1.3 1 3 1 5 - Europe and Central Asia 17.0 16.3 21.8 26 0 28 3 29 2 30 1 29.0 30 0 Czech Republic 2.6 1.4 1.3 3.7 6.3 5.0 4.9 8.1 - Hungary 4 5 2.3 2 2 2 0 2.0 1.6 2 4 1 0 - Poland 3.7 4.5 4 9 6 4 7.3 9.3 5.7 4.1 - Russian Federation 2.1 2.6 4 9 2.8 3.3 2.7 2.5 3 0 - Slovak Republic 0.2 0.4 0.2 0 6 0.4 2.1 1.5 4.0 - Latin America and the Caribbean 30.5 44.4 66.1 73.4 87.8 75.8 69 3 42 0 38 0 Argentina 5 6 6 9 9 2 7 3 24 0 11.7 3.2 0.7 - Brazil 4.9 11.2 19.7 31.9 28.6 32.8 22.6 16.6 - Chile 3.0 5.0 5.3 4.8 9.0 3.6 4.5 1 7 - Mexico 9.5 9.2 12.8 11.9 12.5 14 2 24 7 13.6 - Venezuela, R.B de I 0 2.2 5 5 4 5 3 3 4 5 3.4 1.4 - Middle East and North Africa -0.6 0.7 6.2 7.5 3.2 2.5 5 5 3.0 3.0 Algeria 0.0 0.3 0.3 0.5 0.5 0.4 1.2 0 7 - Egypt, Arab Rep. of 0 6 0.6 0.9 1.1 1.1 1 2 0.5 0.6 - Morocco 0.4 0.4 1 1 0 3 0.8 0.2 2.7 0 4 - South Asia 2 9 3.5 4.9 3.5 3.1 3 1 4.1 5.0 6 0 India 2.1 2.4 3.6 2 6 2.2 2.3 3.4 3.6 - Pakistan 0 7 0.9 0.7 0 5 0.5 0 3 0.4 0.8 - Sri Lanka 0.1 0.1 0.4 0.2 0 2 0.2 0.2 0 2 - Sub-Saharan Africa 4.3 4.3 8 1 6.5 8.1 6.1 13.8 7.0 7 0 Angola 0 5 0.2 0.4 1.1 2 5 0.9 1.1 1 1 - Nigeria 1.1 1.6 1.5 1 1 1 0 0.9 1.1 1.0 - South Africa 1.2 0.8 3 8 0 6 1.5 1.0 72 1.0 - -Not available. Note: e = estimate, f = forecast. 208 S TAT IS T ICA L AP PEND I X: CAP I TA L AC CO UNT Table A.30 Net inward portfolio equity flows to developing countries, 1995-2003 (billions of dollars) 1995 1996 1997 1998 1999 2000 2001 2002e 2003f All developing countries 20.2 33.6 26.7 7.4 15.0 26.0 6.0 9.4 13.0 East Asia and Pacific 9.1 10.1 0.0 -2.8 4.6 19.3 2.9 5.4 7.0 China 3.3 4.1 9.3 1.4 3.8 21.4 3.0 4.0 - Indonesia 1.5 1.8 -5.0 -4.4 -0.8 -1.0 0.2 0.2 Malaysia 2.2 0.8 -7.8 -0.4 0.1 -1.9 -0.7 1.0 - Philippines - 2.1 -0.4 0.3 0.5 -0.2 0.4 0.3 - Thailand 2.1 1.2 3.9 0.3 0.9 0.9 0.0 0.0 - Europe and Central Asia 1.7 4.3 4.0 4.0 2.0 1.2 0.3 1.4 2.0 Czech Republic 1.2 0.6 0.4 1.1 0.1 0.6 0.6 0.5 - Hungary 0.0 0.4 1.0 0.6 1.2 -0.4 0.1 0.2 - Poland 0.2 0.7 0.6 1.7 0.0 0.4 -0.3 -0.1 - Russian Federation 0,0 2.2 1.3 0.7 -0.3 0.2 0.5 1.0 - Turkey 0.2 0.2 0.0 -0.5 0.4 0.5 -0.1 0.1 - Latin America and the Caribbean 4.8 12.2 13.3 -2.1 -3.6 -0.4 2.3 1.0 2.0 Argentina 1.1 1.0 1.4 -0.2 -10.8 -3.2 -0.1 -0.6 - Brazil 2.8 5.8 5.1 -1.8 2.6 3.1 2.5 1.2 - Chile -0.2 0.7 1.7 0.6 0.5 -0.4 -0.2 -0.1 - Mexico 0.5 2.8 3.2 -0.7 3.8 0.4 0.2 0.5 - Venezuela, R.B. de 0.3 1.3 1.4 0.2 0.4 -0.S -0.1 0.0 - Middle East and North Africa 0.1 0.5 0.8 0.3 0.7 0.2 -0.1 0.0 -1.0 Egypt, Arab Rep. of 0.0 0.2 0.5 -0.2 0.7 0.3 0.0 0.0 - South Asia 1.6 4.1 2.9 -0.6 2.4 1.7 1.6 0.8 2.0 India 1.6 4.0 2.6 -0.6 2.3 1.6 1.7 0.9 - Sub-Saharan Africa 2.9 2.4 5.5 8.6 8.9 4.0 -1.0 0.7 1.0 South Africa 2.9 2.3 5.5 8.6 9.0 4.2 -1.0 0.7 - - Not available. Note: e = estimate, f = forecast. 209 S TAT IS T ICA L AP PEND I X C CAP I TA L AC CO UN T Table A.31 Net inward debt flows to developing countries, 1995-2003 (bilhons of dollars) 1995 1996 1997 1998 1999 2000 2001 2002e 2003f Alldevelopingcountries 151.8 114.1 102.1 57.4 13.9 -1.0 3.2 7.2 5.0 East Asia and Pacific 54 2 52.0 44.5 -32.5 -11 6 -18.0 -12 0 -8.3 -13.0 China 17.8 13.9 18.5 -14.2 -1.6 -5.3 0.0 - - Indonesia 9.9 12 3 10.1 -4.6 -3 8 -0.7 -6.0 - - Malaysia 5.1 6.4 8.4 -3.6 -0 7 0.3 3 6 - - Philippines -0.7 4.5 7 5 -3.1 3.1 0 8 -0.2 - - Thailand 21.2 13.9 -1.3 -7.9 -9 4 -13.7 -9.8 - - Eastern Europe and Central Asia 23.4 22 7 32.6 40.4 15 8 22.0 3.3 11.2 17 0 Bulgaria -0 2 0 0 0.0 0.1 0.7 0.4 -0.1 - - Czech Republic 4 8 4.1 3 2 1.4 -0.2 -1.7 -0.2 - - Hungary 2.8 -2.0 -1.4 2 7 2.0 0 5 1 6 - - Poland 0.3 1.0 2.5 4.2 1.7 3.5 01 - - Russian Federation 4.9 7 3 7.6 21.9 -4.2 -2.8 -2.2 - - Turkey 4.4 2.9 4.5 5.6 10.9 19.1 -3 3 - - Latin America and the Caribbean 61.3 36.0 24.3 37.9 12.3 -1.1 11.4 3.5 0.0 Argentina 22.0 14.1 17 1 11.7 6.3 4.3 -5.0 - - Brazil 8.8 19.2 -1.3 6 7 -5.9 -4 2 5.2 - - Chile -0.3 1.2 2.0 4 8 2.1 2.4 1 4 - - Colombia 2.9 4.4 3.6 0.8 1 3 -0.2 3.3 - - Mexico 25 6 -4.9 -5 1 8.8 6 7 -8.4 1.6 - - Venezuela, R B de -1 7 -0.2 2.3 1.7 0.2 0.9 -2.2 - - Middle East and North Africa 2.7 -2 5 -4.4 8.3 -2.2 -6.5 1 7 -0.3 2.5 Algeria 1.4 1 6 -0.4 -1.6 -I 9 -1.6 -2.0 - - Egypt, Arab Rep. of 0.1 -0.5 0 6 1.1 -0.6 -0 7 0 1 - - Lebanon 0.8 1.1 1 1 1.7 1.5 1 8 27 - - South Asia 2 5 2.6 0.6 4.7 0.5 3.4 -0.3 0.9 -1.0 India -0.7 0.7 -1.6 3.0 -1.1 3.4 -2.4 - - Pakistan 2.6 1.1 1.6 0.7 0.7 -0.3 0.6 - - Sub-Saharan Africa 7.6 3.2 4.5 -1.4 -0.9 -0.9 -1.0 0.2 -0 5 South Africa 3 4 0.7 -0.4 -0 3 -0.7 1.2 -0 8 - - -Not available. Note e = estimate, f = forecast. 210 S TAT IS T ICA L AP PEND I X: CAP I TA L AC CO UNT Table A.32 Net inward short-term debt flows to developing countries, 1995-2002 (billions of dollars) 1995 1996 1997 1998 1999 2000 2001 2002e All developing countries 58.9 28.4 5.0 -64.2 -21.4 -9.4 -16.2 -6.1 East Asia and Pacific 27.3 19 5 4.4 -43.9 -13.4 -10.2 -0.4 0.6 China 4.8 3.1 6 1 -14.1 -2.2 -2.1 1.8 - Indonesia 6.5 6.3 0.6 -9.7 -1.6 1.5 -1.0 - Malaysia 1 1 3.8 3.9 -6.5 -2.5 -1.4 0.5 - Philippines -0.4 2.7 3.8 -4 6 -1.4 0.2 0.1 - Thailand 14.9 3.6 -9.9 -8.2 -6 2 -8.5 -1 7 - Eastern Europe and Central Asia 9.0 6 7 8.5 4.4 -1.0 9.5 -5.3 -3.6 Bulgaria 0 1 0.3 -0.2 -0 3 0.1 0.1 -0.1 - Czech Republic 2.2 0.7 2.4 -0 5 1 1 0 2 -0 1 - Hungary 0.8 0.2 0.0 1.4 -1.2 0.6 0 5 - Poland 1.3 0 6 1 1 2 4 -0.2 1.0 0.0 - Russian Federation -0.4 0.3 -1.4 -0.5 -1.0 2.0 4.5 - Turkey 4 4 1.6 0.6 3 2 2.3 5.4 -12.6 - Latin America and the Caribbean 14.8 -0.2 -8.6 -27.4 -7 9 -2.6 -9.2 -3 5 Argentina 14.2 2.1 8.5 -1.0 -1.5 -1 1 -8.3 - Brazil -0 4 4.3 -16 0 -24.0 0.7 1.8 -2.5 - Chile -0.4 -0 8 -1 3 0.3 -0.4 1.4 0.0 - Colombia 1.1 0.3 -0.1 0.5 -2.3 -1.1 0.9 - Mexico -2 0 -7.5 -2.0 -1.5 -2 3 -5 1 -0.9 - Venezuela, R.B. de -0 6 -0.2 1.5 -2.0 -0.1 2 0 -0.3 - Middle East and North Africa 2.7 -1.2 -0.6 4.6 1.3 -4 0 0.8 0.3 Algeria -0 4 0.1 -0.2 0 0 0 0 0.0 0.0 - Egypt, Arab Rep. of 0.4 0 0 0.6 1 3 0.0 -0.2 -0.7 - Lebanon 0 0 0 3 0.1 0 2 0.2 0.3 0.1 - South Asia 2.1 1 2 -2.1 -1.3 0.1 -1.0 -0 9 0.6 India 0.8 1.7 -1.7 -0.7 -0.4 -0 5 -0.5 - Pakistan 1 3 -0.4 -0.3 -0.5 -0 1 -0 3 -0.2 - Sub-Saharan Africa 3.0 2 4 3.5 -0.5 -0.6 -1.1 -1.1 -0 5 South Africa 1.9 1.2 0.1 0.5 -0.6 0.3 -1.2 - -Not available. Note. e = estimate. 211 S TAT IS T ICA L AP PEND I X CAP I TA L AC CO UN T S T A T I S T I C A L A P P E N D I X C A P I TA L A C C O U N T Table A.33 Net inward debt flows to public-sector and publicly guaranteed borrowers in developing countries, 1995-2001 (billions of dollars) 1995 1996 1997 1998 1999 2000 2001 All developing countries 61.9 38.3 41.7 71.6 30.0 11.1 19.4 East Asia and Pacific 16.2 12 8 28 9 19.3 11 3 3 0 -0.2 China 124 107 11.1 25 16 -11 00 Indonesia 10 -0 6 3 6 9 0 2.0 0 9 -2 2 Malaysia 2 4 0 3 1 7 0 5 0 9 1 3 31 Philippines -1 1 0.3 1.8 1.3 4 6 1 6 0.6 Thailand 0 9 13 9 4 4 6 1.9 -0 2 -2 5 Eastern Europe and Central Asia 10 6 115 15.7 21 7 6 8 6.1 -1 7 Bulgaria -0 3 -0 4 0 2 0 3 0.4 0 2 -0 1 Czech Rcpublic 2 0 2 8 0.9 10 -10 -1.I -0 8 Hungary 0 3 -3 1 -1 8 -0 4 1 5 -1 4 -0 8 Poland -1.1 02 0.5 -01 -03 -1 4 -4.2 Russian Federation 5.3 7.0 71 16 2 -3.5 -3 8 -7 3 Turkey -0 8 03 27 -0 9 46 12.3 10 4 Latin America and the Caribbean 31.7 13.7 -2.0 24.2 11.2 1 2 20.3 Argentina 6 7 10 1 4 9 8 3 8 7 6 4 7 3 Brazil 1.5 2 7 -0.3 121 0 5 -6.7 9 3 Chile -2 2 -2 0 -0 3 0 6 0.6 -0 4 0 4 Colombia -06 14 1.1 1 0 3.4 0 9 2.5 Mexico 264 06 -101 05 -3.8 -18 -19 Venezuela, R B de -0 6 0 2 01 0 2 -0 6 -0.5 -1 7 Middle East and North Africa -0.7 -1 8 -4.6 1.5 -25 -3 2 0.5 Algeria 1 7 1 5 -0 3 -1 6 -2 0 -1.6 -2.0 Egypr, Arab Rep of -0.3 -0 3 -01 -0 5 -0 7 -0 6 0 8 Lebainon 0 8 04 0.5 17 14 1.4 2 5 South Asia -10 0 5 0.7 5.5 14 4 5 0.9 India -25 -15 -15 36 -01 38 -13 Pakistan 0 9 1.1 1.6 0.9 1.2 0 3 1.2 Sub-Saharan Africa 5 1 1 6 2.9 -0 5 1 8 -0.5 -0.4 South Africa 2.0 0 6 1.1 -1 0 1 6 0 0 -0 4 212 SI A r IS T ICA L AP PEND I X CAP I TA L AC CO UNT Table A.34 Net inward debt flows to private-sector borrowers in developing countries, 1995-2001 (billions of dollars) 1995 1996 1997 1998 1999 2000 2001 All developing countries 89.8 75.8 60 5 -14.3 -16.1 -12.1 -16.2 East Asia and Pacific 380 39 3 15 6 -51 8 -22 9 -21 0 -11 8 China 5 4 3 2 7 4 -16 7 -3 2 -41 -01 Indonesia 9 0 12 9 6 5 -13 6 -5 8 -1 6 -3 8 Malaysia 2 7 61 6 7 -4 0 -16 -10 0 4 Philippines 0 4 4 2 5 8 -4 3 -1 4 -0 8 -0 8 Thailand 20 4 12 6 -10 7 -12 5 -11 3 -13 5 -7 3 Eastern Europe and Cenitral Asia 12 8 11 2 16 9 18 7 9 0 16 0 5 0 Bulgaria 01 0 4 -0 2 -0.2 0 3 0 2 01 Czech Republic 2.8 13 2 3 0 4 0 8 -0 6 0 6 Hungary 25 1.1 05 3 1 05 1 8 25 Poland IS 0 8 2.0 4 3 21 4 9 4 3 Russian Federation -0 4 0 3 0 5 2 4 -0 7 1 1 51 Turkey S1 27 18 65 63 68 -137 Latin America and the Caribbeani 29 6 22 3 26 3 13 7 1 0 -2 3 -8 8 Argentina 153 39 123 34 -24 -21 -123 Brazil 7 3 16 5 -1 0 -5.3 -6 4 2 4 -4 2 Chile 20 32 23 42 15 28 10 Colombia 3 5 3 0 2 5 -0 2 -21 -1 1 0 7 Mexico -0 8 -55 5 0 8 3 10 5 -6 6 3.5 Venezuela, R B de -1I -0 4 2 2 1 S 0 7 1 4 -0 4 Middle East and North Africa 3 5 -0 7 0 2 6 8 0 3 -3 4 1 2 Algeria -04 0 1 -02 00 00 00 00 Egypt, Arab Rep of 0 4 -0 2 0 6 1.5 0 1 -01 -0 7 Lebanon 01 07 06 01 01 04 02 South Asia 3 5 2.1 -0 1 -0 8 -0 9 -1 1 -1.2 India 1 8 22 -0 1 -05 -1 0 -04 -05 Pakistan 1 7 0 0 0 0 -0 2 -0 5 -0.6 -0 5 Sub-Saharan Africa 2 5 1 6 1 6 -0 9 -2 7 -0 4 -0 6 South Africa 1 4 01 -1 S 0 7 -2 3 1 3 -0 4 213 S TAT IS T ICA L AP PEND I X CAP I1 AL AC CO UN T Table A.35 Net inward debt flows from public-sector creditors in developing countries, 1995-2003 (billions of dollars) 1995 1996 1997 1998 1999 2000 2001 2002e 2003f All developing countries 38.8 3.8 13.0 34.1 13.5 -6.2 28.0 16.2 0.0 East Asia and Pacific 91 3.6 17.3 14 7 12 5 7 0 3 5 -2 3 -8 0 China 7.9 44 43 23 3.4 1 5 22 - - Indonesia 1 1 -0 8 3.6 8 5 4 8 2 9 -0 8 - - Malaysia 0 4 -0 8 -0 2 0 2 0.6 0 6 21 - - Philippines -1 1 -0.3 06 0.6 02 03 -02 - - Thailand 0 5 0.4 8 4 1 8 2 5 0 3 -13 - - Eastern Europe and Central Asia 6 8 8 6 6 7 7 4 -0 8 -0 1 2 8 3.9 2 0 Bulgaria -0 2 -0.1 0 3 0 3 0 3 0 2 -04 - - Czech Repubhlic 0 0 01 -0.1 0.0 0 0 01 0.2 - Hungary -0 9 -0 9 -0.1 -1 1 0.1 -0 2 -0 2 - Poland -15 0 2 -0.1 -0 5 -0 4 -0 5 -4.1 - Russian Federation 5 6 6.8 4.2 6 3 -3 0 -3 3 -5s1 - Turkey -0 8 -0 8 -0 1 -0 3 -0 1 4 3 11.5 - Latin America and the Caribbean 22 0 -10 7 -8 6 10 9 1 6 -11 1 20 2 12 6 6 0 Argentina 3 3 0 4 -01 1.0 -01 0 9 103 - - Brazil -18 -08 -12 9.5 45 -85 95 - - Chile -2.1 -0 6 -0 4 -01 -01 -01 -01 - - Colombia -0 4 -01 -0.5 0 2 1 0 01 11 - - Mexico 22 5 -9 6 -8 0 -1.9 -5 4 -4 8 -07 - - Venezuela, R B de -0 3 -0 1 -0.3 1 0 -0.1 -0.3 -1 1 - - Middle East and North Africa -1.5 -0 8 -4 0 -1 7 -2.7 -2 9 -1 2 -1 6 0 0 Algeria 12 15 0 3 -0.3 -0 4 -0 4 -10 - - Egypt, Arab Rep of -01 0 0 0 0 -0 2 -0.5 -0 6 -06 - - Lebanon 01 0 2 01 0.2 01 01 0.1 - - SouthAsia -1 2 10 03 2.3 25 0.5 25 19 -10 India -2 8 -0.8 -1 0 0 6 0.8 -0.3 -03 - - Pakistan 1 0 0 9 0 7 0 9 12 0 3 14 - - Sub-Saharan Africa 3 5 2 0 1.4 0 5 0.4 0 5 0 3 1 6 10 South Africa 00 00 -0 4 -0 4 0 0 0 1 0.0 - - -Not available, Note e = estimate, f = forecast 214 STAT IS r ICA L AP PEND I X CAP I TA L AC CO UN T Table A.36 Net inward debt flows from private-sector creditors in developing countries, 1995-2003 (billions of dollars) 1995 1996 1997 1998 1999 2000 2001 2002e 2003f All developing countries 113.0 1103 891 233 0.5 5.1 -24.8 -9.0 50 East Asia and l'acific 45 0 48 4 27 2 -47 2 -24 1 -25 0 -15 5 -6 0 -5 0 China 9 9 9 5 14 2 -16 5 -5 0 -6 8 -2 2 - - Inidoniesia 8 8 13 1 6 5 -13 0 -8 6 -3 6 -52 - - Malaysia 4 8 7 2 8 6 -3.8 -1 3 -0 3 14 - - Philippines 0 5 4 9 7 0 -3 7 2 9 0 4 00 - - Thailand 20 7 13 4 -9 7 -9 6 -11 9 -14 0 -85 - - Eastern Europe and Central Asia 16 6 14 1 25 9 33.1 16 6 22 2 0 5 7 2 15 0 Bulgaria 0 0 0 0 -0 3 -0 3 0 4 0 2 03 - - Czech Republic 4 8 4 0 3,2 1 4 -0 2 - 1 7 -04 - - Hungar' 3 7 - II -13 3.8 1.9 0 7 18 - - Poland 1 8 07 26 47 22 40 42 - - Russiani Federation -0 7 0 5 3 4 12 3 -1.2 0 5 30 - - Tuirkey 52 38 46 59 110 148 -148 - - Latin America and the Caribbean 39 3 46 8 32 9 27 0 10 7 10 0 -8 7 -9 1 -6 0 Argentina 187 137 173 107 64 34 -153 - - Brazil 106 201 -01 -27 -104 43 -43 - - Chile 1 8 18 24 48 22 25 15 - - Colornbia 3 3 4 5 4 1 0 6 0.2 -0 3 22 - - Mexico 3 1 48 30 107 121 -36 23 - - VenezuLela, RB de - 14 0 0 2 6 0 7 0 3 12 - I - - Middle East and North Africa 4 2 -1 7 -0 4 10.0 0 5 -3 6 2 9 1 3 2 5 Algeria 0 1 01 -07 -1 3 -1 5 -1 2 -10 - - Egypt, Arab Rep of 01 -0 4 0 6 1 3 -01 -01 08 - - Lebanion 0 7 0 8 1 0 16 14 17 26 - - SoutriAsia 37 1 6 03 24 -20 29 -27 -1 0 00 India 20 1 5 -06 25 -1 9 36 -21 - - Pakistan 16 01 0 9 -0 2 -0 6 -0 7 -08 - - Sub-Saharan Africa 4.1 12 3 1 -19 -12 -14 -1 3 -14 -15 South Africa 3 4 0 7 0 0 0 1 -0 7 12 -0 8 - - - Not available Note e = estimate, f= forecast 215 S TAT IS T ICA L AP PEND I X: CAP I TA L AC CO UN T Table A.37 Gross market-based capital flows to developing countries, 1995-2003 (billions of dollars) 1995 1996 1997 1998 1999 2000 2001 2002 2003f All developing countries 151.2 206.1 287.3 178.6 162.4 205.2 150.7 149.1 169 East Asia and Pacific 60 0 71 5 76 2 27 3 28.2 48.7 20 7 41.0 50 China 15.2 16.1 26 4 10 1 8 7 29 0 6 6 16 0 - Indonesia 175 24.2 211 1 2 2.8 1.1 1 0 1 4 - Malaysia 10.4 10.9 11 9 3.4 6.8 6 9 5 6 12 7 - Philippines 3.3 5 6 7 7 5 7 7 6 7 2 4 8 6 4 - Thailand 12.5 14.1 8 9 6 7 2 2 4 3 2 5 3 7 - Europe and Central Asia 21 9 26 9 51 2 43.4 31.0 40.7 27.7 35.5 44 Czech Republic 1.6 3 2 3 9 3.1 1 1 1 2 0 9 0.6 - Hungary 5.2 3.5 4 2 4 0 3 9 2 1 3 1 1 8 - Poland 1 5 0 9 4 5 4 6 5 0 4.5 5.4 6.6 - Russian Federation 4 0 S 8 20.0 13.3 0 7 5 2 4 7 10 8 - Turkey 7 1 8.6 10 3 9.8 12 9 22 1 6 9 7.3 - Latin America and the Caribbean 42.8 84 9 120.6 84.5 75 3 89.9 75 8 45.3 44 Argentina 9.4 24 1 28 6 26 7 21.0 19 3 6.5 2 1 - Brazil 7.1 14.5 32.3 18 0 14.6 28 0 23.6 14.6 - Chile 26 55 89 48 9.0 65 69 38 - Mexico 15.1 29.3 304 19.9 184 21 3 19.9 14.8 - Venezuela, R.B. de 1 9 2 9 75 7 8 2.7 3.0 4.8 0.7 - Middle East and North Africa 11 3 4 5 18 7 12.1 13.6 8 9 12.1 14.7 16 Egypt, Arab Rep. of 0.3 0.2 1 5 1 7 4 4 1 1 2 6 0.6 - Lebanon 0.7 0.9 1 5 1 9 1.4 1.9 3.3 1 0 - Saudi Arabia 3 1 0 8 9 7 6 5 4 4 2 4 1 9 5.7 - South Asia 7.4 10.5 12 7 5 1 4 2 4 8 3.3 2.6 3 India 5 2 7.4 10.7 4.0 3.8 4.4 2 6 2 2 - Pakistan 2.0 3 1 1.7 0.9 0.0 0.0 0.2 0 4 - Sub-Saharan Africa 7.8 7.8 79 6 4 10 0 12 2 111 9.9 12 South Africa 4.2 5.8 5.7 3.0 7.8 9.2 6.9 6 5 - -Not available. Note f = forecast 216 S TAT IS T ICA L AP PEND I X CAP I TA L AC CO UN T Table A.38 Gross international equity issuance by developing countries, 1995-2003 (billions of dollars) 1995 1996 1997 1998 1999 2000 2001 2002 2003f All developing countries 6.4 12 6 21.4 8.0 13 5 34.3 5.7 10.9 12 EastAsiaandPacific 4.1 52 10.7 40 62 221 35 72 9 China 08 21 9.1 12 37 219 2.9 55 - Indoniesia 14 13 09 00 12 0.0 03 03 - Malaysia 06 06 04 0.2 00 00 00 12 - Philippines 07 08 03 04 02 01 00 00 - Thailand 05 02 00 22 10 00 02 01 - Europe and Central Asia 06 13 31 2.6 14 34 03 16 2 Hungary 03 04 17 04 05 00 00 00 - Poland 01 0.0 07 10 07 04 00 02 - Russian Federation 00 08 0 1 00 0.0 04 02 13 - Turkey 01 00 04 08 00 24 00 01 - Latin America and the Caribbean 09 36 49 03 08 68 12 11 1 Argentina 00 04 11 00 03 04 00 00 - Brazil 0.2 04 24 01 0.2 31 11 11 - Chile 02 01 06 0.1 00 00 00 00 - Mexico 00 07 0.8 00 02 33 00 00 - Middle East and North Africa 00 04 07 04 01 04 00 00 0 Egypt,ArabRep of 00 02 03 01 0.1 03 00 00 - Morocco 00 01 00 01 00 01 00 00 SouthAsia 03 13 11 01 09 09 0S 03 0 India 0.3 13 10 01 09 09 05 03 - Sub-Saharan Africa 04 08 10 0.7 42 06 03 07 1 South Africa 03 06 10 0.7 42 06 03 07 - -Not available. Note f = forecast 217 STAT IS T ICA L AP PEND I X CAP I TA L AC CO UN T Table A.39 Gross international bond issues in developing countries, 1995-2003 (billions ofdollars) 1995 1996 1997 1998 1999 2000 2001 2002 2003f All developing countries 39.4 78.1 99.2 65.4 63.2 57.8 59.4 55.4 71 East Asia and Pacific 9 9 20.8 20.2 4 5 8 6 5.1 7 1 12 4 18 China 16 41 61 18 17 13 2 6 0 9 - Indonesia 2.5 5 5 5 6 0 5 0 0 0 0 01 0 9 - Malaysia 2.8 2 5 31 0 0 2 2 14 2 4 6 0 - Philippines 0 8 3 6 3 0 1 9 4 8 2 4 1 8 4 8 - Thailand 2.2 51 2 4 0 3 0 0 0 0 0 3 0 0 - EuropeandCentralAsia 65 68 157 217 136 140 111 150 24 Croatia 0 1 01 0.5 01 0.6 0 9 0 9 0 8 - Hungary 33 03 04 1.8 24 05 12 01 - Poland 03 03 12 19 17 16 28 27 - Russian Federarion 0 3 1 2 7 0 10 5 0.0 0 1 1.4 3 6 - Turkey 24 29 42 34 58 85 22 35 - Latin America and the Caribbean 19.8 46 8 57 4 36 6 37 3 34 8 33 6 22 2 21 Argentina 55 137 160 150 135 122 15 00 - Brazil 47 109 150 65 7.6 112 119 70 - Colombia 12 1 9 13 14 1 7 15 4 3 10 - Mexico 69 180 149 84 95 72 82 7.4 - Venezuela, R B de 0 7 1 0 5 9 3.3 2 2 0 5 17 0 0 - Middle East and North Africa 1 0 1 0 21 1 5 19 2 4 5 3 2 7 4 Egypt, Arab Rep of 0 0 0 0 0 0 0 0 01 0 0 1 5 0 0 - Lebanon 0 4 0 5 1 3 1 5 14 1.9 3 3 1 0 - Tunisia 06 01 05 0.0 02 05 05 07 - South Asia 0.8 14 2 7 0.1 0.1 0 0 01 01 0 India 08 1 1 22 00 0.1 00 01 0 1 - Pakistan 00 03 05 00 00 00 0.0 00 - Sub-Saharan Africa 15 13 1 1 10 17 1 5 2 2 3.0 4 South Africa 13 1 0 1 1 10 1 7 1 5 2 2 3 0 - - Not available Note f = forecast 218 S TAT IS T ICA L AP PEN D I X CAP I TA L AC CO UN T Table A.40 Gross international bank lending to developing-country borrowers, 1995-2003 (billions of dollars) 1995 1996 1997 1998 1999 2000 2001 2002 2003f All developing countries 105.4 115.4 166.6 105.2 85.7 113 2 85.7 82.8 84 East Asia anid Pacific 46 0 45 5 45 3 18 8 13 4 21 5 101 214 23 China 127 98 11 1 70 34 58 12 96 - Indonesia 13 6 17 3 14 7 0 7 1 6 1 0 0 5 0.3 - Malaysia 70 78 83 32 46 55 32 56 - Philippines 1 8 1 2 4 4 3 4 2 6 4 7 31 1.5 Thailand 98 88 65 43 12 43 20 36 - EuLrope and Central Asia 14 8 18 7 32 4 19 0 16 1 23 3 16 3 18 9 18 Czech Republic 1 6 3 2 3 5 2 4 0 6 12 0 8 0 2 - Hungary 1 6 2 8 21 1 8 0 9 1 S 1 8 1 8 - Poland 1 2 06 25 1 7 27 26 26 37 - Rugsian Federation 3 6 3 8 129 2 8 0 7 4 7 31 5 9 - Tuirkey 46 57 57 57 71 112 47 37 - Latin America anid the Caribhean 22 1 34 5 58 2 47 6 37 3 48 3 41 0 22 0 22 Argentina 38 100 115 118 72 67 50 21 - Brazil 2.2 3 2 14 9 114 6 9 13 7 10 6 6 4 - Chile 18 43 72 43 76 65 56 21 - Colombia 3 2 2 3 4 9 1 8 2 0 2 2 0 6 1 2 - Mexico 82 106 147 115 87 109 117 74 - Middle East and North Africa 10 3 3 0 159 10 2 116 6 1 6 9 12 0 12 Egypt, Arab Rep of 0 3 0 0 1 2 1 6 4 2 0 8 1 1 0 6 - Iran, Islamic Rep of 10 0 6 0 5 0 5 0 7 10 10 3 0 - Sauidi Arabia 3.1 0 8 9 7 6 5 4.4 2 4 1 9 5 7 - SouthAsia 63 78 89 50 32 39 27 22 2 India 41 50 75 39 28 35 20 18 - P'akistan 20 28 1 3 09 00 00 02 04 - Sub-Saharan Africa 6 0 5 8 5 8 4 7 41 101 8 6 6 2 7 South Africa 2 6 4 1 3 6 1 3 1 9 7 1 4.4 2 8 - -Not available Note f = forecast 219 STAT IS T ICA L AP PEND I X CAP I TA L AC CO UN T Table A.41 Change in foreign exchange reserves of developing countries, 1995-2003 (billions of dollars) Gross foreign exchange reserves Change i- = ncrease) 2001 1995 1996 1997 1998 1999 2000 2001 2002e 2003f All developing countries 778.5 -96.1 -90.4 -52.9 -16.6 -37.3 -55.1 -80.3 -110.0 -108.0 East Asia and Pacific 320 3 -29 0 -45 2 -12 8 -20 7 -29 3 -10.1 -47 7 -57 0 -55 0 China 212 2 -22 0 -31 5 -34 9 -5 1 -9 7 -10 9 -46 6 - - Indonesia 27 0 -1 5 -4 5 1 7 -6 3 -3 8 -2 0 12 - - Malaysia 29 6 1 9 -3 2 6 1 -4 7 -4.9 1.0 -10 - - Philippines 13 3 -0 4 -3 7 2 8 -2 0 -4.0 0 2 -04 - - Thailand 32 3 -6 6 -1 7 11 5 -2 7 -5 4 1 9 -04 - - Europe and Central Asia 130 0 -41 0 -2 3 -7 3 -4 9 -6.5 -19 1 -10 3 -34 0 -25.0 Czech Republic 14 2 -7 7 1.5 2 6 -2 8 -0 3 -0.2 -12 - - Hungary 10 3 -5 2 2 3 1 3 -0 9 -1 5 -0 2 0.6 - - Poland 25 2 -8 9 -3 1 -2 6 -6.9 1 1 -0 2 12 - - Russian Federation 32 5 -10 3 3.0 -1 5 5 0 -0 7 -15 8 -83 - - Turkey 187 -53 -4.0 -22 -08 -37 09 36 - - Latin America and the Caribbean 155 9 -23 4 -28.0 -13 5 9 2 7 5 -2 9 -2 9 4.0 -10 0 Argentina 14 5 0 0 -4 0 -4 4 -2 3 -1 6 1 7 99 - - Brazil 357 -12.6 -8.6 75 82 78 23 -32 - - Chile 14 0 -1 0 -0 8 -2 3 2 0 1.1 -0 5 06 - - Mexico 444 -91 -39 -90 -33 05 -42 -92 - - Venezuela,RB de 88 17 -54 -29 24 -01 -09 3.8 - - Middle East and North Africa 85 2 -3 8 -11 5 -6 6 1 5 -2.6 -12 2 -8 8 -5.0 0 0 Algeria 180 06 -22 -38 12 24 -75 -61 - - Egypt, Arab Rep of 12 9 -2 7 -1 2 -1 3 0.6 3 6 1 4 0 0 - - Morocco 8 3 0 8 -0 2 -0 2 -0 4 -1 I 0 9 -37 - - Saudi Arabia 14 8 -1 2 -5 7 -0 6 0 8 -2 8 -2 5 32 - - South Asia 52 8 4 1 -0 6 -5 2 -3 0 -5 0 -4 7 -10.2 -18 0 -15.0 India 45 3 1 9 -2 3 -4 6 -2.6 -5 0 -5 3 -80 - - Pakistan 3 6 1 2 1 2 -0 6 0 2 -0 5 0 0 -21 - - SriLanka 1 2 0.0 01 -0 1 0 0 0 4 0 6 -0 2 - - Sub-Saharan Africa 34 3 -3 0 -2 8 -7 6 1 4 -1 5 -6 0 -0 3 0 0 -3.0 Angola 0 7 0 0 -0 3 0 2 0.2 -0 3 -0 7 0.5 - - Nigeria 105 -01 -26 -35 05 17 -45 -0S - South Africa 5 8 -1 1 1.9 -3 8 0 6 -1 9 0.3 0 0 - -Not available Note e = estimate, f = forecast 220 S TAT IS T ICA L AP PEND I X EX T ER NA L LI AB ILI T I ES AND ASS ET S Table A.42 Total external debt of developing countries, 1995-2001 (billions of dollars) 1995 1996 1997 1998 1999 2000 2001 All developing countries 2,065.6 2,126 0 2,188.8 2,395.2 2,427.0 2,363.6 2,332.1 East Asia and Pacific 461 9 497 9 528 7 535 4 541 4 497 4 504 1 China 118 1 128 8 146.7 144 0 1521 145 7 170 1 Indonesia 124 4 128 9 136 2 1512 1510 1441 135 7 Malaysia 34 3 39 7 47 2 42 4 41 9 41 8 43 4 Philippines 37 8 40 1 45.7 48 3 53 0 50 4 52 4 Thailand 100 0 112 8 109 7 104 9 96 8 79 7 67 4 Eastern Europe and Central Asia 349 5 367 0 386 9 484 2 494 4 503 6 497 8 Bulgaria 10 3 10 0 9.8 10 0 10 0 10 1 9 6 Czech Republic 16 2 201 23 1 24 2 22 8 21 6 21 7 Hungary 316 272 24 5 28 5 29.9 29 5 30 3 Poland 44 3 43 5 40 4 55 5 60 7 63 3 62 4 Russian Federationi 1220 1270 128 1 178.3 1749 1601 1526 Turkey 73 8 79.6 84 8 97 1 102 2 118 3 115 1 Latin America and the Caribbean 649 6 670 9 702 2 774 3 794 8 782 9 764 9 Argentina 98 8 1114 128 4 1415 145 3 145 9 136 7 Brazil 160 5 181 3 198.0 241 0 243 7 238 8 226 4 Chile 22 0 23 0 22 8 30 2 34 3 37 0 38 4 Colombia 25 0 28 9 31 9 33.1 34 4 33 9 36 7 Mexico 166 6 157 5 148 7 159 9 167 3 158 5 158.3 Venezuela, RB de 35 5 34 5 35 4 37 4 37.3 37 8 34 7 Middle East and North Africa 211 8 203 7 195 0 209.8 213.9 2021 200 6 Algeria 33 0 33 6 30 9 30 7 28 0 25 3 22 5 Egypt, Arab Rep of 33 3 314 29 9 32 3 30 9 29 0 29 2 Lebanon 30 40 50 68 82 99 125 South Asia 157 3 155 2 155 0 163 0 167 4 165 1 161 7 India 94 5 93 5 94 3 97 6 98.3 991 97 3 Pakistan 30 2 29 8 30 1 32 3 33 9 32 8 32.0 Sub-Saharan Africa 235 5 231 3 220 9 228 5 215 0 211 4 203 0 South Africa 25 4 26 1 25 3 24 8 23.9 24 9 24.1 221 S TAT I S T I C A L AP PEND I X EX T ER NA L LI AB ILI T I ES AND ASS ET S Table A.43 Total external debt of developing countries, as of December 2001, present-value basis (millions of dollars) Total external debt Present value of Present value as a percentage (nominal terms) total external debt of total external debt Albania 1,094 762 69 7 Algeria 22,503 21,694 96 4 Angola 9,600 9,348 97.4 Argentina 136,709 148,847 108.9 Armenia 1,001 654 65 4 Azerbaijan 1,219 994 81 6 Bangladesh 15,215 9,712 63 8 Barbados 701 739 105 5 Belarus 869 819 94 3 Belize 708 765 108 0 Benin 1,665 840 50 5 Bhutan 265 245 92 4 Bolivia 4,682 1,995 42 6 Bosnia and Herzegovina 2,226 1,591 71 5 Botswana 370 307 83 1 Brazil 226,362 237,596 105 0 Bulgaria 9,615 8,355 86 9 Burkina Faso, 1,490 716 48 1 Burundi 1,065 648 60 9 Cambodia 2,704 2,301 85 1 Cameroon 8,338 4,928 59 1 Cape Verde 360 231 64.3 Central African Republic 822 536 65 2 Chad 1,104 628 56 9 Chile 38,360 37,730 98 4 China 170,110 164,068 96 4 Colombia 36,699 37,554 102 3 Comoros 246 177 72 0 Congo, Dem Rep of 11,392 10,610 93 1 Congo, Rep. of 4,496 4,232 94 1 Costa Rica 4,586 4,799 104 7 C6ted'lvoire 11,582 10,647 919 Croatia 10,742 10,708 99 7 Czech Republic 21,691 21,343 98 4 Dlibouti 262 177 67 4 Dominica 206 181 87 8 Dominican Republic 5,093 4,836 95 0 Ecuador 13,910 14,505 104 3 Egypt, Arab Rep of 29,234 25,075 85 8 El Salvador 4,683 4,593 98.1 Equatorial Guinea 239 193 80 8 Eritrea 410 235 57 3 Estonia 2,852 2,942 103 1 Ethiopia 5,697 2,915 51 2 Fiji 188 175 93 0 Gabon 3,409 3,335 97 8 Gambia, The 489 265 54 2 Georgia 1,714 1,066 62 2 Ghana 6,759 3,945 58 4 Grenada 215 190 88 5 Guatemala 4,526 4,333 95 7 Guinea 3,254 1,732 53 2 Guinea-Bissau 668 424 63 4 Guyana 1,406 882 62.7 Haiti 1,250 817 65 4 Honduras 5,051 3,157 62.5 Hungary 30,289 28,427 93 9 India 97,320 67,760 69 6 Indonesia 135,704 131,357 96 8 Iran, Islamic Rep. of 7,483 6,725 89 9 Jamaica 4,956 5,361 108 2 222 STAT IS T ICA L AP PEND I X EX T ER NA L LI AB ILI T I ES AND ASS ET S Table A.43 Total external debt of developing countries, as of December 2001, present-value basis (milliois ofdollars) Total external debt Present value of Prescnt value as a percentage (nominal terms) total cxtcrnal debt of total extcrnal debt Jordan 7,480 6,894 92 2 Kazakhstan 14,372 14,265 99 3 Kenya 5,833 4,412 75 6 Kyrgyz Republic 1,717 1,326 77 3 Lao PDR 2,495 1,295 51 9 Latvia 5,710 5,548 97 2 Lebanon 12,450 13,451 108 0 Lesotho 593 406 68 5 Liberia 1,987 1,928 97 0 Lithuania 5,248 5,185 98 8 Macedonia, FYR 1,423 1,170 82 2 Madagascar 4,160 2,045 49 2 Malawi 2,602 1,486 57 1 Malaysia 43,351 46,030 106 2 Maldives 235 177 75 4 Mali 2,890 1,407 48 7 Malta 1,531 1,357 88 6 Mauritaniia' 2,164 1,407 65 0 Mauritus 1,724 1,658 96 1 Mexico 158,290 172,899 109 2 Moldova 1,214 1,126 92 7 Mongolia 885 606 68 5 Morocco 16,962 14,694 86 6 Mozambique 4,466 916 20 5 Myanmar 5,670 4,032 71 1 Nepal 2,700 1,567 58 0 Nicaragua 6,391 4,309 67 4 Niger 1,555 1,025 65 9 Nigeria 31,119 30,882 99 2 Oman 6,025 5,816 96 5 Pakistan 32,020 25,457 79 5 Panaina 8,245 9,020 109 4 Papua New Guinea 2,521 2,188 86 8 P'araguay 2,817 2,666 94 6 IPeru 27,512 28,114 102 2 Philippines 52,356 55,262 105 6 Polanid 62,393 59,268 95 0 Romania 11,653 11,067 95.0 Russian Federation 152,649 146,725 96 1 Rwanida 1,283 670 52 2 Samoa 204 142 69 5 Sao Tome and Principe 313 100 32 0 Senegal 3,461 2,406 69 5 Seychelles 215 212 98 7 Sierra Leone 1,188 834 70 2 Slovak Republic 11,121 10,879 97 8 Solomon Islands 163 112 68 7 Somalia 2,531 2,277 89 9 South Africa 24,050 23,379 97 2 Sri Lanka 8,529 6,909 81 0 St Kitts anid Nevis 189 170 90 1 St Lucia 238 229 96 3 St Vincent ald the Greiadines 194 156 802 Sudan 15,348 14,547 94 8 Swaziland 308 297 96 6 Syrian Arab Republic 21,305 20,837 97 8 Tapikistan 1,086 853 78 6 Tanzania 6,676 1,342 20 1 Thailand 67,384 66,760 99 1 Togo 1,406 999 71 1 (Table continues on next page) 223 S TAT IS T ICA L AP PEND I X EX T ER NA L LI AB ILI T I ES AND ASS ET S Table A.43 Total external debt of developing countries, as of December 2001, present-value basis (continued) (millions of dollars) Total external debt Present value of Present value as a percentage (nominal terms) total external debt of total external debt Tonga 63 42 66.9 Trinidad and Tobago 2,422 2,609 107 7 Tunisia 10,884 10,829 99 5 Turkey 115,118 116,685 101 4 Turkmenistan - - - Uganda 3,733 1,151 30.8 Ukraine 12,811 11,483 89.6 Uruguay 9,706 9,872 101 7 Uzbekistan 4,627 4,444 96.0 Vanuatu 66 37 55 6 Venezuela, R B de 34,660 37,467 108 1 Vietnam 12,578 10,933 86 9 Yemen, Rep of 4,954 3,558 71.8 Yugoslavia, Fed Rep of 11,740 11,711 99.7 Zambia 5,671 4,036 71 2 Zimbabwe 3,780 3,493 92.4 - Not available Note For definition of indicators, see Sources and Definitions section of Global Development Finance 2003, I. Summary and Country Tables. Numbers in italics are from debt sustainability analyses undertaken in the context of the HIPC Initiative Present value estimates for these countries are for public and publicly guaranteed debt only. Export figures exclude workers' remittances. a Enhanced HIPC assistance will be accounted for in Global Development Finance 2004 224 S TAT IS T ICA L AP PEND I X EX T ER NA L LI AB ILI T I ES AND ASS ET S Table A.44 Total external debt of developing countries, medium- and long-term, 1995-2001 (billions of dollars) 1995 1996 1997 1998 1999 2000 2001 All developing countries 1,688.7 1,727.9 1,782.4 2,023.8 2,072.1 2,026.8 1,983.1 East Asia and Pacific 351.8 367.9 395.8 449.1 466.7 433.3 411.3 China 95.8 103 4 115.2 126 7 136 9 132.6 126.2 Indonesia 98 4 96.7 103.3 131.1 131.0 121.4 113 9 Malaysia 27.1 28.6 32.3 33 9 35.9 37 2 38 2 Philippines 32 6 32.2 33.9 41.1 47 3 44 4 46 3 Thailand 55 9 65 1 71.9 75.3 73 4 64 8 54 2 Eastern Europe and Central Asia 305.1 314.7 330.8 413 3 422 1 423 2 422 1 Bulgaria 9.8 9.1 9 0 9.5 9.6 9 7 9 3 Czech Republic 11.1 14.3 15.0 16 6 14.0 12 6 12 7 Hungary 28.4 23.9 21 2 23.7 26 3 25 4 25.7 Poland 42 1 40.8 36 6 49.3 54 6 56 2 55 4 Russian Federation 111.7 114 9 122.1 163.3 159 1 144 5 131 7 Turkey 58.1 62.3 66.8 75.9 78 8 89.4 98 8 Latin America and the Caribbean 522 0 550 1 575 4 655 8 685.4 677 3 668 9 Argentina 774 879 96.4 110.6 1159 1176 1167 Brazil 129 3 145 4 163 2 211.1 214.5 207 8 198 1 Chile 18.6 20 4 21 5 28 6 33 1 34 5 35 8 Colombia 19 5 23 0 26 2 26.9 30.5 311 33 0 Mexico 129 3 127 7 120.8 133.6 143 2 139 5 140 3 Venezuela, R B de 32.5 31 8 31 2 35 2 35.2 33 8 30 9 Middle East and North Africa 166 9 161.5 153.7 163.7 163.4 155 6 153 3 Algeria 32 8 33.3 30.7 30.5 27 8 25 1 22.3 Egypt, Arab Rep of 31 0 29.0 26 9 28.0 26 6 24.9 25.9 Lebanon 16 23 32 48 60 73 98 South Asia 148.2 144 9 146 8 155 9 160 4 159.1 156 5 India 89 4 86 7 89 3 93 3 94 4 95 6 94.4 Pakistan 27 0 27 0 27 6 30.1 32.1 31 3 30 7 Sub-Saharan Africa 194 8 188 7 179 9 186 0 173 9 178.3 170 9 South Africa 15 7 15 2 14.3 13.3 13 1 15 3 15 7 225 S TAT IS T ICA L A PPEND I X: EX T ER NA L LI AB ILI T I ES AND ASS ET S Table A.45 Total external debt of developing countries, short-term, 1995-2001 (billions of dollars) 1995 1996 1997 1998 1999 2000 2001 All developing countres 376.9 398.1 406.4 371.4 354.9 335.8 349.0 East Asia and Pacific 110 2 129 9 133 0 86 3 74 7 64.0 92 8 China 22 3 25 4 31 S 17 3 15 2 13 1 43 9 Indonesia 26 0 32.2 32 9 20 1 20 0 22.6 218 Malaysia 7 3 11 1 14 9 8 S 6 0 4 6 5 1 Philippines 5 3 8 0 11 8 7 2 5 7 5 9 6 0 Thailand 44 1 47 7 37 8 29 7 23 4 14 9 13 2 Eastern Europe and Central Asia 44 4 52 3 56 2 70 9 72 3 80 5 75.7 Bulgaria 0.5 09 0.7 04 04 0.4 03 Czech Republic 5 1 5 7 8 1 7 6 8 8 9 0 9 0 Hungary 32 34 34 48 3.5 42 46 Poland 22 27 38 62 60 71 7.0 Russian Federation 10 4 12 1 6 1 15 0 15 7 15 6 21 0 Turkey 157 173 180 212 235 289 163 Latin America and the Caribbean 127 6 120 8 126.8 118 5 109 4 105 7 96 0 Argentina 21 4 23 S 32.0 31 0 29 4 28 3 20 0 Brazil 312 35.9 34 9 29 9 29 2 310 28 3 Chile 34 26 1.3 16 12 25 26 Colombia 55 5 9 5 8 6 2 4 0 2 9 3 7 Mexico 37 3 29 8 27 9 26 3 24 1 18 9 18 0 Venezuela, R B de 3 1 2 7 4.2 2 2 2 1 4 1 3 7 Middle East and North Africa 44 9 42.2 41 3 46 1 50 4 46 5 47 4 Algeria 03 03 02 02 02 02 02 Egypt, Arab Rep of 2 4 2.3 3 0 4 3 4 3 4 1 3 4 Lebanon 1 4 1 7 1 8 20 22 25 27 SouthAsia 91 103 82 71 70 60 51 India 50 67 50 43 39 35 30 Pakistan 3 2 2 8 2 5 2.2 1 8 1 5 1 3 Sub-Saharan Africa 40 7 42 6 40 9 42 5 41 1 33 1 32 1 SouthAfrica 97 108 109 114 10.8 96 84 226 STAT IS T ICA L AP PEND I X EX T ER NA L LI AB ILI T I ES AND ASS ET S Table A.46 Total external debt of developing countries owed by public-sector and publicly guaranteed borrowers, 1995-2001 (billizos of dollars) 1995 1996 1997 1998 1999 2000 2001 All developing countries 1,469.2 1,452.6 1,433.6 1,529.4 1,542 3 1,492.2 1,469.7 East Asia and Pacific 263.0 263 1 278 3 295.4 314 2 294 3 289 0 China 94 7 102.3 112.8 99 4 99.2 94 8 91 7 Indonesia 65 3 60 0 58.8 76.4 83 7 80.3 77 5 Malaysia 16.0 15 7 16 8 18.2 18 9 19.1 24 1 Philippines 29 0 27.3 27.1 30 2 36 4 35 8 36 1 Thailand 16 8 16 9 24.7 31.3 34.7 32 5 28.1 Eastern Europe and Central Asia 286 9 286 9 289 0 321 0 316.1 305 2 291 0 Bulgaria 9 4 8 7 8 6 9 0 8 9 9.0 8 5 Czech Republic 9 7 12 2 12 8 11.6 7 7 6 6 5 9 Hungary 24 4 18.9 15.3 15 9 16 9 14.3 12 7 Poland 41 1 39.2 34.2 35 1 33 2 30 8 24 8 RussianFederation 1117 1149 1202 1411 1366 1227 1094 Turkey 51 0 48.9 48 1 50.6 51 6 61.5 70 1 Latin America and the Caribbean 434 7 433 0 413 1 435 8 441 7 433 2 442 9 Argentina 61 4 68.8 73 0 82 7 88 6 917 99 3 Brazil 98 4 96 4 87.3 103 0 100 9 95 1 101 8 Chile 72 4.9 44 50 57 52 55 Colombia 139 149 154 167 202 208 218 Mexico il 0 107 3 93 5 96 4 93 2 89 7 86 2 Venezuela, R B de 30.5 29 9 28 7 29 3 28 4 27 6 24 9 Middle East and North Africa 161.7 155 8 147 0 154 8 156 8 148 8 145 9 Algeria 32 8 33 3 30 7 30 5 27 8 25 1 22 3 Egypt, Arab Rep of 30 7 28 9 26.8 27 6 26 1 24 4 25 2 Lebanoni 1 6 19 23 40 53 66 90 South Asia 139 9 135.4 135 1 144.7 150 0 143 7 142 4 India 82 8 79 4 80 1 84 9 86 4 83 2 82 7 Pakistan 25.4 25 0 25 3 27 5 29 8 28 7 28 6 Sub-Saharan Africa 183 0 178 4 171.1 177 8 163 5 166 9 158 5 SouthAfrica 107 11.2 119 107 82 9 1 79 227 S TAT IS T ICA L AP PEND I X EX T ER NA L LI AB ILI T I ES AND ASS ET S Table A.47 Total external debt of developing countries owed by private-sector borrowers, 1995-2001 (billions of dollars) 1995 1996 1997 1998 1999 2000 2001 All developing countries 596.4 673.4 755.2 865.7 884.7 870.4 862.5 East Asia and Pacific 198 9 234 8 250.5 240 0 227 2 203.1 215 1 China 23 4 26.6 33 9 44 6 52 9 50 9 78 4 Indonesia 59 1 68.9 77 3 74 8 67.3 63.8 58 2 Malaysia 18 3 24 0 30 4 24 3 23 0 22 7 19 3 Philippines 8 8 12.9 18.6 18 1 16 6 14.6 16 2 Thailand 83 2 96.0 85 0 73 6 62 0 47.2 39.3 Eastern Europe and Central Asia 62.6 80.1 97 9 163.2 178.4 198 4 206 8 Bulgaria 0 9 1 3 1 2 1 0 1 1 1 2 1 1 Czech Republic 6.5 7 8 10.2 12.7 15.1 15.0 15 8 Hungary 73 84 93 126 130 152 176 Poland 3 2 4 3 6 2 20 4 27.5 32.5 37.6 Russian Federation 10 4 12 1 8 0 37 1 38 3 37 4 43 3 Turkey 22 8 30 8 36.7 46.6 50.6 56.7 45 0 Latin America and the Caribbean 214 9 237 9 289 1 338.5 353 1 349 7 322 0 Argentina 37 4 42.6 55.4 58 8 56 7 54 2 37.4 Brazil 62 1 84 9 110 7 138 0 142 8 143 7 124 6 Chile 149 182 184 252 286 318 328 Colombia 111 140 16.5 16.3 14.2 13 1 149 Mexico 55 6 50 2 55.2 63 5 74 1 68 8 72 1 Venezuela,RB de 51 45 67 82 89 102 97 Middle East and North Africa 50 1 47 9 48 0 54 9 57 1 53 3 54 8 Algeria 0 3 0 3 0 2 0.2 0 2 0 2 0 2 Egypt, Arab Rep of 2 7 2 5 3 1 4 6 4 8 4.7 4 0 Lebanon 1 4 2 1 2.7 2.7 2.9 3 3 3 5 South Asia 17 4 19.8 19 9 18 3 17 4 214 19.3 India 117 141 143 127 119 159 146 Pakistan 48 48 4.8 4.8 41 41 34 Sub-Saharan Africa 52.5 52.9 49 7 50 7 51 5 44 5 44 5 South Africa 14 6 14 8 13 3 14.1 15 7 15.8 16 1 228 S TAT IS T ICA L AP PEND I X EX T ER NA L LI AB ILI T I ES AND ASS ET S Table A.48 Total external debt of developing countries owed to public-sector creditors, 1995-2001 (billions of dollars) 199s 1996 1997 1998 1999 2000 2001 All developing countries 919.3 885.3 842.9 906.1 922.2 880.3 866.7 East Asia and Pacific 166 9 159 7 158 5 185 1 206 4 194 2 186 7 China 37 0 39 4 39 8 45 1 50 4 50 4 50 5 Indonesia 51 2 46 1 45 5 58 2 66 3 65 9 62 1 Malaysia 5 5 4 2 4 0 4 5 4 8 5 0 5 9 Philippines 231 20 8 19 5 21 9 23 4 218 19 7 Thailanid 112 106 17.8 214 253 239 210 Easterin Europe and Central Asia 156 7 160 6 156 7 172 6 171 3 165 9 159 1 Bulgaria 36 33 33 38 38 38 34 Czech Republic 1 3 1 3 1 1 1 1 II 1 0 1 2 Hunigary 48 37 33 23 23 19 16 Poland 32 2 30 5 26 6 271 25 1 23 7 17 8 Russian Federationi 67 8 76 3 77 4 88 7 87 1 82 3 71 4 Turkey 18 0 15 9 14 3 15 0 13 8 17 3 27 7 Latin America and the Caribbean 217 3 194 2 176 0 180 5 183 0 169 8 181 3 Argentina 27 1 26 1 24 2 25 9 255 25 6 35 2 Brazil 280 254 222 327 377 31 1 372 Chile 3 6 2 7 2 2 2 2 21 19 1 8 Colombia 71 65 56 60 78 77 86 Mexico 54.8 42 6 321 314 26 3 20 8 19 9 Venezuela, R B de 6 9 6 3 5 5 6 7 6 6 6 1 4 9 Middle East and North Africa 1178 1172 1092 1123 1075 101 2 982 Algeria 171 20 2 20.3 21 4 20 4 19 2 17 6 Egypt, Arab Rep of 28 9 27 5 25 7 26 7 25 5 23 8 23 2 Lebanon 04 06 07 09 09 09 1 0 SouthAsia 1145 1097 104.3 1101 1188 1080 1067 India 59 5 55 9 52.8 53 9 58.6 50 6 49 7 Pakistan 24 3 23 8 22 8 251 27 7 26 7 27 3 Suh-Saharan Africa 146 1 143 9 138 1 145 6 135 2 141 1 134 6 South Africa 0 9 0 9 0 4 0 0 0.0 01 01 229 S TAT IS T ICA L AP PEND I X. EX T ER NA L LI AB II T I ES AND ASS ET S Table A.49 Total external debt of developing countries owed to private-sector creditors, 1995-2001 (billions of dollars) 1995 1996 1997 1998 1999 2000 2001 All developing countries 1,146.3 1,240.7 1,346.1 1,489.5 1,504.8 1,482.3 1,465.4 East Asia and Pacific 295 1 338 1 370 2 350 3 335 t 303 1 317 4 China 81 1 89 4 106.9 98 9 101 6 95.3 119.6 Indonesia 73 1 82 8 90 7 93 1 84 7 78 1 73 6 Malaysia 28 9 35 5 43.2 37 9 37 1 36 8 374 Philippines 14 7 19 4 26 2 26 4 29 6 28 6 32 7 Thailand 88 9 102 3 919 83 5 71 5 55 8 46 4 Eastern Europe and Central Asia 192 8 206 4 230 2 311 6 323 1 337 7 338 7 Bulgaria 6 7 6.7 6 5 6 2 6 2 6 3 6 2 Czech Republic 14 9 18 7 22 0 23 1 21 7 20 6 20 5 Hungary 26 8 23 6 21.3 26 2 27 6 27 6 28 7 Poland 12 0 13 0 13 8 28 4 35 6 39 6 44 6 Russian Federation 54 3 50 7 50 7 89 6 87 8 77 8 81 2 Turkey 55 8 63 8 70 5 82 2 88 4 1010 87 4 Latin America and the Caribbean 432 3 476 7 526 4 594 3 611.8 613.1 583 5 Argentina 71 7 85.3 104 2 115.6 119.8 120 3 101 5 Brazil 132 5 155 9 175 8 208 4 206 0 207 7 189 2 Chile 18 5 20 3 20 6 28.0 32 2 35 1 36 6 Colombia 18 () 22 4 26 3 27 1 26 6 26.2 28 1 Mexico 1118 1149 116.6 1285 1410 1376 1384 Venezuela, R B de 28 6 28 2 29 9 30 7 30 6 31 7 29 7 Middle East and North Africa 94 0 86 5 85 8 97.5 106 4 100 9 102 5 Algeria 15 9 13 5 10 6 9.2 7 6 6 1 4 9 Egypt, Arab Rep of 4 4 3.8 4.2 55 5 3 5 2 6 0 Lebanon 25 34 43 S9 73 89 11 5 South Asia 42 8 45.5 S0 7 52 9 48 6 57.1 55 0 India 35 0 376 41 5 43 7 39 7 48 S 47 6 Pakistan 5 9 6 0 7.3 7 2 6 2 6 1 4 7 Sub-Saharan Africa 89 3 87.5 82 8 82 9 79 8 70 2 68 4 South Africa 24 4 25 2 24 9 24 8 23 9 24 7 23 9 230 Sr AT IS T ICA L AP PEND I X EX T ER NA L LI AB ILI T I ES AND ASS ET S Table A.50 Foreign exchange reserves of developing countries, 1995-2003 (billiois of dollars) 1995 1996 1997 1998 1999 2000 2001 2002c 2003f All developing countries 447.7 538.1 591.0 607 6 645.7 698.3 778.5 887.5 995 5 East Asia anid Pacific 154 5 199 7 212 5 233 2 262 5 272 6 320 3 377 3 432 3 China 73 6 105 0 139 9 145 0 154 7 165 6 212 2 - - Indonesia 13 3 17 8 16 1 22 4 26 2 28 3 270 - - Malaysia 22 9 26 2 20 0 24 7 29 7 28 6 29 6 - - Philippilnes 6 2 9 9 7 1 9 1 13 1 12 9 133 - - Thailand 355 37 2 25 7 28 4 33 8 31 9 323 - - Europe and Central Asia 81 1 83 4 90 7 95 6 102 8 119 6 130 0 164 0 189 0 Czech Republic 138 12 4 9 7 12 5 12 8 13 0 142 - - Hungary 119 96 83 92 107 109 103 - - P'oland 14 7 17 7 20 3 27 2 26 1 26 3 252 - - Russian Federation 14 3 11 3 12 8 7 8 8 5 24 3 325 - - Turkey 124 164 186 194 232 223 187 - - Latin America and the Caribbean 125 1 153 1 166 7 157 5 150 0 152 9 155 9 151 9 161 9 Argertina 137 17 7 22 2 24 5 26 1 24 4 145 - - Brazil 49 7 58 3 50 8 42 6 34 8 32 5 357 - - Chile 141 149 173 153 142 147 140 - - Mexico 15 3 19 2 28 1 315 310 35 1 444 - - Venie,uela,RB de 57 11 1 140 116 11 7 126 88 - - Middle East and North Africa 44 9 56 4 63 0 616 64 2 76 5 85 2 90 2 90 2 Algeria 20 42 80 68 44 119 180 - - Egypt, Arab Rep of 16 0 17 2 18 5 17 9 14 3 12 9 129 - - Libya 50 50 50 62 62 114 137 - - SauidiArabia 71 128 135 127 155 180 148 - - South Asia 24 2 24 8 30 0 32 9 37 9 42 6 52 8 70 8 85 8 Bangladesh 2 2 1 7 1 6 1 9 1 6 1 5 13 - - Itidia 17 5 19 7 24 3 27 0 32 0 37 3 453 - - Pakistan 1 7 0 5 1 2 1 0 1 5 1.5 36 - - Sub-Saharan Africa 17 9 20 6 28 1 26 8 28 2 34 0 34 3 34 3 37 3 Botswana 46 50 56 59 62 63 58 - - Nigeria 1 4 4 1 7 6 7 1 5 5 9 9 105 - - South Africa 2 8 0 9 4 8 4 2 6 1 5 8 58 - - -Not available Note e = estimate, f = forecast 231 S TAT IS T ICA L AP PEND I X KEY DEBT RAT IO S AND CO UN TRY C LASS IF IC AT IO NS Table A.51 Key external debt ratios for developing countries (percent, averages for 1999-2001) Present value (PV) Total external debt (EDT) of EDT as % EDT as % of gross PV as % Total debt servmce Interest serv,ce to Exports of G&S (XGS) of XGS nanional mcorne (GNI) of GNI as % of XGS as % of XGS Albania 83 58 28 19 3 1 Algeria 114 110 46 44 22 6 Angola 140 136 147 143 27 3 Argentina 375 409 50 55 67 30 Armenia 176 115 S0 33 10 3 Azerbaijan 60 49 25 20 7 2 Bangladesh 178 113 33 21 8 2 Barbados 46 49 29 30 5 3 Belarus 12 11 7 7 3 1 Belize 177 191 102 110 24 13 Benin 456 230 72 36 14 3 Bhutan 164 151 53 49 4 1 Bolivia 327 139 59 25 38 11 Bosnia and Herzegovina 134 96 46 33 18 6 Botswana 11 9 8 6 2 0 Brazil 337 354 43 45 81 24 Bulgaria 136 118 75 65 19 7 Burkina Faso, 569 273 61 29 14 4 Burundi 1,790 1,090 156 95 39 11 Cambodia 187 159 85 72 1 0 Cameroon 324 191 99 59 13 6 Cape Verde 151 97 63 41 6 2 Central African Republic 766 499 84 55 12 4 Chad 462 263 73 42 10 2 Chile 164 162 55 54 28 8 China 61 59 16 15 9 2 Colombia 214 219 45 46 37 15 Comoros 408 294 113 82 4 1 Congo, Dem Rep of 1,121 1,044 257 239 2 2 Congo, Rep of 193 182 231 218 4 1 Costa Rica 57 59 31 32 9 4 C6te d'lvoire 240 220 ill 102 13 5 Croatia ill 111 55 55 31 6 Czech Republic 56 5S 41 40 12 3 Djibouti 106 72 46 31 4 1 Dominica 143 125 87 76 11 7 Dominican Republic 49 47 28 26 6 2 Ecuador 198 206 102 107 22 10 Egypt, Arab Rep of 140 120 30 26 9 4 El Salvador 86 85 36 36 7 4 Equatorial Guinea 9 8 54 44 0 0 Eritrea 142 82 61 35 2 2 Estonia 60 62 56 58 8 3 Ethiopia 598 306 91 46 19 6 Filjl 16 15 11 10 2 1 Gabon 111 108 87 85 15 6 Gambia, The 415 225 120 65 9 1 Georgia 190 118 56 35 9 4 Ghana 277 161 116 68 13 4 Grenada 89 79 59 52 7 2 Guatemala 112 96 26 23 10 5 Guinea 426 227 105 56 14 4 Guinea-Bissau 1,096 695 336 213 38 18 Guyana 210 131 218 137 7 3 Haiti 235 154 32 21 5 3 Honduras 210 131 88 55 14 3 Hungary 93 87 64 60 42 4 India 131 91 21 15 12 5 Indonesia 205 198 99 96 23 9 Iran, Islamic Rep of 29 26 7 6 5 2 Jamaica 111 120 68 73 14 6 232 ST AT IS T ICA L AP PEND I X KEY DEBT RAT IO S AND CO UN TRY C LASS IF IC AT IO NS Table A.51 Key external debt ratios for developing countries (percent, averages for 1999-2001) Present value (IPV) Totai external debt (EDT) of EDT as % EDT as % of gross PV as V0 Total debt service Interest servicc to Exports of G&S (XGS) of XGS national income (GNI) of GNI as % of XGS as % of XGS Jordan 127 118 89 82 11 4 Kazakhstan 153 151 79 78 35 7 Kenya 204 154 55 41 16 4 Kyrgyz Republic 292 225 131 101 30 8 Lao PDR 507 263 157 82 9 2 Larvia 165 160 80 78 15 6 Lebanon 428 463 71 77 50 27 Lesotho 108 74 55 37 13 3 Liberia 1,731 1,679 487 472 1 0 Lithuania 99 98 47 47 37 4 Macedonia, FYR 89 73 40 33 12 4 Madagascar 544 267 104 51 9 21 Malawi 556 318 151 87 8 3 Malaysia 41 44 56 59 6 2 Maldives 51 38 43 32 5 I Mali 384 187 114 55 11 2 Malta 36 32 43 38 3 2 Mauritania, 568 369 222 144 23 7 Mauritius 63 60 40 38 7 2 Mexico 89 97 29 32 27 7 Moldova 144 134 88 82 22 6 Mongolia 150 103 92 63 8 2 Morocco 126 109 51 44 20 7 Mozambique 569 117 125 26 11 1 Myanmar 245 174 78 55 4 0 Nepal 159 92 49 28 5 1 Nicaragua 702 473 306 206 37 6 Niger 540 356 82 54 9 2 Nigeria 155 154 88 87 13 4 Oman 57 55 37 36 16 3 Pakistan 299 238 55 43 28 8 Panama 92 100 89 97 13 6 Papua New Guinea 113 98 80 70 12 4 Paraguay 86 81 37 35 11 4 Peru 284 290 53 54 23 14 Philippines 114 120 67 71 17 7 Poland 129 123 39 37 32 5 Romania 96 91 31 30 22 5 Russian Federation 140 134 63 60 16 7 Rwanda 910 475 71 37 13 4 Samoa 213 148 85 59 8 5 Sao Tome and Principe 1,839 588 735 235 23 13 Senegal 252 175 77 53 16 4 Seychelles 46 45 37 37 3 1 Sierra Leone 1,100 772 178 125 89 12 Slovak Republic 79 77 56 55 19 5 Solomon Islands 98 68 58 40 4 2 Somalia - - - - - - South Africa 65 63 20 19 12 3 Sri Lanka 117 95 54 43 10 3 St. Kitts and Nevis 123 111 65 58 13 7 St Lucia 62 60 37 36 7 3 St Vincent and the Grenadines 109 87 60 49 8 4 Sudan 710 673 156 148 3 0 Swaziland 28 27 22 22 2 1 Syrian Arab Republic 307 300 125 122 4 2 Talikistan 138 109 109 86 10 3 Tanzania 500 101 75 15 11 3 Thailand 84 83 58 57 25 4 Togo 288 205 111 79 7 2 (Table continues on ttext page) 233 s r AT I S r I C A L A P P E N D I X K E Y D E B T R AT I O S A N D C O U N T R Y C LA S S I F I C A T I O N S Table A.51 Key external debt ratios for developing countries (continued) (percent, averages for 1999-2001) Prcsent value (PV) Total external debt (EDT) of EDT as % EDT as % of gross PV as % Total debt service Interest service to Exports of C&S (XGS) of XGS national income (GNI) of GNI as % of XGS as % of XGS Tonga 67 45 42 28 2 1 Trtnidad and Tobago 55 59 33 35 5 3 Tunisia 11O 109 57 56 14 4 Turkey 207 209 65 66 40 11 Turkmenistan - - - - - - Uganda 556 172 65 20 7 3 Ukraine 66 59 39 35 12 3 Uruguay 227 231 49 50 35 15 Uzbekistan 142 136 - - 26 7 Vanuatu 37 21 31 17 1 0 Venezuela, R B de 113 122 30 33 25 9 Vietnam 76 66 41 36 7 2 Yemen, Rep of 95 68 61 44 5 1 Yugoslavia, Fed Rep of 379 378 123 122 4 2 Zambia 626 445 178 127 14 4 Zimbabwe 174 161 54 50 6 3 - Not available a Enhanced HIPC assistance will be accounted for in Global Developmient Finance 2004 234 S TAT IS T ICA L AP PEND I X K E Y DEBT R AT IO S AND CO UN TRY C LASS IF ICA T IO NS Table A.52 Classification of countries by levels of external indebtedness and income (138 econzonices tin WVorld Bank Debtor Reporting System) Severely mndchtd, Severely indebted, Moderately indebted, Moderately mcdebted, Less tndebted, Less indebted, low-mncome middle-income low-income middlc-intontc low-income mtiddk-inconme Angola Argentina Bhutan Bulgaria Armenia Albatiia Benini Belize Cambodia Bolivia A7erbailan Algeria Buirkina Fasor Brazil Camerooni Chile Bangladesh Barbados Burundi Ecuiador Ghana Colorsibia Equatorial Guinea Belarus Cenitral Africais Republic Gabon Haiti Croatia Eritrea Bosinia and Herzegovina Chad Guyana Kenya Doninilca Georgia Botswana Comiioros Jordan Malt Estonia India Cape Verde Congo, Deiii Rep of Lebanon Mongolia Grenada Lesotho Chinsa Congo, Rep of Panama Papua New Guiiiea Honiduras Mozambiq1ue Costa Rica Cote d'lvoire Peru Senegal Hunigary Nepal Czech Republic Ethiopia Syriani Arab Republic Tanzania Jamaica Solomilon Islanids Dliboriti Gambia, The UruguLay Togo Kazakhstan Ukraine Doininicaii Republic Guinea Yugoslavia, Fed Rep of Uganda Larvia Vietnam Egypt, Arab Rep of Guinea-Bissau Uzbekistain Malaysia Yeisieni, Republic of El Salvador Indonesia Zimibabwve Philippisies Fiji Kyrgyz Republic Russian Federatioii Guatemala Lao PDR Samoa Iranm, Islaniic Rep of Liberia Slovak Republic Lithuiania Madagascar St Kitts anid Nevis Macedonia, FYR Malawi St Vincent and the Greisadines Maldives Mauritania, Thailanid Malta Moldova Tunisia Masiritius Myaninar Turkey Mexico Nicaragua Turknsenistan Morocco Niger Oman Nigeria Paraguay Pakistan Poland Rwanda Romania Sao Tome and Principe Seychelles Sterra Leonie Souith Africa Somalia Sri l anika Sudan St Lucia Talikistan Swaziland Zambia Toniga Triisidad and Tobago Vanuatu Venezuiela, R B (Ie a Enhanced HIPC assistanice will be accounted for in Global Developnient Fillanice 2004 Income and indebtedness classification criteria Indebtcdness classification PV/XGS less than 220 percent PV/XGS higher than 220 but higher than 132 percetit percent or PV/GNI higher or PiV/GNI less than 80 percent PV/XGS less thanl32 percent and Income classification than 80 percent but higher than 48 percent PV/GNI less than 48 percent Low-income GNI per capita Severely indebted Moderately indebted Less indebted low-income countries less than $745 low-income countries low-income countries Middle-income GNI per Severely indebted Moderarely indebted middle- Less indebted middle-income capita between $746 and middle-income countries income countries countries $9,205 Note- PV/XGS is present valie of debt service to exports of goods and services PV/GNI is present value of debt service to gross national income. 235 S TAT IS T ICA L AP PEND I X KEY DEBT RAT IO S AND CO UN TRY C LASS IF IC AT IO NS Table A.53 Classification of countries by region and level of income Europe and Sub-Saharan Africa Central Asia Middle East and Asia North Afrnca East and Eastern Income Southern West Eaet Asia South Europe and Rest of Mlddle North group Subgroup Afnca Africa and Pacific Asia Central Asia Europe East Africa Americas 4 Low- Angola Benin Cambodia Afghanistan Armenia Yemen, Rep of Haiti income Burundi Burkina Faso Indonesia Bangladesh Azerbaijan Nicaragua Comoros Cameroon Korea, Dem Bhutan Georgia Congo, Dem Central African Rep of India Kyrgyz Rep of Republic Lao PDR Nepal Republic Eritrea Chad Mongolia Pakistan Moldova Ethiopia Congo, Rep of Myaiimar Tajikistan Kenya Cote d'lvoire Papua New Ukraine Lesotho Equatorial Guinea Uzbekistan Madagascar Guinea Soloinon Malawi Gambia, The Islands Mozambique Ghana lTimor-Leste Rwanda Guinea Vietnam Somalia Guinea-Bissau Sudan Liberia Tanzania Mali Uganda Mauritaiiia Zambia Niger Zimbabwe Nigeria Sao Tome and PrinLipe Senegal Sierra Leone Togo Middle- Lower Namibia Cape Verde China Maldives Albania Turkey Iran, Islamic Algeria Belize Income South Africa Fiji Sri Lanka Belarus Rep of Djibouti Bolivia Swaziland Kiribati Bosnia and Iraq Egypt, Arab Colombia Marshall Herzegovina Jordan Rep. of Cuba Islands Bulgaria Syrian Arab Morocco Dominican Micronesia, Kazakhstan Republic Tunisia Republic Federated Macedonia, West Bank Ecuador States of FYR, and Gaza El Salvador Philippines Romania Guatemala Samoa Ruissian Guyana Thailand Federation Honduras Tonga Turkmenisran Jamaica Vanuatu Yugoslavia, Paraguay Fed Rep of Peru St Vincent and the Grenadines Suriname Upper Botswana Gabon American Croatia Isle of Man Lebanon Libya Antigua and Mauritius Samoa Czech Oman Malta Barbuda Mayotte Malaysia Republic Saudi Argentina Seychelles Palau Estonia Arabia Barbados Hungary Brazil Latvia Chile Lithuania Costa Rica Poland Dominica Slovak Grenada Republic Mexico Panama Puerto Rico St Kitts and Nevis St Lucia Trinidad and Tobago Uruguay Venezuela, R.B de 236 S TAT IS T ICA L AP PEND I X KEY DEBT RAT IO S AND CO UN TRY C LASS IF IC AT IO NS Table A.53 Classification of countries by region and level of income Europe and Sub-Saharan Africa Central Asia Middle East and Asia North Afnca East and Eastern Income Southern West East Asia South Europe and Rest of Middle North group Subgroup Africa Africa and Pacific Asia Central Asia Europe East Africa Americas High- OECD Australia Austria Canada inconie Japan Belgium United States Korea, Rep of Denmark New Zealand Finland France' Germany Greece Iceland Ireland Italy Luxembourg Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Non- Brunei Slovenia Andorra Bahrain Aruba OECD French Channel Israel Bahamas, The Polynesia Islands Kuwait Bermuda Guam Cyprus Qatar Cayman Islands Hong Kong, Faeroe United Arab Netherlands China, Islands Emirates Antilles Macao, Greenland Virgin Chinad Liechtenstein Islands (U.S.) New Monaco Caledonia San Marino N. Mariana Islands Singapore Taiwan, China Note For operational and analytical purposes, the World Bank's main criterion for classifying economies is gross national income (GNI) per capita Every economy is classified as low income, middle income (subdivided into lower middle and upper middle), or high income. Other analytical groups, based on geographic regions and levels of external debt, are also used Low-income and middle-income economies are sometimes referred to as developing economies The use of the term is convenient, it is not intended to imply that all economies in the group are experiencing similar development or that other economies have reached a preferred or final stage of development Classification by income does not necessarily reflect development status. This table classifies all World Bank member economies, and all other economies with populations of more than 30,000 Economies are divided among income groups according to 2001 GNI per capita, calculated using the World Bank Atlas method The groups are: low income, $745 or less; lower middle income, $746-2,975, upper middle income, $2,976-9,205, and high income, $9,206 or more. a Former Yugoslav Republic of Macedonia b The French overseas departments of French Guiana, Guadeloupe, Martinique, and Reunion are included in France c On 1 July 1997 China resumed its exercise of sovereignty over Hong Kong d On 20 December 1999 China resumed its exercise of sovereignty over Macao 237 imce the late 1990Q a iqp- p-ir-ntal :-ift lhas occurred in the pattern of private sector financial Sflows to developlrtl 'qXlpi jI, DePT flows have fallen sharply, while equity flows-mainly in the form of foreign direct investipeqj-have remained compiaratlvely robust. This shift from debt to equity should diminish the volatility of developing countries' external finance and improve their access to technology, iiarkets, and managenment expertise. But much more needs to be done to put development finance on a stable basis. The decline in debt flows, coupled with weak export revenues, has placed enormous pressure on the middle-income, highly indebted countries. Many low-income countries face the triple burden of low comimiodity prices, unsustainable debt, and declining levels of aid. Growth remains well short of what is necessary to achieve the Millennium Development Goals. Global Development Finance 2003, I. Analysis and Statistical Appenidix is the World Bank's annual review of recent trends in and prospects for financial flows to developing countries It also contains the Bank's projections of the global outlook in light of current global geopolitical uncertainties. Global Development Finance 2003, II Summary and Counitry Tables includes a comprehensive set of tables with statistical data for 138 countries that report debt under the World Bank Debtor Reporting System, as well as summary data for regions and income groups. It contains data on total external debt stocks and flows, aggregates, and key debt ratios, and provides a detailed, country-by-country picture of debt Global Development Finance 2003 debt data are also available on CD-ROM, with more than 200 historical time series from 1970 to 2001, and country group estimates for 2002. With analysis spanning the range of flows from sophisticated market transactions to emergency aid, Global Development Finance 2003 IS unique in its breadth of coverage of the issues related to international development finance. In putting all development-related flows in a consistent framework, the publication will allow government officials, econormists, investors, financial consultants, academics, bankers, and the entire development community to better understand, manage, and promote the key challenge of financing development. For more inforimiationi on the analysis, please see www worldbank org/prospects, further detail about the Country Tables can be found at wwwworldbank org/data For general and ordering inforiiatioii, please visit the World Banik's publications Web site at wwwworldbank org/publicationis, or call 703-661-1580, within the United States, please call 1-800-645-7247 S THE WORLD BANK 1818 H Street, NW Washington, DC 20433 USA Telephone- 202 473-1000 Facsimile- 202 477-6391 Internet. www.worldbank.org E-mail feedback@worldbank.org 9 780821 354285 ISBN-0-821 3-5428-0