Borrowing, resource transfers, and external shocks to developing countries : historical and counterfactual

Since the late 1970's the buildup and servicing of external debt has dominated the economic situation in many developing countries. This paper gathers some statistical evidence on the magnitude of lending and repayment and on the question of whether repayment reduces the resources available for development. The evidence largely confirms commonly held beliefs. Although most debtor countries have made net transfers of resources to creditors, middle-income countries that have not had to reschedule their debts have averaged smaller net transfers than those that did reschedule. Adverse changes in terms of trade since 1978 accounted for most of the debt buildup in many non-oil developing countries. The mostly favorable terms of trade for oil exporters, on the other hand, gave them large gains that could have more than covered the losses of the oil importing developing countries. Heavy borrowing by oil exporters during favorable times seems to have been a major factor in precipitating the debt crisis. Since the debt crisis, the highly indebted countries have greatly increased their official borrowing. Increased official lending might help the resource balance and domestic investment of lower-income countries more than those of middle-income countries with high commercial debts.