-14-

The baseline projections for each developing country studied are
summarized in Table 5 and presented in greater detail in Appendix tables
9-16. In every case the ratio of interest payments to exports declines
after 1984. But only for Argentina, Chile, and Mexico is there a decline
between 1982 and 1984. In these three countries the approximately balanced
current account projected for 1983-84 keeps nominal debt and interest
payments nearly constant while the value of exports grows comparatively
rapidly. In most cases the ratio falls to roughly half its 1982 level by
the end of the projection period, but remains at levels that are high
compared with 1974-1981.

The average annual rate of growth of external debt, which is not
necessarily equal to the rate of growth of bank debt, is shown in Appendix
tables 9-16. For 1983-84 the growth in total debt varies over a wide range
from a high of 13 percent for the Philippines to minus 8 percent for
Venezuela, but in every case there is a substantial slowing as compared to
recen: years. With the exception of Korea and the Philippines the growth of
nominal debt falls within a 9-14 percent range by 1990.

An analysis of the sensitivity of our simulation results to
changes in the underlying assumptions is also summarized in Table 5.i/

Five experiments were conducted. They are: (1) one percentage point higher
real economic growth in the OECD countries throughout the forecast period;
(2) a one percentage point drop in the LIBOR interest rate; (3) a fall in
each country's real exchange rate equal to 5 percent; (4) one precentage
point slower real economic growth in the country considered; and (5) private
capital outflows in real terms continuing at the same rate as their average

in 1930-82,

1/ Detailed tables for each experiment are available from the authors.


T

T
d

YOL}R[S440d04Ne JapyO YsulJ BY SL TOHY pue ‘dN A¥QunoD [elyysnpuL Jo xapuL pay
T4dND4N ‘x@puL aqeu abueyoxa ye} [op

asodya

Sanipa aiun

aun st

3

ANSK

“(TT4dND4N) HOd * VY + (OTM494N) HOd » ZY + IV + (Id9N) HOd
iSL uoLjenba pajeunysa aul

*S*N peqyé |

SY USE EG

aM-apely
=

ai 81g

«i

*yaqauweued uolzdavd09
yBlam-apeuz e st
Asqunod-OT gd 242 SL OTM43AN ‘Idd *S*N ayy

34} JO abueYyD yussved ayy sqUasauded Hd

auaym

= (AM9X) Hdd

*SILYSL3ZLRS-3 Ue SasayjUaued UL Syaquinu au, /T

#0
vo
#b
9
vo
vb

vd

vd

(6z°0) (o°e-) (z€*0-)
18 03 Td 29 I'l €T°0 WN ve"0 86°0- 00°0-
(8€°0) (6€°2-) (Lv°0-)
18 03 10 OZ vert v1 WN €L°0 16°0- 600°0-
(sg*T) (pT°I-) (60°T-)
18 03 10 9 Te"l 80°0 YN 98°0 9T°0- 400°0-
(88°T) (66°0-) (Z0°I-)
18 02 10 OZ 02°T I1°0 WN ve'T ST*O- £00°0-
(s2°T) (€€°2-) (¥8°0-)
18 03 TD €9 19°T oto WN vE'T 65°0- 600°0-
(22°T) (96°T-) (18°0-)
18 03 TD OZ 8S°T e1°0 WN SL°T 95°0- T10°0-
(€9°0) (28°2-) (s2*0-)
18 03 10 €9 66°T vT°0 2v°0 €£°0 Tr"0- 200°0-
(€2°T) (v0°e-) GL°0-)
18 03 10 €9 BIT 12°0 WN s9°0 tb*0- $00°0-
(02°T) (2v°2-) (€$°0-)
18 03 20 OL WN 00°T 2b°0- g00°0-
[eAuaquy TOHY ev —___ ay WV
UOLzeWL ISI SOL9S19e9S uoLssaubay qua 19144909

uoljenbZ anjeq 31UN qwodxg JO} Sozewlysy JojJoUeIeg

dT A1aVL XIGN3ddv

sautddiitud
sautddi|tud
eau0y YyNOS
eay0y YyNOS
Lizeug
Lyzeug

| }O-UON

307 | }0-u0N
907 [}0-uoN

uo Lbay
/kayunog


APPENDIX TABLE 13
BASELINE SCENABIO 1/ -~ BEXICO

REAL NOBINAL BIPORTS OF EXPORTS OF TOTAL TOTAL
REAL INTEREST INTEREST GOODS AND GOODS AND ¥OSIBAL WOATMAL TOTAL REAL
INTEREST PATSEITS PAISENTS SERVICES SERVICES DEBT-MET ©DEBT-§IrT DEET-WET
OvER (BILLIONS {BILLIOWS (BILLIONS GROWTH (BILLIONS == GROWTH 2s
BIPORTS or or oF BATE oF BATE (1980= 100)
(@ERCEST) DOLLARS) DOLLARS) DOLLARS) (PERCENT) DOLLARS) (PERCENT)
1974 8.3 -0.5 5.8 - 12.6 80.3
1975 “5.7 0.8 6.8 10.3 17.3 50.7
1976 5.9 762 12.5, 23.6 65.48
1977 Lo 9.0 25.0 29.1 75.8
1978 71.3 1125 27.8 32.3 78.2
1979 6.5 16.0 39.1 85.5
1980 6.8 28.6 53.8 100.0
1981 1.9 30.5 24.0 125.2
1982 16.0 30.4 0.3 133.6
1983 16.7 32.2 6.0 127.5
. 12.8 36.7 16.1 120.8
10.6 ais 12.5 119.3
1986 9.9 45.3 4 122.7
1987 9.3 49.6 9.7 130.3
1988 8.8 54.6 9.9 137.9
1989 8.2 9 % 60.1 10.2 185.3
1990 8.2 5.4 10.3 66.4 10.8 127.0 153.1
CUBREST ISPLICIT COMDLATED
TOTAL REAL = accoust TRADE CAPITAL CAPITAL REAL BOAT SAL REAL
DEBI-BET BALAECE BALAICE OUTFLOW OUTFLOW Ieporrs ISTEREST INTEREST
GROUTE (BILLIONS (BILLIONS (BILLIONS (BILLIONS GROWTH RATE BATE
BATE or or or or RATE (PERCENT) = (PERCENT)
(PERCENT) DOLLARS) DOLL ARS) DOLLARS) DOLLARS) (PERCENT)
1974 - "2.9 72.8 1.6 1.6 - 6.5
1975 25.8 4.2 73.1 q1 2.7 1.9 6.7
1976 29.0 73.3 72.1 3.5 6.2 4.9 728
1977 15.8 at1.8 70.5 10.5 77.6 6.8
1978 3.1 =3-2 71.2 11.3 26.8 7.2
1979 9.3 7525 72.2 ta.t 26.5 8.8
1980 17.0 -7.7 71.7 21.2 22.9 10.1
1981 25.2 713.9 73.1 29.8 34.6 1.3
1982 6.7 7328 ToT 36.3 728.6 12.5
1983 8.6 0.2 10.0 36.3 "2.6 9.8 6.6
1984 5.6 0.3 10.0 36.3 4.3 9-7 5.7
1965 0.9 73.5 6.0 36.3 28.6 9.5 5.5
1986 2.8 6.8 3.0 36.3 13.7 9.3 5.3
1967 6.2 710.2 6.0 36.3 12.1 9.0 5.0
1988 5.8 -10.7 0.9 36.3 5.3 8.8 4.8
1989 S28 71103 0.0 36.3 5.5 965 4.5
1990 503 712.2 0.0 36.3 5.8 8.5 4.5

4/ BISTORICAL DATA POR 1978-82, PROJECTIONS FOR 1983-90
2/ TOTAL BOMIMAL DEBT-BET DIVIDED BY U.S. GP DEPLATOR


Log Chart 2 NX! = g+t

Nominal Export:
NX sgt
n J time
Log ‘Ty i
Nominal Debt ty ty
ND! =d+t+m'
__-ND aed+tT7
Log 1 } time
Nominal Interest
Payments to 4
NRi'=d+#T' =q4mn'!
: NR =d += gt+T@
1 i time
Log t t
Nominal Current! ° 1
Account
+
TB =0
0
| —F7,
1 l time
v T NCA



-17-

Second, movements in market interest rates are clearly more
important for the short run prospects as compared with the other factors
considered,

Third, the policies followed by the debtor countries themselves
are crucial to the outlook for their debt positions. Even the favorable
effects of an increase in OECD growth can be substantially reduced if
appropriate policies are not followed to allow the trade surplus to
materialize. Moreover, capital outflows probably depend in large part on
the confidence that domestic residents have in the soundness of domestic
economic policies and the stability of domestic financial markets.

Finally, in the real world the effects we have considered are not
independent of one another. In putting together a more realistic set of
simulations one would want to combine the results for alternative
assumptions about interest rates, economic activity, exchange rates and

capital flows in a more integrated pattern.


*4aqaueued uoLz2@UJOD U0LZeLaus0I04Ne

Japs 4s4ty 943 SL TOHY pur “pue[yazqims snid salsqunos QT-9 ayy “SA azeu aBueYyoxa [ead ayy SL

MWYaY SdNO Adqunod LeLugsnpul Jo xapul paqyBlam-apesy & SL TT4dND4N fan[ea yun quodxa ayy st ANDX
“sue, Op quasund uL squodxa si agxX ‘sasayquaued ut aqeiuea ay yo wyztueBo, Leunjeu ayy squasaudey 6o| o494umM

O=L

(Ct)MWuzH) Gol ()ev z + ((TT4dNDIN) BOL » 2v + Iv = (ANDX/G9X) BOL
II- _
iS} uoljenba pazewiysa ayy °S914S13e3S-} aue sasayquesed ul Suaqunu ay, /T

(12*2-) (sg°2T) (82°21)
vd 18 03 10 OZ 82°T 68°0 YN 65°0- s8°e GS*eT- — sautddettud
(99°0) (42°) (12°9-)
vd 18 03 10 09 £2°2 2s°0 0Z°0 92°0- £8°T S°S- sautddt(tud
(e8°T) (g2°€) (18°2)
TD €8 03 1D SZ Le°l 6L°0 WN 9b°0 16°2 e*pi- nuad
9T°T) (86°6) (s8°b-)
vd 28 03 10 €z S6°T 80 80 = $60 6E°S v2°l2- e8J0¥
(€6°0) (2y°eT) (g9°S-)
vd 28 03 1D EZ L0°T £6°O WN 65°0 91°S LE*H2- e810)
(82°p) (60°2) (69°6-)
vd 18 02 10 o£ BET s8°0 WN vLT SO°T 6L°6- Lpzeag
(€6°S) (81°12) (98°¢I-)
vd 18 03 10 29 ze°T 26°0 WN SO°T v6°T 6L°0I- Lizeug
[ease qu ¥oSyeM-uLqund 2 TOHY (Hews 2v iv] U0 {Bay
uoLyewLysy 2L9SL3e9S uoLssaubay qa 19144309 Asqunog

UolLzenbZ aun [oA Wodxz ay} JOS SozewWLzSy JojJoUeIeg

ST 318VL XION3ddy


~3A-

Columns 4 and 5 in Table 1 show cumulative changes in official
and private claims on nonresidents. The buildup in official reserve assets
was an important use of funds for only three countries: Chile, Korea and
Venezuela. In contrast, the accumulation of private claims on nonresidents
accounted for more than half of the buildup of external debt for Venezuela
and Argentina and accounted for 20 percent or more of the buildup for “our
other countries.

The estimates for private claims on nonresidents shown in co’umn 5
are derived from the other data in Table 1. Column 5 is the difference

between the buildup in external debt in column 1 and the recorded uses of

Table 1

External Debt and Cumulated Changes im,
Balance of Payments Flows: 1974-1982 ~
(Billions of U.S. Dollars)

(3)

(1) (2) Cumulated Net (4) (5)

Cumulated Increase Cumulated Service and Cumulat ed Cumulated Increase

in Gross Trade Other Current Increase in in Private Claims

External Debt Deficit2/ Account Payments Official Reserves  _on Nonresidents 3/
Argentina 33 -10 20 2 20
Brazil 94 16 68 -1 1
Chile 15 3 10 3 0
Korea 34 2 -| 6 6
Mexico 83 9 37 0 36
Peru n 1 5 1 3
Philippines 20 13 0 2 4
Venezuela 27 -33 26 9 26

T For a time series of yearly data and definitions see Appendix Tables 1-8.
2/ Deficit = +

3/ Difference between column 1 and columns 2-4,


arvsavas tapes 11

BASELISE SCENARIO 1/ -~ CHILE

BEAL NOMINAL SEIPORTS OF EXPORTS OF TOTAL TOTAL
REAL INTEREST INTEREST GOODS AED GOODS AND SOBINAL NOMINAL TOTAL BEAL
INTEREST PAYHBUTS PAYSEBTS SERVICES SERVICES DEBT-aET DEBT-. DEBT-BET
OVER (BILLIONS {BILLIONS (BILLIONS GROWTH (BILLIONS GROWTH 27
Exeorts or or oF BATE or Zz (1980= 100)
(PERCEWT) DOLLARS) DOLLARS) DOLLARS) (PERCENT) DOLLARS) (PERCENT)
1974 712.3 70.3 0.2 2.3 - 85.5
1975 4s 70.3 0.2 1.8 721.7 105.0
1976 0.2 70.0 0.3 4 33.3 90.9
1977 -0.3 70.0 S 2 83.8
1978 1.7 0.1 0 20.0 79.3
1979 71.5 0.1 7 56.7 92.4
1980 73.5 0.2 3 38.0 100.0
1981 -152 0.1 a 73.2 131.7
1982 7.7 0.5 5 6.6 21.6 150.9
1983 a7 0.7 2 10.3 3.5 151.8
1984 6.8 0.6 s 17.7 2.3 149.0
1985, ° 5.9 0.6 J 13.6 5.5 151.1
1986 5.4 0.6 9 13.6 8.5 157.6
1987 4.8 0.6 + 13.6 11.0 168.3
1988 a4 0.6 1 13.6 10.9 178.6
1989 3.9 0.6 Q 13.6 9.8 188.6
1990 3.8 0.7 2 13.6 9.6 198.8
CURRENT IMPLICIT CUSULATED
TOTAL REAL = ACCOUNT TRADE CAPITAL CAPITAL REAL aIRAL REAL
DEBT-NET BALAICE BALANCE OUTFLOW OUTFLOW ISPORTS INTEREST INTEREST
GROSsTE (BILLIONS (BILLIONS (BILLIONS (BILLIONS GROWTH RATE Te
z OF or or oF RATE (PERCEBT) (PEBCEET)
(PERCEET) DOLLABS) DOLLARS) DOLLARS) DOLLARS) (PBRCBEST)
1978 - 0.3 0.2 0.2 0.2 - 3 “6.7
1975 22.9 0.6 o.1 0.8 24.2 1 “5.1
1976 -13.48 0.1 0.6 0.8 -0.3 7 “0.1
1977 -7.8 70.7 -a.t 0.7 33.0 a 70.1
1978 -5.8 0.45 15.3 6 1.0
1979 16.5 70.8 24.6 2 w1.1
1980 8.2 0.8 14.48 6 72.9
1981 31.7 72.6 0.8 34.2 7 0.7
1982 186 0.2 0.9 -18.0 7 3.6
1983 1.3 0.0 76.3 7 a.5
1984 5 0.0 10.8 6 3.6
1985, 1.0 0.0 15.3 s 3.8
1986 0.5 0.0 13.6 3 3.3
1987 -0.0 0.0 1 1 3.1
1968 0.0 9 2.9
1989 0.0 6 2.6
1990 5.4 0.0 l- 4.3 4 2.6

1/ BISTORICAL DATA FOR 1974-82, PROJECTIONS FOR 1983-90
2/ TOTAL SCAIWAL DEBT-MET DIVIDED BY U.S. GEP DEFLATOR


“2861-0861 JO} abeyare ayy se azeu aues ayy ye suuaz jeay UL BuLnULqUOD SMO1J3NO LeqLde> azeALUd /9

*(0661-€861T) potuad uolyoafoud ay yBnosyy yyMou6 2,WOUDDa DLysawop samo, quod abequacuad aug /G

0661 yBnouy. paurequrew EgET UL AdUasuN2 214SaWOP yo azeu abueYoxa paysnfpe adtud ayy ul aurysap yuacuad gy /p
*(0661-€861) @3e4 ysavaqUL YOGIT B42 UL doup quLod abequaouad aug /E

*(0661-E86T) poluad uoLzoafoud ayz yBnosyz satuqunos G930 842 UL YIMOJH DwoU0re |eay YaYyBLy qULod abequacuad aug /Z

“Olueuads aA} qeUsaz/e BYZ JapuN OLey pue O1Qes aUL|aseq UaaMqaq aruavassiG /T

2°or  f°b 6°2- 2°0--  8°2-—0- Ss b*T- O°I- S°€- 4°0- €°9 vel vel eanzauar
9°0 2°0 yei- 2°0- v*T- = 9°0- 6 °0- €*I- T°e@-  L°0- vt 9°6 2°8  sautddittud
UT v°0 vin T°0- €°T- —9°0- L°0- T't- O°2- L°0- vt TOL 16 nuad
T’9 Ove 6°T- TO" 2°2-9°0- LT L°t- 9°€-  L°0- 2°38 eel O°9oT OO LXOW
s°0 T'0 G*e- 2°0-) v°T- = 9°0- — S*0- L°0- €°T- S*0- S°e rd 6°9 Rau0y
v0 T°0 T'l- T°0- -O°T-—s "0-6 °0- TI- S°I- S*0- B8°e 8°9 “ek @Ltyd
9°0 2°0 B°e- 2°0-) 6°E- T= L°a- y°e~ pel- Ltt- e°6L 2°se O°ve Lizeug
pl 9" oer TO" 6°E- PT Eee T’e- O°l- G*I- 2°rk 2°02 T°9g = bul quabuy
0661 861  066T y86T O66T 86T  066T 86T 0661 +861 066T v86T 2861
et) (21) (11) (ot) (6) (8) (4) (9) {g) () {€) (2) (1)

MO153NO yyMOsD a7ey ayey ysasequy Y3MOU5 auljaseg aullaseg ~suljaseg

Leqideg 219SawWo0g MO] aBueyoxq {eay MOT] 030 461H

puaut peau MoT

aullaseg wou abuey)
(quacuad)
SLNsaY UOLZe[NWIS yo AsewWNS
¢Squ0dxgz 03 squauXed ysauaqu] [vay Jo o1zey

S arqeL


APPENDIX TABLE 3

HISTORICAL DATA —— CHILE
(BILLIONS OF U.S. DOLLARS)

CUMULATED CUMULATED CUMULATED
CHANGE IM CHANGE IN CUMULATED COMULATED IMPLICIT
GROSS BITERHAL  CURREUT TRADE CAPITAL
EXTERNAL ASSETS ACCOBRT BALANCE OUTFLOW
DEBT SINCE SINCE 1973 SINCE 1973 SINCE 1973 SINCE 1973
1973 1/ 2 3/ 3 as
1974 0.4 -0.1 0.3 -0.2 0.2
1975 1.9 0.0 0.9 -0.3 1.0
1976 1.7 0.3 0.8 -0.9 0.6
1977 1.7 0.3 1.5 -0.8 -0.1
1978 3.4 147 2.6 0.4 -0.9
1979 5.5 2.0 3.8 -0.0 -0.3
1980 8.7 3.8 5-8 0.8 -0.5
1981 13.4 3.8 10.5 3.8 -0.9
1982 15.4 2.6 12.8 3.2 -0.0

1/ INCLODING COAULATED DIRECT INVESTMENT INFLOWS. WHILE THESE IN)LOWS ARE
BOT USUALLY CONSIDERED PART OF A COUNTRY*S EXTERNAL DEBT, THEY ARE
THCLUDED HERE BECAUSE DIRECT INVESTSENT IBPLOWS DO HELP FINANCE PRIVATE
CAPITAL OUTFLOWS. CUMULATED DIRECT INVESTMENT FLOWS FROM 1973 THROUGH 1982
ASOUNTED TO $ 1.57 BILLION.

2/ TOTAL RESERVES LESS GOLD PLUS COMMBRCIAL BANK ASSETS
3/ DEFICIT EQUALS +
4/ CUSULATED IMPLICIT CAPITAL OUTFLOW SINCE 1973 EQUALS THE CHANGE IN

GROSS EXTERNAL DEBT SINCE 1973 MLSUS THE CHANGE IN EXTERNAL ASSES SINCE
1973 MINUS THE CUMULATED CURRENT ACCOUNT BALANCE SINCE 1973


-16-

While higher OECD growth has little impact in the short run, lower
real interest rates, as shown in columns 6 and 7, have an immediate impact
on the real cost of the debt. A one percentage point drop in LIBOR recluces
our measure of the real burden of the foreign debt of these countries by one
to two percentage points by 1984. However, in this case there is little or
no increasing cumulative effect.

These countries could also reduce the rate of growth of their
debts through reductions in the real exchange values of their currencies.
Columns 8 and 9 show the effects of a 5 percent reduction in real exchange
rates in 1983 that is maintained throughout the projection period. Roughly
One quarter of the improvement in the ratio is realized by 1984.

As shown in columns 10 and 11, lower domestic economic growth
would also have a substantial cumulative effect on the ratio of real
interest payments to exports. The cumulative impact of one percentage point
lower growth of domestic output would yield a 1-4 percentage point
improvement in the ratio by 1990.

Finally in columns 12 and 13 the effects of private capital
outflows that continue in real terms at their 1980-82 average are shown.

For several countries the improvement shown in the baseline scenario would
be more than eliminated by further private capital outflows.

While our baseline scenario and sensitivity results rest ona
number of tenuous assumptions some concluding comments are suggested by
the simulation exercise.

First, the range of parameter estimates reported in Appendix
Tables 17 to 20 suggest that further work on individual countries is needed.
Our use of judgmental parameters in the simulation model necessarily reduces
our confidence in the results of the model for particular countries.
However, we believe that this type of exercise is a useful way to approach

the analysis of debt burdens.


APPEMDIX TABLE 12
BASELINE SCEBARIO 8/ -- KOREA

REAL NOMINAL BXPORTS OF EXPORTS OF TOTAL TOTAL
REAL INTEREST INTEREST GOODS AND GOODS AND SOAINAL NOKIEAL TOTAL REAL
INTEREST PAYBENTS PAYMENTS SERVICES SERVICES DEBT-NET DEBT-NET DEBI-AET
OVER (BILLIONS (BILLIONS (BILLIONS GROETH (BILLIONS GROWTE 2
BIPpoRTS oF oF OF RATE oF RATE (1980= 100)
(PERCENT) DOLLARS) DOLLARS) DOLLARS) (PERCENT) DOLLARS) (PERCERT)
1974 -0.8 70.0 0.8 5.8 - 4.8 - 37.6
1975, 0.6 0.0 5.9 9.9 6.9 43.8 4906
1976 2.0 0.2 9.5 60.7 7.5 8.7 51.0
1977 0.6 0.1 13.1 38.2 8.5 13.3 54.3
1978 O.1 0.0 17.2 31.3 12.1 7107
1979 71.1 0.2 9.5 13.8 16.6 88.5
1980 71.6 2 15.6 21.3 100.0
1981 3.0 27.3 20.8 22.7 96.6
1982 6-9 26.8 4.2 30.8 121.9
1983 8.6 29.9 5.1 32.7 127.0
1984 7.3 33.5 12.3 34.5 128.8
1985 6.6 36.1 13.6 36.8
1986 6.0 $3.3 13.6 37.9
1987 5.2 49.2 13.6 38.9
1988 4.5 55.9 13.6 39.4
1989 3.9 63.6 13.6 39.8
1990 3.5 72.2 13.6 40.3
CURREAT IMPLICIT CUADLATED
$tOTAL REAL ACcouNt TRADE CAPITAL CAPITAL REAL NOAIBAL REAL
DEBT-NET BALASCE BALANCE OUTFLOW OUTFLOW IMPORTS INTEREST INTEREST
GRo#sTs (BILLIONS (BILLIONS (BILLIONS (BILLIONS cRouTa BATE Ratz
RATE or oF oF oF aaTE (PERCENT) = (PERCENT)
(PERCENT) DOLLARS) DOLLARS) DOLLABS) DOLLARS) {PERCEBT)
1978 - 72.0 0.3 0.3
1975, 31.7 0.3
1976 2.8 0.
1977 6.4 1.1
1978 32.2 2.6
1979 23.3 0.8
1980 13.0 “0.6
1981 3.4 3.2
1982 26.2 5.3
1983 4.2 0.0
1985 we 0.0
1985, 1.5 0.0
1986 0.0 0.0
1987 “143 0.0
1988 72.6 0.0
1989 72.7 0-0 5.8
1990 72.6 70.6 0.0 5.6

1/ MISTORICAL DATA POR 1978-42, PROJECTIONS POR 1983-90
2/ TOTAL BOALMAL DEBT-NET DIVIDED BY U.S. GNP DEPLATOR



-13-
assumed to be a policy variable controlled by the debtor country in the
control solution, plus interest payments on external debt, plus other
service payments less net transfer receipts. Other service payments and net
transfer receipts are extrapolated at their 1982 levels. Real interest
Payments on external debt (in current dollars) equal the product of the real
interest rate and the annual average value of the external debt. The real
interest rate equals the interest rate on external debt less the U.S.
inflation rate. Nominal imports are derived from the trade balance identity
in the control solution, given the value of exports and the trade balance
itself; real imports are nominal imports deflated by an aggregate import
unit value. The LDC import unit value is assumed to rise in proportion to
changes in the U.S. price level and rise with an elasticity of 0.5 when the
U.S. dollar depreciates on a trade-weighted basis (see Appendix Table 19).

The trade balances are assumed to follow projections included in
IMF approved stabilization programs in 1983-84 for all of the countries
studied with the exceptions of Venezuela and Korea as shown in Table 4. For
Venezuela and Korea other sources were utilized. After 1984 the trade
balances are assumed to follow a smooth trajectory toward zero in the
baseline scenario.

OECD growth is assumed to recover to 1.8 percent in 1983, 3.4
percent in 1984, and remain at 3 percent from 1985 through 1990. The
assumption for 1985-1990 is consistent with estimates of growth of potential
output for OECD countries in the 1970's. Estimates for average interest
rate charges on developing country bank debt and the U.S. GNP deflator are
shown in columns 10 and 11 of Table 4. Taken together these assumptions
imply about a 2 percentage point drop in real interest rates faced by these
countries in 1990 as compared with 1983. The foreign exchange value of the

dollar is extrapolated at its average value for the first half of 1983.


-7-
denominator, exports of goods and services in current dollars, represents
the ability of a country to make its interest Payments. As long as the rate
of real interest charges is the same across countries and over time, the
path of this ratio is the same as the path of total external debt relative
to exports.

We do not know what level of this ratio is sustainable for any
country nor would we suggest that it is the only relevant measure of a
country's debt position. However, this measure does clearly show a
deterioration in the external position of several of these countries to
levels that are very high by historical standards. Forecasts for this
magnitude, or something like it, presumably help determine whether the much
larger debt service payments including amortization, shown in Column 1, will
in fact be demanded by creditors.

As shown in Appendix Tables 9-16, prior to 1981 and 1982 real
interest payments for the eight countries were a very small or negative
share of exports in spite of the fact that nominal debt was already rising
rapidly. The reasons for this are straightforward. First, the dollar value
of these countries' exports grew rapidly throughout the 1970's in both
volume and value terms. Moreover, dollar prices of oil and other exports
grew faster than the dollar prices of traded goods in general. While the
denominator, the dollar value of exports, grew rapidly, the growth rate of
the numerator was restrained by generally low or at times negative real
interest rates on dollar debt. In part, this was due to the low rate of
interest of fixed rate non-bank debt that helped keep total interest charges
down early in the period,

In 1981 and 1982 this climate changed rapidly. Export growth fel
and even become negative as world output growth leveled off while interest
rates on floating rate dollar debt rose relative to inflation rates so that

real interest costs on existing debt increased substantially.


APPENDIX TABLE 9
BASELINE SCESABIO 1/ — ARGENTINA

REAL SOKINAL EXPORTS OF EXPORTS OF TOTAL TOTAL
REAL INTEREST INTEREST GOODS ABD GOODS AND MONINAL WOKINIL TOTAL REAL
INTEREST PAYAENTS PAYSENTS SERVICES SERVICES DEBT-MET ODEBT-RIT DEBT-NET
OVER (BILLIONS (BILLIONS (BILLIONS GROWTH (BILLIONS — GRONTE 27
EXPORTS or or iP RATE oF BATE (1980= 100)
(PERCENT) DOLLARS) DOLLARS): DOLLARS) (PERCENT) DOLLARS) (PERCEYT)
197% -7.6 0.48 427 - 6.3 - 52.6
1975 76.6 326 -23.4 1.6 20.6 58.2
149 4.6 27.8 -10.5 49.2
0.8 6.8 47.8 75.9 43.5,
1978 71.6 728 18.7 141 46.1
1979 4.4 9.9 26.9 52.8
1980 “26 41202 13.1 100.0
1981 2.9 1.8 524 142.7
1982 26.1 9.6 18.6 142.2
1983 26.3 10.5 9.8 143.0
1984 . 20.2 12.6 19.5 140.8
1985 18.7 13.8 9.6 199.7
1986 1724 15.7 13.6 152.9
1987 16.5 17.8 13.6
1988 15.5 20.3 13.6
1989 14.5, 23.0 13.6
1990 14.2 26.2 13.6
COBRERT ISPLICIT  COAULATED
TOTAL REAL acc ‘TRADE CAPITAL CAPITAL a BOMIBAL BEAL
DEBI- NET BALANCE BALANCE OUTFLOW OUTFLOW IMPORTS ISTEREST INTEREST
GROWTH (BELLIOBS (BILLIONS (BILLIONS (BILLIONS GROWTH RATE RATE
RATE oF or F BATE (PERCENT) (PERCENT)

oF o!
(PERCENT) DOLLARS) DOLLARS) DOLLARS) DOLLARS) (PEBCERT)

1974 - 0.t 0.8 0.8 -
1975 10.5 71.3 0.0 0.8

43976 715.4 0.6 0.6

1977 71106 1.5

1978 6.0 a5

1979 18.5 6.2

1980 89.5 12.9

1981 42.7 20.6

1982 0.8 20.2

1983 0.6 ~5 0.0 20.2

1984 -1.5 a1. 0.0 20.2

1985 2.8 72.7 0.0 20.2

1986 5.6 74.0 0.0 20.2

1987 7.9 5.4 0.0 20.2

1988 7.5 5.8 0.0 20.2

1989 71 6.2 0.0 20.2

1990 7.0 76.9 0.0 20.2 8.9

4/ HISTORICAL DATA FOR 1978-82, PROJECTIONS FOR 1983-90
2/ TOTAL BOMLHAL DEBT-NET DIVIDED BY 0.S. GHP DEPLATOR



APPENDIX TABLE 6

HISTORICAL DATA —- PERU
(BILLIONS OF U.S. DOLLARS)

CUMULATED CUOAULATED CUMULATED
CHANGE IN CHANGE IN CUMULATED CUSULATED IAPLICIT
GROSS BITEQUAL CURRENT TRADE CAPITAL
EXTERNAL ASSETS ACCOUNT BALANCE OUTFLOW
DEBT SINCE SINCE 1973 SINCE 1973 SINCE 1973 SINCE 1973
1973 1/ 2/ 3/ 3 a,
1974 1.1 0.4 0.7 0.4 -0.1
1975 3.5 -0.1 2.3 41.5 1.3
1976 4.8 —0.2 3.5 2.2 1.6
1977 5.8 -0.1 aus 2.7 1.5
1978 6.6 0.0 9.6 2.3 2.0
1979 7.2 1.8 3.8 0.8 2.3
1980 7.8 1.6 3.7 -0.1 2.5
1981 8.7 0.8 5-2 0.5 2.7
1982 10.7 1.0 6.6 1.3 3.1

1/ INCLUDING COMOLATED DIRECT IBVESIMENT INFLOWS. WHILE THESE ISFLOUS ARE
NOT USUALL' CONSIDERED PART OF A COUNTRY*S EXTERNAL DEBT, THEY ARE
INCLUDED HERE BECAUSE DIRECT INVESTAENT INFLOWS DO HELP FINANCE PRIVATE
CAPITAL OUTFLOWS. CUMULATED DIRECT INVESTMENT PLOWS FROM 1973 THROUGH 41982
AMOUNTED TO $ 1.10 BILLIOB.

2/ TOTAL RESERVES LESS GOLD PLUS COMMERCIAL BANK ASSETS
3/ DEFICIT EQUALS +
4/ CUBULATEE IMPLICIT CAPITAL OUTFLOW SINCE 1973 EQUALS THE CHANGE In

GROSS EXTERNAL DEBT SISCE 1973 ALBUS THE CHANGE IN EXTERNAL ASSETS SINCE
1973 MINDS THE CUMULATED CURRENT ACCOUNT BALANCE SINCE 1973


~5-
prefer to invest in an instrument that is not subject to exchange controls
imposed by their government. Moreover, earnings on assets outside the
controlled market will likely remain outside the controlled market.

The historical data indicate that the source of external debts has
varied considerably among the countries studied. The clear warning
suggested by this data is that the analysis and simulations of likely future
developments provided in the next two sections necessarily conceal important
differences among individual countries that may be crucial in determining
their prospects. Nevertheless it may be useful to proceed with a very
general framework that later can be modified to consider individual
countries in greater detail.

II. The Burden of External Debt

In order to evaluate recent developments as well as the outlook
for these countries, it seems natural to compare a measure of debt service
burden to a measure of the ability of each country to generate payments to
nonresident creditors. One popular measure is the ratio of debt service,
which includes interest payments and scheduled amortization on some or all
debt, to export earnings. This measure has the advantage of showing the
potential claim on export proceeds in the, presumably unusual, event that
all creditors who have the contractual right to demand payment choose to do
so. It is not, however, the appropriate number to consider in evaluating
the medium-term outlook for these countries. A better measure is the
countries' expected ability to generate the foreign exchange necessary to
make interest payments on expected levels of debt.

Table 2 shows alternative measures of debt service burdens for
eight developing countries in 1982. Column 1 shows a conventional measure
of the sum of interest payments, short term debt that must be rolled over at
least once during the year, and scheduled repayments of longer term debt.

Mexico and Brazil by this measure had to arrange for nearly $45 billion and


-4-
foreign exchange in columns 2-4. Since it is a residual, the estimate for
private claims on nonresidents is subject to errors in the other data
series, For example, if export values are consistently understated or
import values understated, perhaps to conceal financial capital flight, our
estinate of the growth of private claims on nonresidents would be biased
downward. While a large number of such errors are possible we do not think
it is likely that the estimates shown are qualitatively misleading.

The importance of private accumulation of external assets has
varied considerably among the developing countries studied. We have not
attempted to explain this different experience among countries or for
individual countries over time. It is clear, however, that the residents of
a dettor country should be considered to be important creditors of the
country. In some respects residents face incentives similar to small
external creditors. Like other "fringe" creditors, residents respond to
economic incentives and perceptions about the course of the economy and
economic policy. They can, in part, offset new financial inflows from
offical or other private sources. Efforts to limit residents' access to
foreign assets have been an important aspect of exchange control policy in
many of these countries. The success of such policies, however, is open to
question. Moreover, fear of new exchange control measures may induce
residents to reinvest earnings outside the exchange control area.

It should be noted that gross capital inflows and outflows are not
in thamselves the cause of debt problems. Many countries have gross
external debts which are roughly offset by gross external assets. The
United States, for example, receives earnings on foreign investments that
outwe’gh payments on gross debts. This situation is a problem only if the
external receipts are for some reason -- for example the economic policies
of the country -- not available to those who have to make payments on
external debt. In general, this situation arises when all debtors become

concerned about a country's economic or political outlook. Residents wil


o'r 0°6 ore 0 0 0 0 0 0 0 0
Orv 0°6 ore 0 0 0 0 0 0 0 0
Orb v6 ore 0 0 0 0 0 0 0 0
O'v 8°6 ore 0 0 0 0 g°0- 0 0 0
O'v 2°0L ore vl 9°0- L°0 Ore O°l- s°0 ore orl
0O°D vol ore 6°2 ple 2°0 0°9 9° Lr orl o°s 0°2
ve SZ°OL vee e°s T°e~ £°0 0°OT S°l S°L 0°8 G°e
O°r 8°OL BL L£°g e°e~ £°0 O°oT orl ek o°9 ore
6°S S°vl L°0- bre 8°e- 8°0- LL per 2°0 L°0 Le
(11) (01) (6) (8) (2) (9) (s) (pr) (€) (2) (1)
(ueak/seak (4seak/seak

‘abueys) Safueyr)

“I'd'd peauds snid dN9/0930 Blanzauan sauidditiyd nad Od1xeq PasOyY ally) [lzeug eUlquabIy
“s'n yO] yqUOW-9 (ssejpop *S$*n Jo suotiitg)

suoLjdunssy uoLz2afoud auljaseg

vy aiqel

snidunsg apes)

0661
6861
8861
2861
9861
S86L
861
£861
2861


-6-

$35 billion respectively in rollovers and new money in 1982. Column 2 shows
that about half of this total represented short term debt. As shown in
Column 3 about one-third of the remaining debt service was accounted for by
scheduled amortization of longer term debt. The remaining $12 billion for
each country shown in Column 4 represented gross interest payments. But we
estimate that about half of these interest payments reflected an inflation
premium contained in nominal interest charges. Our estimate of the
inflation premium is the change in the U.S. GNP deflator times gross
external debt in Column 1. The inflation premium was built in through the
use of floating rate debt which has become the largest component of debt for
these countries. These payments, shown in Column 5, are comparable to the
scheduled amortization in Column 3 since they would have to be reloaned to
the country in order to keep the nominal value of the debt increasing at the
rate of inflation and therefore the real value of the debt unchanged.
Column 6 shows our estimate of the real interest payments on foreign debt.
This is a much smaller magnitude than the conventional debt service number
of Column 1. This measure has the desirable property of isolating the
foreign currency payment necessary to maintain, but not amortize, an
existing real stock of foreign debt.

The ability to make these payments depends in the largest sense on
the debtor country's productive capacity relative to its domestic
absorption of output. An imperfect, but accessible, measure of this ability
is the level of the dollar value of exports. The real net interest payments
expressed as a percentage of exports of goods and services in 1982, both
measured in current dollars, are shown in Column 7. We will focus on this
shorthand measure of a country's external debt position in the remainder of
this paper. This ratio has several desirable properties. The numerator is
the foreign currency payment, measured in current dollars, necessary to

maintain, but not to amortize, an existing real stock of foreign debt. The


APPENDIX TABLE 1

@ISTORICAL DATA -- ARGENTINA
(BILLIONS OF 0.S. DCLLARS)

CUMULATED CUMULATED CUMULATED
CHANGE IB CHANGE IN| CUSULATED CUAMULATED IMPLICIT
GROSS EXTERUAL CURRENT TRADE CAPITAL
EXTERNAL ASSETS ACCOUNT BALANCE OUTFLOW
DEBT SENCE SLUCE 1973 SINCE 1973 SINCE 1973 SINCE 1973
1973 17 27 37 37 a;
1974 wai 0.8 -0.1 -0.7 0.8
1975 1.5 0.5 1.2 -0.2 0.8
1976 1.9 0.7 0.6 -1.3 0.6
1977 3.8 2.5 -0.6 -3.1 1.5
1978 6.5 8.4 2.4 6.0 5
1979 13.2 8.9 W109 -7.8 6.2
1980 22.2 6.8 2.9 6.4 12.9
1981 31.6 3.4 726 “7.1. 20.6
1982 32.6 2.3 10.4 9.8 20.2

§/ INCLUDING CUAULATBD DIRECT ISVESTAEMT INFLOWS. WHILE THESE IEFLOUS ARE
HOT USUALLY CONSIDZRED PART OF A COUMTRY*S EXTERBAL DEBT, THEY ARE
INCLUDED SEBE BECAUSE DIRECT INVESTAENT INFLOWS DO BELP FINANCE PRIVATE
CAPITAL OUTFLOWS. COMULATED DIRECT IHVESTMEST FLOWS PROM 1973 THROUGH 1982
ABOUMTED 70 $ 2.635 BILLION.

2/ TOTAL RESERVES LESS GOLD PLUS COBMERCIAL BANK ASSETS
3/ DEPICIT EQUALS +
&/ CUMULATED IMPLICIT CAPITAL OUTFLOW SINCE 1973 EQUALS THE CHRNGI In

GROSS EXTERNAL DEBT SINCE 1973 MINUS THE CHANGE IN EXTERNAL ASSETS SIECE
$973 SINGS THE CUSULATED CURRENT ACCOUNT BALANCE SINCE 1973


International Finance Discussion Papers
Number 227

August 1983

AN ANALYSIS OF EXTERNAL DEBT POSITIONS

OF EIGHT DEVELOPING COUNTRIES THROUGH 1990

by

Michael Dooley
William Helkie
Ralph Tryon
John Underwood

NOTE: International Finance Discussion Papers are preliminary materials
circulated to stimulate discussion and critical comment. References in
pudlications to International Finance Discussion Papers (other than an
acknowledgment by a writer that he has had access to unpublished material)
should be cleared with the author or authors.


Loa Exports

Loa Debt

Log Interest
Payments

Loa Current
Account

Chart 1

x=Q
+ } time
ty t
D
O=d
j
i { time
to ty
ee
: Reed
| | time
ty ty

time
CA’


~8-

The impact of this change in the economic environment on the ratio
of real interest payments to exports (K) is illustrated in Chart 1. In
Chart 1 inflation is assumed to be zero; hence, real and nominal magnitudes
are equal. At time t, real exports are growing at a constant rate (q).

Real debt (D), shown in the second panel, is growing at a constant rate (d).
Since real interest payments (R), shown in the third panel, are equal to D
times the real interest rate (r), and r is constant, R also grows at rate d.
As long as g = d the K ratio (R/X), will remain at its initial value. A
convenient way to insure that g = d is to assume:

1. That trade in goods is balanced so that the real value of debt

cannot change over time because of trade in goods.
2. That the real rate of interest, r, is equal to the growth rate
of exports, g.

3. Under these conditions the real current account deficit will
be equal to R = rD and will grow at rate d. This is shown in
the bottom panel of Chart 1.

In this special case, the growth in debt is matched by the growth
in exports, and as long as r is constant, K will remain unchanged.

If, for example, a country's exports are expected to grow ét the
same rate as, or more rapidly than, the real rate of interest, the outlook
for roughly balanced trade and a current account deficit is not a cause for
concern, However, a change in the real rate of interest on dollar credits
immediately alters these relationships. In terms of Chart 1, at time
ty the real rate of interest increases. There is no immediate effect
on D or X, but R jumps to R' and the ratio, K, also increases
proportionately. If the balance of trade does not change, the current
account deficit widens to CA' and the increased real interest payment:s are

added to the debt so that D grows at a higher rate along D' which further


‘uayaweued U0L{IIII0D UOL{e[auyOIO4Ne Japyo 4SJLJ BY} SL TOHY pue ‘puejyazzims snid saluqunod
OI-9 yy “SA aqeu aBueydxa [Pay ayd St MWYIY $3ONpoud [euorzeU ssouB st dND San_eA jLun quod ayy st
ANOW ‘S4eL OP quasund uL sqvodut si GOW ‘sasayquaved ul ayqeiveA ayz JO wYZLyeBO| LeunzeU ayy SqUaseJdey Bo, auayM

O=L
“(CL)MWYae) BOL» (L)ey z+ (dND) BOL » 2v + Tv = (ANOW/9W) Bot
IT- _
tS uotqenba paqewiysa ays °S914S13e4S-3 aye Sasayjueved ult suaqunu ay, /T

: (0°0) (Ot*2T) (99°I-)
yd 28 03 10 OL elt 48°0 WN 0°0 £6°0 68°0- sautddtttud
(9T*e-) (p8° IT) (8€°7)
pd 28 03 10 09 L2°1 98°0 YN $2 °0- 18°0 €2°0 sautddittud
(ss*y) (42°2zy
vd 28 03 10 EZ 80°T 49°O WN IL*2- 8s°0 gor TT ea0¥
(S1°2) (9b°h) (p2°°0-)
vd 18 03 10 69 10°2 ev°0 08°0 = STO"2- v6°T 09°T Lizeug
[ease qu] UOSZEM-U LUNG Zu TOHY (he g ev Ty uo LBay
UOLZeWL YSZ S3L4S1924S uoLSSaubay qua 13144909 Kaquno)

uoljenbZ auN|OA WOduT ay} JOJ Sazewlysy Jajouesed

02 A1dvL XIGNIddy


APPENDIX TABLE 8

HISTORICAL DATA ~— VENEZUELA
(BILLIONS OF U.S. DOLLARS)

CUMULATED CUOMULATED CUMULATED

CHANGE IN CHANGE IS CUMULATED CUSULATED IMPLICIT

GROSS EXTERBAL CURRENT TRADE CAPITAL

EXTERNAL ASSETS ACCOUNT BALANCE OUTFLON

DEBT SINCE SINCE 1973 SINCE 1973 SINCE 1973 SINCE 1973

1973 1/ 2/ 3/ 3/ ay

1974 71.9 4.2 -6.1 -722 —0.1
1975 -1.3 6.6 78.5 10.6 0.6
1976 -2.5 6.2 -9.0 12.5 0.3
1977 3.9 10.6 -6.1 11.9 -0.6
1978 9.4 9.9 -0.8 -9.7 0.3
1979 17.9 14.3 71.5 713.9 5.1
1980 21.1 18.0 -6.7 ~22.1 9.8
1981 23.9 17.8 -11.1 -29.9 17.2
1982 27.0 9.1 -7.6 -33.3 25.5

1/ INCLUDING CUMULATED DIRECT INVESTMENT INFLOWS. WHILE THESE IBFLOWS ARE
NOT USUALLY CONSIDERED PART OF A COUNTRY*S EXTERNAL DEBT, THEY ARE
INCLUDED GERE BECAUSE DIRECT INVESTSENT INFLOWS DO HELP FINANCE PRIVATE
CAPITAL OUTFLOWS. CUMULATED DIRECT INVESTMENT FLOWS FROM 1973 THROUGH 1982
AMOUNTED TO $ -0.33 BILLION.

2/ TOTAL RESERVES LESS GCLD PLUS COMMERCIAL BANK ASSETS
3/ DEFICIT LOQUAES +
4/ CUAULATEN IMPLICIT CAPITAL OUTFLOW SIBCE 1973 BQODALS THE CHANGE IB

GROSS EXTERNAL DEBT SINCE 1973 MINOS THE CHANGE IS EXTERNAL ASSETS SINCE
1973 MINUS THE CUAULATED CURRENT ACCOUNT BALAUCE SINCE 1973


APPENDIX TABLE 7

HISTORICAL DATA -— PHILIPPIUYES
(BILLIONS OF U.S. DOLLARS)

CUMULATEZED CUMULATED CUMULATED
CHANGE IN CHANGE IN CUMULATED CUMULATED IMPLICIT
GROSS EITBRNAL CURRENT TRADE CAPITAL
EXTERNAL ASSETS ACCOUNT BALANCE OUTFLOW
DEBT SINCE SINCE 1973 SINCE 1973 SIHCE 1973 SINCE 197'3
1973 1/7 2/ 3/ 3 as
1974 1.0 0.6 0.2 0.4 0.2
1975 2.1 0.5 4.1 1.6 0.5
1976 3.6 0.4 2.2 2.8 1.0
1977 5.2 0.2 3.1 3.6 2.0
1978 7.8 0.9 4.2 4.9 2.7
1979 10.6 1.8 5.8 6.4 3.0
1980 13.7 3.1 7.9 8.4 2.7
1981 16.2 2.6 10.2 10.6 3.4
1982 19.9 2.4 13.6 13.4 3.9

1/ INCLUDING CUAULATED DIRECT INVESTMENT INFLOWS. WHILE THESE INFLOWS ARE
NOT USUALLY CONSIDERED PART OF A COSNTRY*S EXTERNAL DEBT, THEY ARE
INCLUDED HERE BECAUSE DIRECT INVESTMEBT IBFLOWS DO HELP FINANCE PRIVATE
CAPITAL OUTFLOWS. CUMULATED DIRECT INVESTMENT PLOWS FROM 1973 THROUGH 1982
AMOUNTED TO $ 1.62 BILLION.

2/ TOTAL RESERVES LESS GOLD PLUS COMMERCIAL BANK ASSETS
3/ DEFICIT FQUALS +
S/ CUMULATED IMPLICIT CAPITAL OUTFLOW SINCE 1973 EQUALS THE CHANGE I

GROSS EXTERNAL DEBT SINCE 1973 MINUS THE CHANGE 18 EXTERNAL ASSETS SINCE
1973 BINUS THE CUMULATED CURRENT ACCOUNT BALARCE SINCE 1973


“wntwaud uoLzelyuL Ssa, SquawXed ysauaquL ssouy /Z

*qqap ssouB sawi soqeijep dND ‘"S'*n /T

8°E? S9°6L Sep 0°82 S° 16 o°eoL
6 s°0 SL° er ran G2 o°s
8 6°0 Ul ore el ore 29
8 orl aL 2°2 6°0 9°9 L°6
Ll €°2 re S°D £°2 9° LL v's
92 ore Le us Us 9°6 8°6L
l G°2 0°2 S°D £°2 Ord 8°E?%
ve 9°9 v's o°2L 8° 27st O°SE
9L ord 6°? 6°Ll ed 0°92 Usp
(quaduad) (suejjop *s*n jo suotyitq)
Squodx3 jo Squawked WN LWed squawAed 3qaQ wial-bu07 3990 3qeq Wwal-quoYs
aBe3uadsad qsauaquy oot ze sul qsauaqu] pue -wnipay jo Wa 4-qUOYS Bbuipn|oduy--adLauas
eB se squawhed WrAtet l (S) ssou9 uo L3ez LOWY (2) qqeq [eqOL
ysevaquy qeN Leay (9) (p) Da InpaUds (1)
(2) | (€)

286 UL BdLAUaS 3qGad JO saunseay

@ agel

12301
nuad

aL ty
sautddt|tud
PasOy

eu Lquabuy
Bjanzauan
Lizeug

OD LXaW


-15-

For our sensitivity analysis, we made two revisions to the model.
Real imports, which were derived from an exogenous trade balance in the
control solution, are projected using an income elasticity of 1.5 and a
price elasticity of 1.0 distributed over three years. This estimate is
basec on equations regressing real imports on real GNP and the real exchange
rate for several developing countries. (The equations are summarized in
Apperdix Table 20.) The estimated income elasticities were in the range of
0.6 to 2.0 and the real exchange rate elasticities were in the range of 0 to
-2.7. In addition, we inserted an export multiplier on domestic GNP of 1.5
in the first year with a cumulative effect of 2 by the second year. Thus if
real exports rise by 1 billion 1980 dollars, real GNP rises by 2 billion
1980 dollars after two years which in turn raises imports.

As shown in column 5 of Table 4 one percentage point higher real
economic growth in the OECD countries throughout the forecast period
generates a considerable improvement in the ratio of real interest payments
to exports by 1990.2/ However, as shown in column 4, the effects of
faster growth in 1983 and 1984 are quite small. It takes some time before
the cumulative effects of the higher OECD growth rates have a significant
impact on the stock of debt relative to the flow of exports. An assumption
that is crucial to this result is that the rise in export receipts
associated with higher growth rates in the OECD countries is offset only to
a limited extent by increased imports. For Brazil and Mexico the trade
surplus in 1990 is about $11 billion larger as compared to the baseline
scenario and is greater by lesser amounts for the other countries studied.
If this trade surplus did not materialize roughly half of the reduction in

the ratio associated with higher OECD growth would be forfeited.

1/ The real interest rate is not changed in this simulation.


APPENDIX TABLE 15
BASELINE SCENARIO 1/ — PHILIPPINES

REAL WOKINAL EXPORTS OF BIPORTS OF TOTAL TOTAL
BI INTEREST IBTBREST GOODS AND GOODS AND HOMINAL NOKIBAL TOTAL REAL
INTEREST PATHENTS PAYMENTS SERVICES SERVICES DEBT-SET DEBT-SET  DEBT-NET
OTER (BILLIONS (BILLIONS (BILLIONS GROSTE (BILLIONS GROWTH 2
EXPORTS oF oF oF RATE or RATE (19802100)
(PERCEST) DOLLARS) DOLLARS) DOLLARS) (PERCENT) DOLLARS) (PERCENT)
1974 0.6 0.0 0.1 3.5 - 1.3 - 20.1
1975 72.2 0.1 0.1 3 -1o.1 2.4 38.0
1976 0.6 0.0 0.2 3 6.9 3.9 52.3
1977 72.5 70.1 0.2 LJ 22.9 5.5 69.2
1978 2.4 o.t 0.6 s 16.4 7.2 64.2
1979 wa o.1 1.0 6 27.8 9.0
1980 71.7 70.1 122 7 27.8 10.8
1982 3.0 0.2 8 6.2 13.4
1982 6.2 0.7 8. “1.8 16.8
1983 11.3 1.0 8. 3.6 19.0
1984 9.6 0.9 VWe4 21.3
1985 8.9 1.0 13.6 23.1
1986 8.8 120 13.6 28.1
1987 6.9 1.0 13.6 28.5
1968 5.8 0.9 13.6 24.9
1989 4.9 0.9 13.6 25.3
1990 a8 0.9 13.6 25.7
CORRENT XSPLICIT CUMODLATED
TOTAL REAL acccost TRADE CAPITAL CAPITAL REAL WOBIMAL REAL
DEBT-NET BALANCE BALANCE OUTFLOW OUTFLOW ISPORTS INTEREST INTEREST
GRowrs (BILLIONS (BILLIONS (BILLIONS (BILLIONS  GRO¥TH RATE RATE
RATE or or oF oF RATE (PERCENT) = (PERCENT)
(PERCENT) DOLLARS) DOLLARS) DOLLARS) DOLLARS) (PERCENT)
1978 7 70.2 0.4 0.2 0.2 - 9.1 71.9
1975 69.1 0.9 162 0.5 0.8 s.8 3.7
1976 w1st od 1.0 6.1 6.3 0.6
1977 0.8 70.8 2.0 3.8 4.3
1978 -t.2 -1203 2.7 3.5 9.8
1979 71.6 “1.5 3.0 5.6
1980 -2.1 1.9 2.7 6.6 12.1 ~s
1988 72.3 3.48 5.0 12.4 2.
1982 3.4 3.9 15.2 10.6 a
1983 -2.7 3.9 -3.6 8.5 5.4
1988 72.8 3.9 4.6 8.5 4.5
1985 2.2 3.9 1.3 6.3 4.3
1986 7105 3.9 1.7 8.2 &.2
1987 -0.9 3.9 4.5 7.9 3.9
1988 70.9 3.9 9.9 7.7 3.7
1989 70.9 3.9 9.8 725 3.2
1990 70.9 0.0 32.9 9.7 7.5 3.5

1/ BISTORICAL DATA FOR 1974-82, PROJECTIONS FOR 1983-90
2/ TOTAL BOBIWAL DEBT-BET DIVIDED BY U.S. GBP DEPLATOR


APPEBDIX TABLE 16
BASELINE SCENARIO 1/ —- WENEZUSLA

REAL WOMIWAL EXPORTS OF EXPORTS OF TOTAL TOTAL
REAL INTEREST INTEREST GOODS AND GOODS AND NOMIHAL NOMIBAL ‘TOTAL REAL
INTEREST PAYBENTS PAYMEWTS SERVICES SERVICES DEBT-NET DEBT-NET  DRBT-AET
OVER (BILLIONS (BILLIONS (BILLIONS GROUTH (BILLIONS GROWTH 2
REPORTS oF oF or RATE oP RATE (1980= 100)
(PERCERT) DOLLARS) BOLLABS) DOLLARS) (PERCENT) DOLLARS) (PERCENT)

1974 0.0 0.0 0.2 12.0 wht - 721.9
1975 2.0 0.2 0.0 10.1 -3.3 200.0 60.1
1976 0.8 O.1 -0.1 10.4 3.2 73.0 755.2
1977 2.2 0.2 0.1 10.9 162 762.5 19.8
1978 3.3 O.4 0.5 10.9 7516.6 75.2
1979 3.1 0.5 3 16.3 80.0 121.6
1980 2.8 0.6 22.2 76.7 100.0
1981 4.0 1.0 24.5 33.3 120.8
1982 74 1.5 19.5 108.5 232.8
1983 10.1 1.9 19.1 9.1 205.2
1984 7.48 1.6 21.5 9.1 179.3
1985 5.8 15 25.5 1.8 175.6
1986 5.7 1.5 27.2 10.2 186.0
1987 5.7 1.7 29.1 16.9 209.2
1988 5.9 1.8 31.1 15.7 232.8
1989 5.9 2.0 33.4 7. 14.7 256.

1990 6.3 2.3 36.0 7.6 14.2 262.1

CURRENT ISPLICIT CUAULATED
TOTAL REAL account TRADE CAPITAL CAPITAL REAL WORIMAL REAL

DRET-BET BALANCE BALASCE OUTFLOW OUTFLOW IMPORTS INTEREST INTEREST
GROwTe (BILLIONS (BILLIONS (BILLIONS (BILLIONS GROWTH RATE
or oF F

z
RATE 0 or RATE (PERCENT) (PERCENT)
(PERCENT) DOLLARS) DOLLARS) DOLLARS) DOLLARS)  (PERCEBT)

1974 - 6.1 722 0.1 0.1 - Wet
1975 174.9 3.8 0.6 0.6 22.1 70.0
1976 ~8.3 1.9 70.3 0.3 3.1
1977 765.8 70.6 70.9 70.6 78.5
1978 87.0 72.1 0.9 0.3 26.3
1979 4.8 Sod 18.6
1980 4.6 9.8 20.7
t98t 7.4 17.2
1982 8.3 25.5
1983 0.0 25.5
1988 0.0 25.5
1985 0.0 25.5
1986 0.0 25.5
1987 0.0 25.5
1988 0.0 25.5
1989 0.0 25.5
1990 0.0 25.5

1/ HISTORICAL PATA FOR 1974-82, PBOJECTIONS FOR 1983-90
2/ TOTAL MOMIMAL DEBT-WET DIVIDED BY U.S. GHP DEPLATOR



APPENDIX TABLE 4

HISTORICAL DATA — KOREA
(BILLIONS OF U.S. DOLLARS)

COSULATED CUMULATED CUSULATED
CHANGE IN CHANGE IN CUMULATED COMULATED ISPLICIT
GROSS EXTERNAL CURREST TRADE CaAPITaL
EXTERNAL ASSETS AccoouT BALANCE OUTFLOW
DEBT SINCE SINCE 1973 SIHCE 1973 SIBCE 1973 SINCE 1973
1973 1/ 2/ 3/ & VA 4,
1974 1.7 -0.0 2.0 1.9 -0.3
1975 9.8 0.5 3.9 3.6 -0.0
1976 6.4 1.9 4.2 4.2 0.3
1977 8.8 3.2 4.2 4.7 144
1978 13.1 3.8 5.3 6.5 9.0
1979 18.4 4.6 9.4 10.9 4.3
1980 23.9 5.4 14.8 15.2 3.7
1981 29.8 9.8 19.4 18.9 0.6
1982 33.6 5.8 21.9 21.3 5.9

1/ INCLUDING CUNULATED DIRECT IOVESTHENT INFLOWS. WHILE THESE INFLOWS ABE
WOT USUALLY CONSIDERED PART OF A COUNTRY'S EXTERNAL DEBT, THEY ARE
INCLUDED HERE BECAUSE DIRECT INVESTHENT IBFLOWS DO HELP FINANCE PRIVATE
CAPITAL OUTFLOWS. CUMULATED DIRECT INVESTMENT FLOWS FROS 1973 THROUGH 1982
AMOUNTED TO $ 0.56 BILLION.

2/ TOTAL RESERVES LESS GOLD PLUS COSMERCIAL BANK ASSETS
3/ DEFICIT #)UALS +
4/ COMULATED IMPLICIT CAPITAL OUTFLOW SINCE 1973 EQUALS THE CHANGE IB

GROSS EXTERNAL DEBT SINCE 1973 MIBUS THE CHANGE IN EXTERNAL ASSETS SIHCE
1973 SINUS THE CUMULATED CURRENT ACCOUNT BALAHCE SINCE 1973


-3-
in world markets in recent years. But it would be a mistake to assume that
this borrowing was associated with large merchandise trade deficits in all
cases. ‘dhile it is impossible to trace how the purchasing power provided by
external creditors was utilized, the six Latin American countries as a group
matched all of their imports with exports of merchandise.

As shown in columns 1 and 2 in Table 1, the cumulated trade
deficits of Brazil, Chile, Mexico and Peru were less than 1/5 as large as
their buildup in external debts. Argentina and Venezuela ran substantial
cumulative trade surpluses. The two Asian countries, Korea and the
Philippines, did show cumulated trade deficits equal to about 2/3 and 1/2
respectively of their buildup in external debt, a pattern more typical of
developing countries as a group. A comprehensive analysis of the
implications of these very different patterns of international payments for
the countries studied is beyond the scope of this paper. However, it is
clear that we cannot assume that the build up in external debt was related
to net imports of goods, or growth in productive capacity, in any simple
manner, Each country studied has a unique history which, of course, also
affects its prospects for the future.

As shown in Column 3 of Table 1 the most important net use of
foreign exchange for Brazil, Chile, Mexico and Peru was net service
payments, largely in the form of net interest payments on external debt.
Brazil, for example, made $68 billion in net service payments over the nine
years shown, Interest payments are considered payments for the services
provided by the existing stock of financial capital provided by
nonresidents. As we shall see in the next section, however, in an
inflationary environment a substantial share of such service payments should

be considered inflation premiums rather than rental payments for the use of

foreign capital.


-10-
For this reason, if current account balances are used to evaluate
adjustment policies, the value of the current account objective should be
adjusted upward if the inflation rate rises and adjusted downward if the
inflation rate falls.

While we do not know what level of K is sustainable, we felt it
was useful to project values of K under alternative assumptions about
external economic developments and domestic policies of these countries.
Presumably, forecasts of K (or something like it) are a factor which
creditors would use to determine whether to continue lending to a
particular country.

III. Simulations

In order to project the K ratios we built a simple simulation
model incorporating the relationships described above.2/ Since there
is only a very limited base of econometric work on the trade of developing
countries from which to draw, we chose parameter values judgmentally. The
values we chose are, however, consistent with some preliminary econometric
work of our own reported in Appendix Tables 17-20.

The model first calculates current dollar exports -- the
denominator of our measure of the debt burden. An aggregate export unit
value index (for non-oil developing countries) is used for all eight
countries. The index, which is measured in dollars, is assumed to rise in
Proportion to changes in the U.S. price level and to changes in industrial
country economic activity, and to rise with an elasticity of 0.5 when the
U.S. dollar depreciates (on a weighted average basis) against the currencies
of other industrial countries. These estimates are based on an equation

reported in Appendix Table 17 that regresses the percent changes in the

1/ A copy of the program is available from the authors.


-12-

spread. After 1984 the real interest rate faced by these countries is
assumed to converge to 5 percent. The interest rate on external debt is the
weighted average of the interest rates on bank debt and non-bank debt using
the shares of external debt for each country as weights. (See Table 3,)

The implicit interest rate on non-bank debt for each country is
computed from total net interest payments using the weights given above, and
is extrapolated at its 1982 level. Interest Payments on the external debt
are the product of the interest rate and the annual average value of the
external debt. The year-end value of the debt is the sum of the debt at the
beginning of the year, the current account deficit, and any additional net
capital outflows. The current account deficit equals the trade deficit,

Table 2

Bank Debt as a Percent of
Net Debt in 1982

(Percent)
Argentina 69.5
Brazil 60.3
Chile 56.5
Korea 60.4
Mexico 73.2
Peru 40.9
Philippines 56.4
Venezuel al/ 157.2

1/7 Venezuela held extensive official foreign exchange reserves, Hence, its
gross bank debt was larger than its net debt. Venezuela was assumed to earn
LIBOR minus 0.5 percentage points on its reserves in the simulation.


~2-
export earnings have a powerful effect by 1990 but provide
little relief for the next two years. The same conclusion
applies to adjustment policies in the borrowing countries that
result in larger trade surpluses.

4. For some countries continued capital outflows that do not
generate foreign exchange earnings for the country could
offset much of the improvement in the ratio of real interest
payments to exports through 1990. On the other hand, earnings
accruing to residents on new and existing foreign assets would
be an important offset to interest payments to nonresidents if
such earnings were made available to residents that had
incurred external debt.

In the next section we present historical data on external debt,
cumulated trade and current account deficits, and implicit private capital
outflows for the eight countries mentioned above. In Section II a framework
is presented that provides a useful measure of the present and prospective
economic burden of the external debts of these countries. The preferred
measure of the burden is shown to be the ratio of real interest payments to
exports. A qualitative discussion of the behavior of this measure over time
relative to the behavior of real interest rates, inflation rates and the
balance of payments is also provided. Finally, in Section III, we present a
description of the simulation model used to generate forecasts through 1990,
the assumptions that are required for the projections, and a brief
discussion of the results. Detailed tables containing both the historical
data and baseline projections are provided in the Appendix.

I. The Accumulation of Debt 1974-1982

The rapid build-up of external liabilities by the eight developing

countries studied substantially augmented these countries' purchasing power


APPENDIX TABLE 14
BASELINE SCEMWARIO 1/ — PERU

REAL BOKIMAL B8XPORTS OF EXPORTS OF TOTAL TOTAL
REAL INTEREST INTEREST GOODS AND GOODS AND ‘OMIMAL MOBINAL TOTAL REAL
INTEREST PAYMENTS PAYMENTS SERVICES SERVICES DEBT-¥ET DEBT-BET DEBT- BET
OvEB (BILLIONS (BILLIONS (BILLIONS GROWTH (BILLIONS GROWTH 4
EXPORTS oF oF oF RATE or RATE {1980= 100)
(PERCENT) DOLLARS) DOLLARS) DOLLARS) (PERCENT) DOLLARS) (PERCENT)
1978 8.0 70.2 0.2 - 3.3 = 67.2
1975, 0.2 0.2 8.4 5.9 78.8 110.1
1976 0.0 0.8 1.9 7.2 22.0 127.1
1977 0.1 0.4 22.2 8.0 132.6
1978 70.0 0.6 12.7 8.7 134.0
1979 0.1 1.0 72.0 8.1 112.1
1980 70.3 0.8 16.7 6.2 100.0
1981 70.0 0.9 -12.2 9.6
1982 0.9 1.0 ~8.0 11203
1983 0.6 0.9 2.2 me 0.9 415.1
1988 0.5 0.9 12.8 401 72.7 107.7
1965 0.4 13.6 11.3 1.6 105.2
1986 0.8 5.8 13.6 11.6 2.5 103.7
1987 o.8 6.6 13.6 Ing 3.8 103.0
1986 0.4 7.5 13.6 12.3 3.3 102.8
1989 0.4 8.5 13.6 12.7 3.3 101.7
1990 o.8 0.9 9.7 13.6 13.2 3-4 104.1
CORRERT IsPLICIT COMULATED
TOTAL REAL ACcouRt ‘TRADE CAPITAL CAPITAL REAL BOSIBAL REAL
DEBT-NET . BALANCE BALANCE OUTFLOW OUTFLOW IAPORTS INTEREST INTEREST
GrowTy (BILLIONS (BILLIONS (BILLIONS (BILLIONS GROWTH BATE RATE
RATE oF oF oF RATE (PBRCENT) = (PERCENT)
(PEBCEST) DOLLARS) DOLLARS) DOLLARS) DOLLARS) (PERCEST)
1978 = 0.7 0.4 0.1 - 6.0 5.0
1975 63.8 71.5 71.1 18.7 4.6 749.6
1976 162 0.7 -15.8 6.1 0.8
1977 0.9 70.4 72.3 $.3 -1.2
1978 0.2 0.3 30.8 722 70.5
1979 0.8 . 146 3.0 112.9 0.6
1980 0.1 0.8 9.8 -3.7
1987 71.5 70.6 0.1 0.2
1962 714 70.8 9.6 3.48
1983 0.2 0.3 8.1 4.9
1984 0.2 0.7 8.0 8.0
1985 70.3 0.2 7.9 3.9
1986 70.4 0.1 7.8 3.8
1987 70.5 0.0 726 3.6
1988 70.5 0.0 7.5 3-5
1989 70.5 -0.0 7.3 3.3
1990 70.5 0.0 723 3.3

V/ BISTORICIL DATA FOR 1974-82, PROJECTIONS FOR 1983-90
2/ TOTAL MONIMAL DEBT-W2T DIVIDED BY G.S. GHP DEPLATOR


APPENDIX TABLE 2

HISTORICAL DATA -- BRAZIL
(BILLIONS OF U.S. DOLLARS)

CUNULATED CUAOLATED COAULATED
CHANGE IN CHANGE IN CUSULATED CUMULATED IaPLICIT
GROSS EXTERNAL CURRENT TRADE CAPITAL
EXTERNAL ASSETS ACCOUNT BALANCE OUTFLOW
DEBT SINCE SINCE 1973 SIBCE 1973 SINCE 1973 SINCE 1973
1973 1/ 2/ 3/ xy as
1974 6.9 -0.9 7.5 4.8 0.3
1975 15.5 2.4 18.6 8.3 3.3
1976 23.3 0.4 21.2 10.7 1.7
1977 34.5 a. 26.3 10.8 4.1
1978 48.3 6.5 33.3 11.9 8.5
1979 56.9 3.5 43.8 m.7 9.6
1980 68.1 -0.0 $6.7 17.6 ty
1981 81.0 1.4 68.48 16.3 11.2
1982 93.5 71.3 83.4 15.6 ig

1/ INCLUDING CUAULATED DIRECT INVESTHERT IBPLOUS. WHILE THESE INFLOWS ARE
NOT USUALLY CONSIDERED PART OF A COUNTRI®S EETERBAL DEBT, THEY ARE
THCLUDED MBRE BECAUSE DIRECT INVESTAEBT IEFLOWS DO @ELP FINANCE PRIVATE
CAPITAL OUTPLOWS. COMULATED DIRECT INVESTMENT PLOWS FROM 1973 THROUGH 1982
BSOUNTED TO § 15.88 BILLION.

2/ TOTAL RESERVES LESS GOLD PLUS COSNERCIAL BANK ASSETS
3/ DEFICIT EQUALS +
9/ CUSULATED ISPLICIT CAPITAL OUTPLOV SIBCE 1973 EQUALS THE CHANGE In

GROSS EXTERWAL DEBT SINCE 1973 AIBUS THE CHANGE IB EXTERSAL ASSETS SISCE
1973 BKIMNOS TE COMOLATED CURRENT ACCOUNT BALABCE SINCE 1973


An Analysis of External Debt Positions
of Eight Developing Countries Through 1990*

Michael Dooley
William Helkie
Ralph Tryon
John Underwood

August 1983

In this paper we trace the accumulation of large external debts by

eight developing countries since 1973 and provide a perspective on their

external positions through 1990. The principal conclusions we draw from the

analysis include:

1.

The accumulation since 1973 of external debt by six large
Latin American debtors (Argentina, Brazil, Chile, Mexico, Peru
and Venezuela) was not associated with trade deficits.
Instead, these countries, to varying degrees, made net service
Payments to nonresidents and accumulated private and official
claims on nonresidents.

An appropriate measure of the burden of external debt compares
the real interest charges on debt to the ability of the
country to make such payments to nonresidents. One such
measure, the ratio of real interest payments to exports, rose
dramatically for all eight countries studied in 1982. Under
reasonable assumptions, the ratio will decline through 1990
The debt burden would be reduced rapidly by reductions of

real interest rates or equivalent changes in the present
value of outstanding external debts. Faster economic growth

in the industrial (OECD) countries and associated increases in

This paper represents the views of the authors and should not
be interpreted as reflecting the views of the Board of
Governors of the Federal Reserve System or other members of

its staff.


1978
1975
1976
1977
1978
1979
1980
1981
1982

1983
1988
1985
1986
1987
1988
1989
1990

1974
1975
1976
1977
1978
1979
1980
1981
1982

1983
1968
1985
1986
1987
1988
1989
1990

APPENDIX TABLE 10

BASELINE SCENARIO 1/ -- BRASIL

REAL NOMINAL EXPORTS OF EXPORTS OF TOTAL TOTAL
L INTEREST LINTERBST GOODS AND GOODS AND NOMINAL NOMIBAL TOTAL REAL
INTEREST PATSENTS PAYMENTS SEBVICES SERVICES DEBT-NET DEBT-¥ET  DEBT-NET
OVER (BILLIONS (BILLIONS (BILLIONS GROWTH (BILLIONS «© GROWTH ry
Exports or oF RATE ir RATE (1980= 100)
(PERCEBT) DOLLARS) DOLLARS) DOLLARS) (PERCENT) DOLLARS) (PERCENT)
70.5 0.6 9.3 13.2 - 34.7
70.1 LS 9.8 22.1 67.8 53.2
0.4 1.8 25.8 16.7 58.7
0.2 2.1 31.6 22.5 67-6
70.7 2.7 ait 30.1 61.6
71.0 ao2 50.5 22.9 90.1
1.4 6.3 63.6 25.9 100.0
2.2 9.2 72.8 4.5 103.7
5.6 10.5 86.0 18.1 115.4
7.0 9.8 93.0 121.1
6.7 10.5 98.8 123.6
720 tk 108.7 130.1
7.6 121.5 190.6
8.3 138.2 153.7
9.1 156.3 167.2
9.8 16.5 176.0 181.0
11.0 18. 13.6 197.7 195.5
CURREST IsPLICIT CUBULATED
TOTAL REAL accouRT TRADE CAPITAL CAPITAL REAL NOAIMAL BEAL
DEBT-523T BALANCE BALANCE OUTFLON OUTFLOW IMPORTS INTEREST INTEREST
cRovra (BILLIONS (BILLIONS (BILLIONS (BILLIONS GROTH RATE RATE
RATE or or or or TE (PERCENT) (PERCENT)
(PERCENT) DOLLARS) DOLLAES) DOLLARS) DOLLARS) (PERCENT)
- 78.8 0.3 0.3 - 6.0 5.0
53. -3.5 3.0 6.5 70.6
10.8 “125 7.5 1.8
15.0 2.8 723 0.8
a.48 7.8 0.2
a1 9.2 72.1
1.7 11.0 72.5
0.2 13.5 3.2
0.2 13.2 71
0.0 11.0 7.9
0.0 11.0 7.0
0.0 10.8 6.8
0.0 10.6 6.6
0.0 10.8 6.4
0.0 10.1 6.1
0.0 309 5.3
0.0 9.9 5.9

1/ @ISTORICAL DATA FOR 1974-82, PROJECTIONS FOR 1983-90
2/ TOTAL BOSIBAL DEBI-BET DIVIDED BY U.S. GEP DEFLATOR


iSt uolyenba pazewizsa ayy

*suaqaweued uolz2auJ02 U0LZe[ausJ0I04Ne apo
puodas pue ysuljJ ave ZOHY pue TOH pue Spuejyazzims snd saltuqunod OT-9 ayy SA UeLLOP °S°N ayy JO XapuL aye
aBueyoxa pazyblam-apesy gY4 242 SL OTMAFAN ‘Idd “S*N AYd SL TddN *(StSeq 4eLLOpP) aN[eA yLUN quodwi ay St ANOW

auaym

(OTM434N) BoL » ey + (Id9N) BOL » Z¥ + Ty = (ANDW) BOL

*S2L3S130}S-} aye saseyquaved ul Suaquinu ayy /T

a0)

vd

vd

vd

vd

vd

vd

vd

vd

vd

(89°0-) (€2°0-)

18 03 1D OL g9°T $2°0 YN 86°O 61°0- orl 2£°0- saulddittud
(v8°0-) (Te*Z) (28°I-)

18 03 1D O£ 2LT 95°0 YN 16°0 22°0- 29°T ze °e- sautddtttud
(26°I-) (z€°0)

18 03 1D O£ 62°2 9£°0 ”9°0- 09°T 0£*0- O'T €2°0 aso
(86°I-) (L1°8) (89°I-)

18 03 10 OL 62°2 €£9°0 29°0- vS°T Te*0- Le°l IT‘2- easy
(Te*T-) (91°0)

18 03 10 OL 99°T 12°0 WN Ol €£°0- O°T ov" Lizeug
(Sp°T-) (90°0T) (S6°T)

18 03 1D OZ 2L°1 22°0 YN 28°0 Se°0- 89°T 90°E- Lizeug
(81°y) (61°2)

18 03 1D O£ €6°T 8v°0 vS"0- 2s°T €S°0- OT ze°T 907 L}0-UON
(€€*b-) (ss°6) (09°0)

18 02 1D OZ 26°T €L°0 2s°0 Spt $$*0- 8E°T 1$°0- 907 | F0-UON
(68°€-) (z8°T)

18 03 1D 29 82°T 25°0 WN 86°0 8r°0- Ol OTT 907 | }o-UON
(68°€-) (Tp*0T) (12*0-)

18 03 1b 29 verl £9°0 YN 96°0 Lv°0- g2°T 8T°0- 9071 | }0-uON

[ease UT uoszeM-ULqung zu ZOHU TOHY eV ev TV Su0}Bay

uoLzewL4ysz SIL9S1929S UoLssaubay qua ldtsjao9 /Kksaqunog

OLjenbZ anLeA Lun yodwy ayy sos sazewLysz sazowRsed

61 31avl XIGNAddy¥


APPENDIX TABLE 5

HISTORICAL DATA -- MEXICO
(BILLIONS OF U.S. DOLLARS)

CUMULATED CUMULATED COMULATED

CHANGE IB CHABGE IW CUAULATED CUSULATED IAPLICIT

GROSS BITEREAL CURRENT TRADE CAPITAL

EXTERNAL: ASSETS accoustT BALANCE OUTFLOW

DEBT SINCE SINCE 1973 SINCE 1973 SINCE 1973 SINCE 1973

1973 14 2 3/ 3s as

1974 8.5 0.0 2.9 2-8 1.6
1975 10.1 0.3 721 5.9 2.7
1976 16.7 -0.0 10.5 8.0 6.2
1977 23.3 0.5 12.3 8.5 10.5
1978 27.6 0.8 15.5 9.7 11.3
1979 36.4 1.3 21.0 11.9 14.1
1980 52.8 2.9 28.7 13.6 21.2
1981 75-5 3.5 42.6 16.7 29.8
1982 82.6 0.1 86.4 9.0 36.3

1/ INCLUDING CUMGLATED DIRECT LHVESTMENT INFLOWS. WHILE THESE INFLOWS ARE
NOT USUALLY CONSIDERED PART OF A COUNTRY*S EXTERNAL DEBT, THEY ARE
INCLUDED HERE BECAUSE DIRECT INVESTBEHT INFLOWS DO HELP FINANCE PRIVATE
CAPITAL OUTFLOWS. CUMSULATED DIRECT INVESTMENT FLOWS FROA 1973 THROUGH 1982
ASOUNTED TO $ 9.83 BILLION.

2/ TOTAL RESERVES LESS GOLD PLUS COMMERCIAL BANK ASSETS
3/ DEFICIT FQUALS +
4/ CUMULATED IMPLICIT CAPITAL OUTFLOW SINCE 1973 EQUALS THE CHANGE IB

GROSS EXTERBAL DEBT SINCE 1973 MINUS THE CHANGE EN EXTERNAL ASSETS SINCE
1973 MIBUS THE COMULATED CURRENT ACCOUNT BALANCE SINCE 1973


-9-

increases K. In fact, it is interesting to note that if r > y, that is, it
the real rate of interest exceeds the yrowth rate of exports, the trade
balance will have to move into surplus in order to avoid an ever increasing
K.

The analysis is complicated somewhat in an inflationary
environment. Changes in nominal interest rates that are matched by changes
in the rate of inflation do not result in a chanye in the K ratio even
though the current account deficit does change. This is illustrated in
Chart 2 which is the same as Chart 1 except that all variables are measured
in current dollars. As shown in the top panel at t, nominal exports
grow at g +7, where 7 is the dollar rate of inflation. If nominal debt
(ND) yrows at d +7, if tne nominal rate of interest is r +a, ana if the
nominal rate is unchanyed, then the nominal interest payment (NK) also yrows
at d+. Again, if d = g the K ratio remains unchanged.

As before, assume that trade in yoods is balanced so that debt is
not growing due to trade in yoods. This means that nominal debt is yrowing
at the rate of nominal interest, r +m. In turn, this implies that the
nominal current account is in deficit equal to NK = D (r +7).

But because the nominal interest payments include amortization of
debt equal to 7D, we have to be careful in relating balance of paymerts
identities to changes in real debt positions. At ty a rise in nomiral
interest rates matched by a rise in the rate of inflation does not cause the
K ratio to change as long as trade remains balanced. This can be seen in
the top two panels. The nominal value of exports beyins to grow at y+ 7.
Nominal debt also begins to yrow at d + 7'and, since y = d, the K ratio
remains unchanged. The rise in nominal interest rates does yenerate a
larger current account deficit. The laryer current account deficit implies

that nominal debt is growing more rapidly as shown in the second panel.


-11-
export. unit value on percent changes in U.S. prices, the dollar exchange
rate, and industrial country economic activity using quarterly data for the
period since 1970.

Based on estimates of the growth of real GNP in the OECD area, the
model calculates export volume using an income elasticity of 2.0 and a
relative price elasticity of 1.0 distributed over three years. These
estimates are based on equations reported in Appendix Table 18 that regress
real exports for various developing countries on industrial country income
and relative prices (the developing country's domestic prices over
industrial countries’ domestic prices measured in dollars) using quarterly
data for the period since 1970. The relative price term varied considerably
across countries ranging from -0.5 to 1.75. The estimated income
elasticities were somewhat imprecise and were in the the range of 1.0 to
5.0, consistent with our assumption of 2.0. Given the preliminary nature of
this work our assumed parameters should be viewed with some caution when
applied to individual country simulations.

For Mexico and Venezuela the model projects oil exports separately
from nonoil exports. We assumed that the price of these countries' oi]
exports would change dollar for dollar with changes in the OPEC oil price.
We assume that the OPEC oil price remains at $29 per barrel through 1984,
rises to $32 per barrel in 1985, and stays at that level through 1990. Oi]
expor: volume is determined from OECD GNP and the OPEC oil price using
estimated elasticities of 1.0 and -0.25 respectively. These estimates are
taken from the oil consumption functions in the International Division's
Multi-Country Model. We assume that for Mexico and Venezuela, the increase
in exjorts would be proportional to the increase in OECD consumption,

Real interest payments on the external debt -- the numerator of
our measure -- are calculated from a set of accounting identities. The

interest rate on bank debt is the sum of the LIBOR rate plus an assumed