26 the four Transition countries actually increased in dollar terms. Regarding other regions, the average ratios of private external debt to domestic credit were lower than in Latin America in the Middle East and North Africa (77 percent), much lower in South Asia (22 percent, with India averaging about 30 percent), and lower still in China (only 11 percent). Turkey had a fairly high ratio of private external debt to GDP at the beginning of the decade, 131 percent; this ratio rose until 1994, before falling to 101 percent by the end of the decade, as financial liberalization contributed to domestic credit growth that was even faster than the growth of external debt.

The composition of private external debt has changed dramatically over the decade, with external bonds increasingly becoming the instrument of choice and thus the source of competition for domestic banks (See Figure 6 and Table 5). In terms of instruments, bonds have grown relative to domestic credit while short term debt and, particularly, long-term loans by banks and other institutions have declined. In 2000, external bonds represented some 28 percent of domestic credit, compared to 20 percent in 1990. Initially, the growth of bonds was helped by the conversion of bank loans into Brady bonds and the development of a market in those bonds. It should be noted, however that the role of bonds is much greater in Latin America and Eastern Europe and Russia than in the other countries—in the average Latin American country, external bonds represented about 46 percent of domestic credit in 2000 and in Eastern Europe and Russia about 39 percent, compared to 29 percent in East Asia, and negligible amounts in MENA and South Asia. Finally, external bonds issued by the private sector became increasingly important, although they still only represented 20 percent of private offshore borrowing by the end of the decade.

In terms of borrowers, private-to-private credits—private sector borrowing of <u>long-term</u> private external credit — grew to about 50 percent of its borrowing from domestic banks in 2000, on average in the 17 countries<sup>59</sup> on which domestic data on private sector credit is available (Figure 7). Thus, globalization of private credit was increasingly important in the 1990s, but it was not always intermediated through banks.<sup>60</sup> And note that the figures do not include short term private external credits to the private sector, and therefore understate the importance of external credit to the private sector.<sup>61</sup> In nine of the countries, the ratio of private-to private external credit compared to domestic bank credit to the private sector was over 60 percent, in 2000. The average share of credit to the private sector coming from private external sources increased fairly steadily up to 1997, when it reached 27 percent. Then, beginning in 1998 the share of private external credit increased dramatically as a result of the devaluations in East Asia, Latin America, and Russia and the removal of private sector credits from banks as a result of restructurings, as discussed in Section III. Also, the stock of private-to-private

> 59 Algeria reports domestic private sector credit but reports no external borrowings by its private sector.

> 60  In some cases, banks provided guarantees for the firms direct borrowings.

> 61 The data on domestic credit exclude non-bank credits, which, as discussed above, are important in a few Asian countries.  This omission would decrease the relative importance of external credits in private sector credit for these countries.