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International Trade and Finance

Notes
The 1982 exposure of U.S. banks was less. Data from the Federal Reserve Board’s June 1982 Country
Exposure Lending Survey show that, as of June 1982, adjusted for guarantees, U.S. banks were owed
$343.6 billion by foreign borrowers. However, $196.7 billion of this total was owed by borrowers in
developed countries. With the exception of Spain, the risk of default by borrowers in developed
countries is trivial. Borrowers in non-OPEC developing countries in Eastern Europe, Latin America,
the Caribbean, Asia, and Africa owed $108.2 billion to U.S. banks at mid-year 1982. Of this amount,
$69.6 billion was owed by borrowers in Latin American and Caribbean countries and $27.7 billion by
borrowers in Asian countries.
The Federal Reserve Board data also show that the nine largest U.S. banks were owed $65.6 billion by
borrowers in non-OPEC developing countries. The next fifteen largest banks were owed $21.7 billion,
and all other banks were owed $21.1 billion by borrowers in these countries. Loans to borrowers in
Eastern Europe, Latin America, the Caribbean, Asia, and Africa comprised 32 percent of all foreign
loans made by the nine largest banks, 33 percent made by the next fifteen largest banks, and 29
percent made by all other banks.
Using the Federal Reserve Board’s survey data, a country-by-country examination of U.S. banks’
foreign loans show concentrations to borrowers in seven non-OPEC developing countries : Argentina,
Brazil, Chile, and Mexico in Latin America, and Korea, the Philippines, and Taiwan in Asia. The
exposure of U.S. banks to defaults by borrowers in these seven countries was $79.5 billion in mid-
1982. Nearly 75 percent of all U.S. bank lending to non-OPEC developing nations was to these seven
countries : $25.2 billion was to Mexico, $20.5 billion to Brazil, $8.8 billion to Argentina, $6.1 billion to
Chile, $9.2 billion to South Korea, $5.3 billion to the Philippines, and $4.4 billion to Taiwan.
It appears, then, that among non-OPEC developing countries, U.S. banks would be highly exposed if
Mexico and Brazil repudiated their debts, and exposed to a significant extent if South Korea, Argentina,
Chile, the Philippines, and Taiwan defaulted. This is not to say that formal defaults by borrowers in
other nations would not prove troublesome. Among OPEC nations, however, the exposure of U.S.
banks in June 1982 was significant (over $3 billion) only in Venezuela, where U.S. banks were owed $10.7
billion. Among developed nations, exposure was substantial in all G-10 [Group of Ten] countries,
plus Switzerland, Australia, Denmark, Norway, South Africa, and Spain. Of these countries, however,
the risk of default is considered trivial except in the case of Spain, where it is considered low but
nontrivial. U.S. banks were owed $6.7 billion by borrowers in Spain at midyear 1982.
28.3 Ability of LDCs to Meet Debt Service Obligations

The OECD 1982 Survey estimates that debt service payments of developing countries on their medium-
and long-term external debts reached $131 billion during 1982, with interest payments accounting for
$60 billion and amortization for $71 billion. For non-OPEC developing countries, interest payments
were $50 billion and amortization $49 billion. Debt service payments by these countries to banks
totalled $48 billion.
The OECD data on medium- and long-term indebtedness show that in 1982,51 percent of the aggregate
external debts of non-OPEC developing countries ($266 billion divided by $520 billion), 64 percent of
their total debt-service payments ($63.3 billion divided by $93.8 billion), and 67 percent of their interest
payments ($33.2 billion divided by $49.7 billion) was held and paid by borrowers in newly
industrializing countries (NICs). NICs—the most advanced and developed LDCs—paid more interest
relative to their indebtedness than other non-OPEC developing countries. The data also indicate that
both interest payments and total debt service (interest plus amortization) were somewhat higher percentages
of both exports and GNP for NICs than for low income countries (LICs), middle income countries
(MICs), and OPEC members.
The ratios of interest payments and total debt service payments to exports and GNP for NICs as a
group are not crisis numbers. For example, 15 percent of aggregate NIC export earnings and
3.3 percent of GNP would fully cover the interest payments on NIC medium-and long-term external
debts. However, it is not the group totals and ratios that matter. As the OECD notes, “Especially
within the group of the NICs, there are enormous differences in the debt-service ratios of individual
countries.”

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