Page 324 - DECO503_INTERNATIONAL_TRADE_AND_FINANCE_ENGLISH

International Trade and Finance

Notes Argentina 4.9 3.4 12.0 152.1 b .41 .024
Chile 3.3 3.3 6.1 a 31.4 .54 .099

Venezuela 7.8 8.7 24.5 a 67.0 .32 .090
South Korea 4.8 2.7 27.6 a 63.4 .17 .063
Philippines 2.1 2.3 8.5 a 39.7 .25 .040
Taiwan c 2.0 — — — — —
Spain 5.7 11.4 20.5 a — .28 —

a 1981.
b 1980.
c Data are not available for Taiwan as it is not a member of the IMF.

SOURCES : World Bank, OECD, IMF.
Conditions now, early in 1983, are very different from what they were in 1981 and 1982; and they are
almost certain to change as time passes. As conditions change, the debt-burden ratios change. In
addition, traditional comparisons sometimes are distorted. For example, a financially strained country
might shorten the maturity of its debt, reducing its payments to service its medium- and long-term
debts. Thereby, its medium- and long-term debt-service ratios would be improved, even though its
problems had worsened.
Because of the inevitability of change and the possibility of data distortions, the data for 1981 and
1982 must be used with utmost caution. With this caveat in mind, the data assembled in Table 2 show
that the debt-service ratios of South Korea, the Philippines, and Spain were below or close to 1982
averages for all non-OPEC countries and that Venezuela’s debt service to exports ratio was only
moderately above the average. Further, Spain and Venezuela had large reserves at the end of 1981,
although there are reports that they fell in 1982. In short, South Korea, the Philippines, Spain, and
Venezuela were well able to service their debts in the 1981 to 1982 period, while Mexico, Brazil,
Argentina, and Chile had difficulties. Brazil and Mexico were the most financially strained.
Economic conditions have changed in recent months. On the whole, it appears that it will be easier
for all of the nations listed in Tables 1 and 2, excepting possibly Mexico and Venezuela, to service
their debts in 1983 than it was in 1981 and 1982. First, it now seems clear that interest rates will be
much lower, on average, in 1983 than in 1981 and 1982. As a result, all debtor nations will find it
somewhat easier to service their debts in 1983 than in 1981 and 1982, especially nations with high
proportions of their total debt in floating interest rate loans. A 1 percentage point decrease in LIBOR
decreases Mexico’s annual debt service payments by $593 million, Brazil’s by $455 million, and
Argentina’s by $205 million. The calculations, which are based on 1982 indebtedness, assume constant
spreads between floating loan rates and LIBOR. These are significant reductions. For Mexico, debt
service payments are reduced by 3.2 percent for each percentage point reduction in loan rates; for
Brazil, by 3 percent; and for Argentina, by 4.2 percent. LIBOR has fallen about 7 percentage points
3
since mid-1982. Even though spreads have increased some-what, it is clear that in 1983, Mexico,
Brazil, and Argentina will find it much easier to service their external debts than they did in 1981 and
1982.
Second, we are likely to see lower oil prices in 1983. A fall in the price of oil will decrease Mexico’s
and Venezuela’s export earnings, decreasing their ability to service their debts. At the same time,
lower oil prices will increase the ability of the other seven nations to service their debts, since their
expenditures on imports will decrease. Interest rates could also decline further, helping even Mexico
and Venezuela meet their debt service charges, although perhaps not enough to offset the loss of
export earnings. Finally, partly as a result of the fall in the world price of oil, a stronger recovery from
the recession that has afflicted developed countries is now expected. For most nations, this too will
enhance their ability to service their debts.

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