IMPLICATIONS OF DEBT RESCHEDULING

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84B00049R000300630004-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 3
• Document Creation Date: December 19, 2016
• Document Release Date: January 20, 2006
• Sequence Number: 4
• Publication Date: September 30, 1982
• Content Type: REPORT

Approved For Release 206/02/06 : CIA-RDP84B00049R000300630004-1
SECRET
INTERNATIONAL: Implications of Debt Rescheduling
The financial problems of certain developing countries and
East European nations were not of great concern-to lenders until
Poland and Mexico shocked the banking system. Debt problems, albeit
increasingly prevalent, were easily manageable because the total
amount of debt rescheduled paled in comparison with total debt out-
standing. Chronic rescheduZers such as Sudan, Togo, and Zaire
were more of a nuisance than a problem. Now, however, the Western
banking system will probably be faced wither number of
sizable debt reschedulings this year.
Led by Mexico, Argentina, Poland, and Romania, a
total of 18 countries have announced or indicated they
will reschedule. They hold one-fourth of the total exter-
nal debt of the'developing countries and Eastern Europe.
The volume of debt rescheduled in 1982 could more than
double the record $10.8 billion attained last year when
14 countries, led by Poland, applied for relief.
In addition to the countries that probably will re-
schedule this year, Chile, East Germany, Hungary, Peru,
and Yugoslavia are attracting greater attention from inter-
national lenders. Although they may be able to avoid
rescheduling this year,' continued financial pressure could
increase the possibility of later reschedulings.
Many international financial experts believe Brazil
also could be at risk. Its sudden difficulty in obtain-
ing foreign loans raises the prospect of a serious foreign
exchange crisis.
Impact
The biggest effect of the expected and potential
reschedulings would be on the willingness. of commercial
banks to continue to expand lending. Just as individual
bankers took comfort from and joined in the expansion
of lending in the 1970s, now they may draw back or limit
the growth of exposure in unison. In addition, banks
that were the heaviest lenders in the 1970s are finding
their ability to continue lending is being constrained.
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30 September 1982
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I
major Third World and East European borrowers.
A growing share of Western bank loans that were
scheduled to be repaid this year is having to be restruc-
tured into longer term assets, decreasing the banks'
liquidity. Several sources indicate creditors also are
concerned about the potential loss of investor and
depositor confidence in large banks heavily exposed to
A reduction in the rate of growth in western bank
lending would force many debtor countries to impose
austerity measures to compensate for reduced foreign
exchange availability. Such moves would slow economic
growth and could stimulate olitical and social unrest
in some countries.
At the extreme, this could lead countries to stop
payment on external debt and could result in changes in
governments. A general reduction in the growth of
Western bank lending also could determine whether Brazil,
Chile Hungary, and East Germany are forced to reschedule.
No Quick Solutions
Debtors are operating against an economic backdrop
of an OECD growth recovery probably insufficient to give
a substantial boost in demand for their exports. Interest
rates are easing, but the real cost of credit is rising
to the extent that inflation is falling faster than in-
terest rates. Moreover, the austerity measures most
debtor developing countries will have to adopt to bring
their finances back in line.are not instantaneous in
implementation or effect and are often proscribed by
political conditions.
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30 September 1982
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Debt Reschedulings in 1982
Definite or Probable Reschedulers
Argentina
Costa Rica
Cuba
Dominican Republic
Guyana
Honduras
Madagascar
Malawi
Mexico
Nicaragua
Poland
Romania
Senegal
Sudan
Togo
Uganda
Vietnam
Zaire
Possible Reschedulers
Bolivia
Central African Republic
Ecuador
Liberia
Pakistan
Peru
Sierra Leone
Yugoslavia
Secre
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