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Document Creation Date: 
December 19, 2016
Document Release Date: 
January 20, 2006
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Publication Date: 
September 30, 1982
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PDF icon CIA-RDP84B00049R000300630004-1.pdf167.21 KB
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. SECRET 12 30 September 1982 25:1 Approved For Release 2006/02/06 : CIA-RDP84B00049R000300630004-1 Approved For Release 2006/02/06 : CIA-RDP84B00049R000300630004-1 SECRET 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. 13 -SECRET 30 September 1982 Approved For Release 2006/02/06 : CIA-RDP84B00049R000300630004-1 Approved For Release 2006/02/06 : CIA-RDP84B00049R000300630004-1 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 Approved For Release 2006/02/06 : CIA-RDP84B00049R000300630004-1