World Development Report 1984

growth in the industrial countries would squeeze in real terms between 1983 and 1995.
the amount of concessional assistance they would To sum up, there are two major differences
receive. between the High and Low cases: net lending and
* A group of countries that would be in and out export growth. In the High case, substantial extra
of financial difficulties for the rest of the 1980s and borrowing is compatible with improved debt servpossibly
beyond. Some of their difficulties would icing for developing countries partly because the
be dealt with through debt renegotiations, the nominal interest rate is lower than in the Low case,
most problematic of which would be with the big and because export revenues grow at a higher rate.
Latin American borrowers. Having run austerity Mutual cooperation between lenders and borrowprograms
for years, some might effectively impose ers is reasonably assured. In the Low case, export
their own schedule for debt repayment. The major revenues grow only slightly more rapidly than the
exporters of manufactures shown in Table 3.4, (higher) interest rate and net lending falls over the
which include many of these countries, would period to meet target debt service ratios. As a
have only 9.1 percent more debt outstanding in result, in the Low case, many developing countries
real terms in 1995 than in 1983. Net disbursements end up transferring resources to the industrial
to them of medium- and long-term loans in 1995 world year after year. If there is, in addition,
would be $8.4 billion less than their interest pay- greatly increased industrial-country protection,
ments. Other middle-income oil importers would then sustained cooperation becomes unlikely.
be in a similar position: by 1995 their outstanding Improved developing-country performance on its
debt would rise by 15 percent in real terms, and own would make the picture brighter. Neverthetheir
net medium- and long-term borrowing would less, the slow growth of industrial countries in the
be less than $1 billion more than their interest pay- Low cases would balance the world economy on a
ments. knife's edge.
The main difference between the Low case and
the variant Low I (increased industrial-country Poverty and low-income countries
protection) is that the main debtor nations would
find it more difficult than ever to service their The implications of the scenarios are best underdebts.
They would pay a nominal interest rate of stood if their GDP growth rates are adjusted for
11.0 percent, as in the Low case, but the growth of the widely differing population growth rates of the
exports would now average only 4.0 percent (Table various regions. Between the High and the Low
3.6), with nominal growth in export earnings of 12 case, per capita income growth falls from 3.5 perpercent.
Even a developing country exporting only cent a year to 2.7 percent for developing countries
manufactures might find its export earnings grow- (see Table 3.2). Increased protection makes prosing
at less than the nominal interest rate. Most pects still worse, with per capita income growth
developing countries would be starved of external for all developing countries 34 percent below the
capital. Debt outstanding and disbursed to devel- level of the High case. In all scenarios the major
oping countries in 1995 would be only slightly exporters of manufactures grow fastest, leaving
larger than in 1983 in real terms. Loans disbursed the rest of the developing world further and furwould
be $42 billion (compared with $49 billion in ther behind.
the Low case.) Interest payments of $55 billion It is in the low-income countries-especially
would exceed disbursements as creditworthiness those of Africa-that slow growth does most to
falls because of the protection-induced decline in perpetuate and accentuate poverty. In low-income
exports. Lower growth of imports would also con- Asia, however, prospects look brighter, especially
tribute to lower overall growth. This scenario, in as population growth continues to slow. Domestic
effect, is untenable. If the situation described policy improvements are essential in enhancing
began to unfold, the prospect for growth in devel- the prospects of low-income countries. Like the
oping countries would surely be worse than that middle-income countries, they would benefit from
implied by these projections. policy changes that reduce the bias against export-
The improved developing-country policies in ing in favor of inefficient import substitution. Pre-
Low II help, although the real growth of outstand- vious World Development Reports have emphasized
ing debt remains low for the highly indebted major the importance of prices in determining how well a
exporters of manufactures and for the middle- country uses its resources. Because they are so
income oil exporters. For developing countries as a poor, low-income countries have special reason to
whole, debt outstanding grows by only 1 percent make the best possible use of their resources.
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