SUNS 4298 Friday 9 October 1998


FINANCE: DEBTS OF EAST AND SOUTH JUMP BY $76 BILLION

United Nations, Oct 7 (IPS/Thalif Deen) -- The total external debt of the world's poorer nations leaped by $76 billion to stand at a hefty $2.2 trillion at the end of 1997, a U.N. report revealed
Wednesday.

The total, including debts owed by East European countries, was attributed primarily to the economic turmoil in Southeast Asia - which began in July 1997 - and its far reaching impact on African and Latin American nations suffering the consequences of the spreading crises.

Asia and Latin America both accounted for 31% of the total external debt, as compared with 16% for Africa, and 18% for Europe and Central Asia.

The 22-page report focused specifically on the debt problems of two particular groups of countries: the Heavily Indebted Poor Countries (HIPCs) and the middle-income countries in Latin America and Asia. The Asian countries most affected by the financial turmoil -- namely Thailand, Indonesia, South Korea, Malaysia and the Philippines -- experienced a sharp liquidity crisis by the second
half of 1997, according to the report. The country that suffered the most was Indonesia, whose ratio of external debt to exports was above 200% in 1996 and 1997 reflecting "a severe debt distress that
may extend beyond a mere liquidity problem."

Asia's total external debt by the end of 1997 was $666 billion: an increase of about six percent over 1996. In contrast, the total Latin American debt was $678 billion: an increase of three percent
over 1996.

Africa, on the other hand, continued to experience a high debt burden despite a fall in total external debt of two percent, to reach a total of $324 billion.

In the study, U.N. Secretary-General Kofi Annan noted that the repetitive occurrence of financial crises in developing countries "is a matter of concern for the international community."

"It is clear that the degree of official funding being disbursed in response to debt crises has escalated rapidly and threatens to become unsustainable," he added.

Annan also pointed out that the sheer size of financial rescue packages and the rapid contagion of liquidity crises had raised doubts about the capacity of the International Monetary Fund (IMF)
to mobilise emergency financing of the magnitude required by countries in distress.

The IMF signed three major bailout packages last year: a $58 billion package with South Korea, a $40 billion package with Indonesia and a $17.2 billion package with Thailand.

At a UN news conference last week, David Cheney, one of the editors of the IMF's annual report, said that during the past fiscal year (May 1997 to April 1998), member countries had drawn about $26 billion from the IMF's General Resources Account - nearly four times the level of the previous fiscal year. And a further $11 billion was disbursed between the end of April through August of
this year.

Those outputs and other demands of IMF's resources during 1997-1998 depleted the Fund's stock of resources, available for lending to members, to nearly $30 billion, down from $60 billion a year
before.

Robert Rubin, US Secretary of Treasury, warned recently that "in a world in which trillions of dollars flow through international markets every day, there is simply not going to be enough official financing to meet the crises that could take place."

The UN study said that the core of the debt problems that remains to be solved is the "unsustainable debt positions" of the group of 41 HIPCs. Their total external debt amounted to $245 billion at the end of 1996, the latest available figures.

"As a group, those countries' debt burden remains severe, with a debt stock to export ratio of well over 300% (far above the 200% threshold used to indicate a debt overhang) and a debt stock to
gross national product (GNP) ratio of 127% in 1996, after several years of improvement," Annan added.

The HIPCs, mostly African nations, include Uganda, Burkina Faso, Mali, Benin, Senegal, Guinea-Bissau, Ivory Coast, Mozambique, Bolivia, Guyana, among several others.
Annan underlined "it is a matter of concern that the implementation process of the HIPC initiative is very slow: two years have elapsed since its launching and yet only one country (Uganda) has benefited from the full-fledged relief as provided by the initiative."

Addressing the annual general meeting of the Group of 77 developing countries last month, Annan urged Western donors to convert all their remaining official debt owed by the poorest African countries into grants. He also urged them to increase the volume and improve the quality of official development assistance (ODA) to Africa and to liberalise access to the HIPCs initiative.

Last year Britain said it would cancel outstanding aid debts totalling about 210 million dollars owed by 18 of the poorest Commonwealth states.

The cancellation would take place only if the countries pledged to spend the resources on development programmes. These countries, all former British colonies or dependencies, include Jamaica, Zimbabwe, Barbados, Belize, Cameroon and Swaziland.

Tanzanian Ambassador Daudi Mwakawago, a former chairman of the Group of 77, told the U.N. General Assembly recently that developing countries were becoming more dependent on foreign
borrowing because of a sharp decline in incomes resulting from poor export revenues.

The fall in revenues, he said, constituted a serious obstacle in meeting debt obligations. His country's total debt, for example, increased from $7.8 billion in 1996 to $7.9 billion dollars in
1997.

"Despite a growth in export earnings, the government had been unable to service that debt because the rate of growth of the external debt surpassed the growth of exports," he added.